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MND/MNP - Mondi Limited/Mondi plc - Mondi Group: Interim Management Statement
3 May 2012
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 3 May 2012
This interim management statement provides an update on the financial
performance and financial position of the Group since the year ended 31
December 2011, based on management accounts up to 31 March 2012 and estimated
results for April 2012, which have not been audited or reviewed by Mondi`s
external auditors.
Reviewed results for the half year ending 30 June 2012 will be published on or
around 7 August 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 31 December 2011 up to the
date of this statement.
Group Performance Overview
Overall performance for the first quarter 2012 was in line with our
expectations. As anticipated, the generally weaker trading environment seen
towards the end of the prior year continued into the early part of the first
quarter. The Group`s underlying operating profit of EUR120 million in the
period was below that achieved in the previous quarter (2011 Q4: EUR132
million) and below that achieved in the strong trading environment prevalent
in the comparable prior year period (2011 Q1: EUR179 million).
Pleasingly, following the low levels of demand seen towards the end of the
previous quarter and into the early part of 2012, there was a clear trend of
improving demand through the period under review, such that, on average, sales
volumes were higher than the previous quarter across all paper grades.
Similarly, although selling prices across all major paper grades were on
average lower than those achieved in the previous quarter, a trend of
improving prices towards the end of the quarter was evident. The benefits of
these improving prices, partly offset by rising fibre input costs, are
expected to be realised from the second quarter onwards.
Average input costs were lower than the prior quarter, but increased during
the period with closing benchmark prices being higher than those at 31
December 2011. Benchmark hardwood pulp prices had increased by 15% at 31
March 2012 from 31 December 2011 levels and recovered paper increased by 30%
over the same period. Wood costs remained at similar levels to those of the
previous quarter.
Most emerging market currencies to which the Group is exposed as a net
exporter were slightly weaker against the euro when compared to the previous
quarter, providing a small positive contribution to the Group`s performance.
Divisional Overview
Europe & International
The Uncoated Fine Paper (UFP) business continued to perform very strongly,
albeit at somewhat lower levels of profitability than in the comparable prior
year period. Underlying operating profit was in line with that of the
previous quarter with higher sales volumes being offset by lower average
selling prices. Price increases of approximately 4% have been announced and
are expected to take effect from May, supported by firming pulp prices. Lower
fibre input costs during the period were largely offset by higher energy and
transportation costs. The Syktyvkar annual maintenance shut will take place
during June 2012.
Underlying operating profit in the Corrugated business was well below the
comparable prior year period and below that achieved in the previous quarter.
This was largely attributable to lower average containerboard selling prices
as well as some commercial downtime as a result of weak demand for virgin
containerboard in the early part of the year. Average benchmark selling
prices were 6% lower for virgin containerboard products and 7% lower for
recycled containerboard grades compared to the previous quarter. The business
successfully implemented price increases during February and March. These have
gone some way to recover the price erosion seen towards the end of 2011,
although this has not lead to significant margin expansion in the recycled
containerboard operations due to the concomitant rise in recycled paper input
costs. Further price increases for all containerboard grades have been
announced to take effect in the second quarter.
Lower paper input costs combined with a small increase in sales volumes have
benefited the corrugated packaging business resulting in improved
profitability.
During April 2012, the tender offer to acquire the 34% non-controlling
interest in Mondi Swiecie was concluded, resulting in Mondi`s shareholding
increasing to 93.2%. A process has been implemented to acquire the remaining
shares from those shareholders who did not respond to the initial offer.
Mondi Swiecie has acquired the power and heat generating plant which provides
most of its electricity requirements and all of its heat and steam needs with
effect from 2 May 2012, for an enterprise value of approximately EUR100
million (subject to a claim of approximately EUR9 million against the selling
party, Polish Energy Partners S.A.).
In the Bags & Coatings business, underlying operating profit was well below
the comparable prior year period and at similar levels to that achieved in the
final quarter of 2011.
