March 2, 2018 / 8:07 AM / 7 months ago

UPDATE 2-Packaging group Mondi announces special payout as profit climbs

* 2017 underlying profit rises 4 pct to 1.02 bln euros

* Raw materials rises manageable -CEO

* Investing 750 mln euros to secure organic revenue

* Shares rise in Johannesburg and London (Recasts lead, adds CEO comments, updates shares)

By Esha Vaish

March 2 (Reuters) - Packaging group Mondi will pay a special dividend of 1 euro per share after resuming profit growth on improved demand and average selling prices, trumpeting its ability to offset any further cost inflation this year.

Mondi has been battling negative currency effects from a stronger South African rand and a weaker U.S. dollar while also facing pricing pressures from higher costs for raw materials such as wood, energy and chemicals.

But having posted a first-half profit drop in August and issued a profit warning in October, the company on Friday reported a 4 percent rise in underlying operating profit to 1.02 billion euros ($1.25 billion), mirroring improvement at rival Smurfit Kappa.

Chief Executive Peter Oswald said that Mondi had increased its selling prices for paper packaging and forecast they would remain generally flat for the rest of 2018, while cost inflation in fibre packaging would continue to be passed on to customers.

“Yes, input costs are moving up ... however, we are confident we have the pricing power to pass them through and even do a bit more. So there is cost inflation, but it’s manageable,” he told Reuters, describing the group’s outlook as positive.

Mondi has also embarked on a 750 million euro project to increase capacity at its paper mills and secure organic revenue from 2019 onwards by catering to higher demand in container and corrugated packing and some areas of consumer packaging.

“With regards to M&A, we are active. We look at a number of opportunities, but even if none of them materialise we have this huge capex programme ... which will secure our organic growth from 2019 on,” he said.

Oswald also said that changing trends in packaging demand would benefit Mondi, pointing to growing pressure on businesses to reduce unnecessary packaging and the use of plastics.

“One way to reduce packaging is to move it from rigid packing, such as glass, metals or rigid plastics packaging,” he said, adding that flexible packaging such as that made by Mondi usually requires only a fifth of the material of rigid alternatives and cuts energy costs.

Shares in the group, which also announced a 9 percent increase in full-year ordinary dividend to 62 euro cents per share, rose 1.7 percent to 303.90 South African rand in Johannesburg and were up 1.1 percent at 18.61 pounds by 0947 GMT in London. ($1 = 0.8156 euros) (Reporting by Esha Vaish in Bengaluru Editing by David Goodman)

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