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MONDI LIMITED - Mondi Group: Interim Management Statement 8 October 2015

Release Date: 08/10/2015 08:00
Code(s): MND MNP     PDF:  
Wrap Text
Mondi Group: Interim Management Statement 8 October 2015

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 8 October 2015

This interim management statement provides an overview of the financial
performance and financial position of the Group since the half-year ended 30 June
2015, based on management information up to 30 September 2015 and estimated
results for October 2015. These results have not been audited or reviewed by
Mondi’s external auditors.

Reviewed results for the year ending 31 December 2015 will be published on or
around 25 February 2016.

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 2015 up to the date of this
statement.

Group Performance Overview

Third quarter underlying operating profit of €221 million was 27% above the
comparable prior year period (€174 million) with a good performance from all
business units and strong incremental contributions from Packaging Paper,
Uncoated Fine Paper and the South Africa Division. As anticipated, underlying
operating profit was 13% lower than the second quarter, reflecting the impact of
planned maintenance shuts in a number of key operations and the usual seasonal
slowdown in demand in certain segments.

Selling prices in local currency terms for most of the Group’s key paper grades were
generally stable to higher versus both the second quarter and the comparable prior
year period. Like-for-like sales volumes were up on the comparable prior year period
with the exception of kraft paper, which was impacted by softer demand in certain
export markets and the closure of the Lohja plant in the first half.

Among the key input costs, wood, energy and chemical costs remained stable in
local currency terms, while average benchmark European paper for recycling costs
rose by 13% over the previous quarter. Polyethylene prices remain volatile, with the
average price level higher than the prior quarter.

There was a mixed impact in the period from currencies to which the Group is
exposed. The South Africa Division benefited from the weaker rand against both the
US dollar and euro while the weakening of the Russian rouble during the third
quarter had a net negative translation effect on the profits from the domestically
focused uncoated fine paper business.

During the third quarter, a number of planned maintenance shuts took place at
various containerboard, kraft paper and uncoated fine paper operations. In the
fourth quarter, maintenance shuts are planned at the Group’s Swiecie and Steti mills.
For the full year, based on prevailing selling prices, the impact of maintenance shuts
on underlying profit is still expected to be around €90 million, of which the third
quarter effect was around €35 million (€70 million year-to-date).

Divisional Overview

In Packaging Paper, the containerboard business benefited from higher average
selling prices versus both the comparable prior year period and the previous quarter,
offset in part by higher paper for recycling costs. Average benchmark European
virgin containerboard prices increased by 2% and recycled containerboard by 5%
over the previous quarter as previously announced price increases came into effect.
Demand remains good in all grades.

While European kraft paper markets remain stable, sack kraft export volumes are
under some pressure due to a combination of political instability in the middle-east
and north Africa and a slowdown in demand in certain south-east Asian markets.

The Fibre Packaging business benefited from volume growth and a reduction in
fixed costs versus the comparable prior year period as a result of commercial
excellence initiatives and the benefits of completed restructuring activities.
Corrugated Packaging margins were negatively impacted by rising recycled
containerboard input costs. The integration of the bags business acquired in the US
continues to progress according to plan. The expected seasonally weaker demand
in Industrial Bags will lead to lower profitability in the fourth quarter compared to the
third quarter.

The Consumer Packaging business continues to make good progress with higher
like-for-like sales volumes and improved margins versus the comparable prior year
period. During the quarter, the sale of non-core operations in Germany and
Malaysia was completed, in line with the Group’s strategy of focusing on higher-
value added segments. In September, the Group announced that it had signed an
agreement for the acquisition of Ascania nonwoven Germany GmbH for €45 million,
strengthening Mondi’s position as a preferred supplier of hygiene components.
Completion remains subject to competition clearance.

Uncoated Fine Paper was impacted by the usual seasonal weakness in the third
quarter, planned maintenance shuts and the weaker Russian rouble. Average
European benchmark selling prices were up around 1% over the previous quarter.
Price increases of between €25/tonne and €50/tonne depending on grade were
successfully implemented in Europe during the quarter, while a price increase of 5%
has been announced for the Russian market from October. The unintegrated mills in
Austria remain under pressure from higher euro pulp prices.

