| Thu 16 Feb 2012, 11:09 | | MND/MNP - Mondi Limited/ Mondi plc - Mondi Group m |
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MND MNP
MND MNP
MND/MNP - Mondi Limited/ Mondi plc - Mondi Group makes an offer to acquire the
minority interest in Mondi Swiecie S.A.
Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND
ISIN: ZAE000156550
Mondi plc
(Incorporated in England and Wales)
(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 ("JSE") and the London
Stock Exchange of matters required to be disclosed under the JSE Listings
Requirements and/or the Disclosure Rules and Transparency Rules and/or the
Listing Rules of the United Kingdom Listing Authority.
Mondi Group makes an offer to acquire the minority interest in Mondi Swiecie
S.A.
Mondi Group has made an all cash public tender offer of PLN69.00 (EUR16.48) per
share ("Offer") for 17 million shares representing 34% of the share capital of
Mondi Swiecie S.A. ("Mondi Swiecie") that it does not already own. Mondi
Swiecie is listed on the Warsaw Stock Exchange. The Offer represents a premium
of 15.6% over the last three months average price of PLN59.71 (EUR14.26) and a
premium of 4.1% over the last six months average price of PLN66.26 (EUR15.82).
Mondi Swiecie is a leading integrated manufacturer of virgin and recycled
containerboard in Central Eastern Europe (CEE). In 2011 it produced 1,333
thousand tonnes of containerboard at its operations in Swiecie, Poland. Mondi
Swiecie presently employs approximately 1,020 people under its Managing
Director Maciej Kunda. This acquisition would bring into full ownership an
asset of the Mondi Group, further streamlining its corporate structure.
Mondi Swiecie today announced its results for the year ended 31 December 2011.
The company generated EBITDA of PLN610m (EUR148m), operating profit of PLN457m
(EUR111m) and net earnings of PLN396m (EUR96m). As of 31 December 2011 it had
net cash of PLN70m (EUR16m), gross assets of PLN2,729m (EUR612m) and
shareholders` equity of PLN1,830m (EUR410m). A translation of the company`s
announced Consolidated Financial Statements and Report on Business Activities
for the year ended 31 December 2011 is set out below. Under the Offer, the
implied equity value of the whole of Mondi Swiecie is PLN3.5bn (EUR824m) and
represents an EV/EBITDA multiple of approximately 5.5x and a P/E multiple of
approximately 8.7x for 2011.
The Offer is expected to be concluded in mid April 2012. Full acceptance of the
Offer would result in an aggregate cash consideration payable by the Mondi
Group on closing of PLN1.2bn (EUR280m). The Offer is conditional on Mondi
Group achieving minimum acceptances of 14% of Mondi Swiecie shares (to bring
the Mondi Group`s total interest in the company to not less than 80%). After
completion of the Offer, Mondi intends to delist Mondi Swiecie from the Warsaw
Stock Exchange. The Offer will be funded by Mondi Group`s existing cash
resources and from existing committed bank facilities available to it.
In accordance with the provisions of the JSE Listings Requirements, the
unaudited pro forma financial effects set out below are included for the
purpose of illustrating the effects of a full acceptance of the Offer on Mondi
Group`s underlying earnings, basic earnings from continuing operations, basic
earnings from continuing and discontinued operations, headline earnings, net
asset value and tangible net asset value per ordinary share, for the half year
ended 30 June 2011 as if such transaction had occurred on 1 January 2011 for
income statement purposes and 30 June 2011 for statement of financial position
purposes. These unaudited pro forma financial effects are the responsibility of
the directors and have been prepared in accordance with the guidelines issued
by the South African Institute of Chartered Accountants.
These unaudited pro forma financial effects are presented for illustrative
purposes only and because of their nature, may not give a fair reflection of
Mondi Group`s financial position nor the effect on future earnings following
the acquisition:
Per Mondi Ordinary Share Reviewed Unaudited Percentage
Before After
(Euro cents) Acquisition 3 Acquisition 4 Change
Underlying earnings 1 38.2 41.8 9.4
Basic earnings from continuing 39.0 42.5 9.0
operations
Basic earnings from continuing 41.6 45.1 8.4
and discontinued operations
Headline earnings 2 39.4 42.9 8.9
Diluted underlying earnings 1 37.7 41.2 9.3
Diluted earnings from continuing 38.5 42.0 9.1
operations
Diluted earnings from continuing 41.0 44.5 8.5
and discontinued operations
Diluted headline earnings 2 38.9 42.4 9.0
Net asset value 6.40 5.86 (8.4)
Tangible net asset value 5.93 5.39 (9.1)
Notes:
1. Underlying earnings per share excludes the impact of special items.
2. The presentation of headline earnings per share is mandated under JSE
listings requirements. Headline earnings has been calculated in accordance
with Circular 3/2009, "Headline Earnings", as issued by the South African
Institute of Chartered Accountants.
