Mondi raises prices as margins falter

Mondi’s (MNDI) preliminary results show that trading conditions failed to improve significantly over the latter half of 2023, with profitability undermined by faltering demand and lower prices. And although orders have picked up in the early part of 2024, selling prices remain under pressure. The sustainable packaging and paper group is implementing price rises to bolster margins, and input costs stabilised through the period under review, but the trading backdrop remains generally unfavourable.

Underlying cash profits fell by 35 per cent to €1.2bn (£1.03bn), albeit against an admittedly strong comparator in 2022. Both corrugated and flexible packaging saw profit reversals, as did uncoated fine paper. Narrowing segmental profits meant that the group’s return on capital employed came in at 12.8 per cent, against 23.7 per cent last time around. There were some green shoots; corrugated solutions saw “stable year-on-year financial performance despite 3 per cent lower box volumes”. In addition, cash generation ticked up from the prior year, coming in at €1.31bn at the operating level, against €1.29bn. And the group notes that its organic growth projects remain “on track and on budget” and set to deliver “a meaningful Ebitda contribution from 2025” – we shall see.

Input costs were down on the prior year, with “higher wood unit costs more than offset by lower energy and paper for recycling costs”. Net operating expenses were trimmed from 2022, along with the net interest expense. And cost pass-through to customers should improve during the current period. It’s difficult to say if these numbers will help to progress the touted merger with packaging rival DS Smith (SMDS), but the forward rating of 15 times forecast earnings doesn’t warrant a recovery buy. Hold.   

Last IC view: Hold, 1,256p, 4 Aug 2023