There was a time when Mondi was the poster child of capital discipline in Europe’s packaging industry. It was the type of company investors could set their watches by: high-teens to low-20s returns on capital employed, dependable cash flow, and a portfolio that balanced the grind of commodity paper with the promise of value-added packaging. In the years before the pandemic, Mondi’s mills were humming, its balance sheet was strong, and its investors were rewarded with one of the best capital efficiency profiles in the sector.
Fast-forward to 2025 and the picture has changed dramatically. Mondi’s 2024 annual report and consensus estimates show return on capital employed collapsing from nearly 24% in 2022 to 9.6% in 2024 and just 8.4% for the six months to June 30 2025. Margins have contracted, free cash flow has dried up, and the share price languishes at multiyear lows.
This isn’t a routine cyclical dip. It’s the consequence of a company whose overzealous environmental, social and governance (ESG) ambitions and geopolitical setbacks have eroded the very engine of value creation.
The ESG part of the story begins with Europe’s regulatory push against plastic. For a company such as Mondi, that shift should have been a dream. Corrugated packaging and kraft paper, where Mondi enjoys global leadership, are precisely the kinds of products that regulators, retailers and consumers want more of.
Smurfit Kappa and DS Smith, Mondi’s closest peers, have thrived by leaning into that natural advantage while still exercising discipline on capital spend. Mondi, however, took the message further than anyone. It embarked on a €1.2bn investment cycle between 2022 and 2024, committing hundreds of millions to biomass boilers, recovery plants and recycling conversions that may satisfy regulators but offer middling returns.
Mondi is pursuing an almost missionary zeal to prove itself the greenest packager on the continent
Where past projects delivered 20% or more, today’s ESG-linked investments are expected to generate just 10%-12% — barely above, and in some cases below, Mondi’s estimated weighted average cost of capital of roughly 9%-10%. That thin spread means little economic value is created even if the projects succeed.
The consequence is stark. In 2024 Mondi generated almost €1bn in operating cash, but because of the heavy investment programme its free cash flow turned negative. Dividends were flat, leverage crept up and investors, who once prized Mondi’s capital discipline, are left wondering if the company has sacrificed shareholder value in exchange for the approval of ESG ratings agencies.
While Amcor in Australia and International Paper in the US are content to do the bare minimum — investing only when regulation demands it and otherwise maximising cash returns — Mondi is pursuing an almost missionary zeal to prove itself the greenest packager on the continent.
In April this year Mondi completed its €600m acquisition of Schumacher Packaging’s Western Europe operations. Management trumpeted the deal as an expansion of product range and capacity, promising stronger security of supply and greater innovation for e-commerce and fast-moving consumer goods customers.
Yet for investors, the timing raised eyebrows. Free cash flow had already turned negative, leverage had climbed to 2.5 times earnings before interest, taxes, depreciation and amortisation (ebitda), and returns on capital were sliding. The official line is about scaling up and serving the green transition. The harder truth is that Mondi has taken on debt to fund growth precisely when its balance sheet is under the greatest strain, reinforcing concerns that the company’s zeal for ESG credentials and expansion has come at the cost of capital discipline.
Mondi’s executives concede that returns are being squeezed by heavy ESG and expansion capex. CFO Mike Powell acknowledged that return on capital invested is down because new projects are still ramping, while depreciation and debt are climbing. Free cash flow has been negative for two consecutive years, with dividends maintained not by cash earnings but by management’s confidence in a future recovery.
Even the “green” biomass boilers in South Africa and Slovakia — €270m of spend — are justified largely on environmental grounds, not superior financial returns. This is exactly the problem: Mondi is sacrificing its once-unmatched capital discipline to satisfy ESG narratives, at a time when end-market demand is soft and volatile.
Mondi also lost a jewel in Russia with the sale of the Syktyvkar facility. An initial €1.56bn agreed sale in 2022 collapsed under Russian regulatory hurdles. Mondi eventually struck a 2023 deal with Sezar Invest for roughly €775m — a fraction of the asset’s value given Syktyvkar generated €481m of ebitda in 2022.
The disposal triggered a €655m post-tax loss, largely from recycling foreign currency reserves. While €806m of proceeds were ultimately distributed to shareholders via a €1.60 a share special dividend in early 2024, the sale at barely 1.6 times ebitda was a huge blow to the group, underlining how geopolitics forced Mondi to surrender one of its crown jewels at fire-sale prices.
Together, these two forces — the overextension into ESG-linked investments and the geopolitical blow from Russia’s exit — have reshaped the Mondi equity story. The company remains a formidable player in corrugated and kraft packaging, with strong vertical integration and strategic assets across Europe and South Africa. Long-term themes such as e-commerce and the circular economy still support the sector. But Mondi’s hallmark capital discipline has eroded. Returns that once comfortably cleared the cost of capital have slipped into the low teens, while free cash flow has turned negative for two years running.
The market is responding in kind. Despite its scale and defensibility, Mondi trades at just 6.5 forward ebitda, a discount not only to global pulp and packaging peers such as Holmen (11.5) and CMPC (7.7), but even below smaller names such as Ence (7.6) and Shandong Sun Paper (7.2). On a total economic value/revenue basis, Mondi’s 0.98 also sits well below the group median of 1.3, reflecting investor scepticism over whether its €1.2bn capex cycle — weighted towards sustainability rather than margin expansion — can ever earn back its cost.
For investors, the lesson is sobering. A great business can lose its way not through scandal or mismanagement, but by becoming too eager to please. Mondi wanted to be greener than its peers, faster than regulation demanded, and more responsive to ESG investors than perhaps was wise. In doing so, it may have undermined the very thing that made it great: its ability to generate superior returns on capital. A company that once set the standard in capital efficiency is now a case study in how even well-intentioned ESG strategies can destroy value when pursued at any cost.
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