| Mon 21 Feb 2011, 14:22 | | MND / MNP - Mondi Limited / Mondi plc - Full year |
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MND MNP
MND MNP
MND / MNP - Mondi Limited / Mondi plc - Full year results for the year ended 31
December 2010
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
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 2010
Financial Summary Year ended Year ended
EUR million 31 December 2010 31 December 2009 Change %
Group revenue 6,228 5,257 18
EBITDA 1 882 645 37
Underlying operating profit 2 509 294 73
Underlying profit before tax 3 394 182 116
Operating profit 512 166 208
Profit before tax 4 372 49 659
Basic earnings/(loss) per share
(EUR cents) 44.1 (6.5)
Underlying earnings per share
(EUR cents) 5 47.0 18.7 151
Headline earnings per share (EUR cents) 5 47.0 11.4 312
Total dividend per share (EUR cents) 20.0 9.5 111
Cash generated from operations 778 867 (10)
Net debt 1,364 1,517 (10)
Group return on capital employed (ROCE)6 12.3 7.6 62
Notes:
Underlying profit measures are disclosed to provide an additional basis on which
to evaluate the Group`s performance. A reconciliation of the underlying
measures to the statutory results is included in the annual financial
statements.
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 profit before tax and before special items.
4 Profit before tax is reported after special items of EUR22 million.
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
3/2009, `Headline Earnings`, as issued by the South African Institute of
Chartered Accountants.
6 Group return on capital employed (ROCE) is an annualised measure based on a 12
month trailing 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.
Highlights
- Significant improvement in financial performance
- underlying operating profit up 73%;
- underlying earnings per share up 151%; and
- return on capital employed up by 4.7 percentage points to 12.3%.
- Achieved production records at 6 out of the 8 largest paper mills.
- Modernisation of Russian pulp and paper mill successfully completed and
running to plan.
- Continued strong cash management, with net debt down to EUR1.36 billion.
- Proposed full year dividend of 20.0 euro cents per share, up 111%.
David Hathorn, Mondi Group chief executive, said:
"The 2010 financial year saw a much improved financial performance from the
Mondi Group. After the turmoil of 2008 and early 2009 created by the global
financial crisis, the recovery noted in late 2009 continued into 2010.
Pleasingly, this translated into a much improved return on capital employed
(ROCE), increasing to 12.3% for the year. Mondi`s strong performance confirms
the validity of our strategy and reflects the commitment of all our employees.
Given the strong financial performance and good cash generation, we are pleased
to recommend an increase in the full year dividend to 20.0 euro cents per share.
"Demand growth over the past 18 months has been very encouraging, with volumes
in most grades and geographic regions back at satisfactory levels. In 2011,
further demand growth is expected, albeit at more modest rates. Recent industry
capacity adjustments have also resulted in generally stronger fundamentals.
Taken together, this has led to a positive pricing environment. The general
economic recovery also brings cost pressures. We are confident that the Group`s
integrated low cost position, focus on performance, and the contribution from
the major investments made through the down cycle position the business well for
the future."
Contact details:
Mondi Group
David Hathorn +27 (0)11 994 5418
Andrew King +27 (0)11 994 5415
Lora Rossler +27 (0)31 451 2040 / +27 (0)83 627 0292
Financial Dynamics
Richard Mountain / Nina Delangle +44 20 7269 7186 / +44 20 7909 684 466
Chloe Webb +27 (0)11 214 2421
Conference call dial-in and audio cast details
Please see below details of our dial-in conference call and audio cast that will
be held at 09:00 (UK) and 11:00 (SA).
The conference call dial-in numbers are:
South Africa 0800 200 648 (toll-free)
UK 0800 917 7042 (toll-free)
Europe & Other 00800 246 78 700 (toll-free)
An online audio cast facility will be available via:
www.mondigroup.com/FYResults10. Password: FYResults10.
The presentation will be available online via the above website address before
the audio cast commences. Questions can be submitted via the dial-in
conference call or by e-mail via the audio cast.
Should you have any issues on the day with accessing the dial-in conference
call, please call +27 (0)11 535 3600.
Should you have any issues on the day with accessing the audio cast, please
e-mail mondi@kraftwerk.co.at and you will be contacted immediately.
An audio recording of the presentation will be available on Mondi`s website
during the afternoon of 21 February 2011.
Editors` notes
Mondi is an international paper and packaging Group, with production operations
across 31 countries and revenues of EUR6.2 billion in 2010. The Group`s key
operations are located in central Europe, Russia and South Africa and as at
the end of 2010, Mondi employed 29,000 people.
