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MND/MNP - Mondi Limited/Mondi Plc - 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
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 1 November 2010
This interim management statement provides an update on the financial
performance and financial position of the Group since the half-year ended 30
June 2010, based on management accounts up to 30 September 2010 and estimated
results for October 2010, which have not been audited or reviewed by Mondi`s
external auditors.
Audited results for the year ending 31 December 2010 are expected to be
announced on 21 February 2011.
Group Overview
The Group`s underlying operating profit in the third quarter 2010 was above that
of each of the first two quarters of the year and well in excess of that
achieved in the comparable period of the prior year.
Turnover for the third quarter was marginally higher than that of the second
quarter. The upward momentum in selling prices continued. Order books remain
strong, although sales volumes in the quarter were reduced due to maintenance
shuts at various facilities and the extended shut at Syktyvkar as part of the
integration of the modernisation project. Increasing raw material costs, less
pronounced than in the first half of the year, were offset by ongoing cost
optimisation activities. This led to a quarter on quarter improvement in the
Group`s underlying operating profit.
The final phase of the modernisation of the Syktyvkar mill in Russia was
successfully completed during September, following the commissioning of the
recovery boiler and rebuilt containerboard machine. Construction of the project
commenced in April 2008 and was completed on schedule. Total costs are expected
to be within the revised Euro545 million budget. The estimated impact on
underlying operating profit of the shut during the quarter was Euro15 million.
The focus is now on bringing the mill up to full production during 2011.
The sale of the central European paper merchant, Europapier, to the Heinzel
Group for a consideration of Euro60 million on a cash and debt free basis, will
be concluded in early November with all regulatory approvals having been
secured. The funds will be utilised to reduce Mondi`s net debt.
In August, agreement was reached with Hadera Paper Limited to sell down the
Group`s 50.1% interest in Mondi Hadera Paper Limited for a consideration of
Euro10 million, with the Group retaining a 25% minority interest. The deal is
conditional upon regulatory approval.
Operating cash flows for the third quarter reflected the improved operating
profit and enabled the Group to reduce its net debt position to Euro1,536
million at 30 September 2010 from Euro1,632 million as at 30 June 2010. Working
capital as a percentage of turnover, at 10%, remained within forecast
parameters.
The financial position of the Group at 30 September 2010 remained robust with
net assets moderately up on the back of exchange impacts on translation into
euro. The average maturity of Group committed debt is 3.9 years and unutilised
committed borrowing facilities are approximately Euro1.4 billion.
Following the completion of funding of our major capital projects in 2011, the
Group will enter a period of increased free cash flow generation. While focused
growth clearly remains an option, the Group will allocate increasing free cash
flow to debt reduction and to improving cash returns to our shareholders.
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 2010 up to the date of
this statement.
Divisional Overview
Europe & International
The Uncoated Fine Paper (UFP) business continued to perform well. Underlying
operating profit in the third quarter was down on the strong result achieved in
the previous quarter but well above that of the comparable period in the prior
year. The lower result is largely a reflection of the effect of the seasonally
weaker European summer months, annual maintenance shuts at the mills in Slovakia
and Austria, and the extended shut for the integration of the Syktyvkar
expansion project. The business continued to benefit from strong volumes, a low-
cost asset base and improving pricing which offset input cost pressures. Despite
the price increases achieved, margins in the Group`s non-integrated mills came
under further pressure in the quarter due to high average pulp prices (up
between 1% and 2% from the previous quarter).
In the Corrugated business, underlying operating profit in the third quarter was
in line with the second quarter of 2010 and well above the result of the
comparable period in the prior year. Increased selling prices were offset by
increasing costs and reduced volumes, mainly as a result of a planned
maintenance shut at Swiecie. Average benchmark kraftliner prices increased by
12% compared to the prior quarter whilst testliner prices were up 5%. The new
recycled containerboard machine in Swiecie, Poland, continued to operate well,
with third quarter production of 102,000 tonnes, including the impact of the
scheduled maintenance shut. Following the sale of the UK corrugated plants,
sales volumes of corrugated products reduced, however, average sales prices
increased over the previous quarter.
In the Bags & Coatings business, underlying operating profit for the third
quarter was significantly higher than the previous quarter and above that of the
comparable period in the prior year. In kraft paper, higher input costs (mainly
wood and energy) were more than offset by increased volumes and selling prices,
with export markets remaining particularly buoyant. The fourth quarter result
will be impacted by planned maintenance shuts at the two largest kraft paper
mills, Steti in the Czech Republic, and Frantschach in Austria.
Selling price increases and stronger volumes were achieved in the industrial
bags business, although this was not sufficient to offset the full impact of
paper input cost rises. Negotiations are underway for the closure of certain
industrial bag plants related to the previously announced acquisition of eight
plants from Smurfit Kappa. Two plants are being closed in Spain and Italy, with
a further two closures in France still under consultation with the relevant
trade unions. A restructuring provision will be recognised as a special item in
this regard.
Profitability in the consumer bags and coatings businesses was lower than that
of the previous quarter mainly due to input cost pressures.
