Interim Management Statement

Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND ISIN: ZAE000097051

Mondi plc
(Incorporated in England and Wales)
(Registration number: 6209386)
JSE share code: MNP ISIN: GB00B1CRLC47

As part of the dual listed company structure, Mondi Limited and Mondi plc
(together 'Mondi Group') notify both the JSE Limited and the London Stock
Exchange of matters required to be disclosed under the JSE listings
requirements and/or the Disclosure and Transparency and Listing Rules of the
United Kingdom Listing Authority.

 

Mondi Group: Interim Management Statement 7 May 2008

This statement provides an update on the Group's progress since the year ended
31 December 2007, based on estimated results up to end April 2008 (volume and
selling price comments are mainly based on data to end March 2008) and precedes
the announcement on 30 July 2008 of the half-yearly results for the six months
ending 30 June 2008.

 

Reporting Format

As previously announced, from 1 January 2008, the former Mondi Packaging and
Mondi Business Paper business units now operate as two divisions:  Europe &
International and South Africa.  Accordingly, we have used this new reporting
structure for commenting on trading in this Interim Management Statement.  We
have also provided, as an attachment to this announcement, a restatement of our
segmental analysis for 2007 and 2006 under the new reporting format for
revenues and operating profit.

 

Group Overview

Since the year end the Group's underlying operating profit has come in ahead of
the comparable period for the prior year helped by a strong performance from
the Europe & International Division and, in particular, the Bags & Specialities
business unit where good price increases were secured in kraft paper and the
related downstream converting operations.

 

Divisional Overview  

Europe & International

In the Corrugated business unit volumes have held up but the pricing
environment has, as expected, been impacted by the weak US dollar with
kraftliner prices down 2% since the year end, albeit still at good levels.  Box
prices have increased marginally since the year end but the recent softening in
testliner prices will make further price increases more difficult to achieve in
the short term.

Bags & Specialities has benefitted from continuing strong sack kraft paper and
converted bag prices (up around 5% since the year end), however converting
volumes have seen some recent softness as demand from the construction
industry, particularly in Southern Europe, begins to slow. The Specialities
business results benefit from the acquisition of Unterland in the second half
of 2007 which is trading in line with expectations.

In the Uncoated Fine Paper business unit, revenues were up despite the closure
of our Hungarian mill during the period.  Selling prices are up on average 4%
against the comparable period but are relatively unchanged since the year end. 
Whilst we continue to seek price increases the weak US dollar and recent
softening in demand have made progress on this front difficult despite industry
capacity closures.

 

South Africa Division

Results to date have been negatively impacted versus prior year by the timing
of planned maintenance shuts (Richards Bay pulp mill was closed for two weeks
during March for maintenance work) and lower export sales volumes (mainly in
woodchips) as we have taken the active decision to pursue margin not volume in
certain markets.  Overall, we are confident that the measures we are taking to
improve profitability are working with PM31 at our Merebank operation running
well and the implementation of a 5% price increase in the domestic market
effective 1 May.  The weaker rand is also beginning to benefit margins in our
export business.

 

Mondi Packaging South Africa (MPSA)

Demand and pricing remain positive.  However, the improved local performance is
impacted on translation into euros at the much weaker rand rate (circa 20% down
on 2007 rates). Progress on execution of major projects has been good.  The
Felixton rebuild has been commissioned on time and within budget and this will
increase containerboard production by 45,000 tonnes per annum to 155,000 tonnes
per annum.

 

Merchant and Newsprint

Europapier and Mondi Shanduka Newsprint have had a reasonable start to the
year. However, our joint venture, Aylesford Newsprint (which accounted for just
under half the divisions 2007 result), has seen a significant deterioration in
profitability as a result of falling selling prices and rising energy and
recycled fibre input costs and it is likely that their full year profits will
be substantially below 2007 levels.

