Mondi - Into the woods 🌳

We’ve covered some striking businesses in the last few weeks: cybersecurity, renewable energy, electric vehicles. And today, we’re going to talk about paper. And packaging.

Hey wait, come back - it’s interesting!

While paper and packaging might not seem too jazzy, they’re products that touch nearly every part of the economy. It’s difficult to imagine a more ubiquitous product than packaging. Maybe electricity. Or selfies.

Today we’re going to look at the industry through the lens of Mondi, one of the biggest and most diversified packaging companies.

Who are Mondi? :thinking:

Mondi are a huge paper and packaging firm. They used to be owned by Anglo American, a major mining company and the world’s largest producer of platinum. The company was originally just a big paper mill in Durban, South Africa. However, over the years they steadily accumulated a global portfolio of textile assets to become a packaging titan.

No crazy dramas or maverick CEOs in the story here - just a well-run, high growth business.

In 2007, Mondi were spun off from Anglo American to become their own company, listed on the London and Johannesburg stock exchanges.

They’re a vertically integrated firm, which means they have interests across the whole production chain. In Mondi’s case, that means they own forests, grow the wood, pulp and process it and sell the final, gleaming products. They also buy in extra materials from other producers to cover what they can’t grow themselves.

The benefit of vertical integration (VI) is that it reduces exposure to fluctuating costs like the price of raw materials or production. For a paper maker, if there’s a bad year for timber and foresters want more money per tonne of pulp, who cares? You own your own forest. And all the bears and picnic baskets in it.

The downside of VI is that it leaves a company very heavily exposed to the whole industry and reduces some of its flexibility.

But for a large manufacturing focused company, it can be very helpful.

Note that since Mondi aren’t completely self-sufficient, they still suffer when the price of pulp or timber goes up. But they have less exposure than a pure middleman.

A paperless world? :paperclips:

It’s a common view that paper is a technology of the past.

In that seminal sitcom and persistent meme supplier, the US version of The Office, a major background theme was the decline of the paper industry.

However, while an everyday consumer would probably assume paper was being steadily scrapped for screens, the story’s actually a lot more nuanced.

It’s true that some highly visible paper products like newspapers are in decline. That said, printed books are holding up relatively well against digital version.

However, paper isn’t just for writing, it’s a massively versatile textile. Where paper has really kept thriving are areas like personal care products and cardboard packaging.

Packaging for consumer and industrial products is actually Mondi’s biggest, most profitable revenue stream.

As e-commerce has ramped up, there’s been increasing demand for the volume and variety of packaging. Think of all those essential buys on Amazon. They came in cardboard.


Ironically, while one digital revolution is killing off paper media, another is ravenous for cardboard.

Industrial products and construction material also use up a huge amount of packaging. So lots of capital investment and property development mean favourable conditions for Mondi too.

The eco question :deciduous_tree:

A lot of packaging firms are competing for the crown of most sustainable packaging. This isn’t just altruistic: there’s a huge amount of scrutiny on single use plastics and unnecessary packaging.

With a greater focus on paper than plastic, Mondi are relatively well-placed to capitalise in this environment. In fact they even championed European Paper Bag day to celebrate paper grocery bags. (Yeah, we don’t see it taking off as a holiday either).

Their general ethos is to use paper where possible, plastic where useful.

Along with e-commerce, sustainability is one of Mondi’s biggest growth plays. A lot of companies commit to sustainable supply chains so a partner that can guarantee sustainable packaging at volume could be very attractive.

Around 70% of their forests are certified by the Forestry Stewardship Council. We know you’ve never heard of that, but they’re a legit organisation. Mondi’s vertical integration probably helps there: when you control more parts of the production, it’s easier to set standards.

Mondi also invest heavily into what are called working forests. Working forests are plantations where the timber business is balanced with maintaining the ecosystem and the public benefits of the land. The idea is that the forest is renewed and developed at the same rate it’s harvested.

Mondi still have a way to go on sustainability but for a large, well-established company they’re pretty impressive.

A startup built specifically around eco-packaging could probably beat their eco-record, but when it comes to huge shipments for major clients, Mondi have the real scale.

Paper profits :memo:

Mondi’s business is very broad and diversified. However, when it comes to serious growth, these two things - sustainability and e-commerce - are the main drivers they talk about.

Tapping into trends like sustainability will help them capture market share from plastic packagers and less progressive paper firms. And since paper and paper derivatives dominate e-commerce , if e-commerce keeps growing, you’d expect those opportunities to grow too.

But if public or company policies on packaging change, then these opportunities could very well be curtailed. Paper could be the dominant packing choice of the future or it could be a stopgap towards a world with less packaging overall.

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