Mondi is fully integrated across the paper and packaging process, from the
growing of wood and the manufacture of pulp and paper (including recycled
paper), to the conversion of packaging papers into corrugated packaging,
industrial bags and coatings.
The Group is principally involved in the manufacture of packaging paper,
converted packaging products and uncoated fine paper (UFP).
Mondi has a dual listed company structure, with a primary listing on the JSE
Limited for Mondi Limited under the ticker code MND and a premium listing on
the London Stock Exchange for Mondi plc, under the ticker code MNDI. The Group
has been recognised for its sustainability through its inclusion in the
FTSE4Good UK, Europe and Global indices in 2008, 2009 and 2010 and the JSE`s
Socially Responsible Investment (SRI) Index in 2007, 2008, 2009 and 2010.
Forward-looking statements
This document includes forward-looking statements. All statements other
than statements of historical facts included herein, including, without
limitation, those regarding Mondi`s financial position, business strategy,
plans and objectives of management for future operations, are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Mondi, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding Mondi`s present and future business strategies
and the environment in which Mondi will operate in the future. Among the
important factors that could cause Mondi`s actual results, performance or
achievements to differ materially from those in the forward-looking statements
include, but are not limited to, those discussed under `Principal risks and
uncertainties`. These forward-looking statements speak only as of the date
on which they are made. Mondi expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in Mondi`s
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Overview of results
The Group`s underlying operating profit of EUR509 million was up 73% compared
to 2009, reflecting a strong operational performance and significantly improved
trading environment with price and volume improvements across all main products.
The Europe & International Division, through its Uncoated Fine Paper, Corrugated
and Bags & Coatings businesses contributed EUR431 million; South Africa
Division, EUR64 million; and Mondi Packaging South Africa, EUR51 million. The
Newsprint operating loss of EUR4 million was disappointing, whilst corporate
costs were at similar levels to previous years.
In line with the Group`s strategy, restructuring activities led to a further
refinement of the Group`s portfolio, with the sale of the UK corrugated
businesses, Europapier merchant business and a reduction of the Group`s interest
in Mondi Hadera to 25% from 50.1%. Furthermore, the Group acquired industrial
bag plants in Spain, France and Italy and also completed the second of its two
major capital projects, the Syktyvkar modernisation in Russia, thereby expanding
in its core business segments.
Input costs, particularly wood, pulp and recycled fibre, increased by
approximately 28% during the year, half of which was attributable to market
price increases whilst the balance was attributable in equal proportions to
increased selling volumes and adverse currency effects.
Interest paid during the year of EUR117 million was EUR46 million less than the
previous year, primarily due to the reduced net debt position and lower interest
rates in Russia and South Africa. Net finance charges however were 3% higher
than the prior year, mainly as a result of lower interest capitalised following
the completion of the two major capital projects in Poland and Russia.
The tax charge for the year was EUR87 million, representing an effective tax
rate before special items of 24%.
Underlying earnings per share of 47.0 euro cents increased by 151% over the
prior year. Basic earnings per share of 44.1 euro cents increased from a loss
of 6.5 euro cents in 2009.
As expected, and in line with the increased turnover, working capital increased
during the year with a net cash outflow of EUR121 million. The net working
capital to turnover ratio was 10.6%. On a continuing business basis, excluding
the results of Europapier and Mondi Hadera, the ratio increased to 11.5% from
10.0% in the previous year, which remains within the Group`s target range of
between 10% and 12%.
Strong cash generation and the proceeds from the businesses disposed of were
applied to reduce net debt to EUR1,364 million at year end, from EUR1,517
million at 31 December 2009.
The Group is proposing to pay a final dividend of 16.5 euro cents per share
giving a total dividend of 20.0 euro cents for the year, an increase of 111%
compared to 2009.
Europe & International - Uncoated Fine Paper business
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 1,516 1,351 12
- of which inter-segment revenue 129 130 -
EBITDA 279 239 17
Underlying operating profit 179 146 23
Special items 5 (2)
Capital expenditure 151 191 (21)
Net segment assets 1,512 1,494 1
ROCE 16.9% 14.5% 16.6
Underlying operating profit increased by EUR33 million to EUR179 million with
the Syktyvkar mill continuing to generate strong results and the contribution
from the Ruzomberok operation showing a marked improvement, both benefiting from
their pulp integration and improved pricing. The non-integrated mills, despite
achieving price increases, could not entirely offset the higher pulp prices,
leading to margin erosion.
