| Tue 23 Feb 2010, 10:47 | | MND/ MNP - Mondi Limited / Mondi Plc - Full year r |
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MND MNP
MND MNP
MND/ MNP - Mondi Limited / Mondi Plc - Full year results for the year ended 31
December 2009
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
LSE share code: MNDI
23 February 2010
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.
Full year results for the year ended 31 December 2009
Financial Summary
EUR million, except for % and per share
measures 2009 2008 Change %
Group revenue 5,257 6,345 -17
EBITDA 1 645 814 -21
Underlying operating profit 2 294 441 -33
Underlying profit before tax 3 182 284 -36
Reported profit/(loss) before tax 6 49 (103) 148
Basic loss per share (EUR cents)4 (6.5) (41.6) 84
Underlying earnings per share (EUR cents)4 18.7 33.9 -45
Headline earnings per share (EUR cents)4 11.4 20.3 -44
Cash generated from operations 867 795 9
Net debt 1,517 1,690 10
Group ROCE 5 7.6% 9.5% -20
Total dividend per share (EUR cents) 9.5 12.7 -25
Highlights:
- Clear pick-up in European trading conditions in the final quarter.
- Strong performance from European uncoated fine paper business throughout the
year.
- Substantial cash generation from operations of EUR867 million.
- Strong cash management with net debt down to EUR1.5 billion despite around
EUR300 million spent on major capital projects.
- Delivered cost savings of EUR251 million, significantly in excess of target.
- Achieved very strong control of working capital, resulting in a net working
capital inflow of EUR248 million for the year.
- Polish recycled containerboard machine and box plant projects successfully
completed.
David Hathorn, Mondi Group chief executive, said:
"Mondi has delivered a solid full year performance in very challenging market
conditions. The early part of the year was particularly difficult for our
European operations, characterised by sharp volume declines and consequent
pricing pressures. It was, however, pleasing to see the subsequent recovery in
demand, which supported price increases during the fourth quarter in various of
our packaging segments.
The strong performance throughout the year of our European uncoated fine paper
business was particularly noteworthy and is testament to the inherent strengths
of this business and management`s unwavering focus under very challenging
circumstances.
The South African export focused businesses continue to struggle, in large part
due to the strength of the rand, and while we continue to take steps to improve
performance, it is clear that a return to satisfactory levels of profitability
will not be possible without some increase in the rand selling prices.
A significant achievement this year was the successful start-up of the new
recycled containerboard machine in Poland, with current performance
significantly exceeding the investment plan. Congratulations must be extended
to the whole team involved in the execution of this project, which puts us in a
great position to exploit the growing demand for lightweight containerboard in
central and eastern Europe.
Our initiatives to prioritise cash flow generation in light of the downturn in
trading have been very successful, evidenced by the reduction in net debt over
the course of the year while still funding the two major capital expenditure
projects.
Looking ahead, it is clear that the Group`s performance will largely depend on
the pace and extent of the global economic recovery. Furthermore, while there
has been substantial industry capacity rationalisation over the past year,
further supply side reductions may be required to ensure that supply and demand
are balanced. Encouragingly, however, we have seen a steady improvement in
industry order volumes, with some recent price recovery in the European
packaging grades. This improvement in our trading environment, together with
the various restructuring actions taken over the course of 2009, positions
Mondi well for the year ahead."
Notes:
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 Group has presented underlying earnings per share to exclude the impact
of special items, and headline earnings per share in accordance with circular
3/2009 `Headline Earnings` as issued by the South African Institute of
Chartered Accountants.
5 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 before impairments and adjusted for major
capital projects not yet commissioned.
6 Profit/(loss) before tax is reported after special items of EUR133 million.
Contact details:
Mondi Group
David Hathorn +27 (0)11 994 5418
Andrew King +27 (0)11 994 5415
Kerry Crandon +27 (0)11 994 5425 / +27 (0)83 389 3738
Financial Dynamics
Richard Mountain +44 (0) 20 7269 7291
Chloe Webb +27 (0) 11 214 2421
Dial-in audio cast facility will be available via:
Please see below details of our dial-in conference call and audio cast that
will be held at 09:30 (UK) and 11:30 (SA). The conference call dial-in numbers
are:
South Africa: 0800 200 648
UK: 0800 917 7042
Europe & Other: 00800 246 78 700
An online audio cast facility will be available via:
www.mondigroup.com/FYResults09 Password: FYResults09
The presentation will be available online via the above web site address an
hour before the audio cast commences. Questions can be submitted either via the
dial-in conference call or electronically via the audio cast. Should you have
any issues on the day with accessing the dial-in conference, please call +27
(0)11 535 3600. Should you have any issues on the day with accessing the audio
cast, please email mondi@kraftwerk.co.at and you will be contacted immediately.
An audio recording of the presentation will be available on Mondi`s website
from late afternoon on 23 February 2010.