South Africa Division
The South Africa Division`s underlying operating profit for the third quarter
was significantly better than that of the previous quarter, largely due to
ongoing cost saving initiatives and increased pulp sales volumes. The
previously announced mothballing of the 120,000 tonne uncoated fine paper
machine at Merebank was completed during the third quarter and the benefits from
this restructuring are expected to be realised from the fourth quarter onwards.
The fourth quarter will however be negatively impacted by a planned maintenance
shut of the Richards Bay facility.
Domestic uncoated fine paper (UFP) demand remained stable, with selling prices
largely unchanged quarter on quarter.
Mondi Packaging South Africa (MPSA)
The underlying operating profit for the third quarter was above that of the
second quarter and of the comparable period in 2009 mainly due to increased
sales volumes and ongoing cost saving initiatives. Sales price increases are
expected to take effect during the fourth quarter of the year which is also
traditionally stronger due to seasonal variations. The euro result was enhanced
on translation by a stronger rand versus the comparable period.
Newsprint
Europapier delivered underlying operating profit in the third quarter in line
with that of the previous quarter. The structurally weak European newsprint
market, compounded by rising input costs, resulted in a further reduction of
underlying operating profit at Aylesford Newsprint. Mondi Shanduka Newsprint
remained under pressure due to lower domestic demand and increasing commodity
input costs.
Input Costs and Currency
Although input costs remain elevated, at or near their highs for the year, the
rapid increases in raw material costs experienced in the previous two quarters
are showing signs of slowing. Monthly average benchmark prices of pulp and
recovered paper in the third quarter remained relatively unchanged with hardwood
pulp reflecting a slight reduction in recent months. Wood prices continued to
increase, although at a more moderate pace than in the first half of the year.
Following the mothballing of the 120,000 tonne uncoated fine paper machine at
Merebank in South Africa and the completion of the Syktyvkar modernisation, the
Group is essentially balanced in respect of its pulp production and consumption,
being net short about 30,000 tonnes.
Recent currency volatility, as detailed below, impacts the profitability of the
Group in the following ways:
* The weakening of the Russian rouble against the euro is supportive of paper
prices in the domestic market, although there is a negative translation
effect into euro.
* The Czech koruna and Polish zloty have strengthened in recent months versus
the euro, with a detrimental effect on the export competitiveness of
operations in those countries.
* The continued strength of the rand against the US dollar places severe
pressure on export sales margins from the South Africa Division.
* The recent strengthening of the euro against the US dollar may have a
negative impact on pricing in Europe for products influenced by global
trade flows. The Group also has some direct transactional exposure to the
US dollar, albeit relatively limited.
Capital Expenditure
Excluding the major capital projects in Russia and Poland, capital expenditure
as a percentage of depreciation is running at 54% year-to-date, reflecting a
continued conservative investment approach. Some limited additional investments
have been approved by the board and this percentage is expected to increase
somewhat over the remainder of the year.
Finance Charges
Finance charges increased in the third quarter versus the previous quarter
mainly due to non-recurring foreign exchange gains recorded in the first half.
Borrowing costs are broadly in line quarter on quarter with marginally lower net
interest costs offset by a reduction in borrowing costs capitalised, following
completion of the Syktyvkar modernisation. Approximately 70% of the Group`s net
debt is at fixed rates of interest.
Summary
The business will continue to benefit from the optimisation of the major capital
investment projects in Poland and Russia.
The current trend in foreign exchange rates is of concern. Notably, the
continued strengthening of emerging market currencies is impacting on the
relative competitiveness of the Group`s businesses located in these markets,
while the recent weakness of the US dollar versus the euro may undermine pricing
in Europe for a number of the Group`s products.
Overall, the price increases achieved to date in all of the Group`s key grades,
together with the ongoing initiatives to contain cost increases, should see the
business continue to deliver a strong performance in the final quarter of the
year.
Contact details:
Mondi Group
David Hathorn +27 (0)11 994 5418
Andrew King +27 (0)11 994 5415 / +44 (0)1932 826 321
Lora Rossler +27 (0)11 994 5400 / +27 (0)83 627 0292 /
+44 (0)1932 826 321
Financial Dynamics
Richard Mountain +44 20 7269 7186 / +44 20 7909 684 466
Chloe Webb +27 (0)11 214 2421
Conference call dial-in details
Please see below details of our operator assisted dial-in conference call that
will be held at 10.00 UK time and 12.00 SA time on Monday 1 November.
The conference call dial-in numbers are:
South Africa 0800 200 648 (toll free)
UK 0800 917 7042 (toll free)
Europe & Other 00800 246 78 700 (toll free)
Editors` notes
Mondi is an international paper and packaging company, with production
operations across 31 countries and revenues of Euro5.3 billion in 2009. The
Group`s key operations are located in central Europe, Russia and South Africa
and employed 31,000 people on average in 2009.
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 and
industrial bags.
The Group is principally involved in the manufacture of uncoated fine paper
(UFP), packaging paper and converted packaging products, as well as speciality
products.
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 performance through its inclusion in the
FTSE4Good UK, Europe and Global indices in 2008 and 2009 and the JSE`s Socially
Responsible Investment (SRI) Index in 2007, 2008 and 2009.
1 November 2010
Sponsor: UBS South Africa (Pty) Ltd
Date: 01/11/2010 09:00:01 Supplied by www.sharenet.co.za
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