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Mondi Group: Interim Management Statement 31 October 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)
(Registered 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 2012
This interim management statement provides an update on the financial
performance and financial position of the Group since the half-year ended 30 June
2012, based on management accounts up to 30 September 2012 and estimated
results for October 2012. These results have not been audited or reviewed by
Mondi’s external auditors.
Audited results for the year ending 31 December 2012 will be published on or around
21 February 2013.
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 2012 up to the date of this statement.
Group Performance Overview
Underlying operating profit for the third quarter ended 30 September 2012 was
EUR135 million (year to date EUR405 million, 2011 EUR490 million) in line with that
of the comparable prior year period (Q3 2011 EUR136 million) and below that of the
prior quarter (Q2 2012 EUR150 million). This was in line with expectations and
reflects a stable trading environment considering the impact of the traditionally
weaker European summer months, annual maintenance shuts at a number of the
Group’s larger operating sites during the quarter and ongoing strong cost
containment.
Sales volumes were, on average, similar to those achieved in the previous quarter
but above those of the comparable prior year period, although demand in the
downstream converting operations was below that of the prior year. Third quarter
average benchmark selling prices across all grades were below those of the
comparable prior year period. Selling price increases were realised in kraft paper
during the quarter and price increases for containerboard are effective from early in
the fourth quarter of 2012.
On average, input costs in the third quarter were similar to the previous quarter and
below that of the comparable prior year period. Benchmark recovered fibre costs
decreased by 23% in the quarter and were 30% below the comparable prior year
period. As a result of the anticipated start-up of new recycled containerboard
capacity in Poland in early 2013, regional market pressure on recovered fibre costs
is expected in the near term.
The weaker South African rand and stronger US dollar versus the euro benefited
mainly the South Africa division and, to a lesser extent, the Packaging Paper
business.
During the quarter, all conditions precedent for the acquisition of Nordenia
International AG were met and, with effect from 1 October 2012, the Group acquired
a 99.93% interest in Nordenia for a cash consideration of EUR259 million.
As part of its continuing focus on its core businesses, the Group concluded the sale
of its 50% share in Aylesford Newsprint to The Martland Holdings on 2 October
2012. The shares were sold for a nominal consideration following recapitalisation of
the business. The net cash flow effect of the transaction was a EUR17 million
outflow, while the estimated loss on disposal was EUR71 million. Following the sale
of Aylesford Newsprint, the Group has restructured its reporting in South Africa to
combine the Mondi Shanduka Newsprint joint venture into the South Africa division.
Divisional Overview
Europe & International
As indicated in the half-year end results, following the completion of the acquisition
of Nordenia, the Group has rearranged its Europe & International business into four
segments: Packaging Paper, Fibre Packaging, Consumer Packaging and Uncoated
Fine Paper. The commentary that follows is based on these new reporting segments.
Packaging Paper performed well during the period benefiting from continued strong
cost containment. Underlying operating profit was at similar levels to the second
quarter, although still below that of the comparable prior year period.
Average benchmark selling prices for the quarter for virgin containerboard were
approximately 3% higher than the previous quarter, white-top containerboard selling
prices were largely unchanged whilst average prices for recycled containerboard
were well below those of the previous quarter (9% lower), on the back of lower
recovered fibre input costs (23% lower). Containerboard prices remain well below
the levels of the previous year. During the quarter, sales volumes were negatively
impacted by the planned maintenance shut at Swiecie, but demand remained at
similar levels to the previous period. On the back of supply contraction in the virgin
containerboard market and stable demand, selling price increases have been
negotiated across all containerboard grades, the benefits of which are expected to
be realised in the fourth quarter of the year.
Price increases for sack kraft paper took effect from July 2012. Good demand
continued to be seen in export markets offsetting ongoing weakness in southern
Europe. The major annual maintenance shuts in this segment are planned for the
fourth quarter when demand in the downstream businesses is traditionally lower.
Fibre Packaging performed well during the quarter with underlying operating profit
well above the comparable prior year period and similar to that achieved in the
previous quarter, benefiting from a comprehensive commercial excellence project
leading to improved margin management and strong cost containment as well as
non-recurring income of EUR3 million from the sale of land. Selling prices were at
similar levels to those of the previous quarter whilst sales volumes were lower than
the previous quarter and those achieved in the comparable prior year period. Input
costs were relatively stable, with the main paper price increases only starting to take
effect in the fourth quarter.
The industrial bags business benefited from stable demand in northern Europe and
good demand in non-European markets, offsetting the impact of the weaker southern
European markets. Restructuring activities in light of the structurally weaker demand
are currently being evaluated for implementation during the fourth quarter of 2012.
Higher paper input costs and seasonally weaker demand will impact returns in the
fourth quarter.
