Paper and packaging company Mondi (MNDI) announces a special dividend of €1 per share as the company reports a 5% increase in pre-tax profits to €887m for 2017.
The company’s 2017 results to 31 December 2017 also reveal a 7% hike in revenue to €7.1bn as the company benefits from increasing demand and a significant rise in pricing across many key areas of its business.
As well as the special dividend, the company also hiked its ordinary dividend by 9% to €0.62 per share. Peter Oswalf, CEO of Mondi says the payout ‘reflects the strength of our financial position and our continued confidence in the group’s cash generating capacity’.
This should help soothe investors burned by an October 2017 profit warning which sparked a sharp drop in shares. The shares are up 1.3% to £18.64, leading the FTSE 100. The company is one of the lesser known constituents of the FTSE 100. It is dual listed, also trading in South Africa.
It has been suffering from adverse currency effects as the South African Rand has been strengthening against a weakening dollar. Pricing pressure had come from the higher costs of its raw materials as well which culminated in the October profit warning. The currency issues around US dollar weakness ‘are current headwinds’ according to the company.
Mondi is impacted by stronger currencies in emerging markets because it sources the raw materials from these regions and sells them in the US.
It also said that average paper for recycling costs were up 12% compared to 2016 as well as energy and labour costs also increasing in 2017.
The company says that ‘Looking forward, rising commodity input costs, temporary wood supply disruptions in northern and central Europe and the ongoing economic growth and related inflationary pressures in a number of regions in which we operate are expected to continue to put upward pressure on our cost base’.
Russ Mould, investment director at AJ Bell, says: ‘You might think packaging was a pretty commoditised area in which operators enjoy very little pricing power.
'However, packaging has become an increasingly important marketing tool for the product inside, and therefore more of a priority for consumer goods businesses, notably Mondi reports it has pushed through higher prices across its range of products in early 2018.’
Mondi says that more than €750m of approved capital expenditure projects are under way, which is ‘securing future growth’ according to the company. Using data from Reuters, Mondi is trading on a forward price to earnings multiple of 12.8 times and pays a dividend yield of 3.4%.
The company says there is a ‘possibility of further small to mid-sized acquisitions over the coming years’ which may well help boost its growth prospects.
