| Thu 28 Feb 2008, 11:07 | | Mondi preliminary results 31 Dec 07 |
|
MND MNP
MND MNP
MNP / MND - Mondi - Preliminary Results for the Year ended 31 December 2007
and dividend declaration
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
Preliminary Results for the Year ended 31 December 2007
Financial Summary
EUR million, except for % and per share
measures 2007 2006 Change %
Group revenue 6,269 5,751 +9
EBITDA 1 870 726 +20
Underlying operating profit 2 502 377 +33
Underlying profit before tax 3 405 305 +33
Reported profit before tax 382 223 +71
Basic earnings per share (EUR cents) 4 45.4 15.2 +199
Underlying earnings per share (EUR cents) 4,5 46.9 27.0 +74
Headline earnings per share (EUR cents) 4,5 39.5 28.2 +40
Total dividend per share (EUR cents) 23.0 n/a n/a
Cash inflow from operations 957 657 +46
Net debt 1,507 1,479 +2
Group ROCE 6 10.6% 8.1% +31
Highlights:
- Delivered a substantial improvement in financial performance with underlying
operating profit up 33%, underlying earnings per share up 74% and return on
capital employed up by 2.5 percentage points to 10.6%
- Cash inflow from operations up EUR300 million at EUR957 million benefiting
from improved trading and working capital management
- Achieved productivity records at the majority of Mondi`s paper mills and
delivered cost savings of EUR167 million
- Further rationalised and restructured the business including the planned
closure of 140,000 tonnes of uncoated fine paper capacity at Hungarian mill
- Approved and commenced expansion and modernisation projects in Russia and
Poland
- Successful listing of the Mondi Group on the JSE and LSE on 3 July 2007
completing the demerger from Anglo American plc
- Proposed maiden final dividend of 15.7 euro cents per share to give a total
dividend of 23.0 euro cents per share with respect to 2007
David Hathorn, Mondi Group Chief Executive, said:
"Mondi recorded substantial improvements in underlying operating profit, up
33%, underlying earnings per share up 74% and cash flow up 46%. This reflected
improved performances across all business areas as increased pricing, focus on
operational efficiency and the benefits of restructuring actions all
contributed to the financial outcome.
"We believe that Mondi`s leading positions in the emerging markets provide
both cost and growth advantages. Furthermore our focused strategy, obsession
with driving down costs and willingness to react quickly to market conditions
leaves us very well placed to respond to changing economic circumstances.
Therefore, despite the uncertainty surrounding the prospects for the global
economy, we are confident of making further progress in 2008."
1 EBITDA is operating profit of subsidiaries and joint ventures before special
items, depreciation and amortisation.
2 Underlying operating profit is operating profit of subsidiaries and joint
ventures before special items.
3 Underlying profit before tax is reported profit before tax before special
items.
4 The calculation of basic earnings, underlying earnings and headline earnings
per share has been based on the actual number of shares issued on admission to
the Johannesburg and London stock exchanges of 514,137,127 shares adjusted by
weighted average impact of treasury shares held.
5 The Group has presented underlying earnings per share to exclude the impact
of special items, and headline earnings per share in accordance with circular
8/2007 "Headline Earnings" as issued by the South African Insitute of Chartered
Accountants.
6 Group return on capital employed (ROCE) is an annualised measure based on
underlying operating profit plus share of associates net earnings divided by
average trading capital employed.
Contact details:
Mondi Group
David Hathorn +27 (0) 11 994 5418
Paul Hollingworth +27 (0) 11 994 5418
Lisa Attenborough +44 (0) 7 872 672669
From 3 March, please call:
Paul Hollingworth +44 (0) 1932 82 6326
Financial Dynamics
Richard Mountain +44 (0)20 7269 7121 / +44 (0)7909 684 466
Louise Brugman +27 11 214 2415 / +27 83 504 1186
Dial-in audio cast facility will be available via:
South Africa 011 535 3600 or
0800 200 648 (toll-free)
UK 0800 917 7042 (toll-free)
Europe & Other + 41 916 105 600 or
+ 800 246 78 700 (toll-free)
Online audio cast facility will be available via:
http://www.corpcam.com/MondiPrelims2007
password: results
The presentation will be available on line via the above website address one
hour before the audio cast commences at 11am SA time (0900am UK time).
Questions can be submitted either via the dial-in conference call or by email
via the audio cast.
Should you have any issues on the day with accessing the dial-in conference,
please call +27 11 305 2000. Should you have any issues on the day with
accessing the audio cast, please call + 27 12 665 2025.
Editors` notes:
Mondi is an international paper and packaging group and in 2007 had revenues of
EUR6.3 billion. Its key operations and interests are in western Europe,
emerging Europe, Russia and South Africa.
The Group is principally involved in the manufacture of packaging paper and
converted packaging products; uncoated fine paper; and speciality products and
processes, including coating, release liner and consumer flexibles.
Mondi is fully integrated across the paper and packaging process, the growing
of wood and manufacture of pulp (including recycled materials) and paper to
the converting of packaging papers into corrugated packaging and industrial
bags.