 

Input Costs and Currency

External fibre cost pressures have continued to ease but are up on the
comparable period given the steep increase in external fibre costs, up circa
25%, in the first half of 2007.  Other input cost pressures are a concern and
the rising oil price continues to feed through into rising energy and transport
bills. Importantly, our results continue to benefit from Mondi's ongoing focus
on cost reductions, restructuring and productivity improvements, all of which
help to mitigate the impact of cost inflation.

The further weakness of the US dollar has led to an increase in imports and a
reduction in exports for most paper grades including uncoated fine paper and
containerboard which has impacted selling prices.  However, the relatively
modest levels of net export dependency of uncoated fine paper and
containerboard (circa 5% versus 20% for most coated and graphic paper grades)
has helped to limit the impact of the weak US dollar.  Partially offsetting the
weakness of the US dollar has been the favourable impact of the weakness of the
South African rand which has benefitted the profitability of export sales from
that country.

 

Restructuring

The previously announced closure of our 140,000 tonne uncoated fine paper mill
in Hungary has been completed (production ceased on 20 March 2008).  The charge
for impairment of the site was recognised in the 2007 results and the latest
estimate for the cash and other closure costs is €31m which will be disclosed
as a special item in the 2008 financial statements.  During the period we also
completed the restructuring and simplification of our European Uncoated Fine
Paper divisional structure.  We are now beginning to see the benefits of these
actions coming through.

 
 

Major Projects

The new 470,000 tonne recycled containerboard machine and related box plant at
Swiecie in Poland, at a total cost of €350m, is progressing well. The main
machine orders have now been placed and we remain on track for completion in
the second half of 2009. We anticipate this machine will have the lowest
operating cost of its type.

The project to modernise our Russian mill (total cost of €525m) is also making
good progress.  All main equipment contracts have been agreed and construction
has commenced with completion scheduled by mid to late 2010.  The key value
drivers of this project are to lower our cost base in Russia, improve
efficiency, increase energy production and revenue by selling surplus energy to
the grid as well as providing some extra capacity (both pulp and paper) for the
strongly growing domestic market.

 

Borrowings and Finance Charges

Group borrowings, as expected, have increased as the rate of capital
expenditure increases due to the commencement of the two key projects in Poland
and Russia.  As at the end of March the Group had just under €1.2bn of undrawn
committed debt facilities (€1.0bn of which is available under a €1.55bn
facility expiring on 22 June 2012).

Interest rates in South Africa have continued to increase with the Reserve Bank
repurchase base rate now standing at 11.5%.  Overall finance charges are higher
than the comparable period because for the first half of 2007 Mondi was a
subsidiary of Anglo American plc and under a different capital structure which
resulted in lower finance charges.

 

Summary

Whilst there is some uncertainty over pricing and demand developments, Mondi's
product mix, emerging market focus, continued push to drive down costs and
willingness to respond quickly to changing market conditions, gives us
confidence that we will make further progress in 2008.

This statement is being released on the day of our annual general meeting,
details of which can be found on our website www.mondigroup.com

 

End

 

Contact details:

Mondi Group                                              
                                                         
David Hathorn      [phone]                        
                                                         
Paul Hollingworth  [phone]                       
                                                         
Lisa Attenborough  [phone] / [phone]     
                                                         
Financial Dynamics                                       
                                                         
Richard Mountain   [phone] / [phone]
                                                         
Louise Brugman     [phone] / [phone]     
                                                         

 

A conference call will take place on 7 May 2008 at 08:30am (UK time) / 09:30am
(SA time).  The dial-in number is [phone] - call reference -
45712285

 

A replay service has been booked and will be available until 13 May 2008 for
anyone not able to join the call. These details are dial in no: +44 (0) 1452
550 000, pin: 45712285

 

 

Editors' notes:

 

Mondi is an international paper and packaging group and in 2007 had revenues of
€6.3 billion. Its key operations and interests are in western Europe, emerging
Europe, Russia and South Africa. 