Benchmark UFP prices at 31 December 2010 increased by approximately 11% from 31
December 2009 levels. These price increases, coupled with good volume growth on
the back of a recovery in demand, enabled the business to increase revenue by
12% to EUR1,516 million. Further price increases of approximately 5% have been
announced for the first quarter of 2011. The actual price increases achieved
will be subject to individual negotiations with customers.
The business experienced significant input cost pressures, particularly as a
result of the increased wood and pulp prices. Other cost increases were well
contained through ongoing cost saving initiatives. Productivity, measured in
terms of output per person, improved by approximately 11% during the year, with
annual production records in both Syktyvkar and Ruzomberok.
Capital expenditure for the year was EUR151 million, of which EUR108 million
related to the Syktyvkar modernisation project, completed in the second half of
the year. As planned, an extended shut was taken during August and early
September 2010 for the commissioning of the final phase of the project. The
benefits from this project will be in the form of reduced operating costs,
improved efficiencies, increased energy production and additional volumes from
the rebuilt containerboard and UFP machines. The rebuilt UFP machine was already
in production throughout 2010, contributing 40,600 tonnes of production. At the
year end, around EUR35 million was left to spend on this project.
The ROCE of 16.9%, increasing from 14.5% in the previous year, reflected the
positive trading environment, low cost base and strong operating performance.
Further benefits from the Syktyvkar modernisation project are expected to be
realised during 2011 with the plant expected to achieve full capacity in the
latter half of 2011, in accordance with the ramp-up plan.
Europe & International - Corrugated business
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 1,235 1,041 19
- of which inter-segment revenue 59 36 64
EBITDA 187 87 115
Underlying operating profit 119 23 417
Special items (15) (55)
Capital expenditure 87 195 (55)
Net segment assets 898 872 3
ROCE 14.9% 3.6% 314
The substantial improvement in the underlying profit of the Corrugated business
from EUR23 million in 2009 to EUR119 million in 2010 reflects improved product
prices and volumes, a positive contribution from the new recycled containerboard
machine at Swiecie, and restructuring and cost reduction initiatives.
During the year, the business concluded its restructuring programme with the
sale of the Frohnleiten mill in Austria and UK corrugated plants. Going forward,
the business will focus on its core central and eastern European markets,
supported by production facilities in Poland, Turkey, Germany and Austria.
The 470,000 tonne recycled containerboard machine at Swiecie performed well
ahead of plan, with total production volumes of 410,580 tonnes (2009: 108,897
tonnes). These increased volumes largely offset the reduction in volumes from
the sale of Frohnleiten. Production from the new containerboard machine is
expected to further increase during 2011 as it continues its ramp-up to full
design capacity.
Benchmark kraftliner prices increased by 45%, recycled containerboard prices by
30% and white top containerboard prices by 20% at year end, from 31 December
2009 levels. Further recycled containerboard price increases of EUR40/tonne and
white top containerboard price increases of EUR50/tonne have been announced to
take effect during the first quarter of 2011. Box price increases largely offset
the increased paper prices, albeit with some time lag. Further box price
increases will be sought in 2011. Pleasing improvements in volume growth were
achieved in both containerboard and corrugated packaging.
Costs of recovered fibre and wood increased significantly during the year, with
average benchmark recovered fibre prices more than doubling. The Polish
operations were particularly impacted by a shortage of supply, reflected in a
price premium for recovered fibre in this region. Recovered fibre pricing is
expected to remain under pressure into 2011. Wood costs increased by
approximately 30% during the year, although the rate of increase slowed during
the second half of 2010. Cost improvement initiatives continued and largely
offset other cost increases.
Productivity, measured by output per person, improved by almost 20% during the
year, with the primary contributor being the increased production volumes from
Swiecie. Capital expenditure of EUR87 million was incurred during the year, of
which EUR20 million related to the completion of the Swiecie project and EUR27
million to the containerboard plant at Syktyvkar.
The ROCE of 14.9%, compared to the prior year figure of 3.6%, reflects the
improved trading environment and the positive impact of the Group`s capital
investment and restructuring activities.
Europe & International - Bags & Coatings business
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 2,226 1,787 25
- of which inter-segment revenue 39 24 63
EBITDA 238 189 26
Underlying operating profit 133 82 62
Special items 28 (48)
Capital expenditure 92 81 14
Net segment assets 1,333 1,222 9
ROCE 11.8% 7.5% 57
Robust volume growth was the main contributor to the business achieving a 62%
improvement in underlying operating profit to EUR133 million. Whilst significant
price increases of around 30% were realised in kraft paper over the course of
the year, more than offsetting the increases in raw material costs, they were
more muted in the downstream industrial bags business where a large portion of
the sales volume is sold under fixed price contracts. Further industrial bag
price increases are expected to be implemented in 2011.
