ii view: Mondi resurrects the dividend

Net debt has fallen and the dividend payment is back on. Investors take a closer look.

First-half results to 30 June

• Revenue down 8.5% to €3.45 billion
• Adjusted profit (EBITDA) down 17% to €738 million
• Reinstated 2019 final dividend of 29.75 euro cents per share
• Interim dividend down 30% to 19 euro cents per share
• Net debt down 14% to €2.04 billion

Chief executive Andrew King said:

“Sustainable packaging continues to be a long-term priority for our customers and wider society. As a leading producer of both paper and flexible plastic-based packaging, we are in a unique position to support our customers’ environmental goals with packaging that is sustainable by design adhering to our principle of paper where possible, plastic when useful.

“We are confident that the Group will continue to demonstrate its resilience in the event of a prolonged macro-economic downturn, while remaining well-positioned when the recovery takes place. This is underpinned by the Group's integrated high-quality, cost-advantaged asset base, culture of continuous improvement, portfolio of sustainable packaging solutions and the strategic flexibility offered by our strong cash generation and financial position."

ii round-up:

Packaging and paper company Mondi (LSE:MNDI) today reinstated a 2019 final dividend of 29.75 euro cents per share, having previously cancelled a payment of 55.72 cents per share at the height of the Covid-19 uncertainty. 

It also declared a half-year 2020 dividend payment of 19 cents per share, down 30% on its payment interim payment this time last year. 

Mondi shares rose by more than 2% in UK afternoon trading having fallen by over 15% year-to-date. Shares for containers and packaging group DS Smith (LSE:SMDS) are down just under a third in 2020 while shares for smaller paper concern Cropper (James) (LSE:CRPR) are down by just over a quarter.

Lower average selling prices across its key paper grades more than offsetting volume growth in corrugated packaging and flexible packaging to send revenues down by 8.5% year-over-year. 

Softer pricing also played its part in a 17% fall in adjusted profit to €738 million, with the impact of the Covid pandemic and related lockdown measures also feed into the mix. 

Revenues declined across the spectrum for its product segments of corrugated and flexible packaging, engineered materials and uncoated fine paper. On a geographical basis, sales in it two biggest markets of Western and Emerging Europe both retreated, while in North America, a relatively small revenue generator, they rose marginally. 

Looking forward, while demand for packaging daily essentials remains robust, pricing for its key pulp and paper grades is below or in line with the average of the first half. Rescheduled planned mill maintenance shuts which will have an impact on the second half of the year.

ii view:

Mondi has been attempting to simplify itself. The group, which employs around 26,000 employees in operations across more than 30 countries, previously changed from a dual listed structure into a single holding company structure. It also reorganising itself into the four business units of corrugated packaging, flexible packaging, engineered materials and uncoated fine paper in order to closer align with its customers – flexible packaging being its biggest revenue generator. 

For investors, continued pressure on pricing for its key pulp and paper grades offers caution, while the ongoing uncertainties of the pandemic and potential for a second wave overhangs the global economy more broadly. But the reinstatement of a dividend is clearly good news. A resumed dividend yield in the region of 3% is not to be overlooked in the current ultra-low interest rate environment.  

Positives: 

• Reinstated the dividend payment
• European market leader in virgin containerboard and uncoated fine paper

Negatives:

• Price movements, outside of its control, can hinder performance
• European markets generate around half of its sales, leaving it exposed to economic fortunes

The average rating of stock market analysts:

Strong hold