 

The Group is principally involved in the manufacture of packaging paper and
converted packaging products; uncoated fine paper; and speciality products and
processes, including coating, release liner and consumer flexibles.

 

Mondi is fully integrated across the paper and packaging process, from the
growing of wood and manufacture of pulp and paper (including recycled paper) to
the converting of packaging papers into corrugated packaging and industrial
bags.

  

Mondi has production operations across 35 countries and had an average of
35,000 employees in 2007.

 

 

Operating segment revenues

 

Internal and external segment revenues are presented, and reconciled to Group
revenue, as follows:

                                           2007                      2006           
                                                                                    
                                                                                   
                                       Internal  External        Internal  External 
€ million                        Total revenue   revenue   Total revenue   revenue  
                                                                                   
                                                                                    
Europe & International                                                              
                                                                                    
  Corrugated                     1,616 (55)      1,561     1,467 (56)      1,411    
                                                                                    
  Bags & Specialities            2,005 (19)      1,986     1,726 (16)      1,710    
                                                                                    
  Uncoated Fine Paper            1,666 (177)     1,489     1,583 (164)     1,419    
                                                                                    
  Intra-segment elimination      (98)  98        -         (85)  85        -        
                                                                                    
                                                                                    
Total Europe & International     5,189 (153)     5,036     4,691 (151)     4,540    
                                                                                   
                                                                                    
South Africa                                                                        
                                                                                    
    Corrugated                   125   (125)     -         125   (125)     -        
                                                                                    
    Uncoated Fine Paper          491   (267)     224       519   (212)     307      
                                                                                    
  Intra-segment elimination      (25)  25        -         (25)  25        -        
                                                                                    
                                                                                    
Total South Africa               591   (367)     224       619   (312)     307      
                                                                                    
                                                                                    
                                                                                    
Merchant and Newsprint           591   (1)       590       539   (1)       538      
                                                                                    
Mondi Packaging South Africa     419   (28)      391       360   (25)      335      
                                                                                    
Corporate and other businesses   28    -         28        31    -         31       
                                                                                    
Inter-segment elimination        (549) 549       -         (489) 489       -        
                                                                                    
                                                                                    
Total                            6,269 -         6,269     5,751 -         5,751    
  

Operating segment operating profit

Segment operating profits are presented, and reconciled to Group profit before
tax, as follows:


                                            Segment operating                       
                                                 profit          Segment operating  
                                                                       profit       
                                             before special                         
€ million                                       items           after special items 
                                                                                    
                                          2007       2006       2007        2006    
                                                                                   
Europe & International                                                              
                                                                                    
  Corrugated                              133        98         128         49      
                                                                                    
  Bags & Specialities                     154        106        153         93      
                                                                                    
  Uncoated Fine Paper                     99         89         36          73      
                                                                                    
                                                                                    
Total Europe & International              386        293        317         215     
                                                                                    
                                                                                    
South Africa                                                                        
                                                                                    
    Corrugated                            25         22         25          22      
                                                                                    
    Uncoated Fine Paper                   53         15         48          15      
                                                                                    
                                                                                    
Total South Africa                        78         37         73          37      
                                                                                    
                                                                                    
Merchant and Newsprint                    40         29         40          29      
                                                                                    
Mondi Packaging South Africa              35         35         35          35      
                                                                                    
Corporate and other businesses            (37)       (17)       (40)        (17)    
                                                                                    
                                                                                    
Total                                     502        377        425         299     
                                                                                    
                                                                                    
Reconciling items:                                                                  
                                                                                    
  Net profit/(loss) on disposal of                                                  
subsidiaries and associates               -          -          83          (4)     
                                                                                    
  Net income from associates              2          5          2           5       
                                                                                    
  Net finance costs                       (99)       (77)       (128)       (77)    
                                                                                    
                                                                                    
Group profit before tax                   405        305        382         223