Demand in the core European market has recovered from the lows of 2008 and 2009
and significant demand growth was experienced in export markets. As a
consequence, the Group restarted its 80,000 tonne kraft paper mill in
Stambolijski in June 2010.
In May 2010, the business acquired Smurfit Kappa`s bag converting plants in
Spain, France and Italy followed by a plant in Poland early in 2011. A process
to integrate and rationalise the expanded plant network was initiated during the
year resulting in the decision to close four of the eight plants acquired,
subject to employee negotiations. Restructuring costs of EUR28 million
associated with this acquisition and subsequent rationalisation programme are
reflected in special items, offsetting a EUR34 million gain on acquisition, also
reflected in special items.
Productivity in kraft paper increased by 12% during the year with production
records set at all kraft paper facilities. A 12% improvement in productivity in
the industrial bags business was also realised.
The coatings and consumer packaging business recorded an improvement in its
performance, mainly due to robust volume growth and efficiency enhancements.
Price increases were realised but offset by increases in input costs,
particularly plastics and other chemicals.
The ROCE of the Bags & Coatings business of 11.8%, compared to 7.5% in 2009,
reflects the robust demand growth and an improvement in operating efficiencies.
South Africa Division
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 580 478 21
- of which inter-segment revenue 211 210 -
EBITDA 117 76 54
Underlying operating profit 64 32 100
Special items (10) (22)
Capital expenditure 28 26 8
Net segment assets 953 840 13
ROCE 8.4% 4.6% 83
Underlying operating profit doubled in the year to EUR64 million on the back of
a strong recovery in selling prices, restructuring initiatives and a gain on
revaluation of forestry assets, offset by currency headwinds and domestic cost
inflation. Consequently, the ROCE of 8.4%, whilst an improvement on the 4.6%
realised in 2009, is still short of targeted levels.
During the year, the decision was taken to exit the European UFP market due to
poor profitability and to focus on the domestic and African markets. As a
consequence, the 120,000 tonne UFP machine in Merebank was mothballed in
September 2010, and a restructuring programme initiated to realign the cost base
of the business, with the benefits likely to be seen in 2011.
Significant price increases for pulp and UFP were diluted by the impact of the
strong South African rand. Inflationary cost pressures were mitigated by cost
curtailments and restructuring activities.
Mondi Packaging South Africa
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 647 498 30
- of which inter-segment revenue 29 25 16
EBITDA 84 62 35
Underlying operating profit 51 36 42
Special items (1) 7
Capital expenditure 28 17 65
Net segment assets 393 335 17
ROCE 14.5% 11.5% 26
Underlying operating profit of EUR51 million was 42% up on the prior year,
achieved through improved sales volumes, selling price increases in the plastics
business and a continuing focus on cost containment. This yielded a ROCE of
14.5% up from 11.5%.
Demand improved during the year, largely returning to the levels experienced
before the recession. Agricultural products continued to grow with a number
of exporters focusing on fully packaged products. Industrial sector demand
remains subdued.
While paper and related packaging prices remained largely unchanged during the
year, above inflationary labour and electricity price increases drove costs up.
Only through rigorous cost management was the business able to curtail the
impact of these increased costs and deliver improved profitability. Electricity
price increases in South Africa remain a concern for the foreseeable future.
The business continues to focus on cash flow generation, reducing working
capital levels and maintaining a focus on increasing profitability.
Newsprint
Year ended Year ended
31 December 31 December
EUR million 2010 2009 Change %
Segment revenue 492 528 (7)
- of which inter-segment revenue 1 1 -
EBITDA 10 28 (64)
Underlying operating (loss)/profit (4) 12
Special items (29) (12)
Capital expenditure 7 7 -
Net segment assets 106 194 (45)
ROCE (2.8)% 6.0%
Europapier business included in 2009 information and in 2010 information until
the date of disposal of 4 November 2010.
The Europapier paper merchant business was sold with effect from the beginning
of November 2010. This business generated an operating profit of EUR6 million
during the 10 months ended October 2010 largely through improved volumes and
good cost containment.
The returns of the remaining Newsprint businesses were extremely disappointing
with the segment reflecting an underlying operating loss.
The Aylesford Newsprint joint venture was severely impacted by declining selling
prices on its annual contract volumes whilst recycled paper input costs
increased substantially. The business also incurred additional waste disposal
costs. Significant price increases are required to restore the business to
profitability. Price increases in excess of 20% have been negotiated on the
annual contract volumes to take effect in the first quarter of 2011.