The South Africa Division benefited from higher average domestic selling prices,
higher export prices for hardwood pulp and currency gains. As anticipated, fair value
gains on forestry assets were lower than both the previous quarter and the
comparable prior year period.

Capital investment projects

Good progress is being made on the Group’s major capital investment projects
although the ramp-up of the recently rebuilt paper and in-line coating machine at the
Group’s Steti mill in the Czech Republic is slower than anticipated. As a
consequence, the Group expects to deliver an incremental €50 million contribution
(previously €60 million) to underlying operating profit in 2015 from its capital
investment programme.

In July 2015, the first phase of the €166 million Swiecie recovery boiler project in
Poland was commissioned according to schedule, and a number of the smaller
projects intended to modernise some packaging paper and converting operations
have been completed and are in the process of ramp-up and optimisation.

Cash flow and financing activities

Strong cash generation from operating activities more than offset the cash outflows
related to the Group’s capital expenditure programme and financing activities,
resulting in a reduction in net debt during the quarter, with further deleveraging
expected by the end of the year.

Finance charges were lower than that of the preceding quarter and the comparable
prior year period, primarily due to lower average net debt levels and a reduction in
exposure to higher-cost Russian rouble denominated debt.

There have been no significant changes in the Group’s borrowing facilities since 30
June 2015.
Summary

The Group continues to deliver strongly, benefiting from stable to higher selling
prices in a number of key grades and the contributions from its capital investment
programme. Currency volatility has had a limited impact on the Group, while costs
remain generally stable. With our robust business model, clear strategic focus and
culture of continuous improvement, management remains confident of continuing to
deliver industry leading performance and making good progress for the year.

Capital Markets Day
On 3 November 2015 Mondi will host a Capital Markets Day in London to give
investors and analysts further insight into Mondi’s business, growth strategy and
capital expenditure programme. Presenters will include the Group Executive
Committee and CEOs of the Group’s primary business units. All presentations will
be made available on the Group’s website.

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

Roger Newby                                           +44 20 3727 1385

Conference call dial-in details

Please see below details of our dial-in conference call that will be held at 8:00 (UK) and 9:00
(SA).

The conference call dial-in numbers are:

South Africa           0800 200 648 (toll-free)

UK                     0808 162 4061 (toll-free)

Europe & Other         +800 246 78 700 (toll-free) or +27 10 201 6800

Should you have any issues on the day with accessing the dial-in conference call, please
call +27 11 535 3600.

A replay facility will be available until 30 October 2015. Dial in: +27 (0)11 305 2030, Pin no:
39019#
Editors’ notes

We are Mondi: In touch every day

Mondi is an international packaging and paper Group, employing around 25,000 people
across more than 30 countries. Our key operations are located in central Europe, Russia,
North America and South Africa. We offer over 100 packaging and paper products,
customised into more than 100,000 different solutions for customers and end consumers. In
2014, Mondi had revenues of €6.4 billion and a return on capital employed of 17.2%.

The Mondi Group is fully integrated across the packaging and paper value chain - from
managing forests and producing pulp, paper and compound plastics, to developing effective
and innovative industrial and consumer packaging solutions. Our innovative technologies
and products can be found in a variety of applications including hygiene components, stand-
up pouches, super-strong cement bags, clever retail boxes and office paper. Our key
customers are in industries such as automotive; building and construction; chemicals; food
and beverage; home and personal care; medical and pharmaceutical; packaging and paper
converting; pet care; and office and professional printing.

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.

For us, acting sustainably makes good business sense. We don’t just talk about
sustainability; we make it part of the way we work every day. We have been included in the
FTSE4Good Index Series since 2008 and the JSE's Socially Responsible Investment (SRI)
Index since 2007.

8 October 2015

Sponsor in South Africa: UBS South Africa (Pty) Ltd

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