Profits slide at Mondi

Shares in Mondi (MNDI) fell by 6 per cent after the packager’s interim results revealed that “demand and prices had declined sequentially with the exception of containerboard prices which stabilised in the later part of the half year”. 

Group revenue decreased by 14 per cent year-on-year to €3.9bn (£3.36bn), while underlying Ebitda tumbled by 28 per cent to €680mn. Management blamed “softer demand, customer destocking and higher input costs”. Corrugated packaging had a particularly tricky period, with underlying Ebitda down by 50 per cent at  €188mn. Flexible packaging – think plastic bags and pouches – was more resilient, but still saw profit decrease by 18 per cent to €343mn. 

Input costs did start to ease over the six-month period, and analysts at Jefferies predicted that they would fall further in the third quarter. However, they warned that pricing headwinds would be greater than the cost relief. Margins have already taken a turn for the worse, falling from 20.9 per cent to 17.5 per cent year-on-year. 

It is a tough environment for packagers. However, it is worth noting that rival Smurfit Kappa (SKG) - which also reported its half-year results this week - managed to grow its profit margin, meaning Ebitda only slipped by 5 per cent to €1.1bn.

Mondi also has the issue of its Russian business which, since June 2022, have been classified as held for sale. While it has offloaded three packaging converting operations, efforts to sell the main facility have fallen apart. The board said it “remains committed” to divestment and has received conditional offers “from a number of potential buyers”. Nevertheless, the assets of the mill were impaired by €97mn in the period. Hold

Last IC View: Hold, 1,411p, 23 Feb 2023