Editors` notes:
Mondi is an international paper and packaging group and in 2009 had revenues of
EUR5.3 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 as well as speciality products.
Mondi is fully integrated across the paper and packaging process, the growing
of wood and the manufacture of pulp (including recycled paper) to the
conversion of packaging papers into corrugated packaging and industrial bags.
Mondi has production operations across 31 countries and had an average of
31,000 employees in 2009.
Results
The Group`s underlying operating profit decreased by 33% compared with 2008,
reflecting the difficult trading conditions that persisted for much of the
year. Pleasingly, the fourth quarter results came in significantly above
expectations, supported by volume improvements across all main paper grades,
price increases in most of the key packaging grades and a largely stable
pricing environment in the European uncoated fine paper market.
The benefits of the early and decisive actions taken to restructure the cost
base in light of market pressures were clearly evident. The Group`s cost
reduction programme delivered savings of EUR251 million, significantly
exceeding the EUR180 million target announced at the beginning of the year. In
just over two years, Mondi has exited (either temporarily or permanently)
around 930,000 tonnes of high cost paper capacity and closed or sold 18
converting sites. Furthermore, the focus on cash flow optimisation was
extremely successful, with working capital inflows for the year amounting to
EUR248 million and capital expenditure outside the two major projects reduced
to 63% of depreciation. All this contributed to a reduction in net debt for the
year of EUR173 million despite funding around EUR300 million of capital
expenditure on the two major expansion projects in Poland and Russia. Mondi
enjoys a strong liquidity position and, as at the end of December, the Group
had nearly EUR1 billion of undrawn committed debt facilities.
In addition to the benefits from the cost savings programme noted above, a
number of the Group`s key input costs declined compared with the previous year,
helping to offset the revenue pressures. There was, however, some evidence of
rising input costs towards the end of the period. Wood, recovered fibre, pulp,
chemicals and energy costs have all increased from the lows reached earlier in
the year.
Currency movements had a mixed impact on the Group`s performance during the
period. The weaker eastern European currencies, notably the Czech koruna and
Polish zloty, benefited the results of our eastern European production base in
the second half. Conversely, the significant strengthening of the South African
rand from the middle of the second quarter eroded margins on the export sales
from the South Africa Division, placing significant pressure on the
profitability of this business as the year progressed.
Average return on capital employed, a key measure of Mondi`s performance, was
7.6%. While this is a disappointing outcome in relation to the Group`s target
of 13% across the cycle, it nevertheless represents a resilient performance
given the backdrop of the extremely difficult business environment.
Importantly, the Group is confident that the actions taken over the past year
place the business in a stronger competitive position than it was when it
entered the downturn, allowing it to take full advantage of any improvement in
the business cycle.
Net finance costs of EUR114 million were EUR45 million lower than those of
2008, mainly owing to higher levels of capitalised interest relating to major
capital projects and lower exchange losses on foreign currency debt balances.
The effective tax rate before special items of 32% was higher than that of the
previous year, primarily due to an increase in non-recognised assessed losses
as a consequence of the decline in profitability.
Underlying earnings per share were 18.7 euro cents per share, down by 45%
compared with 2008.
The Group is proposing to pay a final dividend of 7.0 euro cents per share,
giving a total dividend of 9.5 euro cents per share for the year.
Operational review
Europe & International Division
EUR million 2009 2008 change %
Segment revenue 4,099 5,159 -21
- of which inter-segment revenue 110 155 -29
EBITDA 515 623 -17
Underlying operating profit 251 334 -25
Uncoated Fine Paper 146 126 16
Corrugated 23 49 -53
Bags & Specialities 82 159 -48
Capital expenditure 1
Major Projects 2 300 324 -7
Other 167 277 -40
Net segment assets 3,588 3,659 -2
Return on capital employed (%) 9.1 9.6 -5
Notes:
1 Capital expenditure is cash payments and excludes business combinations.
2 Polish and Russian expansion projects, which commenced in the second half of
2007.
Underlying operating profit of EUR251 million was down by EUR83 million or 25%
compared with the previous period, significantly affected by the decrease in
demand for a number of the Group`s key products as a consequence of the general
economic slowdown. Pricing was down across all major paper grades, while
volumes were negatively affected by the approximately 173,000 tonnes of
market-related downtime taken in the year. Encouragingly, market-related
downtime taken in the second half of 2009 was minimal, reflecting a steady
pick-up in order inflows over the course of the year. Prices in the downstream
converting markets were more resilient, partially offsetting price declines in
the paper grades.
There was some benefit from lower input costs, including wood, recovered paper,
chemicals and other variable costs, while the Division delivered EUR205 million
in cost savings. Furthermore, the restructuring actions the Group has taken in
exiting higher-cost capacity helped to offset the revenue pressures while also
contributing to a more balanced market.
