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MND / MNP - Mondi - Announcement
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
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 20 October 2008
This statement provides an update on the Group`s progress since the half-
yearly report for the six months ended 30 June 2008, based on management
accounts up to end September and current October trading and precedes the
announcement on 4 March 2009 of the full year results for the year ending 31
December 2008.
Group Overview
Whilst Mondi is exposed to a broad range of end markets and geographies, the
recent worsening of the global economic outlook is now having an adverse
impact on our business. In particular, during October we have seen a downturn
in trading within the Europe & International Division. As such, we have
brought forward the release of this trading update, originally planned for 24
October 2008.
The downturn in Europe & International Division trading will mean that Group
underlying operating profit for the year is likely to be 10% to 15% below last
year. This is despite an improvement in South Africa Division trading.
For the nine months to the end of September, underlying operating profit is 2%
ahead of prior year. However, for the three months to end September, the
Group`s underlying operating profit has come in 10% below the comparable
period for the prior year, with the slowdown in Europe as a result of the
significantly worsened economic backdrop only partially offset by a much
improved performance from the South Africa Division. Within Europe &
International Division we have not seen the usual post summer seasonal pick up
in demand and trading in September was weak. Estimates for October indicate a
continuation of this trend, and as a consequence we are taking significant
market related downtime in a number of our European operations. In contrast,
the South Africa Division has been successful in implementing price increases
and is also enjoying an improved operating performance.
Divisional Overview
Europe & International
The Bags & Specialities Business unit has benefited from higher sack kraft
paper and converted bag prices versus the comparable period (+10%), however
volumes have been much softer than anticipated as demand, particularly from
the construction industry, has weakened. It would appear that this slowdown
has been exacerbated by an element of destocking as the supply chain adjusts
to the weaker economic outlook. In response, the business is taking
significant market related downtime to balance inventories. The Specialities
Business unit has been impacted by higher input costs with selling prices
lagging and as a result trading is marginally below the comparable period.
In the Uncoated Fine Paper Business unit, whilst selling prices are still up
against the comparable period and have held since 30 June 2008, volumes have
been impacted by the weaker trading environment and closure of Hungary, down
7% on the prior year. However, overall results are up as the Business unit
continues to benefit from the restructuring actions announced at the end of
2007.
In the Corrugated Business unit, trading remains challenging, particularly in
recycled containerboard with testliner prices having fallen by around 9% since
the half year, although there is some evidence of prices stabilising as
significant industry capacity is loss making at these levels. Kraftliner
prices are also coming under pressure, down 2% since the half year, while
certain input costs have continued to rise, notably for chemicals and energy.
The downstream corrugated activities have experienced some margin expansion as
box prices have held up while paper prices decline, although box prices have
recently come under pressure. The Turkish acquisition continues to
underperform against expectation.
South Africa Division
The South Africa Division has seen an improvement in results benefiting from
both product mix changes (increased pulp sales) and price increases. The
domestic price increases announced in August were successfully implemented,
while export sales benefited from a weaker rand, 18% down versus the euro on
the comparable period, and dollar denominated price increases of 5% achieved
in African markets.
A significant breakthrough was achieved in the settlement of land claims in
South Africa, with the recent announcement of the signing of a land
restitution settlement whereby over 4000 hectares of Mondi forestry land will
be transferred to two local communities under a sale and leaseback agreement.
In terms of the agreement Mondi retains ownership of the forests, which
ensures security of timber supply to Mondi`s operations, while meeting the
needs of the land restitution process in South Africa. It is anticipated that
this settlement will provide a framework for settling future forestry land
claims with Mondi.
Mondi Packaging South Africa (MPSA)
Year to date, underlying operating profit in local currency is marginally down
on the comparable period. Whilst pricing has improved recently (circa 15-20%
price increases achieved from October), it has lagged input cost pressures,
particularly from recycled fibre. The results are also impacted on translation
into euros at a significantly weaker rand rate.
Agreement has been reached to refinance MPSA through a ZAR1bn cash injection
from Mondi Ltd which allows for the pay down of expensive external debt. The
funds will be provided by way of loans and equity. As a result of the
refinancing Mondi`s shareholding in the business will increase from 55% to
70%.