Corrugated packaging enjoyed the benefits of lower recycled containerboard prices
in the third quarter, although margins are expected to come under some pressure in
the fourth quarter on the back of generally higher paper input prices.
Performance in the Coatings business remained stable, albeit still below our
expectations due to low returns from the US business, impacted by the start-up of a
new plant.
In September 2012, Mondi concluded an agreement with Duropack GmbH to acquire
two corrugated box plants in Germany and the Czech Republic, consuming 130,000
tonnes containerboard per annum, and a 105,000 tonne recycled containerboard mill
in the Czech Republic for a consideration of EUR125 million. The acquisition is in
line with the Group’s strategy to strengthen its leading position in corrugated
packaging in central and eastern Europe. The transaction remains on track for
completion during the fourth quarter.
Consumer Packaging delivered steady returns with underlying operating profit
similar to that of the previous quarter. Sales volumes were higher than the
comparable prior year period whilst sales prices were largely unchanged.
The acquisition of Nordenia with effect from 1 October 2012 will significantly
enhance this business. Integration activities are progressing well and all closing
activities have been completed. The focus in the near term will be on integrating
Nordenia into Mondi, aligning processes and refining and implementing the expected
synergy benefits.
Uncoated Fine Paper continues to deliver strong results despite a generally difficult
trading environment, driven by a cost reduction programme. Underlying operating
profit for the quarter was above that of the comparable prior year period but below
that of the second quarter, due to the normal seasonal summer slowdown and
planned maintenance shuts at Neusiedler and SCP Ruzomberok. Benchmark
selling prices were slightly higher than the previous quarter, at similar levels to those
achieved in the previous year, whilst sales volumes remained at similar levels to the
comparable prior year period. Although wood costs were largely unchanged, some
relief was seen towards the end of the third quarter.
The anticipated start-up of a new paper machine in Russia in early 2013 as well as
the phased reduction in import duties following Russia’s integration into the World
Trade Organisation over a four year period starting in 2013 will impact this business.
Ongoing cost optimisation initiatives in Russia will seek to mitigate any potential
margin pressure.
South Africa Division
South Africa Division (including Mondi Shanduka Newsprint) benefited from a
positive domestic trading environment and the weaker South African rand.
Operating profit was slightly lower than the comparable prior year period and below
that of the immediately preceding quarter primarily due to inventory build leading up
to, and the impact of, a planned maintenance shut at Richards Bay which was
concluded early in October.
A recent increase in domestic pulpwood prices will result in an estimated additional
EUR10 million gain on fair value of forestry assets in the income statement in the
fourth quarter, based on prevailing wood prices.
Financial position
Net debt was EUR1,188 million at the end of the quarter, down EUR85 million on the
half-year. The acquisitions of Nordenia and the Duropack corrugated assets as well
as the disposal of Aylesford will increase net debt in the fourth quarter of 2012.
On 21 September 2012, Mondi successfully launched a 3.375%, 8-year,
EUR500 million Eurobond maturing in September 2020. The Group also cancelled
its unutilised EUR250 million bridging facility arranged specifically for the acquisition
of Nordenia. On 29 October 2012, Mondi issued an unconditional and irrevocable
guarantee to the holders of the Nordenia bond.
During the quarter, the Group’s investment grade credit ratings of Baa3 (Moody’s
Investor Services) and BBB- (Standard and Poor’s) were reaffirmed.
The Group continues to be strongly cash generative and working capital levels
remain within the Group’s targeted range. Capital expenditure increased during the
period compared to the previous quarter due to the preponderance of maintenance
shuts during the period as well as increased spending on the energy improvement
projects. Total capital expenditure for the year is expected to be around 90% of the
Group’s annual depreciation charge.
Finance charges during the period were lower than the previous quarter on both
lower average net debt and lower effective interest rates, but are expected to
increase in the fourth quarter as net debt rises following the completion of the
Nordenia and Duropack acquisitions.
The average maturity of the Group’s committed debt facilities at 30 September 2012
was approximately 5 years. The Group had available EUR941 million of committed,
unutilised borrowing facilities at 30 September 2012, immediately preceding the
completion of the Nordenia transaction.
Summary
Price increases in the main packaging paper grades offer support for the remainder
of the year. Looking further forward, continued soft demand on the back of the
prevailing macroeconomic uncertainties and some additional capacity expansions in
certain of our core markets remain a concern, although it is encouraging to note that
the strong supply side fundamentals remain generally intact.
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 packaging and paper Group, with production operations across 29
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 Group employed
23,400 people.
Mondi Group 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 paper 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 Group 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 Global, European and UK Index Series
(since 2008) and the JSE's Socially Responsible Investment (SRI) Index since 2007. The
Group was also included in the FTSE350 Carbon Disclosure Leadership Index for the
second year.
Sponsor in South Africa: UBS South Africa (Pty) Ltd
Date: 31/10/2012 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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