Pleasingly, the Division saw an upward trend in performance, with the second
half of the year stronger than the first half on the back of a very strong
fourth quarter. Price increases were achieved across all the main packaging
paper grades as a result of firm demand, while the uncoated fine paper business
delivered a particularly strong performance in the fourth quarter. This was
supported by ongoing cost savings and optimisation measures as pricing and
volumes remained firm despite concerns over the impact on the market of new
capacity from Portucel.
Operations
In the Uncoated Fine Paper (UFP) business, underlying operating profits were up
by EUR20 million, or 16%, at EUR146 million. This represents a very strong
result given the difficult economic environment and reflects the strength of
the Group`s low-cost asset base and favourable market positioning. While order
inflows for European producers as a whole were down by around 6% compared with
the previous year, the Group was able to achieve volume increases owing to its
greater exposure to the cut-size product segment and to emerging Europe, both
market segments that have proved more resilient to the economic downturn. As a
domestic producer in Russia, where management estimates that overall demand was
down by similar levels to those seen in the rest of Europe, the business was
able to maintain volumes at the expense of importers. As a consequence, results
from the Russian operation were particularly strong, with stable volumes and
marginally improved domestic selling prices supported by good cost control.
Combined with lower pulp input costs at the non-integrated facilities and
cost-reduction initiatives across the business, this more than offset the
impact of lower European selling prices (office paper down on average 7%
year-on-year).
In the Corrugated business, underlying operating profits declined by EUR26
million, or 53%, to EUR23 million in a very challenging trading environment.
Weak demand coupled with insufficient supply-side response put pressure on
containerboard prices. Average recycled containerboard prices decreased by
around 31% year-on-year. Similarly, average virgin containerboard prices were
down by some 13%. However, the pick-up in demand witnessed in the second half
of the year supported price increases, which were implemented in the fourth
quarter. By the end of the year, recycled containerboard prices had increased
by some 29% from their lows in August 2009, while kraftliner prices improved by
around 9% from their lows. The downstream corrugated operations saw some
improvement in operating margins compared with the previous year, benefiting
from the paper price declines.
In February 2010, agreement was reached to sell the 170,000 tonne per annum
Frohnleiten recycled containerboard mill in Austria, subject to regulatory
approval. Further, it was announced in January 2010 that negotiations are
progressing concerning a potential transaction that would involve Smurfit Kappa
Group (SKG) acquiring Mondi`s corrugated operations in the UK, with Mondi
acquiring SKG`s sack converting operations. There remains no certainty that
this transaction will be completed.
To the extent these transactions are completed, it will bring to an end an 18
month programme of restructuring the Group`s western European corrugated
packaging and recycled containerboard portfolio. This comes in response to
ongoing overcapacity concerns in western Europe, and a desire to improve our
asset quality by both moving down the cost curve in recycled containerboard,
and refining our geographical footprint around our core central and eastern
European and Turkish positions. It will have seen the Group exit four of its
five western European recycled containerboard mills (Holcombe in the UK,
Niedergosgen in Switzerland, Monza in Italy and Frohnleiten in Austria) with
aggregate capacity of 540,000 tonnes per annum. The remaining recycled
containerboard mill in western Europe, the 210,000 tonne per annum Raubling
mill in Germany, coupled with the new 470,000 tonne per annum recycled
containerboard machine in Poland and other smaller machines in our Polish and
Czech mill complexes, gives the Group a very strong and highly cost competitive
asset base in central and eastern Europe, serving mainly the Group`s integrated
converting network in the region.
In the Bags & Specialities business, underlying operating profits for the year
were down by EUR77 million, or 48%, to EUR82 million. The business was affected
by sharply lower average sack kraft paper prices (down by around 20%) and
weaker volumes, although speciality kraft paper prices and volumes held up
well. Significant market-related downtime was taken in the first half of 2009
to balance inventories (some 86,000 tonnes or 18% of capacity in the half), as
demand was badly impacted by the slowdown in the construction sector.
Pleasingly, demand recovered after a very weak first quarter to the extent that
almost no market-related downtime was taken in the second half of 2009 and
order inflows were sufficiently strong to support a sack kraft paper price
increase of around 12%, announced in September 2009.
A EUR47 million investment in a new 45,000 tonne per annum machine glazed paper
machine at the Steti mill in the Czech Republic was successfully completed in
August 2009 on time and within budget. Production from this machine is targeted
at growing niche applications, including the release liner and flexible
packaging markets, as well as supplying customers previously served by the
20,000 tonne per annum Ruzomberok kraft paper machine, which was closed in
October 2009.
Bag converting margins benefited during the year from lower paper prices
although volumes were soft mainly due to poor demand from the building and
chemical industries. Profitability in the Specialities business unit has
improved compared with the previous year driven by resilient demand in consumer
markets, lower plastic resin and paper input costs and stable pricing.