Mondi has production operations across 35 countries and had an average of
35,000 employees in 2007.
MONDI`S STRATEGIC ADVANTAGE
Our ability to deliver value for our shareholders is driven by our focus on
performance and in particular our significant exposure to emerging markets,
which enables us to deliver above average growth from a low cost asset base.
Our low cost position is supported by our high level of vertical integration,
being self sufficient in wood, our primary raw material, in two of the lowest
cost timber regions of the world.
Mondi has a clear mission to be the best performing paper and packaging group
in the world. Our strategy to achieve this is simple and has four key drivers:
Leading market positions
We are building on our leading market positions in packaging and uncoated fine
paper (UFP), particularly in emerging markets which offer sustained
above-average growth potential.
High quality, low cost asset base
We aim to be the lowest cost producer in our industry, by selectively investing
in production capacity in lower cost regions and by exploiting the benefits of
upstream integration (including forestry) across our operations. As at 31
December 2007, 65% of Mondi`s asset base was located in emerging markets.
Focus on performance
Continuous productivity improvement and cost-reduction are institutionalised
disciplines at Mondi, deliver ed through a range of business excellence
programmes and rigorous asset management.
Growth
We will continue to target value-enhancing growth through a combination of
organic expansion and acquisitions.
GROUP RESULTS OVERVIEW
In the half year report in August we announced a strong first set of results
with a substantial recovery in operating profit. This recovery continued into
the second half, despite continued pressure from trade flows on the back of the
weakness of the US dollar and high input costs, reflecting the generally
positive trends in our key business segments.
Mondi recorded substantial improvements in sales, up 9%, underlying operating
profit, up 33% and cash inflow from operations, up 46%. Underlying profit of
EUR502 million was up EUR125 million and reflected better performances across
all the main business areas as increased pricing, focus on operational
efficiency and the benefits of restructuring actions all contributed to the
financial outcome. Group operating margins of 8.0% were up 1.4 percentage
points on the prior year (2006: 6.6%) as a result of an improved pricing
environment and the benefits of operational efficiencies, in particular EUR167
million of cost-savings. These positive developments were partially offset by
significant increases in raw materials, particularly the costs of wood, pulp,
recycled fibre and chemicals.
Cash inflow from operations was up EUR300 million at EUR957 million benefitting
from an improved trading result and working capital management. It is
particularly pleasing that average return on capital employed, a key measure of
performance for Mondi, increased from 8.1% to 10.6%, which reflects both
improved profitability and tighter management of our capital employed. While
this improvement is clearly a step in the right direction, current returns
remain unsatisfactory and significant additional cost reductions and further
productivity improvements have been targeted. Furthermore, we remain very
focused on supply-side discipline as an important component of ensuring ongoing
price stability and improvement.
Underlying earnings per share were 46.9 euro cents per share, up 74% on 2006.
The Group is proposing to pay a final dividend of 15.7 euro cents per share
giving a total dividend of 23.0 euro cents per share for the year.
DIVISIONAL OVERVIEW
Mondi Packaging`s underlying operating profit increased by EUR86 million, or
38%, reflecting price increases achieved across all major paper grades,
improved operating performance in the converting operations and achievement of
cost savings of EUR81 million. This improved result was delivered despite EUR17
million in restructuring costs (2006: EUR17 million) incurred as part of the
ongoing rationalisation of our downstream converting assets. Mondi Business
Paper`s underlying operating profit increased by EUR48 million, or 46%,
principally due to a significant turnaround in the South African operations as
well as an improved result from our Russian operations. The result also
benefited from modest increases in paper pricing together with cost reductions
throughout the business of EUR82 million. The improved South African
performance was achieved through a restructuring of the business and a better
operating performance from the PM31 paper machine in Merebank. These
improvements were partially offset by EUR10 million in restructuring costs,
mainly incurred to reduce divisional overheads. Mondi Packaging South Africa`s
underlying operating profit of EUR35 million was up 8% in local currency,
although the reported figure was flat year on year due to translation into
euros at a significantly weaker rand exchange rate. The increase in local
currency was mainly due to good demand and volume growth following a strong
agricultural season in South Africa. Our merchant and newsprint businesses
(profits up EUR11 million, or 38%) benefited from improved pricing and demand
and in the UK from lower energy costs. Corporate costs were EUR20 million
higher, reflecting the cost of Mondi as a listed Group and the creation of
Mondi`s stand alone corporate structure following the demerger from Anglo
American plc.
COST SAVINGS, PRODUCTIVITY AND RIGOROUS ASSET MANAGEMENT
One of our key strengths is our rigorous control of costs at all levels of the
business. Over the past three years we have delivered cumulative cost
reductions of approximately 10% of total cash costs. In 2007 alone we achieved
cost reductions of 3.1% or EUR167 million and this process continues through a
series of ongoing cost-reduction programmes and profit improvement initiatives.
A key to improving profitability is productivity which has improved
substantially. For example, over the last ten years the Group`s bag converting
operations have delivered an 8% compound annual growth in units per employee.
