Interim Management Statement
Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND ISIN: ZAE000156550
Mondi plc
(Incorporated in England and Wales)
(Registration number: 6209386)
JSE share code: MNP ISIN: GB00B1CRLC47
LSE share code: MNDI
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 31 October 2011
This interim management statement provides an update on the financial
performance and financial position of the Group since the half year ended 30
June 2011, based on management accounts up to 30 September 2011 and estimated
results for October 2011, which have not been audited or reviewed by Mondi's
external auditors.
Audited results for the year ending 31 December 2011 will be published on or
around 23 February 2012.
Except as discussed in this interim management statement, there have been no
other significant events or transactions impacting either the financial
performance or financial position of Mondi since 30 June 2011 up to the date of
this statement.
Group Performance Overview
The Group's underlying operating profit in the third quarter 2011 of €
136 million (year to date €490 million) was well above that of the comparable
prior year period but below that achieved in the previous quarter (€
175 million). This performance reflects the impact of the planned third quarter
maintenance shuts, estimated to have negatively affected underlying operating
profit by approximately €20 million, and a generally softer trading
environment, including the impact of destocking, compared to a very strong
first half of 2011.
During the quarter, the uncertainties inherent in the macroeconomic environment
resulted in some weakening in demand and moderately lower sales prices. This
was partly offset by stable or reducing input costs. Average benchmark
recovered fibre prices were down by 4% in the quarter, whilst wood costs
remained largely unchanged over the same period.
Most emerging market currencies to which the Group is exposed as a net exporter
were slightly weaker against the euro when compared to the second quarter,
providing a small positive contribution to the Group's performance. Similarly,
the recent strengthening of the US dollar versus the euro is offering some
support to European pricing.
Divisional Overview
Europe & International
The Uncoated Fine Paper (UFP) business continued to perform very strongly.
Underlying operating profit was in line with that of the comparable period of
the prior year, but below that of the previous quarter. Sales volumes were
lower than the previous quarter due to the expected seasonal summer slowdown
and the impact of planned annual maintenance shuts. Maintenance shuts were
carried out at all three of the Group's large mills during the quarter. Average
selling prices were marginally down on the previous quarter on currency and mix
effects.
In the Corrugated business, underlying operating profit was well above the
comparable prior year period, but below that of the second quarter due to the
planned maintenance shuts at Swiecie and Syktyvkar, lower average paper selling
prices and reduced income from green energy credits (around €10 million
reduction versus the second quarter). Selling prices for the virgin
containerboard products were flat to marginally down in the quarter. Recycled
containerboard prices were down by around 5% on a combination of currency and
mix effects and input cost declines. Sales volumes were marginally higher than
those achieved in the first two quarters of the year. Recovered fibre input
costs reduced during the period, most notably towards the end of the quarter,
with benchmark recovered fibre prices down by around 4% between 30 June 2011
and 30 September 2011. Wood costs have remained largely constant when compared
to the second quarter of 2011.
In the Bags & Coatings business, underlying operating profit was well above the
comparable prior year period and at similar levels to that achieved in the
second quarter of 2011. Some weakness in demand, due to a combination of mildly
weaker end user demand resulting from the European macroeconomic slowdown, and
destocking in the value chain, led to lower kraft paper sales volumes. In
response, the business took downtime at certain of its operations in order to
manage inventory levels. In anticipation of further destocking in the value
chain, including at the Group's own converting operations, plans are in place
for further downtime to be taken in the fourth quarter. Flexibility will be
retained to bring this capacity back on stream as the destocking process comes
to an end. Export demand for kraft paper remains good and sales prices were
generally stable through the quarter.
The weaker end user demand and customer destocking also impacted volumes in the
industrial bags segment when compared to the second quarter, although the
business continued to benefit from the seasonally stronger European summer
months. Volumes are expected to reduce further in the fourth quarter due to
normal seasonal effects and continued customer destocking.
The Coatings & Consumer Packaging business was impacted by weaker volumes in
certain industrial product segments. Benefits of recent resin price declines
were marginal as these were largely passed on to customers.
As part of the continued optimisation of the Group's production base, the
industrial bags facility in Aberdeen is expected to be closed, with associated
impairment and restructuring costs of approximately €5 million. With effect
from 3 October 2011, the Group disposed of its Unterland flexible packaging
business to Sun European Partners LLP at a loss of €4 million. Further
restructuring of the Coatings & Consumer Packaging business will take place
during the fourth quarter resulting in restructuring costs of approximately €
6 million.