Major projects
The new 470,000 tonne recycled containerboard machine and a new state of the
art box plant at Swiecie in Poland (total budgeted cost of EUR350 million) saw
the first saleable production in September 2009, and is currently producing
well ahead of expectations. The Group anticipates that this machine will have
the lowest operating costs of its type. Up to 50% of its offtake is secured by
physical integration with the surrounding box plant network. Start-up of the
machine was ahead of schedule and the project is expected to come in around
EUR20 million below budget. Start-up costs on the machine were capitalised to
the end of September 2009. The project had a marginal effect on underlying
operating profit in 2009.
The project to modernise Mondi`s mill in Syktyvkar is also making good progress
and completion is anticipated in the second half of 2010. Severe weather
conditions in December 2009/January 2010 did impact the project.
A small cost overrun of up to 4% (around EUR20 million) is now anticipated,
giving a total capital cost of up to EUR545 million. The key value drivers of
this project are to improve efficiency, lower the Group`s cost base in Russia
and increase energy production and revenue by selling surplus energy to the
grid. In addition it will provide modest extra capacity (both pulp and paper)
for the domestic market.
By the end of the period, EUR664 million had been spent on these two projects
out of the total budgeted capital commitment of EUR875 million. The bulk of the
remaining expenditure is expected to be incurred in 2010, with some occurring
in 2011.
South Africa Division
EUR million 2009 2008 change %
Segment revenue 478 587 -19
- of which inter-segment revenue 210 285 -26
EBITDA 76 152 -50
Underlying operating profit 32 111 -71
Uncoated Fine Paper 1 16 75 -79
Corrugated 16 36 -56
Capital expenditure 2 26 44 -41
Net segment assets 840 760 11
Return on capital employed (%) 4.6 15.9 -71
Notes:
1 Includes pulp and forestry business.
2 Capital expenditure is cash payments and excludes business combinations.
The South Africa Division recorded a decrease in underlying operating profits
of EUR79 million, or 71%, to EUR32 million. In the uncoated woodfree operations
profitability was negatively affected by lower pulp, woodchip and paper export
prices together with lower woodchip and paper volumes. Significant US dollar
market price increases in the second half of 2009 in both pulp and African
paper sales (excluding South Africa) were largely offset by the strengthening
rand. Market-related downtime in paper production of 62,000 tonnes was taken to
balance inventories in the first half of 2009, related mainly to export
business. This led to the decision to mothball the 120,000 tonne per annum PM32
at Merebank, which was completed early in the second half of 2009. A further
56,000 tonnes of market-related downtime was taken on the remaining machines in
the second half of 2009. This in turn enabled increased sales of market pulp,
where US dollar prices have been rising since the second quarter of 2009.
Domestic uncoated fine paper cut-size prices continue to hold up, with demand in
the first half of 2009 below the comparable period but recovering fully in the
second half of 2009. The Division did not recognise fair value gains on forestry
assets to the extent seen in 2008, as local wood prices remained relatively flat
in 2009.
After a reasonable performance in the first half of 2009, the containerboard
operation struggled in the second half as a result of the strengthening rand,
lower white-top kraftliner export prices (down by 6% compared with the first
half of the year and by 13% compared with the second half of 2008) and reduced
volumes due to the national strike and annual maintenance shut. However, the
final quarter of 2009 saw an increase in European white-top kraftliner prices.
Input costs offered some limited relief, however, and the Division delivered
EUR30 million in cost savings.
Prior to the year end, agreement was reached to sell around 38,000 hectares of
forestry assets in three separate transactions. Completion of these
transactions remains subject to regulatory approval, which is anticipated in
the first quarter of 2010.
Mondi Packaging South Africa (MPSA)
EUR million 2009 2008 change %
Segment revenue 498 474 5
- of which inter-segment revenue 25 27 -7
EBITDA 62 52 19
Underlying operating profit 36 28 29
Capital expenditure 1 17 38 -55
Net segment assets 335 301 11
Return on capital employed (%) 11.5 8.6 34
Note:
1 Capital expenditure is cash payments and excludes business combinations.
Underlying operating profit increased by EUR8 million, or 29%, to EUR36
million. Despite a slowdown in the local economy and a stronger South African
rand, the business was able to maintain average pricing levels during the year
and benefited from a favourable product mix. Sales volumes, however, were
lower, especially in corrugated packaging, owing to lower consumer demand both
locally and internationally. Market-related downtime in paper production
totalling 58,000 tonnes was taken in order to balance inventories. Specific
cost savings initiatives assisted in lowering the cost base, although these
gains were partially offset by higher input costs, mainly in energy.
Merchant & Newsprint
EUR million 2009 2008 change %
Segment revenue 528 593 -11
- of which inter-segment revenue 1 1 0
EBITDA 28 24 17
Underlying operating profit 12 7 71
Capital expenditure 1 7 10 -30
Net segment assets 194 196 -1
Return on capital employed (%) 6.0 3.3 82
Note:
1 Capital expenditure is cash payments and excludes business combinations.
Aylesford Newsprint returned to profitability, benefiting from improved selling
prices on its annual contract business, although rising input costs and the
structurally weak European newsprint market remain a concern for the future.