Merchant and Newsprint
Year to date, Europapier continues to trade above the comparable period
benefiting from higher prices and volumes. However, our joint venture,
Aylesford Newsprint (which accounted for just under half the division`s 2007
result), continues to be heavily impacted by low selling prices and rising
energy and recycled fibre input costs and is currently loss making. Recently
announced newsprint capacity closures should however support UK newsprint
price improvements as the industry enters its annual price negotiations for
2009. Shanduka Newsprint underlying operating profit is down on the comparable
period impacted by cost pressures and the weaker rand rate on translation into
euros.
Input Costs and Currency
Cost pressures versus the comparable period continue as was noted in the half-
yearly report, most significantly chemicals and energy, although there has
been some easing of recovered fibre costs. Similarly, while the weaker rand
supports margin improvement in export sales from our South Africa Division,
the strength of our major emerging European production currencies continues to
negatively impact on our cost base, albeit some recent weakness in these
currencies should help alleviate this pressure.
The recent US dollar strength should ease import flows into Europe, our key
sales geography, improving the supply side dynamics, although it is currently
unclear to what extent this will compensate for the near term demand side
weakness.
Restructuring
In response to the worsening economic and industry outlook, Mondi is
evaluating the closure of certain higher cost operations. We have announced
the planned closure of the Holcombe recycled containerboard mill in the UK
(capacity 110,000tpa) and the Zaragoza bag converting plant in Spain since the
half year. The total cost of these closures is circa Euro12m and will be taken
as an operating special item in the second half accounts.
Major Projects and Capital Expenditure
Progress continues to be made on the two major strategic projects in Russia
(Euro525 million mill modernisation and expansion) and Poland (Euro305 million
lightweight containerboard expansion). Both projects remain on track and
within budget. The subsidy package around the related Euro45 million
investment in the new box plant and associated infrastructure in Poland has
been agreed and the project is in progress.
Given the well invested nature of our asset base following completion of these
major strategic projects, coupled with the more challenging trading
environment we now face, we will be reviewing our capital expenditure plans
with a view to limiting future capital expenditure (excluding these major
strategic projects) to well below depreciation.
Borrowings and Finance Charges
Group borrowings, as expected, have increased since the end of June as capital
expenditure increases on the two major strategic expansion projects in Russia
and Poland, albeit this has been partially offset by a reduction in the
working capital position. As at the end of September, net debt stood at circa
Euro1.7bn, an increase of Euro70m on the end June position. The Group still
has just under Euro1.1bn of undrawn committed debt facilities, Euro0.7bn of
which is available under a Euro1.55bn facility expiring on 22 June 2012. The
average maturity of the Group`s committed debt facilities at the end of
September was 3.6 years.
Summary
The recent downturn in Europe & International Division trading as a result of
weakening macro-economic conditions will mean that Group underlying operating
profit for the year is likely to be 10% to 15% below last year. This is
despite the improvement in South Africa Division trading.
We will continue to proactively engage in restructuring actions where
appropriate and as required by market conditions. Similarly, our capital
expenditure programmes will be tailored to the more challenging trading
environment which we now face.
Mondi`s financial strength, proactive response to ongoing changes to market
conditions, and strategic positioning leave it well positioned to weather the
current economic turbulence and take whatever actions are necessary to improve
its performance.
End
Contact details:
Mondi Group
David Hathorn +27 11 9945418
Paul Hollingworth +44 1932 826326
Lisa Attenborough +44 1932 826380 / +44 7872 672669
Financial Dynamics
Richard Mountain +44 20 7269 7186 / +44 20 7909 684 466
Louise Brugman +27 11 214 2415 / +27 83 504 1186
A conference call will take place on 20 October 2008 at 09:00am (UK time) /
10:00am (SA time). The dial-in numbers are: +44 (0) 207 107 0611 / + 27 (0)
11 535 3600.
A replay service will be available until 25 October 2008 for anyone not able
to join the call. The dial-in number is: + 27 (0) 11 305 2030 and the code is
120101#.
Editors` notes:
Mondi is an international paper and packaging group and in 2007 had revenues
of Euro6.3 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.
20 October 2008
Sponsor
UBS South Africa (Pty) Ltd
Date: 20/10/2008 09:00:10 Supplied by www.sharenet.co.za
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