Mondi continues to ‘demonstrate resilience’ in tough year

15th October 2020 By: Simone Liedtke - Writer

In spite of an uncertain macroeconomic outlook, paper and packaging group Mondi is confident that the group “will continue to demonstrate its resilience” while remaining well-positioned for when recovery takes place.

Underpinned by the company’s integrated, high-quality, cost-advantaged asset base and culture of continuous improvement, Mondi said on October 15 that it had a portfolio of sustainable packaging solutions and a strategic flexibility offered by strong cash generation and financial position that would help carry it forward.

CEO Andrew King added that decisive action by the company during the early stages of the Covid-19 pandemic had helped to protect its people, while maintaining supply of essential products and services. The company was also able to deliver a resilient performance.

Sustainable packaging continues to be a focus for Mondi’s customers, and the company said that it “continues to make good progress” in leveraging its innovation capabilities and customer-centric approach to improve packaging design.

Mondi's underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) for the third quarter ended September 30 were €306-million, 20% lower year-on-year, as lower average selling prices and negative currency effects more than offset lower costs.

Compared with the second quarter of the year, underlying Ebitda was down 13%.

Good volume growth in uncoated fine paper and fibre-based packaging products and ongoing strong cost control were more than offset by the impact of planned maintenance shuts, negative currency efforts and lower average selling prices.

In corrugated packaging, demand from e-commerce and consumer applications remained strong, and Mondi saw some recovery in industrial end-uses from the lows experienced during the second quarter.

The company achieved good volume growth in corrugated solutions, measured both year-on-year and sequentially. However, given the strong order position and normalised inventory levels, Mondi is in discussions with customers around price increases for various containerboard grades.

Flexible packaging demand, meanwhile, remained resilient during the period and volumes in the paper bag business grew year-on-year. Following a strong performance in the first half of the year, Mondi saw some supply chain de-stocking effects impacting volumes in its consumer flexibles business during the quarter.

Further, Mondi said it continues to leverage the engineered materials’ coating technologies to develop sustainable packaging solutions. Though, as expected, the company saw lower personal care component volumes as key products mature.

Demand in industrial and specialised end-uses continued to be impacted by lockdown restrictions, in particular in release liner.

Mondi is therefore implementing a range of measures to reduce the cost base, including the closure of a release liner plant in Pleasant Prairie, in the US, and engaging with employee representatives on the restructuring of the company’s personal care components-focused operations in Germany.

Encouragingly, uncoated fine paper demand improved as lockdown restrictions in Europe, Russia and Southern Africa eased with a gradual pick-up in activity in schools, offices and commercial printing. Sales volumes were significantly up sequentially, although they were still down on the comparable prior year period, and average uncoated fine paper prices were lower than in the first half of the year.

Mondi’s South African operations are currently affected by an industry-wide strike, but the company is engaging with trade unions and employee representatives to reach an agreement while it continues to deliver products to customers.

The uncoated fine paper business remained well-positioned in the context of the current market challenges given the company’s cost competitiveness, product diversification and geographic positioning, Mondi said.

Further, to protect its employees and suppliers and minimise execution risk, the company decided to postpone most planned maintenance shuts to the second half of the year. During the third quarter, planned maintenance shuts with an estimated impact on underlying Ebitda of about €35-million were carried out successfully.

Based on prevailing market prices, Mondi continues to estimate that the impact of planned mill maintenance shuts on underlying Ebitda for the full year will be about €100-million, with the fourth quarter impact is expected to be about €55-million.

Mondi’s major capital investment projects are progressing according to plan, with the €67-million capital investment project to convert a containerboard machine in Czech Republic to become fully dedicated to the production of speciality kraft paper for shopping bag applications scheduled to be commissioned during the fourth quarter.

This additional capacity of 75 000 t further supports Mondi’s retail customers in their efforts to replace unnecessary plastic as they transition to more sustainable packaging solutions that contribute to the circular economy, the company said.

During the period, Mondi paid an interim dividend to shareholders amounting to €237-million, and the company also redeemed its 3.375% €500-million Eurobond from available cash.