The Mondi Shanduka Newsprint joint venture in South Africa suffered from
slightly reduced demand and selling prices remained under pressure. The strength
of the South African rand reduced returns from export sales and put pressure on
domestic pricing. Increasing electricity prices, up 97% over the previous three
years, with a further 65% expected over the next two years, are severely
hampering the profitability of this business and an asset impairment was
recognised in the year.
Financial Review
Special items (refer note 4 of financial statements)
Special items for the year include the following:
- mothballing of a paper machine and related restructuring provisions in
Merebank, South Africa;
- reversal of previously recognised closure provisions no longer required
following the sale of the Szolnok site in Hungary;
- reversal of impairment and related closure provisions of the Stambolijski mill
following its restart in June 2010;
- partial impairment of underperforming kraft paper assets in Lohja and
Ruzomberok;
- impairment of Newsprint assets in South Africa;
- costs of restructuring and write-off of obsolete assets in Syktyvkar following
completion of the modernisation project;
- gain on acquisition of the industrial bags plants in western Europe, largely
offset by restructuring costs following the announcements to close certain of
these plants;
- loss on sale of the corrugated packaging plants in the UK;
- profit on the sale of forestry assets in South Africa; and
- write-down of assets and loss on disposal of Europapier.
Further detail is provided in note 4 of the financial statements.
Input costs
Input costs increased significantly during the year, although the rate of
increase slowed in the second half of 2010.
Wood, recovered fibre and pulp comprise approximately one third of the input
costs of the Group. Wood prices increased by approximately 30% over the year.
Average benchmark prices for recovered fibre increased by 111% when compared to
the average price of 2009. The increases of 50% and 41% for hardwood pulp and
softwood pulp, respectively, did not have a significant impact on the Group as
it is largely balanced in respect of pulp production and consumption.
These increases in input costs have, to a large extent, been passed on to
customers through selling price increases during the course of the year.
Energy and chemical costs have increased across the business, with particular
pressure on electricity prices in South Africa, which have almost doubled over
last three years. These increases were partially offset in Europe by higher
green energy sales and disposal of emission credits in the Corrugated and Bags &
Coatings businesses.
Currencies
Most of the emerging market currencies to which the Group is exposed as an
exporter have strengthened against the euro during the year. Whilst these
exchange rates are relatively volatile, on average, the South African rand has
strengthened by 17%, the Russian rouble by 9%, the Turkish lira by 8%, the
Polish zloty by 8% and the Czech koruna by around 4%. Together with the
generally higher inflation expectations in these countries, this places
increasing pressure on the Group`s cost base. Conversely, the general
strengthening of the US dollar against the euro benefited European exports and
supported pricing in Europe.
Tax
The effective tax rate before special items was 24%, compared to 32% in 2009.
The main reasons for the reduction in the tax rate are improved profitability
enabling the use of previously unrecognised tax losses; increased profitability
in regions with lower statutory tax rates; and the benefits of tax incentives
granted in certain countries in which the Group operates, notably those related
to the major Polish and Russian projects.
Non-controlling interests
The income attributable to non-controlling interests increased significantly
during the year from EUR30 million in 2009 to EUR61 million in the current year.
This is primarily attributable to the significantly improved profitability of
Mondi Swiecie S.A. and Mondi SCP a.s. (Ruzomberok).
Cash flow and capital expenditure
EBITDA of EUR882 million was EUR237 million higher than in 2009 reflecting the
positive trading environment. The Group generated EUR778 million of cash from
operations (2009: EUR867 million), notwithstanding the EUR121 million increase
in working capital on the back of increased revenues (EUR248 million reduction
in 2009).
Capital expenditure of EUR394 million was EUR124 million lower than the prior
year. This reflects the reduction in spend on the two major capital investments
in Poland, completed towards the end of 2009, and Russia, completed in the
latter half of 2010, and the Group`s tight focus on new capital approvals which
were severely restricted through the height of the global financial crisis in
2008 and 2009. Excluding major expansionary capital investments, the Group aims
to maintain its capital expenditure at between 60% and 80% of its depreciation
charge. In 2010, this ratio was 64%.
The surplus cash as well as the net cash received from the business
restructuring activities was applied to reduce net debt.
Treasury and borrowings
Net debt at year end was EUR1,364 million, EUR153 million lower than the prior
year. This reduction was achieved through strong operational cash flows
offsetting the investment in working capital in line with increased revenues,
capital expenditure to complete the projects in Poland and Russia and a EUR78
million negative currency impact. Gearing as at 31 December 2010 was 29.7%
(2009: 35.1%), and the net debt to trailing 12 months EBITDA ratio was 1.5
(2009: 2.4).
