Mondi PLC (MNODF) (H1 2026) Earnings Call Highlights: Strategic Resilience Amidst Margin ...

Negative Points

• Underlying EBITDA declined to EUR379 million due to margin pressure from lower average selling prices and higher input costs.

• Significant input cost inflation, particularly in Central and Eastern European wood costs and energy, with further headwinds expected in H2.

• Recognized EUR320 million in special item charges, including a EUR296 million noncash impairment, mainly at the Duino mill due to lower returns profile.

• Forestry fair value loss of EUR35 million in the period, driven by reduced local wood prices in South Africa.

• Leverage increased to 3.2 times, driven by lower trailing EBITDA, and market conditions remain volatile with geopolitical uncertainties.

Q & A Highlights

Q: Mike, I'd just like to follow up on your comments on Central Eastern European wood costs. Would you mind giving us some context of how big the wood cost bucket is and the headwind maybe from a quantum perspective that you see today into the second half? And are you comfortable that the price actions so far are more than offsetting the cost increases? A: (Michael Powell, CFO) The Central Eastern European wood cost headwind for the second half versus the first half is likely to be around EUR30 million to EUR35 million. The first half was up about EUR25 million on the second half of last year, so we expect a year-on-year increase of roughly EUR60 million. While price actions have been taken, they will moderate the margin improvement, but we will still see some Q3 benefit from those prices coming through.

Q: And then, Andrew, maybe one from your side on the pricing actions. Just to confirm, is Mondi out with price increases across containerboard and sack kraft, like further increases to the ones that you've already achieved? And I'm just wondering, how comfortable do you feel about those price increases? Is it nicely supported by order books? And maybe following up from that with Duino, given the impairments, I realize the recycled containerboard market is very challenged. But one of the reasons that you originally did Duino was you were going to export volumes into Turkey and Turkey had safeguard measures put against Europe, but Europe doesn't have any safeguard measures against Turkey. When is the time that the industry kind of takes the gloves off and pushes back on some of the Turkey volumes that are coming into Europe on recycled containerboard? A: (Andrew King, CEO) We are engaged with our customers on price increases across our containerboard grades. In the virgin grades, we are seeing a very tight supply-demand dynamic driven by reduced supply out of the US, where significant capacity reductions have served to reduce exports to Europe. On the recycled side, it is more cost-driven, as the elevated input costs have moved the whole cost curve up, leaving no margin to play with. Regarding Duino, the safeguard measures in Turkey have made it prohibitive to export containerboard there. It's a broader political question as to when the gloves might come off, but we would encourage anything that provides a more level playing field.

Q: Just a question on Germany. You called out that it's still quite weak. Eastern Europe is pretty strong and you say in Germany, it is pretty weak. We've recently seen PMIs, manufacturing PMIs pop above 52, first time in years that we've seen manufacturing PMIs pop up that high and certainly above 50. Are you starting to see that come through in your business yet? A: (Andrew King, CEO) First half industry numbers suggest Germany was still flat to even slightly backwards, whereas Poland, for example, is seeing 4% to 5% growth rates. However, our order books into June and July did start to show quite an encouraging pickup. Two months doesn't make a summer, especially these days in Europe, so we have to be cautious about interpreting that into a general trend. But what we're seeing on the ground does seem to reflect an improving environment relative to where we've been.

Q: Is it too soon to start thinking about CapEx? You've cut CapEx to maintenance CapEx. Is it too soon to start thinking about the next level of growth? A: (Andrew King, CEO) We've spent a lot of our shareholders' money in expanding our capacity, and we have capacity to allow us to grow into growing markets. When we bought Schumacher, we knew there was a lot of latent capacity there. There's no need for us to make significant investments on the capacity side to support the growth we see. Where we do spend a bit of expansionary CapEx is in selective areas like our North American bag business, where we consolidated into a single plant to serve the strong growth in e-commerce demand for paper bags. We are very confident we can work within the CapEx quantum we spoke about and still facilitate growth.

Q: Maybe to start, I mean, we're hearing a lot of news regarding testliner price increases going ahead. I fully understand that is cost driven. I want to get a sense on the kind of supply-demand dynamics downstream at the box level and whether we're struggling to implement all those testliner price increases downstream or not? And then maybe my second question would just be maybe an update on where we are with Duino right now. I mean, if I think about Italian electricity or energy price is extremely high in H1, presumably still in the ramp-up phase. Just curious how we should be seeing that progress. A: (Andrew King, CEO) Europe as a whole is seeing about 1% to 1.5% box volume growth year-to-date, with a pickup in momentum over the last couple of months. There is a normal three-to-six-month lag effect in passing containerboard price increases through to the box business, and it's a work in progress given the competitive pressures. On Duino, it's still in ramp-up; we'll probably produce around 300,000 tonnes this year out of the 420,000 tonne nameplate capacity machine, reaching full run rate by the second half of next year. The ultimate returns are highly sensitive to two huge variables: input gas prices and selling prices, both of which are volatile.

Q: So my first one would be on the fires that we're having in Southern Europe at this point. So we just saw news that Smurfit Westrock was shutting down their kraftliner plant. And I wanted to get your views on the impact that that would have in the supply and demand and in prices for kraftliner. And also, the impact that you're seeing on wood costs in that region and if any impact to Mondi in particular because of these fires. So the second question would be on the capacity that we see coming online for testliner at the end of this year, beginning of next year. So whilst you're still ramping up the sales volumes in Duino, as you just mentioned, so I just wanted to pick your brains on how you're seeing this additional capacity progressing. And if you see more potential for newsprint conversion still given the recent announcement that we had from one of your competitors now. A: (Andrew King, CEO) Our first thoughts are with all the people directly impacted by the fires. In terms of industry impact, it must cause short-term supply-side disruptions, but it's a big market, so I wouldn't want to overplay it. We're not exposed to the Southern European wood basket, so we have no particular insights into the wood supply situation there. On RCB capacity additions, the market is oversupplied, and any new capacity exacerbates that in the

For the complete transcript of the earnings call, please refer to the full earnings call transcript .