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Mondi Group: Interim Management Statement 14 May 2014
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 Listings Requirements of the JSE Limited
and/or the Disclosure and Transparency and Listing Rules of the United Kingdom
Listing Authority.
Mondi Group: Interim Management Statement 14 May 2014
This interim management statement provides an update on the financial
performance and financial position of the Group since the year ended 31 December
2013, based on management accounts up to 31 March 2014 and estimated results
for April 2014. These results have not been audited or reviewed by Mondi’s external
auditors.
Reviewed results for the half-year ending 30 June 2014 will be published on or
around 7 August 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 31 December 2013 up to the date of this
statement.
Group Performance Overview
First quarter underlying operating profit of EUR183 million was 13% above the
comparable prior year period (EUR162 million), 14% above the fourth quarter of
2013 (EUR161 million), and in line with management’s expectations.
Sales volumes were broadly in line with the comparable prior year period, and above
the previous quarter, mainly due to the scheduling of maintenance shuts in the
second half of the prior year.
As expected, average selling prices in Europe for all key paper grades were lower
than those in both the prior year comparable period and the previous quarter, with
the exception of recycled containerboard. The corrugated packaging business
benefited from further pass through of prior period recycled containerboard price
increases, while pricing in the South African division was higher than the comparable
prior year period in equivalent currency terms.
There was some increase in key input costs over the quarter, with increases in wood
costs and paper for recycling affecting the European operations. Offsetting these
increases is the benefit from the various energy optimisation projects and
restructuring initiatives completed during the prior year. Furthermore, in the
comparable prior year period, a write-down relating to the value of green energy
credits on hand in Poland, amounting to EUR11 million was recognised.
There were no significant maintenance shuts during the quarter. The majority of the
planned maintenance shuts will take place towards the end of the second quarter
and into the second half of the year. The impact of maintenance shuts on annual
operating profit is estimated to be between EUR50 million and EUR60 million.
Although there has been significant volatility in the key currencies to which the Group
is exposed, the overall weakening trend in the Group’s key operating currencies
against the euro yielded a marginal net benefit. The businesses in Poland and
South Africa were net beneficiaries, given their significant export exposure, but this
was partially offset by the impact of the weaker Russian rouble on the Group’s more
domestically focused Russian businesses.
While the Group remains vigilant of the ongoing political developments in the
Ukraine, to date they have had no material impact on the Group’s operations.
Divisional Overview
Europe & International
As anticipated, profitability of Packaging Paper was impacted by lower average
selling prices in the quarter for virgin containerboard grades and sack kraft paper,
partly offset by higher average recycled containerboard prices.
Supported by good demand, price increases were announced during the quarter for
unbleached kraftliner in the European markets. Negotiations with customers are
ongoing, with a small increase already implemented.
Recycled containerboard prices came under some pressure towards the end of the
quarter and into April, impacted by new capacity entering the market and falling
costs of paper for recycling.
In kraft paper, average selling prices during the quarter were around 3% down on the
previous quarter. Selling price increases for unbleached sack kraft paper have since
been announced on the back of a strong pick-up in demand in the first quarter, with
price increases expected to be realised in the second half of the year when a
number of fixed price contracts come up for renewal.
In the Fibre Packaging business unit, price increases in corrugated packaging have
been realised following the recycled containerboard price increases seen in the
previous quarter. Sales volumes increased versus both the comparable prior year
period and the prior quarter, reflecting improving demand in corrugated packaging
whilst industrial bags benefited from the milder winter and earlier than usual start to
the construction season. Sales volumes in the coatings business improved versus
the prior quarter, reflecting seasonal effects and improving consumer demand.
Consumer Packaging performance has improved from a weak fourth quarter of
2013 benefiting from an improved product mix, despite constrained demand and the
phasing out of mature products in the films and components segment. Trading
conditions, particularly in the core European markets, remain challenging.
Uncoated Fine Paper was impacted by the anticipated price erosion in the
European markets in the first quarter. However, good demand and tighter supply
into European markets following significant capacity closures in the United States
has encouraged the business to announce price increases of approximately 5% in all
European markets.
The weaker Russian rouble had a detrimental impact on the profitability of the
Group’s Russian business. Demand remains stable and price increases have been
implemented in the domestic market, effective from the second quarter.
South Africa Division
The Division continued to benefit from good domestic demand, with selling prices
rising in local currency terms during the quarter. Further benefits were realised from
the weaker South African rand and higher fair value gains on forestry assets.
Benchmark hardwood pulp sales prices came under increasing pressure during the
quarter, with average euro prices around 1% lower than the prior quarter.
Capital investment projects
Good progress is being made on the Group’s major capital investment projects, with
all projects proceeding on schedule and within budget.
A recent highlight was the successful commercial production of bleached kraft paper
from the new 155,000 tonne paper machine at the Steti mill in the Czech Republic in
April, meeting a strong order book. Production will be ramped up over the course of
the year.
Financial position
Net debt of EUR1,580 million at the end of the quarter was EUR41 million lower than
the EUR1,621 million at 31 December 2013. Strong operating cash inflows were
offset by a seasonal increase in working capital and higher capital investment cash
flows as a number of the Group’s strategic investments reach completion.
Finance charges were lower than that of the preceding quarter and the comparable
prior year period, primarily as a result of the lower average net debt.
The average maturity of the Group’s committed debt facilities at 31 March 2014 was
3.5 years. The Group had EUR787 million of committed, unutilised borrowing
facilities available at 31 March 2014.
Summary
The trading environment remains mixed. As anticipated selling prices for a number
of the Group’s key paper grades are currently below those of the prior year.
However, fundamentals in our core markets remain generally solid and price
increases in certain grades are under discussion. Furthermore, the ongoing capital
investment programme is already making an important contribution to the profitability
of the Group, with further projects on track for completion over the course of this
year. As such, we remain confident in the Group’s ability to continue delivering an
industry-leading performance.
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 7909 684 466
Sophie McMillan +44 20 3727 1359
Editors’ notes
Mondi is an international packaging and paper Group, employing around 24,000 people in
production facilities across 30 countries. In 2013, Mondi had revenues of EUR6.5 billion and
a ROCE of 15.3%. The Group's key operations are located in central Europe, Russia, the
Americas and South Africa.
The Mondi Group is fully integrated across the packaging and paper value chain - from the
management of its own forests 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 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’s performance, and the
responsible approach it takes to good business practice, has been recognised by its
inclusion in the FTSE4Good Global, European and UK Index Series (since 2008) and the
JSE's Socially Responsible Investment (SRI) Index since 2007.
Sponsor in South Africa: UBS South Africa (Pty) Ltd
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