| Wed 14 Nov 2007, 9:00 | | MND/MNP - Mondi Limited - Interim management state |
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MND/MNP - Mondi Limited - Interim management statement
Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND & ISIN: ZAE000097051
Mondi plc
(Incorporated in England and Wales)
(Registration number: 6209386)
JSE share code: MNP & ISIN: GB00B1CRLC47
Mondi Group: Interim Management Statement
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.
This statement provides an update on the Group`s progress since the half
year, based on trading up to 14th November and precedes the announcement on
28th February 2008 of full year results for the year ending 31st December
2007.
Group Overview
The positive trends and trading momentum of the first half have continued
into the second half particularly in Mondi Packaging and price increases
have been achieved in Mondi Business Paper in line with expectations.
Divisional Overview
Mondi Packaging
Mondi Packaging has continued to benefit from an improved trading
environment. Packaging paper volumes and prices have continued to increase
and trade above prior year in all major paper grades. As expected, while
paper prices have continued to increase, there are signs that prices are now
leveling off, albeit at good levels. The paper supply demand balance
remains favourable with ongoing growth in demand (particularly in emerging
markets) and only limited new capacity expected until 2009. Although price
increases in downstream converting have kept pace with input cost pressures
(mainly paper), we continue to seek further price increases.
Mondi Business Paper
Sales volumes in the second half are likely to be lower than the comparable
period as Mondi took additional downtime due to softness in order intake
over the summer period (as a result of de-stocking across the distribution
channels) resulting in a production reduction of circa 75,000 tonnes versus
35,000 tonnes as previously indicated. However, order intake has now picked
up and selling prices have continued to rise with an October price increase
of circa 3-4% realised. Following the recent capacity closures in the
industry, the supply demand balance in Europe continues to improve with
reasonable demand growth (particularly in emerging markets) and no
significant new capacity is expected until 2009/10. The headbox of the PM31
paper machine (located at Merebank, South Africa) was successfully modified.
The recent forest fires in South Africa, the worst in recent history, saw
around 13,000 hectares of Mondi forest affected for which the likely cost to
the group is expected to be circa Euro5m.
Mondi Packaging South Africa (MPSA)
The second half is the seasonally stronger period for MPSA and this, coupled
with the consolidation of the Lenco acquisition from 4th July 2007 should
see results in the second half in local currency well up on the first half.
Merchant and Newsprint
At Europapier, the favourable demand and pricing environment in the first
half have continued into the second half. At Aylesford Newsprint results
have benefited from lower input costs and at Shanduka Newsprint volumes and
pricing remain firm.
Input Costs and Currency
Following the sharp increase in external fibre costs (wood, pulp and
recycled fibre) in the first half, fibre costs are now more stable.
However, given Mondi`s Russian and South African wood resources, we are
better able to mitigate the impact of wood cost inflation on the Group.
The continued weakness of the US dollar has led to an increase in imports
and a reduction in exports for most paper grades. However the lower net
export dependency of UCWF and Containerboard (circa 5% versus 20% for most
coated and graphic paper grades) will limit the impact of the weak dollar.
Importantly, our results continue to benefit from Mondi`s ongoing focus on
cost reductions, productivity improvements and our emerging market focus
which provides higher growth at a competitive cost. As at 30th June 2007
circa 61% of Mondi`s asset base was in emerging markets.
Restructuring
In line with Mondi`s continued programme of reviewing and rationalizing its
operating base, Mondi Packaging will book a circa Euro25m restructuring
charge (of which Euro20m will be a cash cost) in the second half (to be
taken against underlying operating profits) which will see 6 converting
plants in Western Europe closed or downsized and around 350 jobs cut. The
payback on the restructuring charge should be within two years.
On 18th October 2007 Mondi announced an organisational change, the effect of
which will be improved effectiveness and efficiency by eliminating
duplication across the Group. The main change with effect from 1st January
2008, will be to replace the current Mondi Packaging and Mondi Business
Paper Business Units with a Europe and International Division and a South
African Division. The costs of this restructuring, which will see a
reduction in overhead costs, have not yet been finalised but are not
expected to be significant in 2007, with further costs in 2008 being offset
by reduced overheads in the same year.
Major Projects
Good progress continues to be made on the new 470,000 tonne recycled
containerboard machine and related Box plant (likely to be located at
Swiecie in Poland) at a total estimated cost of Euro350m. The main machine
orders have now been placed and we remain on track for completion in the
second half of 2009. We anticipate this machine will have the lowest
operating cost of its type.
The project to modernise our Russian mill at an estimated cost of Euro525m
is also making good progress and remains on schedule for completion during
2010. Key value drivers of this project are to lower our cost base in
Russia, improve efficiency, increase energy production and revenue by
selling surplus energy to the grid as well as providing some extra capacity
(both pulp and paper) for the strongly growing domestic market.
These projects will further strengthen Mondi`s exposure to emerging markets
and will be financed from internal cash generation. Both provide exciting
growth prospects for the group.
Acquisitions
A key part of Mondi`s strategy is to grow by acquisition. To this end,
several acquisitions have been completed this year, Lenco, Unterland and
Tire Kutsan (which resulted in Mondi becoming the leading corrugated player
in emerging Europe).
The impact of recent acquisitions in the second half is likely to be
marginally earnings dilutive (post tax) as the initial profit contribution
is more than offset by the related finance charges. We anticipate that
these businesses will be earning accretive in 2008 as they are integrated
into Mondi and deliver on their potential.
Borrowings and Finance Charges
Group borrowings, as expected, will increase in the second half as the rate
of capital expenditure picks up (several capital projects were completed
during scheduled summer maintenance shuts at the major paper mills) and the
Group has completed several acquisitions (primarily Tire Kutsan, Unterland
and Lenco) with a combined debt free enterprise value of Euro364m.
Interest rates have also risen, particularly in South Africa where the
Reserve Bank bench mark repurchase base rate has increased by 150 basis
points from 9.0% in May to 10.5% currently.
The net result of higher borrowings and interest rates is that finance
charges in the second half will be significantly up on the first half.
Summary
Mondi`s performance continues to improve reflecting our favourable product
mix, emerging market exposure and competitive cost position. Overall,
despite booking a circa Euro25m second half restructuring charge, Mondi
anticipates good progress for the year as a whole with earnings in line with
management expectations.
Contact details:
Mondi Group
David Hathorn +27 11 638 2231
Paul Hollingworth 01932 826 326
Financial Dynamics
Richard Mountain 020 7269 7186 / 07909 684466
Louise Brugman +27 11 214 2415 / +27 83 504
1186
A conference call with David Hathorn and Paul Hollingworth will take place
on 14 November 2007 at 9.00am GMT. To obtain dial-in details please call
Elaine Ryman at Financial Dynamics on 020 7269 7121. The call will be
recorded and a replay service will be available later on 14 November 2007.
14 November 2007
Sponsor: UBS
Date: 14/11/2007 09:00:36 Produced by the JSE SENS Department.
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