Despite a robust balance sheet and a decent operational and financial performance, JSE-listed paper and packaging group Mondi has decided to not pay out a final dividend for the year ended December 31, 2019, in light of Covid-19-related uncertainties.
The board says it recognises the importance of dividends to shareholders and, while it is the intention of the company to pay a dividend, the appropriateness and timing thereof will be considered once the board has a clearer view of the effects of Covid-19 on the business.
The company says its performance for the first quarter of the year has been robust, with underlying earnings before interest, taxes, depreciation and amortisation of €385-million generated.
However, the underlying Ebitda was 18% lower compared with the €471-million generated in the first quarter of last year. The company attributes the lower earnings to lower pricing across its key paper grades, but says lower input costs and ongoing cost reduction programmes helped offset the lower pricing.
“Our order books held up well in the first quarter, strengthening in consumer and e-commerce end-uses across our packaging and engineered materials businesses, as we continued to support our customers.
“Towards the end of the quarter and into early April, we saw a deterioration in our uncoated fine paper order book in Europe and South Africa as the effects of the various lockdown measures took hold,” Mondi explains.
The company has put production on hold at its Neusiedler mill, in Austria, to manage inventory levels. It has also temporarily stopped production at the Merebank mill, in South Africa, in line with government regulations.
The company comments that it is still seeing strength in a number of consumer-related applications in its flexible packaging division, particularly in food, beverage and personal and home care; however, it has noted somewhat weaker trading with customers in building and construction industries, while there is a “mixed picture” in industrial and other end-uses.
With the exception of the temporary closure of the Merebank paper mill and temporary closures or other production interruptions at a small number of Mondi’s paper bags converting plants, all the company’s facilities have been in operation throughout the first quarter.
Mondi affirms that supply chain issues have been manageable, although the company is starting to see delays and increased costs in logistics.
“The potential impacts of Covid-19 remain very unclear and the pace of change means any effect on operations and the group’s financial performance for the year is difficult to predict,” Mondi states.
To conserve cash, the company has postponed non-essential capital expenditure (capex) and slowed down some of its major capital projects. Resultantly, the company expects to spend €600-million in capex for the year, instead of the previously planned €700-million to €800-million capex budget.
Mondi warns that this will likely cause delays to the commissioning of certain capital investment projects.
Mondi currently has a liquidity position of about €1.5-billion, comprising €705-million of undrawn committed debt facilities and cash of about €800-million.
“Mondi is a resilient business offering packaging and other products for daily consumer needs, and delivering essential services to the communities around its larger operations. We delivered a robust performance in the first quarter and in this regard my thanks go to all our colleagues for their courage and commitment during these challenging times.
“The group is financially strong with a robust liquidity position and capital structure. However, in these unprecedented times we are taking appropriate actions to ensure we remain well-placed to withstand an extended period of uncertainty,” CEO Andrew King says.