The Group successfully obtained public credit ratings from Moody`s (Baa3) and
Standard & Poor`s (BB+) in March 2010. The Moody`s rating is investment grade.
The ratings have remained on stable outlook since they were issued. Following
the publication of the ratings, Mondi Finance plc established its Euro Medium
Term Note (EMTN) programme under which it successfully issued its inaugural
EUR500 million, 7 year, 5.75% public Eurobond at the end of March 2010. Under
the EMTN programme Mondi is able to issue further Eurobonds subject to market
conditions, thus diversifying and strengthening the Group`s funding structure.
The proceeds of the issuance were used to repay debt drawn under existing bank
facilities.
Financing costs before interest capitalised reduced from EUR185 million to
EUR168 million mainly as a result of lower interest rates in Russia and South
Africa during 2010, offset in part by the interest on the Eurobond being higher
than that on the borrowings it was used to refinance.
Group liquidity is provided through the EUR500 million Eurobond and a range of
committed bank facilities amounting to EUR2.4 billion. With EUR1.5 billion of
these facilities undrawn at the year end, the Group has significant liquidity to
meet its short-term funding requirements.
The Group is actively reviewing refinancing options for the EUR1.55 billion
syndicated revolving credit facility, which matures in June 2012. As at 31
December 2010, EUR122 million of this facility was drawn. Other key Group
facilities include a EUR160 million export credit agency loan in Russia with an
amortising repayment until 2020, a PLN474 million (EUR119 million) European
Investment Bank facility in Poland with an amortising repayment until 2017 as
well as various committed facilities in South Africa amounting to ZAR2.7 billion
(EUR305 million).
The average maturity of the Eurobond and committed debt facilities is 2.6 years
(compared to 2.2 years at 31 December 2009). Drawn committed facilities maturing
over the next 12 months amount to EUR397 million. To the extent they are not
renewed, they can be financed out of existing undrawn committed facilities.
Sustained delivery on Group strategy
Mondi`s strategy continues to deliver robust results and we will take
opportunities to strengthen our position where appropriate as we:
- build on leading positions in packaging and UFP, particularly in high-growth
emerging markets;
- maintain our position as a low-cost, high-quality producer by selectively
investing in production capacity in lower-cost regions and exploiting benefits
of upstream integration (including forestry); and
- focus on continuous productivity improvement and cost reduction, delivered
through business excellence programmes and rigorous asset management.
Leading market positions
Our focus continues to be on achieving the right product mix and geographic
focus and thereby increasing the quality of our earnings. In order to increase
our exposure to the faster growing emerging markets and reduce the risks
associated with some declining western European markets, we have completed a
number of restructuring programmes. As a result Mondi is well positioned with
good exposure to high-growth emerging markets such as eastern Europe, Russia and
South Africa, with 73% of the Group`s net operating assets and 55% of revenue by
destination based in these geographical areas.
High-quality, low-cost asset base
Over the past year, Mondi has continued to develop its high-quality, low-cost
asset base and the EUR545 million modernisation project at the Syktyvkar mill in
Russia not only boosts our leading market position in this key region but the
mill is now a well-invested highly cost-effective asset. The project
incorporated the construction of a new wood yard, the rebuild of the softwood
and hardwood production lines and the white liquor plant, a new lime kiln and
recovery boiler, a new turbo-generator and evaporation plant and the rebuild of
the UFP and containerboard machines. This investment enables Mondi to increase
product quality and output for containerboard and UFP. Most importantly the mill
is now fully self-sufficient in pulp, which is where the major cost advantage
lies.
The European Corrugated business benefited from the new recycled containerboard
machine at Swiecie, which has continued to operate well; restructuring and cost
reduction initiatives; and improved product prices and volumes. The new machine
produced 410,580 tonnes of paper in 2010 and should make good progress in 2011
towards its capacity output of 470,000 tonnes.
Focus on performance
Cost optimisation is entrenched in Mondi`s culture and management`s relentless
approach to cost savings did not lose momentum in 2010. The Group`s focus on
cash flow optimisation resulted in working capital remaining tightly under
control and within the desired range of 10% to 12% of turnover.
The ROCE of 12.3%, whilst representing a pleasing improvement, is just short of
the 13% targeted across the cycle.
Overall, 2010 has been an extremely successful year from an operational
perspective, with significant improvements in production efficiencies across the
business and full year production records being set in a number of key
operations including Swiecie, Syktyvkar, Steti, Ruzomberok, Frantschach and
Richards Bay.
