Mondi shareholders score big – but future profitability is in question 

Product packaging giant Mondi recently received net proceeds of €30.4 million (R618 million) from the sale of three Russian assets, which it will distribute to shareholders. 

While this is a big win for Mondi shareholders, FNB’s Wayne McCurrie said it is disappointing that the manufacturer is not reinvesting some of the money back into its business.

At the start of 2022, Europe-based Mondi lost a third of its value due to the then-imminent Russia-Ukraine war. The manufacturer’s share price has yet to recover to levels seen before the Russian invasion.

The Russian market accounted for a fifth of the company’s profits and had solid growth prospects in the country.

However, on 15 December 2022, Mondi announced an agreement to sell its three Russian packaging converting operations to the Gotek Group for a total consideration of RUB 1.6 billion.

On 3 July, the manufacturer confirmed that Gotek Group received all requisite approvals, and the sale has now been completed. Mondi received net proceeds of €30.4 million from this disposal into its Austrian bank account.

The three assets that formed part of this deal were smaller businesses, but Mondi’s most significant facility in Russia, Mondi Syktyvkar, still needs to be divested.

The manufacturer said it “remains committed to divest Syktyvkar and continues to assess all alternative divestment options”.

It announced that the net proceeds from selling all its Russian assets would be distributed to shareholders “as soon as reasonably practicable following receipt, once our exit from Russia has been completed”.

While this sale was necessary, McCurrie told Moneyweb’s Simon Brown that it meant Mondi would lose out on future profits. 

In addition, the manufacturer will not receive “top dollar” for its Russian assets since the demand is very low, which would explain why the manufacturer has yet to sell its largest Russian business.

“Once they’ve got all the money from selling the business, they’re just going to give it straight back to shareholders, which tells you they don’t see much opportunity to reinvest in other businesses or to expand their existing business,” McCurrie said.

“It’s always nice for shareholders to get money, but it’s also disappointing that the company can’t apply that cash profitably themselves.”

Mondi’s share price saw a marginal improvement in reaction to news of the completed sale, having increased by just under 4% in the past five days.