JSE-listed paper and packaging group Mondi has decided to resume dividend payments relating to the 2019 financial year and the six months ended June 30.
The company declared a final dividend of €0.29 in 2019.
Along with the 2019 interim ordinary dividend paid in September last year, the total dividend for 2019 is €0.57, covered three times by last year’s underlying earnings a share.
This is in line with Mondi’s stated dividend policy of targeting a cover range on average of two to three times underlying earnings over the business cycle.
Additionally, the board has declared a 2020 interim ordinary dividend of €0.19 apiece.
CEO Andrew King says the company demonstrated resilience during the Covid-19 pandemic so far, while remaining well-positioned when the economy starts to recover.
He attributes the company’s healthy performance in the six months to June 30 to a high-quality, cost-advantaged asset base, a portfolio of sustainable packaging solutions and the strategic flexibility offered by the group’s strong cash generation and financial position.
Mondi reported underlying earnings before interest, taxes, depreciation and amortisation of €738-million in the half-year, with a margin of 21.4% and an industry-leading return on capital employed of 17.1%.
The company made an interim profit before tax of €466-million.
Basic underlying earnings were €0.73 a share, while the company generated €602-million in cash from operations.
King states that demand for packaging daily essentials was robust, driven by increased at-home consumption, particularly at the height of lockdown in Europe. The company also saw strong demand coming from e-commerce.
Mondi made financial, in-kind and personal protective equipment donations of about €3-million to support municipalities, health facilities and local organisations in their fight against the pandemic.
Going into the second half of this year, heightened macroeconomic uncertainties remain.
Pricing across Mondi’s key pulp and paper grades is below or in line with the average of the first half.
King says demand for packaging daily essentials remains robust while the company continues to see weakness in certain industrial end-uses.
“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.
“I firmly believe that our embedded safety culture was key in facilitating a fast and effective response to protect our people, communities and business partners during this pandemic,” he adds.
Mondi operates about 100 plants in more than 30 countries across Europe, Russia, North America and Africa, and employs 26 000 people.
The company’s corrugated packaging segment saw containerboard sales volumes pick up 4% year-on-year in the first half of the year, with strong volumes in the company’s core markets of Central and Eastern Europe. The company expects containerboard exports to China to pick up in the second half of the year.
The flexible packaging segment reported higher sales volumes, lower input costs and realisation of cost control initiatives, but this was offset by lower average selling prices.
Kraft paper prices were down compared with the six months ended June 30, 2019. However, kraft paper and paper bag demand remained resilient in the six months under review in Europe and North American, with building materials applications holding up well and strong demand coming from consumers and agricultural end-uses.
The company did, however, see softer demand for flexible packaging in markets where Mondi predominantly serves cement producers.
Mondi’s engineered materials segment saw good demand in consumer end-uses, particularly in 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.
The company did notice softer demand in industrial and specialised end-uses, particularly for release liners, which serve applications including graphic arts.
As anticipated, volumes in personal care components were lower as a key product matures and it implemented certain technology changes. “While we continue to develop new products and innovative solutions to grow with our customers, we expect this area to continue to face pressure from declining volumes in the medium term.
“Prices were lower, on average, for the engineered materials segment, reflecting generally lower input costs, such as resin and speciality kraft paper. Cost control was strong and the business benefited from ongoing cost reduction programmes,” the company states.
Mondi is leveraging engineered materials' coating technologies, together with flexible packaging's speciality kraft paper portfolio, customer relationships and converting capabilities to develop innovative sustainable packaging solutions that offer an exciting opportunity to grow with customers.
Moreover, the company’s uncoated fine paper segment saw 35% lower earnings generated year-on-year in the six months under review, with a rapid deterioration experienced in the order book, owing to various lockdown measures, which resulted in less professional, commercial and office printing.
However, order books for uncoated fine paper have subsequently improved in June and July, albeit at below pre-pandemic levels.
As a consequence of Covid-19, the company’s capital expenditure projects were slowed down in the second quarter of the calendar year on the new 300 000 t/y kraft top white machine at Ružomberok and startup is now expected in the first half of 2021.
Owing to the extended project duration, scope modifications and higher-than-expected civil construction and equipment costs, the total capital investment, including the rebuild of the pulp mill completed in 2019, is now expected at €370-million – previously €340-million.
Mondi’s €67-million capital investment project to convert a containerboard machine at Štětí to be fully dedicated to the production of speciality kraft paper, with a mix of recycled and virgin fibre content for shopping bag applications, is progressing according to plan.
Supported by the drive to replace plastic carrier bags with paper-based alternatives, this project will result in an additional 75 000 t/y of speciality kraft paper capacity while reducing the company’s containerboard capacity by around 30 000 t/y. Startup is expected by the end of this year.
The company continues to upgrade the Syktyvkar plant’s infrastructure, in Russia, together with modernisation of its Richards Bay mill, in South Africa.