In Poland our Swiecie paper mill has increased output per employee by 24%
compound per annum over the last ten years. In Russia, our Syktyvkar paper mill
has lifted productivity by 13% compound per annum since 2002. Furthermore, in
Slovakia, since the beginning of the decade our Ruzomberok paper mill has
increased productivity by 20% compound per annum.
Where sites do not meet our strict performance criteria they are closed or
divested. For example, in the past six years we have closed two testliner mills
(in the UK and Switzerland), reducing our capacity by 11%. A further 11% of
corrugated packaging capacity has been taken out since 2004. In all, we have
closed four paper machines and 35 packaging converting plants and disposed of a
further 30 converting plants since 2001. These actions not only contribute to
an improvement in Mondi`s overall cost base and asset quality but have also
contributed to supply-side reductions, leading to an improved supply/demand
balance in our respective grades, with resultant margin improvements.
ORGANISATIONAL STREAMLINING
The ongoing focus on performance requires periodic reviews of our
organisational structure. Soon after the demerger we therefore took the
opportunity to conduct such a review, with the aim of further eliminating
duplication, simplifying our processes and aligning our business model across
the Mondi Group. From 1 January 2008, in place of the former Mondi Packaging
and Mondi Business Paper business units, we now operate as two divisions:
Europe & International and South Africa.
The Europe & International division comprises our packaging and UFP activities
outside South Africa and is headed by Peter Oswald, formerly chief executive
officer of Mondi Packaging, who joined the boards of Mondi Limited and Mondi
plc at the beginning of this year. The South Africa division comprises our
existing South African forestry operation and the plants at Merebank and
Richards Bay, and is headed by Ron Traill, formerly managing director of the
Steti mill in the Czech Republic.
Gunther Hassler, the former CEO of Mondi Business Paper, decided to leave Mondi
towards the end of the year to pursue other opportunities. On behalf of the
board and senior management we would like to thank Gunther for the contribution
he has made to Mondi during his 20 years with the Group.
The reporting lines for Mondi Packaging South Africa, Mondi Shanduka Newsprint,
Aylesford Newsprint and Europapier remain unchanged.
Following the reorganisation we have made good progress in simplifying our
processes, eliminating duplication and reducing overheads, and we expect to see
the benefits beginning to flow through in the current year.
OPERATIONAL RESTRUCTURING AND RATIONALISATION
In view of the current Uncoated Fine Paper (UFP) market dynamics, which have
seen sustained high pulp prices and a weak US dollar with resultant trade flows
impacting European operating rates, we have decided to decrease Mondi`s
European UFP operating capacity and further reduce costs by simplifying our
European UFP operations, principally through cutting divisional overheads and
reducing mill headcount. As part of this programme it is planned to shut down
the paper machine at Mondi`s unintegrated Hungarian mill at Szolnok, during the
second quarter of 2008. This mill has a capacity of 140,000 tonnes, employs
approximately 275 people and made an operating loss in 2007. The closure is
subject to negotiations with employee representatives and we will seek
alternative uses for the site.
The total estimated pre-tax restructuring charge for this closure and related
actions is estimated at EUR88 million (of which EUR57 million is an impairment
and EUR31 million is a cash cost). This will be booked as a special item in the
income statement (EUR57 million in the 2007 accounts and the balance in 2008).
The costs of further rationalisation of divisional overheads and mill headcount
reduction will be charged to underlying operating profits as a restructuring
charge as and when incurred, as part of Mondi`s normal process of continuous
cost reduction.
GROWTH
Mondi is committed to generating value enhancing growth, both organically and
through acquisition, primarily by expanding its asset and sales bases in
emerging markets. We continue to investigate opportunities to extend our
position in low cost locations for pulp and paper production, whilst divesting
non-core assets and further rationalising our plant network. In deciding upon
capital allocation, we focus on our ability to secure a sustained low cost
position, thus ensuring that we deliver a return in excess of our cost of
capital over the cycle.
In Poland, we are investing EUR350 million in a new lightweight recycled
containerboard machine and new box plant at our Swiecie mill. Annual demand
growth for converted packaging in Central and Eastern Europe is estimated to be
running at around 8% and there is a substantial deficit in lightweight
containerboard supply which we aim to fill. In Russia, we are investing EUR525
million in modernising and expanding our low cost mill at Syktyvkar. This mill
has proven to be a great success since we assumed control in 2002. The
wood-handling facilities will be modernised and expanded and the fibre lines
will be upgraded. On completion it is estimated that the two chipping lines and
debarking unit will be the largest in the world by capacity. In addition, a new
recovery boiler will be installed, substantially increasing our energy supply
with surplus energy being sold to the grid. The resultant increased pulp
production will enable us to increase paper output on a fully integrated basis,
with both the paper and containerboard machines being rebuilt. This investment
will enable Mondi to benefit from the strong growth in demand for
containerboard and UFP in Russia, as well as substantially reducing our
production costs.