Europapier`s operating profit came in below that of the previous year, owing to
lower sales volumes and prices, exacerbated by the weakening of some emerging
European currencies in which it trades and higher bad debts, as several of its
smaller customers were badly affected by the economic downturn. Mondi Shanduka
Newsprint came under pressure from lower domestic demand and pricing pressures,
recording operating profits slightly below the levels of last year.
Corporate & other
Net corporate costs before special items decreased by EUR2 million compared
with 2008. This was mainly as a result of cost savings initiatives offset by
certain non-recurring costs incurred in the second half of 2009.
Restructuring
Continuing our strategy to focus on retaining a high-quality, low-cost asset
base and in response to the economic downturn, we accelerated our restructuring
plans. Significant actions were taken including:
- divestment of the four remaining corrugated converting operations in France
for total proceeds of approximately EUR51 million, thereby completing the
withdrawal from this market;
- restructuring of the Turkish corrugated business, the coatings business in
Finland and the UK, and the consumer flexibles business in Austria;
- closure of a corrugated plant in the UK and four bag-converting plants across
Europe;
- sale of the Italian recycled containerboard plant, Cartonstrong (100,000
tonne per annum capacity) and the related sheet feeder, and the 170,000 tonne
per annum Frohnleiten recycled containerboard mill in Austria (subject to
regulatory approval); and
- mothballing of the 110,000 tonne per annum Stambolijski kraft paper mill in
Bulgaria and the PM32 machine at Merebank, effectively removing capacity of
120,000 tonnes uncoated fine paper per annum.
These actions, together with those taken in 2008, have seen Mondi exit around
810,000 tonnes of higher-cost paper capacity in Europe (around 15% of the
Group`s European paper production capacity) and around 9% (120,000 tonnes) of
its South African paper production capacity in just over two years.
Importantly, these measures, together with the various cost reduction
initiatives in ongoing operations, have placed the Group in a stronger
competitive position than it was when it entered the downturn, thereby
positioning the Group to take advantage of any upturn in the business cycle.
Maintaining our competitive advantage
We believe that our strategy remains valid, especially in the current economic
environment. Leading market positions, low-cost operations and a robust focus
on performance have always been key elements of that strategy and in today`s
challenging economic times, its benefits are even more pronounced.
Building on market leadership
At a time of global uncertainty in our industry, we believe it is more
important than ever that we continue to strengthen our leading positions in
packaging and UFP, particularly in emerging markets. These markets have not
been immune to the recession, but they continue to offer above average
long-term growth potential.
Remaining a low cost producer
We are committed to delivering superior returns, above the average of our
competitors, and this commitment is undiminished by the difficult trading
conditions. The value of having much of our production in some of the world`s
lowest cost regions is a significant benefit when volumes and selling prices
are under pressure.
Our high level of vertical integration in the supply chain, combining low-cost
upstream assets with low-cost production, gives us good security of supply and
greatly reduces our exposure to volatility in raw material prices.
Sharpening focus on performance
The requirement for continuous productivity improvements and cost reduction is
imperative in our business. Our highly experienced management teams have
implemented a continuous series of business excellence programmes in recent
years and rigorous asset management is second nature for everyone in our
operations. This unwavering emphasis on cost control and operational performance
has never been more important than in the current economic climate. While much
has been achieved in this regard in 2009, we will continue to target further
cost savings in 2010.
Financial review
Special items (refer to note 6 of the condensed financial statements)
In aggregate, pre tax special items amounted to a charge of EUR133 million.
An operating special item charge of EUR128 million was recognised, principally
comprising:
- asset impairment costs of EUR78 million;
- goodwill impairment costs of EUR12 million;
- closure and restructuring costs of EUR43 million;
- insurance profits of EUR8 million; and
- charges related to arrangements put in place for senior executives following
the demerger from Anglo American plc in July 2007 of EUR3 million.
The asset impairments relate primarily to the write-down of the PM32 paper
machine at Merebank, the impairment of the recycled containerboard mills at
Frohnleiten in Austria and Raubling in Germany and converting operations in the
Corrugated and Bags & Specialities business units that have been restructured
or closed. Costs related to the mothballing of the Stambolijski mill in
Bulgaria and the closure or restructuring of the various converting operations
represent the bulk of the EUR43 million closure and restructuring charge.
The goodwill impairment charge relates solely to the write-down of goodwill in
Europapier, while the net insurance profits relate to a fire at one of MPSA`s
plastics operations.
A non-operating special items charge of EUR5 million was recognised, which
mainly comprises the net profit on the sale of four corrugated operations in
France (EUR3 million profit), offset by the impairment of the held for sale
assets of the Cartonstrong, Italy operations of EUR7 million (subsequently
sold).