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.
On an annual basis, the DLC executive committee and Boards conduct a formal
systematic review of the most significant risks and uncertainties, determined
through a Group wide bottom up review, and the Group`s responses to those risks.
These risks are assessed against pre-determined risk tolerance limits,
established by the Boards, and reviewed on an annual basis.
The Group believes that it has effective systems and controls in place to manage
the key risks identified below within the risk tolerance levels established by
the Boards.
- Mondi operates in a highly competitive environment
The markets for paper and packaging products are highly competitive. Prices of
Mondi`s key products have experienced substantial fluctuations in the past.
Furthermore, product substitution and declining demand in certain markets,
coupled with new capacity being introduced may have an impact on market prices.
A downturn in 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. Mondi is flexible and responsive to changing market
and operating conditions and the Group`s geographical and product
diversification provide some measure of protection.
- Input costs are subject to significant fluctuations
Materials, energy and consumables used by Mondi include significant amounts of
wood, pulp, recovered fibre, packaging papers and chemicals. Increases in the
costs of any of these raw materials, or any difficulties in procuring wood or
recovered fibre in certain countries, could have an adverse effect on Mondi`s
business, operational performance or financial position. The Group`s focus on
operational performance, relatively high levels of integration and access to its
own virgin fibre in Russia and South Africa, serve to mitigate these risks.
Fifty percent of the South African forestry acreage is subject to land claims.
The continued acceptance of the Mondi settlement model as the industry standard
by the South African government provides some predictability for future land
claim settlements.
- Foreign currency exposure and exchange rate volatility
The location of some of the Group`s significant operations in emerging markets
results in foreign currency exposure. Adverse currency movements and high
degrees of volatility may impact on the financial performance and position of
the Group. The most significant emerging market currency exposures are to the
South African rand, Russian rouble, Czech koruna, Polish zloty and Turkish lira.
The Group`s policy is to hedge balance sheet exposures against short-term
currency volatility.
- Cost and availability of supply of electricity in South Africa may adversely
impact operations.
South Africa continues to experience increases in the cost of electricity well
above inflation. In 2010, the price of electricity increased by in excess of 25%
and similar increases are forecast for the next three years. Electricity demand
is expected to continue to outstrip supply until new generation capacity is
brought on stream, which is unlikely to be before 2013. Mondi continues to
monitor electricity consumption and has invested in projects to increase its own
generation capacity and reduce its dependence on the national energy provider.
- Significant capital investments including acquisitions carry project risk
The business is capital intensive and therefore requires ongoing capital
investment to expand or upgrade existing facilities and to develop new
facilities. Projects that require significant capital expenditure carry risks
including: failure to complete a project within the required timetable and/or
within budget; failure of a project to perform according to prescribed operating
specifications; and significant, unforeseen changes in raw material costs or
inability to sell the envisaged volumes or achieve envisaged price levels. The
successful completion of the Group`s two most significant capital investment
programmes in Poland and Russia has reduced the potential impact of this risk.
Larger capital projects are subject to specific approval by the Boards and
regular monitoring and reporting. Skilled and experienced teams are assigned to
large capital projects under the oversight of the Group
technical director.
- Investments in certain countries may be adversely affected by political,
economic and legal developments in those countries
The Group operates in a number of countries where the political, economic and
legal systems are less predictable than in countries with more developed
institutional structures. Significant changes in the political, economic or
legal landscape in such countries may have a material effect on the Group`s
operations in those countries. The Group has invested in a number of countries
thereby diversifying its exposure to any single jurisdiction. The Group`s
diversified management structure ensures that business managers are able to
closely monitor and adapt to changes in the environment in which they operate.
Going concern
The Group`s business activities, together with the factors likely to affect its
future development, performance and position are set out in the business review.
The financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the annual financial statements. In
addition, the financial statements include the Group`s objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its exposures
to credit and liquidity risk.
Mondi`s geographical spread, product diversity and large customer base mitigate
potential risks of customer or supplier liquidity issues. Proactive initiatives
by management in rationalising the business through cost-cutting, asset closure
and divestitures have consolidated the Group`s leading cost position in its
chosen markets. Working capital levels and capital expenditure programmes are
strictly monitored and controlled.
The Group meets its funding requirements from a variety of sources including the
Eurobond, the syndicated five year revolving credit facility expiring in June
2012 and various facilities in the larger operations in Russia, Poland and South
Africa. The availability of some of these facilities is dependent on the Group
meeting certain financial covenants all of which have been complied with. Mondi
had EUR1.5 billion of undrawn committed debt facilities as at 31 December 2010
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 well
within the level of its current facilities and related covenants.