In addition to organic investment, the acquisition of assets in growing markets
with the potential for improved returns is central to our strategy. Over the
last seven years we have acquired and integrated numerous businesses, improving
their efficiency, leveraging synergies with our existing operations,
transferring `know -how` from elsewhere in the Group and improving the product
mix.
Our most recent major acquisition has been in the key market of Turkey, where
we have completed the purchase of a majority stake in Tire Kutsan, the
country`s leading corrugated packaging company. This expands our European
footprint and, coupled with our existing presence, gives us immediate market
leadership in corrugated packaging in emerging Europe, including Turkey.
We are confident that this combination of growth and a rigorous attention to
business excellence will enable us to meet our key financial objective for the
Group of a 13% return on capital employed across the cycle.
OPERATIONAL REVIEW
Mondi Packaging
EUR million 2007 2006 Change %
Segment revenue 3,590 3,167 +13.4
- of which inter-segment revenue 43 46 -6.5
EBITDA 503 412 +22.1
Underlying operating profit 312 226 +38.1
Corrugated 158 120 +31.7
Bags 127 97 +30.9
Flexibles 27 9 +200.0
Capital expenditure 7 215 267 -19.5
Net segment assets 2,772 2,494 +11.1
Return on capital employed (%) 8 13.2% 10.2% +29.4
7 Capital expenditure is cash payments and excludes business combinations.
8 Extracted from management reports
Mondi Packaging had an excellent year, due to an improved trading environment
and the benefit of EUR81 million of cost-savings which helped offset increased
input cost pressures. Packaging paper volumes were up 3.4% and return on
capital employed rose by 3.0 percentage points to 13.2%. 10 out of 14 mills
achieved productivity records and the Swiecie mill successfully completed the
major rebuild of PM1, improving efficiencies and volumes. These improvements
were partly offset by increased external wood and recycled paper costs, which
were up on average 20% and 50% respectively on 2006, as well as the
restructuring costs of EUR17 million already referred to.
Within the corrugated business, the positive containerboard price trends and
demand growth seen in 2006 were maintained in 2007. On average kraftliner
prices were up around 10% year on year, with white top kraftliner marginally
up, although, some levelling off in prices is now being seen. Corrugated box
prices increased by around 10% on average, reflecting the passing-on of
containerboard price increases; However, corrugated box profit margins remain
at an unsatisfactory level, particularly in western Europe, and further box
price increases are required. The increase in profits was supported by the
restructuring of the downstream corrugated packaging operations.
The bags business recorded improved average kraft paper prices, up by around
12%, and paper volumes up 5%, benefiting from the acquisition of Stambolijski
in Bulgaria in the second half of 2006. The downstream converting operations
also saw an improvement in demand in the first half, mainly from the
construction industry. We continued to drive productivity through the
rationalisation of our plant network with two plan t closures towards the end
of the year.
Improvement in the flexibles businesses was mainly driven by efficiency
enhancements and also includes the benefit from acquisitions made in the second
half of 2006. Selling prices trended upwards, but lagged input cost increases
which adversely impacted margins. We further rationalised our plant network
with the closure of a coating plant in Norway towards the end of the year.
During the year, the 40% associate equity stake in Bischof + Klein GmbH was
disposed of for EUR54 million, resulting in a profit on sale of EUR19 million.
In addition, to avoid a mandatory offer for the minority interests in Mondi
Packaging Paper Swiecie S.A. following Mondi`s demerger from Anglo American
plc, a 5.3% stake in Swiecie was disposed of for EUR66 million, resulting in a
profit on sale of EUR57 million. Mondi`s ownership following the disposal is
66%.
The Group completed the acquisition of a 53.6% stake in Tire Kutsan, the
Turkish corrugated packaging company, on 3 September 20 07. The debt-free
enterprise value of Tire Kutsan is EUR190 million. This business has been
consolidated at 63.4% given the Group`s commitment to acquire a further 9.8%
within one month of the third anniversary of the completion of the transaction.
The Group completed the acquisition of 100% of the Austrian-based Unterland
flexible packaging business on 31 August 2007, which provides access to
substrate technology which complements our flexibles offering.
The debt-free enterprise value of Unterland was EUR70 million. Both are
exciting additions to Mondi and strengthen our packaging operations in two of
its key segments, with the acquisition of Tire Kutsan representing our first
major step into the high-growth Turkish market.
As reported previously, Mondi is investing EUR350 million in a 470,000 tonne
lightweight recycled containerboard machine and new 250 million m2 per annum
corrugated box plant at the Swiecie mill in Poland, to exploit the growing
shortage of containerboard in the region and leverage off Swiecie`s low - cost
position. The level of available fiscal support (mainly in the form of a
favourable tax regime) from the Polish authorities has now been agreed.
Commissioning is expected in mid to late 2009 and EUR19 million of capital
expenditure was incurred during 2007.