Finance costs
Net finance costs of EUR114 million were EUR45 million lower than those of the
previous year, mainly as a result of higher levels of capitalised interest
relating to major capital projects and lower exchange losses on foreign
currency debt balances. Excluding the impact of capitalised interest, interest
on net debt increased marginally from EUR148 million in 2008 to EUR151 million,
even though overall debt levels declined during the year, owing to an increase
in the effective gross cost of net debt from 9.1% in 2008 to 9.3% in 2009. This
was principally because of the increase in the Group`s rouble debt resulting
from capital expenditure in Russia at a time of exceptionally high interest
rates during the height of the financial crisis. At year end, approximately 24%
of the Group`s debt was drawn in euro, 23% in South African rand and 15% in
Russian rouble.
Taxation
The effective tax rate before special items of 32% was higher than the rate of
the previous year (29%), due primarily to an increase in unrecognised assessed
losses as a consequence of the decline in profitability. There is only minor tax
relief on special items.
Minority interests
Minority interests before special items for the year were EUR1 million lower
than those of the previous year. Earnings were down at Swiecie in Poland (66%
owned), although this impact was largely offset by higher earnings in Tire
Kutsan (the effectively 63.4% held Turkish corrugated business) and Mondi
Packaging South Africa (70% owned).
Cash flow and borrowings
EBITDA of EUR645 million for the year was 21%, or EUR169 million lower than in
2008, reflecting the more difficult trading environment. Cash generated from
operations of EUR867 million increased by EUR72 million, or 9%, compared with
the previous year, mainly because of significantly higher inflows from working
capital than were achieved in 2008, offset by the lower EBITDA. Cash inflow
from working capital of EUR248 million was achieved despite an already strong
performance in the 2007 and 2008 financial years (EUR124 million cumulative
inflow).
Capital expenditure, including purchase of intangible assets, of EUR222 million
(excluding spend on the two major strategic projects of around EUR300 million),
was significantly lower than depreciation and amortisation of EUR351 million,
reflecting the decision taken in the fourth quarter of 2008 to limit new
capital expenditure approvals to below 40% of depreciation. The remaining
expenditure on the two major projects is estimated at around EUR210 million,
the bulk of which will be spent in 2010 with minimal flow through to 2011.
There were no major business acquisitions during the year.
Balance sheet
Trading capital employed at year end was EUR4,314 million, EUR53 million lower
than in 2008, mainly because of working capital inflows of EUR248 million,
special item impairments of EUR98 million and disposals of EUR59 million,
partially offset by capital expenditure including intangibles of EUR522 million
(EUR171 million in excess of depreciation) and foreign exchange movements of
EUR195 million.
Treasury and borrowings
The Group`s treasury function operates within clearly defined Board-approved
policies and limits, follows controlled reporting procedures and is subject to
regular internal and external reviews. As part of management`s regular review
of the suitability of treasury risk management policies, the Group`s currency
hedging policy has been amended. Effective from the start of 2010, only
material balance sheet exposures and highly probable forecast capital
expenditures are hedged.
Net debt at year end of EUR1,517 million was EUR173 million down compared with
the previous year. This was achieved despite significant capital spend of
around EUR300 million on the two key capital projects in Poland and Russia,
through a strong focus on cash flow optimisation across the Group, including
the release of working capital and the reduction of capital expenditure outside
of the two major projects. Gearing as at 31 December 2009 was 35.1%, and the
net debt to trailing 12 months EBITDA ratio was 2.4.
Group liquidity is provided through a range of committed debt facilities
amounting to EUR2.5 billion, which are in excess of the Group`s short-term
needs. The principal debt facility is the EUR1.55 billion, five year,
syndicated revolving credit facility which matures in June 2012. In total
EUR735 million of this facility was drawn at year end, leaving EUR815 million
undrawn, committed and available to the Group. The other key facilities include
a EUR170 million export credit agency loan in Russia with an amortising
repayment until 2020 and a EUR115 million European Investment Bank (EIB)
facility in Poland with an amortising repayment until 2017. Total undrawn
committed debt facilities at year end amount to EUR990 million.
The average maturity of the committed debt facilities is 2.2 years (compared
with 3.4 years in 2008). Drawn facilities maturing over the next 12 months
amount to EUR219 million. To the extent they are not renewed they can be
financed out of existing undrawn committed facilities. The Group`s major
refinancing event occurs in June 2012, when the EUR1.55 billion, five year,
syndicated revolving credit facility becomes due. It is intended that this
facility will be refinanced well ahead of this date, utilising a combination of
bank and other debt markets.
Reclassification of Mondi plc shares
After a constructive dialogue with the South African Reserve Bank and Treasury,
we announced in July 2009 that the Minister of Finance had decided to
reclassify the secondary listing of Mondi plc ordinary shares on the JSE
Limited as domestic assets in the hands of South African investors. It is
pleasing to note the subsequent significant narrowing of the price differential
that had existed between the Mondi plc and Mondi Limited ordinary shares.
