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Mondi Group: Interim Management Statement 6 November 2013
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 6 November 2013
This interim management statement provides an update on the financial
performance and financial position of the Group since the half-year ended 30 June
2013, based on management accounts up to 30 September 2013 and estimated
results for October 2013. These results have not been audited or reviewed by
Mondi’s external auditors.
Audited results for the year ending 31 December 2013 will be published on or around
28 February 2014.
Except as discussed in this interim management statement, there have been no
significant events or transactions impacting either the financial performance or
financial position of Mondi Group since 30 June 2013 up to the date of this
statement.
Group Performance Overview
Underlying operating profit of EUR172 million for the third quarter ended 30
September 2013 was 25% above the comparable prior year period (EUR138 million),
the result of improved market conditions in Packaging Paper and the South Africa
Division and the benefits from the acquisitions completed towards the end of 2012.
As previously announced, the performance for the quarter was impacted by the
planned annual maintenance shuts at a number of the Group’s larger operating sites.
During the quarter, around half of the maintenance shuts scheduled for the second
half of the year were completed, primarily at the Group’s large European
containerboard and uncoated fine paper mills. The balance of the planned shuts will
take place during the fourth quarter. As previously indicated, the negative impact of
these shuts on the second half 2013 underlying operating profit when compared to
the first half is estimated at around EUR50 million to EUR60 million.
Sales volumes were broadly in line with the comparable prior year period (adjusted
for acquisitions), but below the previous quarter due to the scheduled maintenance
shuts and seasonally weaker demand for uncoated fine paper. The business
benefited from increased recycled containerboard prices during the period, with other
key packaging and uncoated fine paper prices remaining at similar levels to the
previous quarter. Towards the end of the quarter, modest price declines were seen,
particularly in virgin containerboard grades, uncoated fine paper and hardwood pulp.
The net impact of currency movements on underlying operating profit in the third
quarter was limited. The Group generally benefited from weaker emerging market
production currencies to which it is exposed. These gains were largely offset by the
effects of a stronger euro versus the US dollar impacting profitability of US dollar
denominated exports.
Divisional Overview
Europe & International
As anticipated, profitability of Packaging Paper was impacted by the effects of the
planned annual maintenance shuts at the Group’s key containerboard mills during
the period.
Selling price increases were achieved in recycled containerboard grades during the
quarter and further price increases have been announced to take effect in the final
quarter of the year. European virgin containerboard prices were similar to the
previous quarter but have come under modest pressure from increased imports on
the back of the weaker US dollar and substitution by lower priced recycled grades.
In kraft paper, European pricing and sales volumes remained relatively stable
throughout the quarter. While the important export markets also continued to
perform well, the combined effects of increasing competition from other exporters to
these regions and softer demand, caused by political unrest in certain of the
important Middle-East and north African markets, is a concern going into 2014.
In the Fibre Packaging business unit, corrugated packaging remains under
pressure from rising paper input costs. We expect to recover these input cost
increases with the usual lag. In industrial bags, good cost control largely offset
moderate selling price pressure in the third quarter. The fourth quarter will be
impacted by the usual seasonal slowdown. The coatings business remains
challenged by increased competitor capacity and weak demand, particularly in
industrial applications.
Consumer Packaging is benefiting from further realisation of planned synergies
related to the Nordenia acquisition in late 2012 and other cost reduction initiatives.
We are however experiencing some volume and margin pressure in western Europe.
Uncoated Fine Paper was impacted during the third quarter by the planned
maintenance shuts at the Syktyvkar and Ruzomberok mills and the usual seasonal
slowdown in demand. The recent increases in capacity in both France and Russia in
the face of the ongoing structural decline in demand in western Europe and cyclically
softer demand in Russia remain a concern. Benchmark prices at the end of the
quarter were around EUR10 per tonne lower than at the close of the previous
quarter. The business benefited from ongoing cost management, particularly in the
Russian forestry operations, with average wood costs continuing to decrease.
During the quarter, unutilised assets amounting to EUR9 million in the Syktyvkar mill
were written off, recorded as an operating special item.
South Africa Division
The Division has benefited from strong domestic demand, with both sales prices and
volumes increasing during the quarter, as well as the weaker South African rand.
The business was, however, negatively affected by lower average benchmark
hardwood pulp prices towards the end of the quarter. The maintenance shut at the
Richards Bay mill took place during October.
Capital investment projects
Good progress is being made on the Group’s major capital investment projects. The
new recovery boiler at Frantschach was commissioned during the quarter, while the
new steam turbine at Richards Bay and steam turbine and recovery boiler
economiser at Stambolijski are on track for completion by the end of the year. The
other major projects are on schedule for completion during 2014 and 2015. In
September the Boards approved a EUR166 million investment at the Mondi Swiecie
mill in Poland, bringing forward the planned replacement of the recovery boiler and
the mill’s coal fired boilers. Expected to be completed early in 2016, the new
recovery boiler and conversion of the existing recovery boiler to a biofuel boiler will
result in a reduction in ongoing maintenance costs, an improvement in overall energy
efficiency, a reduction in CO2 emissions and provide the mill with future potential
capacity expansion opportunities.
Financial position
Net debt of EUR1,761 million at the end of the quarter reflected a decrease of
EUR83 million from EUR1,844 million at 30 June 2013. The Group benefited from
strong operating cash inflows, offset in part by the expected ramp-up in capital
expenditure and outflows from financing activities, most notably the interim dividend
in September.
Finance charges were similar to those of the previous quarter and above the
comparable prior year period, reflecting the higher average net debt as a
consequence of the acquisitions completed in the fourth quarter of 2012.
The average maturity of the Group’s committed debt facilities at 30 September 2013
was 3.8 years. The Group had EUR797 million of committed, unutilised borrowing
facilities available at 30 September 2013.
Summary
Management remains confident of delivering in line with its expectations for the full
year.
The current low-growth environment, coupled with increased competition in certain
areas of the business presents some challenges going into the new year. However,
this is balanced by the expected benefits from the capital expenditure programme
currently underway, further synergies from the large acquisitions made in 2012, and
ongoing cost containment initiatives. Ultimately, the outlook for 2014 remains
dependent on the nature and extent of the macroeconomic recovery and related
demand for the Group’s key products.
Contact details:
Mondi Group
David Hathorn +27 11 994 5418
Andrew King +27 11 994 5415
Lora Rossler +27 83 627 0292
FTI Consulting
Richard Mountain +44 20 7269 7186
Sophie McMillan +44 20 7909 684 466
Editors’ notes
Mondi is an international packaging and paper Group, with production operations across 30
countries and revenues of EUR5.8 billion in 2012. The Group's key operations are located
in central Europe, Russia, the Americas and South Africa and as at the end of 2012, Mondi
employed 25,700 people.
Mondi Group is fully integrated across the packaging and paper value chain, from the
growing of wood and the production of pulp and paper (packaging paper and uncoated fine
paper), to the conversion of packaging paper into corrugated packaging, industrial bags,
extrusion coatings and release liner. Mondi is also a supplier of innovative consumer
packaging solutions, advanced films and hygiene products components.
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 Carbon Disclosure Project’s (CDP) Carbon Disclosure
Leadership Index for the third year and in CDP’s Carbon Performance Leadership Index
(CPLI) for the first time in 2012.
Sponsor in South Africa: UBS South Africa (Pty) Ltd
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