Mondi Business Paper
EUR million 2007 2006 Change %
Segment revenue 1,898 1,889 +0.5
- of which inter-segment revenue 185 163 +13.5
EBITDA 289 237 +21.9
Underlying operating profit 152 104 +46.2
Capital expenditure 119 156 -23.7
Net segment assets 2,098 2,212 -5.2
Return on capital employed (%) 8.0% 5.3% +50.9
The increase in underlying operating profit was largely driven by a significant
improvement in the South African operations, coupled with an improved
performance in Russia and modest improvement in pricing. Cost savings of EUR82
million helped to partly offset input cost pressures. The operational
difficulties experienced in the first half of 2006, following the 2005 rebuild
of PM31 in Merebank, have been addressed with the alteration to the headbox
completed in October 2007. The restructuring of the South African operations
has also been completed to further improve efficiencies.
UFP production (from continuing operations) was 2.1% higher than 2006, with
good performances at our South African, Slovakian and Russian mills partially
offset by production downtime taken in the second half which reduced output by
circa 75,000 tonnes. Total pulp production was up 4%, with the Richards Bay
pulp mill operating at improved rates following the major upgrade in 2005,
including record production in the fourth quarter.
UFP prices improved by around 7% on average year on year but are still well
below mid -cycle levels. Whilst margins have grown, they are not at acceptable
levels, particularly given higher pulp input costs at the non-integrated mills
and higher purchased wood costs. The overall fibre cost increase was, however,
largely mitigated by our own low -cost wood resources in South Africa and
Russia.
Fire damage in South Africa affected 10,789 hectares of forested areas (circa
5% of forested area under management), with a net impact of around EUR5 million
on the Group`s results. Furthermore, EUR10 million was incurred in
restructuring costs at the divisional level in order to simplify the operation
and ensure that we are the lowest-cost producer in this sector. These effects,
coupled with fibre input cost pressures, were partly offset by cost-savings
which contributed EUR82 million during the year.
As commented on earlier, the Group has decided to decrease its European
operating capacity and further reduce costs by simplifying its European UFP
operations. As a result, Mondi is planning to close its non -integrated
Hungarian mill at Szolnok in the second quarter of 2008, removing 140,000
tonnes of UFP from the market. This, coupled with European industry closures
totalling 410,000 tonnes announced and implemented in 2007, should lead to a
further improvement in operating rates.
In order to benefit from strong growth in Russian demand, in both
containerboard and UFP, and to improve operating efficiencies, Mondi is now
committed to the EUR525 million modernisation and expansion of the Syktyvkar
mill. The necessary operating permits have been obtained with completion
expected by mid to end 2010. EUR21 million of capital expenditure was incurred
on this project in 2007.
Mondi Packaging South Africa
EUR million 2007 2006 Change %
Segment revenue 419 360 +16.4
- of which inter-segment revenue 28 25 +12.0
EBITDA 53 46 +15.2
Underlying operating profit 35 35 -
Capital expenditure 47 27 +74.1
Net segment assets 335 187 +79.1
Return on capital employed (%) 13.8% 17.4% -20.7%
Demand was good across all business segments, largely due to an increase in
local consumption and a good agricultural season. The reported underlying
operating profit masks the improvement in local currency terms which was up 8%
and is impacted by translation at a weaker rand rate. The acquisition of Lenco,
a mainly rigid plastics business in South Africa, was completed on 4 July 2007
and included in the results is a EUR1.5 million charge for the amortisation of
intangibles as a result of the acquisition.
The EUR12 million Springs mill optimisation project was commissioned in August
2007 and the EUR25 million Felixton optimisation project, due for commissioning
in March 2008, is progressing well. When complete, this will enable Felixton to
produce lighter-weight paper and increase fluting production by 50,000 tonnes.
Merchant and Newsprint businesses
EUR million 2007 2006 Change %
Segment revenue 591 539 +9.6
- of which inter-segment revenue 1 1 -
EBITDA 60 48 +25.0
Underlying operating profit 40 29 +37.9
Capital expenditure 18 9 +100.0
Net segment assets 248 251 -1.2
Return on capital employed (%) 17.3% 12.5% +38.4
Europapier, the Group`s merchanting business, saw improved pricing and volumes,
due to strong demand in its key eastern European markets.
Aylesford Newsprint in the UK benefited from marginally improved prices and
lower energy input costs as well as a one -off benefit (of which Mondi`s share
was EUR4 million) from a change in the pension plan arrangements to an average
salary scheme.
Mondi Shanduka Newsprint`s underlying profit was higher in local currency and
benefited from continued strong local demand. However, the result was
marginally lower in euros on translation as a result of the weaker rand.
Corporate and other businesses
Net corporate costs of EUR37 million were EUR19 million higher than 2006 due to
Mondi establishing itself as an independent listed group, with certain
functions previously performed by Anglo American plc now provided within the
Mondi Group. Operating profits from other non-core businesses, mostly in South
Africa, were EUR1 million lower than 2006 following the disposal of certain of
these businesses during 2006.