Related party transactions
Related party transactions are disclosed in note 17 of the condensed financial
statements.
Principal risks and uncertainties
It is in the nature of Mondi`s business that the Group is exposed to risks and
uncertainties which may have an impact on future performance and financial
results, as well as on its ability to meet certain social and environmental
objectives. The Group believes that it has effective systems and controls in
place to manage the key risks identified below.
Mondi operates in a highly competitive environment
The markets for paper and packaging products are highly competitive. Similarly,
prices of Mondi`s key paper grades have experienced substantial fluctuations in
the past. However, Mondi is flexible and responsive to changing market and
operating conditions and the Group`s geographical and product diversification
provides some measure of protection. Uncertain trading conditions in the future
may have an impact on the carrying value of goodwill and tangible assets and
may result in further restructuring activities.
Input costs are subject to significant fluctuations
Materials, energy and consumables used by Mondi include significant amounts of
wood, pulp, recovered paper, packaging papers and chemicals. Increases in the
costs of any of these raw materials, or any difficulties in procuring wood in
certain countries, could have an adverse effect on Mondi`s business,
operational performance or financial condition. However, the Group`s focus on
operational performance, relatively high level of integration and access to its
own fibre in Russia and South Africa, serve to mitigate these risks. It is also
anticipated that the recent settlement of land claims in South Africa will
provide a framework for settling future forestry land claims with Mondi.
Significant capital investments including acquisitions carry project risk
Mondi is in the process of completing a significant capital investment to
expand and upgrade existing facilities in Russia. This project carries risks
and Mondi has put in place dedicated teams to ensure delivery of the project on
time and within budget. Severe weather conditions in December 2009/January 2010
did have an impact on the project timetable. Together with a stronger than
forecast Russian rouble this is expected to result in a small cost overrun of
up to 4%.
Going Concern
The current economic conditions have had an impact on short-term demand growth
for our products, as well as placing pressure on both customers and suppliers
who may face liquidity issues, and could have an adverse impact on the Group`s
business. Furthermore, the lack of credit availability could impact the Group`s
ability to execute its strategy effectively. However, Mondi`s geographical
spread, product diversity and large customer base mitigate these risks. The
proactive initiatives by management in rationalising the business through
cost-cutting, asset closures and divestitures have consolidated the Group`s
leading cost position in its chosen markets. Strong working capital management
has resulted in a significant net cash inflow from working capital over the
period, while capital expenditure programmes have been reduced.
The Group had nearly EUR1.0 billion of undrawn committed debt facilities as at
31 December 2009 with an average maturity of 2.2 years, which should provide
sufficient liquidity for Mondi in the medium term.
The Group`s forecasts and projections, taking account of reasonably possible
changes in trading performance, show that the Group should be able to operate
within the level of its current facilities and the related covenants.
As a consequence, the directors believe that the Group is well placed to manage
its business risks successfully.
After making enquiries, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going-concern
basis in preparing the annual report and accounts.
Board
Following his appointment as chairman of Anglo American plc on 1 August 2009,
Sir John Parker stepped down as joint chairman of Mondi Limited and Mondi plc
on 4 August 2009. Sir John was succeeded as joint chairman by David Williams
who had been Mondi`s senior independent director and chairman of the DLC audit
committee since joining the Boards in May 2007. Anne Quinn, an independent
non-executive director and chair of the DLC remuneration committee, who also
joined the boards of Mondi Limited and Mondi plc in May 2007, succeeded David
Williams as senior independent director. In October 2009, John Nicholas was
appointed an independent non-executive director of Mondi Limited and Mondi plc
and took over the chairmanship of the DLC audit committee.
Dividend
The Boards aim to offer shareholders long-term dividend growth within a targeted
dividend cover range of two to three times on average over the cycle. The
decision was taken in the prior year to pay a reduced full year dividend in
light of the uncertain economic outlook and lack of liquidity in the financial
markets. This also served to ensure that dividend cover was maintained within
the targeted range. Given the Group`s strong balance sheet and healthy operating
cash flows, coupled with an improving outlook, it is proposed to pay a final
dividend that reflects an increase on the prior year final dividend, while
remaining within the Group`s targeted cover range.
Accordingly, the boards of Mondi Limited and Mondi plc have recommended a final
dividend of 7.0 euro cents per share (2008: 5.0 euro cents per share), payable
on 19 May 2010 to shareholders on the register at 23 April 2010. An equivalent
final dividend will be paid in South African rand on the same terms. Together
with the interim dividend paid in September 2009 of 2.5 euro cents per share,
this gives a full year dividend of 9.5 euro cents per share.
Current year outlook
Looking ahead, it is clear that the Group`s performance will largely depend on
the pace and extent of the global economic recovery. Furthermore, while there
has been substantial industry capacity rationalisation over the past year,
further supply side reductions may be required to ensure that supply and demand
are balanced. Encouragingly, however, we have seen a steady improvement in
industry order volumes, with some recent price recovery in the European
packaging grades. This improvement in our trading environment, together with
the various restructuring actions taken over the course of 2009, positions
Mondi well for the year ahead.