In the kraft paper segment, significantly lower prices were agreed on contract
volumes for the new year, giving rise to lower average net selling prices in
the quarter than achieved in the final quarter of 2011. Furthermore, ongoing
demand weakness in the early part of the year, largely due to destocking, led
to the business taking further downtime at certain of its operations in order
to manage inventory levels, albeit significantly less than in the fourth
quarter of 2011. The destocking process now appears to have come to an end,
with order books improving throughout the quarter and no further downtime
currently anticipated. Spot prices have also started to increase on the back
of improving demand, with the expectation of further price recovery in non-
contracted volumes as the year progresses. Price increases of up to 10% have
been announced effective from June.
The weaker end user demand and customer destocking also impacted volumes in
the industrial bags segment when compared to the comparable prior year period.
Volumes are expected to improve going into the seasonally stronger European
summer months. Sales prices were slightly higher than the comparable prior
year period, offsetting higher paper input costs.
The coatings & consumer packaging business continued to be impacted by weaker
volumes in certain industrial product segments, but order books are improving
and operating profit was higher than that achieved in the final quarter of
2011.
South Africa Division
The South Africa Division`s underlying operating profit was well down on the
comparable prior year period and the final quarter of 2011. Domestic sales of
uncoated fine paper and pulp improved whilst export sales of white-top
containerboard saw both lower average selling prices and weaker volumes due to
ongoing destocking in Europe. Lower pulp selling prices severely impacted
returns, although prices have trended upwards from their lows in January 2012,
which should contribute to an improved performance in the second quarter.
Newsprint
The South African business, Mondi Shanduka Newsprint, continued to be impacted
by a rising cost base, largely due to a series of significant electricity
price increases. Selling price increases have been negotiated and are
expected to take effect from the second quarter, restoring this business to a
reasonable level of profitability. The very weak European newsprint market
continued to impact on Aylesford Newsprint`s ability to return to
profitability. Management has implemented restructuring and cost reduction
initiatives and is actively assessing alternatives for this business.
Financial Position
Cash flow from operations remained strong with working capital levels
maintained within the Group`s targeted range (10% to 12% of turnover).
Capital expenditure was at similar levels to that incurred in each of the
previous two quarters of 2011 and is expected to increase during the remainder
of the year as expenditure on the energy and debottlenecking investment
projects start to ramp up.
The financial position of the Group at 31 March 2012 remains robust with net
debt reducing further from 31 December 2011 levels (EUR831 million) to EUR792
million. The successful completion of the tender offer to acquire the non-
controlling interest in Mondi Swiecie S.A., increasing the Group`s holding to
93.2%, resulted in cash outflow of approximately EUR235 million in mid-April.
The squeeze-out of the remaining non-controlling interest is expected to
result in a further outflow of approximately EUR60 million in the second
quarter.
The Group has maintained its investment grade credit ratings from both Moody`s
(Baa3 outlook positive) and Standard & Poor`s (BBB- outlook positive). The
average maturity of the Group`s committed debt facilities is 4.2 years
compared to 4.3 years as at 31 December 2011, with unutilised committed
borrowing facilities in excess of EUR750 million after taking the acquisition
of the Mondi Swiecie S.A non-controlling interest into consideration.
Finance charges are marginally lower than that of the previous quarter and
well below the comparable prior year period, largely as a result of the
reduction in net debt.
Summary
As anticipated, first quarter performance was impacted by generally weaker
pricing and lower volumes, largely due to the continuation of the destocking
witnessed in the prior quarter. While macroeconomic uncertainties remain,
encouragingly, there are clear signs of an improvement in the trading
environment, with volumes recovering and positive pricing momentum witnessed
in most grades over the review period.
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
FTI Consulting
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 28 countries and revenues of EUR5.7 billion in 2011. The
Group`s key operations are located in central Europe, Russia and South Africa
and as at the end of 2011, Mondi employed 23,400 people.
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 since 2008 and the JSE`s Socially
Responsible Investment (SRI) Index since 2007.
3 May 2012
Sponsor: UBS South Africa (Pty) Ltd
Date: 03/05/2012 08:00:03 Supplied by www.sharenet.co.za
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