FINANCIAL REVIEW
Special items (see note 5)
In aggregate, pre-tax special items amounted to a loss of EUR23 million (EUR8
million after tax), made up of the following items:
- An operating special item charge of EUR77 million before tax, principally
comprising: impairments associated with the closure of the Szolnok mill in
Hungary and related actions in the European UFP operations (EUR57 million);
accelerated share scheme charges relating to the demerger from Anglo American
plc (EUR8 million); and charges relating to retention arrangements put in place
for senior executives following the demerger (EUR9 million).
- Net profit on disposals of EUR 83 million before tax, including: the sale
of
Bischof + Klein GmbH (EUR19 million profit); the sale of a 5.3% stake in Mondi
Packaging Paper Swiecie S.A. (EUR57 million profit); the sale of various
corrugated converting operations (EUR8 million profit) held for sale at the end
of 2006, which were divested as part of a restructuring programme to improve
the corrugated results; and the disposal of certain non-core businesses in
South Africa (loss EUR1 million). These have been separately identified given
their materiality.
- Financing special item of EUR29 million before tax: as part of the demerger
from Anglo American plc, certain long-term loans in South Africa were closed
out at a cost of EUR29 million, representing largely the interest foregone on
the settlement of the loans. Given the materiality of this amount, the boards
believe that it is more appropriate to disclose this separately on the income
statement.
Finance costs
Net finance costs of EUR99 million, before special financing items, were EUR22
million higher than 2006 (EUR77 million), due to higher average net debt
coupled with higher interest rates, particularly in South Africa and a movement
in foreign exchange from a gain of EUR13 million in 2006 to a charge of EUR2
million in 2007. EUR4 million of net debt finance charges were capitalised
during the period on key capital projects (2006: EUR2 million).
Taxation
The effective tax rate of 29.0% (before special items) was 8.3 percentage
points lower than in 2006 due to a lower level of adjustments. The reported tax
rate after special items of 26.7% is 15.4 percentage points lower than 2006 due
to the tax effects of the special items.
Minority interests
Minority interests in the income statement were EUR4 million lower than the
prior year, mainly because the 2006 results for Swiecie and Ruzomberok included
a very high level of income from sales of green energy and CO2 emission
credits.
Cash Flow
EBITDA of EUR870 million in the year was 20%, or EUR 144 million, higher than
2006, reflecting the improved trading environment. Cash inflows from operations
of EUR957 million were EUR300 million up on the comparable period, benefiting
from improved trading and tighter control of working capital. Cash inflow from
working capital of EUR97 million was achieved despite a 9% increase in sales.
Capital expenditure in the year of EUR406 million was broadly in line with
depreciation of EUR363 million (excluding spend in the year on the two key
capital projects of EUR40 million). Capital expenditure is expected to increase
significantly in 2008 and 2009 due to the EUR350 million investment in the
lightweight recycled containerboard and box plant at the Swiecie plant in
Poland and the EUR525 million modernisation and expansion of the Syktyvkar mill
in Russia.
Spending on acquisitions completed during the year totalled EUR193 million,
mainly relating to the purchase of a majority stake in Tire Kutsan (EUR78
million), 100% of Unterland (EUR34 million) and 100% of Lenco (EUR71 million).
The proceeds from disposals completed during the year of EUR166 million mainly
relate to: the sale of 5.3% of Mondi Packaging Paper Swiecie SA (EUR66
million), the sale of our 40% associate interest in Bischof + Klein GmbH (EUR54
mill ion); disposal of the Mondi Packaging converting assets held for sale at
the end of 2006; and the sale of certain non-core assets in South Africa.
Balance sheet and returns on invested capital
Trading capital employed for the period was EUR4,818 million, EUR81 million
higher than 2006 mainly due to acquisitions. 65% of the Group`s trading capital
is employed in emerging markets, positioning the Group well in terms of growth
and operating cost.
Return on capital employed improved from 8.1% to 10.6% as a result of improved
profitability and tightened control of capital employed, particularly working
capital. This improved return, whilst just above our weighted average cost of
capital, is still below our target across the cycle of 13%.
Net debt of EUR1,507 million was EUR28 million higher than 2006, with the
positive net cash inflow from operations offset by outflows from acquisitions
and payments to Anglo American plc upon finalisation of the demerger. Gearing
as at 31 December 2007 was 45.2%, with an EBIT DA interest cover of 9.6 times.
Treasury and borrowings
The Group`s treasury function operates within clearly-defined board-approved
policies and limits. The treasury function follows controlled reporting
procedures and is subject to regular internal and external reviews.
The Group`s policy with regard to reducing interest rate risk is to keep
between 60% and 100% of net debt at fixed rates of interest on a rolling basis.
At year end, 63% of the Group`s net debt was at fixed rates of interest.
Group liquidity is provided through a range of committed debt facilities in
excess of the Group`s short- term needs. The principal debt facilities are: a
EUR1.55 billion syndicated revolving credit facility, which is a five-year
multi-currency revolving credit facility with interest charged at a market
related rate linked to LIBOR; and a R2.0 billion three-year amortising term
loan with interest charged at a market related rate linked to JIBAR. In total
at 31 December 2007 the Group had EUR2.7 billion of committed facilities of
which EUR1.2 billion was undrawn at the balance sheet date. The average
maturity of the committed debt facilities is 3.5 years.