After making enquiries, the directors have a reasonable expectation that the
Mondi 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.
Dividend
The Boards` aim is to offer shareholders long-term dividend growth within a
targeted dividend cover range of two to three times over the business cycle.
Given the strong financial performance, good cash generation and the Boards`
stated desire to increase distributions to shareholders, the Boards are pleased
to recommend a significant increase in the final dividend.
The boards of Mondi Limited and Mondi plc have recommended a final dividend of
16.5 euro cents per share (2009: 7.0 euro cents per share), payable on 12 May
2011 to shareholders on the register at 15 April 2011. Together with the interim
dividend of 3.5 euro cents per share, paid on 14 September 2010, this amounts to
a total dividend for the year of 20.0 euro cents per share. In 2009, the total
dividend for the year was 9.5 euro cents per share.
Outlook
Demand growth over the past 18 months has been very encouraging, with volumes in
most grades and geographic regions back at satisfactory levels. In 2011, further
demand growth is expected, albeit at more modest rates. Recent industry capacity
adjustments have also resulted in generally stronger fundamentals. Taken
together, this has led to a positive pricing environment. The general economic
recovery also brings cost pressures. We are confident that the Group`s
integrated low-cost position, focus on performance, and the contribution from
the major investments made through the down cycle, position the business well
for the future.
Directors` responsibility statement
The responsibility statement below has been prepared in connection with the
Group`s annual report for the year ended 31 December 2010. 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 (IFRS), 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 18 February 2011 and
is signed on their behalf by:
David Hathorn Andrew King
Director Director
18 February 2011 18 February 2011
Combined and consolidated income statement
for the year ended 31 December 2010
2010
Before Special After
special items special
EUR million Notes items (note 4) items
Group revenue 3 6,228 - 6,228
Materials, energy and consumables used (3,322) - (3,322)
Variable selling expenses (548) - (548)
Gross margin 2,358 - 2,358
Maintenance and other indirect expenses (298) - (298)
Personnel costs (931) (23) (954)
Other net operating expenses (247) 50 (197)
Depreciation, amortisation and
impairments (373) (24) (397)
Operating profit/(loss) 3 509 3 512
Non-operating special items 4 - (25) (25)
Net income from associates 2 - 2
Total profit/(loss) from operations
and associates 511 (22) 489
Net finance costs (117) - (117)
Investment income 35 - 35
Foreign currency gains/(losses) 8 - 8
Financing costs (160) - (160)
Profit/(loss) before tax 394 (22) 372
Tax (charge)/credit 5 (93) 6 (87)
Profit/(loss) from continuing
operations 301 (16) 285
Attributable to:
Non-controlling interests 62 (1) 61
Equity holders of the parent companies 239 (15) 224
Earnings per share (EPS) for
profit/(loss) attributable to
equity holders of the parent companies
Basic EPS (EUR cents) 6 44.1
Diluted EPS (EUR cents) 6 43.6
Basic underlying EPS (EUR cents) 6 47.0
Diluted underlying EPS (EUR cents) 6 46.5
Basic headline EPS (EUR cents) 6 47.0
Diluted headline EPS (EUR cents) 6 46.5
2009
Before Special After
special items special
EUR million items (note 4) items
Group revenue 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) 294 (128) 166
Non-operating special items - (5) (5)
Net income from associates 2 - 2
Total profit/(loss) from operations and
associates 296 (133) 163
Net finance costs (114) - (114)
Investment income 27 - 27
Foreign currency gains/(losses) (1) - (1)
Financing costs (140) - (140)
Profit/(loss) before tax 182 (133) 49
Tax (charge)/credit (58) 6 (52)
Profit/(loss) from continuing operations 124 (127) (3)
Attributable to:
Non-controlling 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) (6.5)
Diluted EPS (EUR cents) (6.5)
Basic underlying EPS (EUR cents) 18.7
Diluted underlying EPS (EUR cents) 18.2
Basic headline EPS (EUR cents) 11.4
Diluted headline EPS (EUR cents) 11.1
Combined and consolidated statement of comprehensive income
for the year ended 31 December 2010
EUR million 2010 2009
Profit/(loss) for the financial year 285 (3)
Other comprehensive income:
Effect of cash flow hedges 11 26
Actuarial (losses)/gains and surplus restriction on
post-retirement benefit schemes (18) 7
Effect of available-for-sale investments - 1
Exchange differences on translation of foreign operations 193 118
Share of other comprehensive income of associates 1 1
Tax relating to components of other co