South Africa Division
The South Africa Division's underlying operating profit, while down on the
comparable prior year period, was significantly up on the second quarter of
2011 following the planned maintenance shut at its Richards Bay mill in the
second quarter. Lower average pulp prices in the quarter were offset to some
extent by the weaker rand, while domestic uncoated fine paper prices were
relatively stable. Export sales volumes of white-top containerboard were lower
than the previous quarter, partially offset by increased domestic sales, whilst
sales prices remained flat to marginally lower.
Newsprint
The Newsprint business continues to deliver poor results. The South African
business, Mondi Shanduka Newsprint, continues to be impacted by a rising cost
base, largely due to a series of significant electricity price increases.
Management is actively assessing various options to address the resultant
unacceptable financial performance. The very weak European newsprint market
continues to impact on Aylesford Newsprint's ability to return to
profitability.
Financial Position
In September 2011, Standard & Poor's upgraded Mondi's credit rating to
investment grade. This is an outcome of the Group's clear commitment to
achieving and sustaining investment grade credit metrics. The upgrade provides
further testament to the robustness of the Group's business model and the
ability of the business to generate meaningful cash flows through the business
cycle. The Group now has investment grade credit ratings from both Moody's
(Baa3 outlook positive) and S&P (BBB- outlook stable), which will further
improve access to liquidity and provide additional financial flexibility going
forward.
Cash flow from operations remained strong with working capital levels
maintained within the Group's targeted range (10% to 12% of turnover).
Following the conclusion of the major capital projects in Swiecie, Poland and
Syktyvkar, Russia, capital expenditure was markedly reduced when compared to
the third quarter of 2010 and at similar levels to that incurred in each of the
previous two quarters of 2011. Capital expenditure remains within the targeted
range of 80% of depreciation.
The Mpact demerger was completed during July 2011. As a result of the demerger,
net assets were reduced by approximately €400 million from the position at 30
June 2011. The net result of the demerger on the Group's consolidated net debt
position was a reduction of €172 million (of which a reduction of €111 million
was already reflected in the Consolidated Statement of Financial Position at 30
June 2011). The related consolidation of the Mondi Limited shares was completed
in August 2011, reducing the number of shares in issue from 147 million shares
to 118 million shares, bringing the total number of Mondi shares in issue
(Mondi Ltd plus Mondi plc) down from 514 million to 486 million.
The average maturity of the Group's committed debt facilities is 4.2 years
compared to 4.1 years as at 30 June 2011, with unutilised committed borrowing
facilities of €726 million. Finance charges have reduced compared to the
previous quarter, primarily as a result of the reduction in relatively more
expensive South African rand denominated debt following the Mpact demerger.
Net debt reduced to €1,054 million at 30 September 2011. The financial position
of the Group at 30 September 2011 remained robust.
Summary
Broader macroeconomic weakness is giving rise to some slowdown in demand and
moderate pricing pressure across certain of the Group's product areas. In large
part, the current demand weakness would appear to be driven by destocking,
making predictions on near term underlying demand trends difficult. We will
continue to respond decisively by taking production downtime where appropriate.
Supply side fundamentals for the Group's core grades remain good. Furthermore,
the Group's robust financial position, low-cost operating model, and focus on
performance leaves the Group well-positioned to deliver strong returns through
the business cycle.
Contact details:
Mondi Group
David Hathorn +27 (0)11 994 5418
Andrew King +27 (0)11 994 5415
Lora Rossler +27 (0)11 994 5400 / +27 (0)83 627 0292
Financial Dynamics
Richard Mountain +44 20 7269 7186 / +44 20 7909 684 466
Chloe Webb +27 (0)11 214 2421
Editors' notes
Mondi is an international paper and packaging Group, with production operations
across 31 countries and revenues of €6.2 billion in 2010. The Group's key
operations are located in central Europe, Russia and South Africa and as at the
end of 2010, Mondi employed 29,000 people. (2010 figures included Mpact
Limited.)
Mondi is fully integrated across the paper and packaging process, from the
growing of wood and the manufacture of pulp and paper (including recycled
paper), to the conversion of packaging papers into corrugated packaging,
industrial bags and coatings.
The Group is principally involved in the manufacture of packaging paper,
converted packaging products and uncoated fine paper (UFP).
Mondi has a dual listed company structure, with a primary listing on the JSE
Limited for Mondi Limited under the ticker code MND and a premium listing on
the London stock exchange for Mondi plc, under the ticker code MNDI. The Group
has been recognised for its sustainability through its inclusion in the
FTSE4Good UK, Europe and Global indices in 2008, 2009 and 2010 and the JSE's
Socially Responsible Investment (SRI) Index in 2007, 2008, 2009 and 2010.