DIVIDEND
Mondi is well financed with healthy operating cash flows and a strong balance
sheet. Against this background our dividend policy reflects our strategy of
disciplined and value-creating investment for growth, which will in turn offer
shareholders long-term dividend growth.
Accordingly, the boards of Mondi Limited and Mondi plc have recommended a final
dividend of 15.7 euro cents per share, payable on 21 May 2008 to shareholders
on the register at 25 April 2008. An equivalent final dividend will be paid in
South African rand on the same terms.
Taken together with the interim dividend of 7.3 euro cents paid on 17 September
2007, this represents a total dividend of 23.0 euro cents, paid in the
approximate proportions two-thirds (final) and one-third (interim), consistent
with the policy we indicated at the time of the demerger.
OUTLOOK
We believe that Mondi`s leading positions in the emerging markets provide both
cost and growth advantages. Furthermore our focused strategy, obsession with
driving down costs and willingness to react quickly to market conditions leaves
us very well placed to respond to changing economic circumstances. Therefore,
despite the uncertainty surrounding the prospects for the global economy, we
are confident of making further progress in 2008.
Combined and consolidated income statement
For the year ended 31 December 2007
2007
Before Special After
special items special
items (note 5) items
EUR million Note
Group revenue 3 6,269 - 6,269
Materials, energy and consumables
used (3,265) - (3,265)
Variable selling expenses (558) - (558)
Gross margin 2,446 - 2,446
Maintenance and other indirect
expenses (289) - (289)
Personnel costs (906) (17) (923)
Other net operating expenses (381) - (381)
Depreciation and amortisation (368) (60) (428)
Operating profit/(loss) from
subsidiaries
and joint ventures 3 502 (77) 425
Net profit/(loss) on disposals 5 - 83 83
Net income from associates 2 - 2
Total profit/(loss) from
operations and
associates 504 6 510
Investment income 44 - 44
Interest expense (143) (29) (172)
Net finance costs 6 (99) (29) (128)
Profit/(loss) before tax 405 (23) 382
Taxation charge 7 (117) 15 (102)
Profit/(loss) from continuing
operations 4 288 (8) 280
Attributable to:
Minority interests 47 - 47
Equity holders 241 (8) 233
Pro forma earnings per share
("EPS") for
profit attributable to equity
holders
Basic EPS (EUR cents) 9 45.4
Diluted EPS (EUR cents) 9 45.1
Basic underlying EPS (EUR cents) 9 46.9
Diluted underlying EPS (EUR cents) 9 46.7
Basic headline EPS (EUR cents) 9 39.5
Diluted headline EPS (EUR cents) 9 39.3
2006
Before Special After
special items special
items (note 5) items
EUR million
Group revenue 5,751 - 5,751
Materials, energy and consumables used (2,960) - (2,960)
Variable selling expenses (558) - (558)
Gross margin 2,233 - 2,233
Maintenance and other indirect expenses (287) - (287)
Personnel costs (874) - (874)
Other net operating expenses (346) - (346)
Depreciation and amortisation (349) (78) (427)
Operating profit/(loss) from subsidiaries
and joint ventures 377 (78) 299
Net profit/(loss) on disposals - (4) (4)
Net income from associates 5 - 5
Total profit/(loss) from operations and
associates 382 (82) 300
Investment income 70 - 70
Interest expense (147) - (147)
Net finance costs (77) - (77)
Profit/(loss) before tax 305 (82) 223
Taxation charge (115) 21 (94)
Profit/(loss) from continuing operations 190 (61) 129
Attributable to:
Minority interests 51 - 51
Equity holders 139 (61) 78
Pro forma earnings per share ("EPS") for
profit attributable to equity holders
Basic EPS (EUR cents) 15.2
Diluted EPS (EUR cents) 15.2
Basic underlying EPS (EUR cents) 27.0
Diluted underlying EPS (EUR cents) 27.0
Basic headline EPS (EUR cents) 28.2
Diluted headline EPS (EUR cents) 28.2
There were no discontinued operations in either of the years presented.
