Mondi revenue dips amid pandemic strains, losses offset growth in corrugated and flexible packaging

06 Aug 2020 --- Mondi Group has issued its H1 results flagging a dip in revenue from the same period last year. This was attributed to lower average selling prices across its key paper grades, offsetting good volume growth in Corrugated Packaging and Flexible Packaging. Uncoated fine paper volumes were impacted by lower demand for commercial, professional and office printing as a result of the widespread lockdown measures.

“Mondi delivered a robust performance in the first half of 2020, with underlying EBITDA of €738 million [US$874 million; down 17 percent from the first half of 2019]. This reflects the resilience of our business model, achieved despite starting the year with significantly lower average selling prices across our key pulp and paper grades and the challenges brought by COVID-19,” says Andrew King, Mondi CEO.

Underlying EBITDA for the half-year ended 30 June 2020 of €738 million (US$874 million) was down 17 percent compared to the first half of 2019 and 3 percent compared to the second half of 2019.

“Going into the second half of 2020, heightened macro-economic uncertainties remain. Pricing across our key pulp and paper grades is below or in line with the average of the first half. Demand for packaging daily essentials remains robust while we continue to see weakness in certain industrial end-uses,” details King.

“Uncoated fine paper order books have picked up from the lows seen in the second quarter, albeit we do not expect a near-term recovery to pre-pandemic levels. We have rescheduled planned mill maintenance shuts which will have an impact on the second half of the year.”

The group’s facilities have been in operation throughout the COVID-19 period, with the exception of the temporary closure of the Merebank paper mill (South Africa) for approximately five weeks in line with government regulation, and limited closures or other production interruptions at a small number of the company’s paper bags converting plants. “We have managed supply chain disruptions well. We escalated our initiatives to support local communities, going beyond our existing programs,” says King.

Flexible packaging drops
Underlying EBITDA of €280 million (US$331 million) in this segment was down 8 percent on the comparable prior year period. Higher sales volumes, lower input costs and cost control initiatives largely offset significantly lower average selling prices. Kraft paper prices were down compared to the prior year period, as a result of price reductions seen in the second half of 2019 and into early 2020. 

Kraft paper and paper bag demand remained resilient in Europe and North America, with building materials applications holding up well, strong demand from consumer and agricultural end-uses and weaker demand in industrial applications. “We saw softer demand in other markets where we serve predominantly cement producers. Kraft paper sales volumes were up the prior year period with an improved product mix, benefiting from our product development initiatives. Paper bags sales volumes were up 2 percent on the prior year,” the supplier highlights.

Input costs were down year-on-year, with lower wood, energy, chemicals and plastic resin costs. Cash fixed costs were higher due to increased costs to servicing customers and inflationary effects.

Home consumption lifts engineered materials
Engineered Materials saw good demand in consumer end-uses, in particular food, hygiene and home care applications as lockdown measures implemented in Europe and North America drove increased at-home consumption and demand for cleaning and hygiene products. 

Underlying EBITDA of €45 million (US$53 million) was down 20 percent on the comparable prior year period, and down on the second half of 2019, which included a one-off gain on disposal of a plant in Belgium of €9 million (US$10.6 million). 

Prices in this segment were lower on average, reflecting generally lower input costs, such as resin and speciality kraft paper.

Uncoated Fine Paper
Underlying EBITDA of €164 million (US$194 million) was down 35 percent on the comparable prior year period, with lower average uncoated fine paper prices, significantly lower pulp prices, lower uncoated fine paper volumes and a lower forestry fair value gain more than offsetting lower input costs and the effect of limited maintenance shuts.

Uncoated fine paper volumes were stable in the first quarter compared to the prior year period. Towards the end of the first quarter, Mondi saw a rapid deterioration in its uncoated fine paper order book as the effects of the various lockdown measures took hold, resulting in less professional, commercial and office printing. 

The packaging giant temporarily stopped production at the Merebank mill (South Africa; 270,000 MT of annual production capacity) for five weeks following government regulation, restarting its operations in early May. To manage stock levels in the face of the weaker order situation, the company took machine downtime or slowed down production at its other uncoated fine paper mills.

Average benchmark European uncoated fine paper selling prices were down 6 percent on the comparable prior year period and 4 percent down sequentially, following price erosion during 2019, which continued in the first half of 2020. 

Meanwhile, average benchmark European bleached hardwood pulp prices were down 28 percent compared with the prior year period and down 9 percent, sequentially. Including the pulp sales in its packaging businesses, Mondi estimates that the Group's pulp net long position in 2020 will be around 450,000 MT.

Input costs were down due to lower wood, energy and chemicals costs. Fixed costs were lower, driven by the company’s cost control programs and reduced maintenance costs as a result of limited maintenance shuts carried out in the period.

Edited by Benjamin Ferrer