Directors` responsibility statement on the annual report
The responsibility statement below has been prepared in connection with the
Group`s full annual report for the year ended 31 December 2009. Certain parts
thereof are not included within this announcement.
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with International Financial
Reporting Standards (IFRSs), give a true and fair view of the assets,
liabilities, financial position and profit or loss of Mondi Limited, Mondi plc
and the undertakings included in the consolidation taken as a whole; and
- the management report, which is incorporated into the directors` report,
includes a fair view of the development and performance of the business and the
position of the Group and the undertakings included in the consolidation taken
as a whole, together with a description of the principal risks and
uncertainties that they face.
This responsibility statement was approved by the boards on 22 February 2010
and is signed on their behalf by:
David Hathorn Andrew King
Director Director
22 February 2010 22 February 2010
Combined and consolidated income statement
for the year ended 31 December 2009
2009
Before Special After
special items special
EUR million Notes items (note 6) items
Group revenue 4 5,257 - 5,257
Materials, energy and
consumables used (2,768) - (2,768)
Variable selling expenses (472) - (472)
Gross margin 2,017 - 2,017
Maintenance and other indirect
expenses (241) - (241)
Personnel costs (838) (24) (862)
Other net operating expenses (293) (14) (307)
Depreciation, amortisation and
impairments (351) (90) (441)
Operating profit/(loss) 4/5 294 (128) 166
Net profit/(loss) on disposals 6 - 3 3
Impairment of assets held for sale 6 - (8) (8)
Net income from associates 2 - 2
Total profit/(loss) from
operations and associates 296 (133) 163
Investment income 26 - 26
Interest expense (140) - (140)
Net finance costs 7 (114) - (114)
Profit/(loss) before tax 182 (133) 49
Tax (charge)/credit 8 (58) 6 (52)
Profit/(loss) from continuing
operations 124 (127) (3)
Attributable to:
Minority interests 29 1 30
Equity holders of the parent
companies 95 (128) (33)
Earnings per share (EPS) for
profit/(loss) attributable to
equity holders of the parent
companies
Basic EPS (EUR cents) 10 (6.5)
Diluted EPS (EUR cents) 10 (6.5)
Basic underlying EPS (EUR cents) 10 18.7
Diluted underlying EPS (EUR cents) 10 18.2
Basic headline EPS (EUR cents) 10 11.4
Diluted headline EPS (EUR cents) 10 11.1
2008
Before Special After
special items special
EUR million items (note 6) items
Group revenue 6,345 - 6,345
Materials, energy and consumables used (3,384) - (3,384)
Variable selling expenses (542) - (542)
Gross margin 2,419 - 2,419
Maintenance and other indirect expenses (300) - (300)
Personnel costs (926) (41) (967)
Other net operating expenses (379) (24) (403)
Depreciation, amortisation and impairments (373) (293) (666)
Operating profit/(loss) 441 (358) 83
Net profit/(loss) on disposals - (27) (27)
Impairment of assets held for sale - (2) (2)
Net income from associates 2 - 2
Total profit/(loss) from operations and
associates 443 (387) 56
Investment income 15 - 15
Interest expense (174) - (174)
Net finance costs (159) - (159)
Profit/(loss) before tax 284 (387) (103)
Tax (charge)/credit (82) 4 (78)
Profit/(loss) from continuing operations 202 (383) (181)
Attributable to:
Minority interests 30 - 30
Equity holders of the parent companies 172 (383) (211)
Earnings per share (EPS) for profit/(loss)
attributable to
equity holders of the parent companies
Basic EPS (EUR cents) (41.6)
Diluted EPS (EUR cents) (41.6)
Basic underlying EPS (EUR cents) 33.9
Diluted underlying EPS (EUR cents) 33.4
Basic headline EPS (EUR cents) 20.3
Diluted headline EPS (EUR cents) 20.0
There were no discontinued operations in either of the years presented.
Combined and consolidated statement of comprehensive income
for the year ended 31 December 2009
EUR million 2009 2008
Loss for the financial year (3) (181)
Other comprehensive income:
Fair value gains/(losses) on cash flow hedges 26 (61)
Actuarial gains/(losses) and surplus restriction
on post-retirement benefit schemes 7 (17)
Fair value gains/(losses) on
available-for-sale investments 1 (1)
Exchange gains/(losses) on translation
of foreign operations 118 (246)
Share of other comprehensive income of associates 1 (1)
Tax relating to components of other
comprehensive income (7) 17
Other comprehensive income for the financial
year, net of tax 146 (309)
Total comprehensive income for the financial year 143 (490)
Attributable to:
Minority interests 39 23
Equity holders of the parent companies 104 (513)
Combined and consolidated
