- Excluding forestry fair value gains, underlying EBITDA held up relatively well considering current market conditions, with EBITDA down 6% q/q to €336mn: However, reported underlying EBITDA from continuing operations dropped 24% y/y and by -23% q/q to €351mn. This was driven by lower selling prices and softer demand (in part due to destocking). Impact of planned shuts during the quarter was similar to last year, around €20mn.
- Cost inflation has peaked and expected to ease through 2023: Input costs were lower compared to the highs seen in H2 22A. Despite wood prices remaining elevated in Q1 (similar to Q4), Mondi encouragingly noted that wood prices have now started to reduce (more so in central Europe, while woods costs in Scandinavia are “flattish”). Energy prices are down q/q and continue to fall.
- As expected, Corrugated Packaging was adversely impacted by weaker demand and lower prices compared to Q4: Mondi’s unbleached volumes are fully booked, and Mondi believes a floor has been reached for containerboard pricing and expect to see price stabilisation, with pricing to likely only improve from Q3 onwards.
- Encouragingly, Flexible Packaging delivered a stable performance with weaker demand (Europe was their softest market) and slightly lower prices offset by falling input costs: Profitability continues to benefit from strong vertical integration and looking forwards, structural drivers remain very much in place as innovation continues to displace non-recyclable packaging solutions.
- UFP business had a tough quarter with demand in Europe lower q/q: Encouragingly, Mondi increased market share in Europe as other peers took downtime, while demand and pricing in South Africa was stable. The market appears to be bottoming out and there are signs of life with the folio business picking up (industrial exposure), while cut size remains subdued. The FY 23E forestry fair value gain is expected to be around €60mn, with €15mn recorded in Q1 (this was included in the disclosed EBITDA of €351mn). Neusiedler PM6 restructuring is on track and will reshape the cost base and ensure Mondi has a strong position in the speciality fine paper market.
- Planned Russian disposal is ongoing: Mondi continues to work with Augment Investments Limited to get the deal over the line, with approvals from the relevant Russian Authorities outstanding. They believe they have the right buyer and are dedicated to a clean exit. EBITDA from the Russian operations was €123mn during the quarter. Excluding the purchase price and the previously announced dividend, all incremental cashflows will remain with the buyer if the deal is concluded.
- No changes to capital allocation as Mondi alludes to continued balance sheet strength to enable the company to proceed with announced projects: Net debt/EBITDA was not disclosed, but we assume it will gradually edge up from 0.5x in Q4 22A to 0.7-0.8x by the end of FY 23E. The Kuopio expansion in Finland is on track to be completed this year and the conversion to testliner in Italy remains on track as the asset is needed to improve forward integration.
- Moving into Q2 23E, demand remains subdued with lower average selling prices and further input cost reduction across the business: Impact of planned shuts is expected to be €40mn in H1 and €50mn in H2. We assume a 50/50 split for CapEx in H1 and H2, respectively. Q2 profitability is expected to be lower q/q before seeing an improvement from Q3 onwards. Our TP and forecasts are under review.
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