Combined and consolidated balance sheet
As at 31 December 2007
EUR million Note 2007 2006
Intangible assets 520 381
Property, plant and equipment 3,731 3,659
Forestry assets 224 221
Investments in associates 6 7
Financial asset investments 25 39
Deferred tax assets 32 35
Retirement benefits surplus 11 7
Total non-current assets 4,549 4,349
Inventories 7 60 656
Trade and other receivables 1,304 1,268
Current tax assets 52 34
Cash and cash equivalents 180 415
Derivative financial instruments 17 11
Total current assets 2,313 2,384
Assets held for sale - 106
Total assets 6,862 6,839
Short-term borrowings (453) (1,238)
Trade and other payables (1,150) (935)
Current tax liabilities (81) (71)
Provisions (14) (8)
Derivative financial instruments (3) (2)
Total current liabilities (1,701) (2,254)
Medium and long-term borrowings (1,234) (656)
Retirement benefits obligation (200) (220)
Deferred tax liabilities (322) (317)
Provisions (50) (40)
Other non-current liabilities (17) (16)
Derivative financial instruments (2) -
Total non-current liabilities (1,825) (1,249)
Liabilities directly associated with assets
classified as held for sale - (39)
Total liabilities (3,526) (3,542)
Net assets 3 3,336 3,297
Equity
Anglo American plc investment in the Group 10 - 1,899
Ordinary share capital 10/12 114 -
Share premium 10/12 532 -
Retained earnings and other reserves 10 2,317 1,067
Total attributable to equity holders 2,963 2,966
Minority interest in equity 373 331
3,336 3,297
Combined and consolidated cash flow statement
For the year ended 31 December 2007
EUR million Note 2007 2006
Cash inflows from operations 15a 957 657
Dividends from associates 1 1
Dividends from available for sale investments - 1
Income tax paid (93) (71)
Net cash inflows generated from operating
activities 865 588
Cash flows from investing activities
Acquisition of subsidiaries, net of cash and cash
equivalents 13 (193) (113)
Investment in associates - (2)
Proceeds from disposal of subsidiaries, net of
cash and cash equivalents 14 112 34
Proceeds from disposal of associates 14 54 -
Purchases of property, plant and equipment 15f (406) (460)
Proceeds from the disposal of property, plant and
equipment 17 16
Investment in forestry assets (41) (50)
Purchases of financial asset investments (2) (1)
Purchase of intangible assets (4) (6)
Proceeds from the sale of financial asset
investments 2 3
Loan repayments from related parties 15 9
Interest received 18 51
Other investing activities (6) (5)
Net cash used in investing activities (434) (524)
Cash flows from financing activities
Repayment of short-term borrowings 15c (945) (355)
Proceeds from medium and long -term borrowings 15c 564 70
Interest paid (139) (130)
Dividends paid to minority interests (47) (38)
Dividends paid to equity holders 8 (38) -
Dividends paid to Anglo American plc group
companies (202) (75)
Increase in Anglo American plc invested capital 120 289
Purchases of treasury shares (33) -
Other financing activities 3 5
Net cash used in financing activities (717) (234)
Net decrease in cash and cash equivalents (286) (170)
Cash and cash equivalents at start of year(1) 358 574
Cash movements in the year 15c (286) (170)
Reclassifications 15c (3) (3)
Effects of changes in foreign exchange rates 15c (10) (43)
Cash and cash equivalents at end of year (1) 15b 59 358
Note:
(1) `Cash and cash equivalents` includes overdrafts and cash flows from
disposal groups and is reconciled to the balance sheet in note 15b.
Combined and consolidated statement of recognised income
and expense
For the year ended 31 December 2007
EUR million 2007 2006
Fair value (losses)/gains accreted on cash flow hedges, net
of amounts recycled to the combined
and consolidated income statement (3) 5
Actuarial gains on post-retirement benefit schemes 12 24
Fair value losses on available for sale investments (1) -
Exchange gains on demerger 9 -
Exchange losses on translation of foreign operations (71) (137)
Other movements (1) 1
Total expense recognised directly in equity(1) (55) (107)
Profit for the year 280 129
Total recognised income and expense for the year 225 22
Attributable to:
Minority interests 56 65
Equity holders of the parent companies 169 (43)
Note:
(1) Net of related tax.
Notes to the combined and consolidated financial statements
1 Basis of preparation
The financial information included in this preliminary announcement has been
prepared in accordance with the measurement and recognition criteria of
International Financial Reporting Standards ("IFRSs") issued by the
International Accounting Standards Board ("IASB") and has been prepared in
accordance with IAS34, `Interim Financial Reporting`. There are no differences
for the Group in applying IFRS as issued by the IASB and the European Union
("EU") and therefore the Group also complies with IFRSs as endorsed by the EU.
Dual listed structure
The Group has two separate legal parent entities, Mondi Limited and Mondi plc,
which operate under a dual listed company ("DLC") structure. The substance of
the DLC structure is such that Mondi Limited, and its subsidiaries, and Mondi
plc, and its subsidiaries, operate together as a single economic entity
through a sharing agreement, with neither parent entity assuming a dominant
role. Accordingly, Mondi Limited and Mondi plc are reported on a combined
and consolidated basis as a single reporting entity under IFRSs.
Pre-demerger
During the period up to 2 July 2007 and the prior year presented (together, the
"pre- demerger period"), the Group did not form a separate legal group. "The
Anglo American plc investment in the Group" is therefore presented for the pre
-demerger period, representing the aggregated share capital, share premium and
reserve balances of the Group`s constituent entities, together with debtor and
creditor balances held in respect of the Anglo American plc group and deemed to
be equity funding in nature. Any interest accruing on such balances is
classified as a dividend in specie and recorded separately through reserves,
not through the combined and consolidated income statement.
The financial information set out does not constitute the Group`s statutory
accounts for the year ended 31 December 2007
