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MONDI LIMITED - Mondi Group: Trading update 11 May 2017

Release Date: 11/05/2017 08:00
Code(s): MND MNP     PDF:  
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Mondi Group: Trading update 11 May 2017

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)
LEI: 213800LOZA69QFDC9N34
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 Guidance and Transparency and Listing Rules of the United
Kingdom Listing Authority.

Mondi Group: Trading update 11 May 2017

This trading update provides an overview of our financial performance and financial
position since the year ended 31 December 2016, based on management
information up to 31 March 2017 and estimated results for April 2017. These results
have not been audited or reviewed by Mondi’s external auditors.

Reviewed results for the half-year ending 30 June 2017 will be published on 3
August 2017.

Except as discussed in this update, there have been no significant events or
transactions impacting either the financial performance or financial position of the
Group since 31 December 2016 up to the date of this statement.

Group performance overview

Underlying operating profit for the first quarter of 2017 of €252 million was 6% down
on the comparable prior year period (€269 million). Strong sales volume growth was
more than offset by a significantly lower forestry fair value gain, inflationary cost
pressures and lower average selling prices. Underlying operating profit was up 12%
on the fourth quarter of 2016 (€225 million) as the Group benefited from higher sales
volumes and prices.

Sales volumes grew across the Group’s Packaging Paper, Fibre Packaging and
Consumer Packaging business units compared to the first quarter of 2016. This was
further enhanced by the acquisitions in our Corrugated and Consumer Packaging
businesses during 2016.
Selling prices for the Group’s main paper grades were, on average, below those of
the comparable prior year period as prices decreased over the course of 2016. As
previously highlighted, during the first quarter of 2017, we implemented price
increases across a number of our paper grades, although these had only limited
impact in the quarter.

Wood costs were higher than the comparable prior year period, while benchmark
paper for recycling prices rose sharply, up 17% compared to the first quarter of 2016,
and were at similar levels to the fourth quarter of 2016. Benchmark polyethylene
prices were also higher, on the back of higher crude oil prices. Energy costs
increased due to the weather conditions in Europe and higher energy input costs.
Inflationary cost pressure resulted in higher fixed costs and the depreciation charge
was up due to the impact of the Group’s capital investment programme.

Currency movements had a small net positive impact on operating profit versus the
comparable prior year period and a small net negative impact when compared to the
fourth quarter of 2016.

Planned maintenance shuts were completed in Packaging Paper during the quarter
with an estimated impact on operating profit of €10 million. There were no significant
maintenance shuts during the first quarter of 2016. Based on prevailing market
prices, we continue to estimate that the impact of planned maintenance shuts on
operating profit for 2017 will be around €80 million, of which around €35 million will
be incurred in the first half of the year (€20 million in the first half of 2016).

Divisional overview

In Packaging Paper, average selling prices for containerboard were down on the
comparable prior year period due to price erosion seen over the course of 2016.
Compared to the first quarter of 2016, average benchmark European kraftliner prices
were down 2.7%, recycled containerboard prices were down 5.8%, and white-top
kraftliner prices were marginally down. Supported by strong demand, price increases
were implemented in recycled containerboard, with a cumulative €80/tonne increase
having been achieved by the beginning of the second quarter. In unbleached
kraftliner grades, increases of €50/tonne were implemented towards the end of the
first quarter, while increases of up to €30/tonne in white top kraftliner have been
agreed for implementation in the second quarter of 2017. Given sustained good
demand and a strong order position, we have announced a further price increase of
€50/tonne for unbleached kraftliner grades to take effect during the second quarter of
2017.

Sales volumes for sack kraft paper remained at similar levels to the comparable prior
year period. As previously indicated, selling prices were increased by 3-4% from the
beginning of 2017 in all markets. Demand remains strong, particularly in our export
markets, supporting further price increases during the second quarter of 2017 of
3-4% in our European business and, where not fixed by annual contracts, in
overseas markets.

Our Fibre Packaging business benefited from good volume growth, particularly in
Corrugated Packaging, and a positive contribution from the acquisitions completed
during 2016. Recent paper price increases are impacting margins in the near term,
while strong cost management continues to limit the impact of other inflationary cost
pressures.

Consumer Packaging was impacted by inflationary cost pressures and negative
sales mix effects which were offset by increased volumes and the contributions from
recent acquisitions. Short term profit growth is proving challenging due to low growth
in certain value added product areas.

Uncoated Fine Paper continued to perform strongly despite weaker European
pricing, benefiting from good demand, stable Russian domestic pricing and a
stronger Russian rouble. Average benchmark European selling prices were down
4% on the comparable prior year period. During the first quarter, price increases of
around €15-€25 per tonne were implemented in Europe. Given continued good
demand, a further price increase of up to 6% was announced to be implemented in
Europe during May.

Our South Africa Division was impacted by a significantly lower forestry fair value
gain, lower average export selling prices for both hardwood pulp and white top
kraftliner, and a stronger rand, which more than offset higher average domestic
selling prices.

Capital investment projects

We are making good progress on our capital investment projects. The recently
completed projects in our Richards Bay (South Africa) and Syktyvkar (Russia) mills
are making good contributions. Ramp-up of the rebuilt paper and inline coating
machine in Steti (Czech Republic) remains challenging. Our investment at Swiecie
(Poland) to provide an additional 100,000 tonnes per annum of softwood pulp and
80,000 tonnes per annum of lightweight kraftliner is currently in ramp-up. The
process of obtaining approval for tax incentives and permitting for the proposed new
paper machines at our Steti and Ruzomberok (Slovakia) mills is ongoing and work
has started on the modernisation of the Steti pulp mill.

Cash flow and financing activities

Strong cash generation from operating activities more than offset the cash outflows
related to our capital expenditure programme, acquisitions, and financing activities,
resulting in a reduction in net debt during the quarter.
In April 2017, we redeemed our 5.75% €500 million Eurobond from available cash
and committed undrawn debt facilities. This will result in a lower finance cost charge
for 2017.

There have been no other significant changes in the Group’s borrowing facilities
since 31 December 2016.

Outlook

As previously advised, we are experiencing some inflationary cost pressures across
the Group and the forestry fair value gain is expected to be lower than in 2016.
Supported by good demand, we have successfully implemented price increases in a
number of key paper grades and we expect to continue to benefit from our recently
completed capital projects and acquisitions. We remain confident of making progress
in the year and continuing to deliver industry leading returns.

Contact details:
Mondi Group

Andrew King                                       +27 11 994 5415

Lora Rossler                                      +27 83 627 0292

FTI Consulting

Richard Mountain                                  +44 7909 684 466

Frances Elworthy                                  +44 20 3727 1340

Conference call dial-in details

Please see below details of our dial-in conference call that will be held on 11 May
2017 at 7:30 (UK) and 8:30 (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 31 May 2017. Dial in: +27 (0)11 305 2030.

Pin no: 13034#
Editors’ notes

We are Mondi: In touch every day

At Mondi, our products protect and preserve the things that matter.

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,
end consumers and industrial end uses – touching the lives of millions of people
every day. In 2016, Mondi had revenues of €6.7 billion and a return on capital
employed of 20.3%.

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, superstrong 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 and is 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.



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

Date: 11/05/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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