Do svidaniya: Mondi divests Russian assets after positive first-quarter performance

05 May 2022 --- Mondi is divesting its Russian assets, saying the group is “profoundly concerned about the war in Ukraine and shocked by the humanitarian impact.” The decision comes after months of criticism over the paper and packaging giant’s continued presence in Russia, which it claimed helped local people and had no impact on those in power. 

However, with the release of its first quarterly results, which shows underlying EBITDA was €574 million (US$606 million), up 63% compared to the prior-year period and up 41% on a sequential basis, the group has decided to sacrifice its Russian operations. 

Previously, Mondi defended its presence in Russia by saying the paper mill it partners with Russia is the primary source of heat and warm water for the Ezhva district of Syktyvkar, which has a population of approximately 60,000 people.

“It [the mill] also provides other local community services such as wastewater treatment. The mill is legally required by the Russian authorities to provide the energy supply,” read a statement. 

Mondi’s operations in Russia represented 12% of the group’s revenue by location of production in 2021 (roughly US$1,015 million) and generated around 20% of the company’s underlying US$1.65 billion EBITDA over the last three years. The company has operated in Russia for over 22 years.

A delicate divestment 
After defending the group’s decision to stay in March, Mondi says it has assessed all options for the company’s interests in Russia and – recognizing its corporate values and stakeholder responsibilities – now decided to divest its Russian assets. 

Mondi’s operations in Russia represented 12% of the group’s revenue by location of production in 2021.“The divestment process for these significant assets is operationally and structurally complex and is being undertaken in an evolving political and regulatory environment,” reads the recent statement. 

“Accordingly, there can be no certainty when a transaction will be completed or as to the structure of any possible transaction.” 

As of December 31, 2021, the net asset value of the Russian operations was €687 million (US$726 million). While Mondi emphasizes its humanitarian concerns, business volatility caused by the war poses an increasing threat to the company’s functioning in the region. 

“The Russian businesses have, to date, managed supply chain constraints. However, the situation remains fluid, with interruptions to pulp and paper production possible going forward. All significant capital expenditure projects in Russia have been suspended,” says Mondi. 

Strong financial performance 
Despite Mondi’s decision to divest a significant chunk of its operations, its first-quarter results appear promising. The company’s pipeline currently includes around €1 billion (US$1.06 billion) of expansionary projects already approved or under advanced evaluation, which it anticipates will generate mid-teen returns when in full operation.

However, input costs were significantly higher in the quarter, both year-on-year and sequentially, with higher energy, resins, transport, wood and chemical costs. Currency movements had a net adverse impact on underlying EBITDA against the comparable prior year period driven by a weaker Russian rouble and Turkish lira. 

The impact of scheduled maintenance shuts on underlying EBITDA during the period was around €20 million, with a similar amount expected in the second quarter. The group’s full-year estimate is unchanged at around €110 million (US$116 million). 

By Louis Gore-Langton

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