3. The Group financial information has been extracted, without adjustment,
from the Group`s reviewed results for the six months ended 30 June 2011.
4. The adjustments to earnings, on the basis that the acquisition had
occurred on 1 January 2011 for income statement purposes and 30 June 2011
for statement of financial position purposes, include the following main
items:
- The exclusion of the non-controlling interest charge in respect of Mondi
Swiecie
- The estimated finance charges associated with the financing of the
consideration
- Assumed taxation rate of 26.25%
Net asset value and tangible net asset value, on the basis that the acquisition
had occurred on 1 January 2011 for income statement purposes and 30 June 2011
for statement of financial position purposes, are reduced by the estimated
consideration of EUR280 million.
/ends
Contact:
Mondi Group
Lora Rossler
Group Corporate Affairs Manager
Tel: +27 (0)31 451 2111 or +27 (0)83 627 0292
E-mail: lora.rossler@mondigroup.co.za
Kerry Crandon
Group Communications Manager
Tel: +27 (0)11 994 5425 or +27 (0)83 389 3738
E-mail: kerry.crandon@mondigroup.com
Andrew King
Group CFO
Tel: +27 (0)11 994 5415 or +27 (0)82 870 8100
E-mail: andrew.king@mondigroup.com
Editors` notes
About Mondi:
Mondi is an international paper and packaging Group, with production operations
across 31 countries and revenues of EUR 6.2 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 approximately 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.
Translation of Mondi Swiecie`s Consolidated Financial Statements and Report on
Business Activities for the year ended 31 December 2011:
Mondi Swiecie Group
Report on Business Activities of the Group for 2011
13 February 2012
CONTENTS
1. BACKGROUND 4
2. CORE PRODUCTS 5
2.1. Industry 5
2.2. Product types 5
2.3. The position of the Group in the sector and compared to 6
the competition
2.4. Structure of sales 8
2.5. Sales markets 8
3. SIGNIFICANT IMPACTS ON THE ACHIEVED RESULTS 9
3.1. Analysis of sales revenues 9
3.2. Analysis of other income statement items 10
3.2.1. Production volume 10
3.2.2. Basic raw materials and services 10
4. INFORMATION ON OTHER EVENTS THAT TOOK PLACE IN 2011 12
4.1. Information on significant agreements 12
4.2. Changes in organisational and capital relationships 12
4.3. Related party transactions 13
4.4. Credits, loan agreements, sureties and guarantees 13
4.5. Utilisation of inflows from issue of securities 14
4.6. Variances from the last published forecast 14
4.7. Management of financial resources and liquidity 14
assessment
4.8. Possibility to implement investment projects 15
4.9. Information that is essential for the evaluation of the 15
personnel related situation, assets related situation,
financial condition, financial results and changes in
the situation as well as information that is essential
for the evaluation of the possibility of paying
liabilities
4.10. Factors and untypical events impacting the result 15
4.11. Activities in the Special Economic Zone 15
4.12. Description of the development and operating drivers 16
4.12.1. External drivers 16
4.12.2. Planned development of the Group 16
4.12.3. Achievements in the area of research and development 17
4.12.4. Current and expected financial position of the Group 17
4.12.5. Factors that will impact the Group`s results as expected 17
by the Group
4.13. Management and Computerisation 20
4.14. Changes in basic management of the Company and its Group 20
4.15. Information on proceedings pending before the court, 20
competent body for arbitration proceedings or public
administrative body
4.16. Agreements concluded between the Company and Members of 21
the Management Board of the Company
4.17. Remuneration of Members of the Management and 21
Supervisory Bodies
4.18. Outstanding loans, guarantees and sureties granted to 21
Members of the Management and Supervisory Bodies of the
Company and their relatives
4.19. Shares held by Members of the Management and Supervisory 22
Bodies
4.20. Changes in the shareholding structure 22
4.21. Information on the Controlling System for Employee 22
Shares Programme
4.22. Agreements with the entity authorised to audit financial 22
statements
5. STATEMENT ON COMPLIANCE WITH THE CODE OF BEST PRACTICE 24
OF CORPORATE GOVERNANCE
5.1. Code of Corporate Governance Best Practice that governs 24
the Company and the location where the Code of Best
Practice is available to the public
5.2. The extent to which the Company waived the Code of Best 26
Practice, indication of such Practices and reasons for
the waiver
5.3. Basic characteristics of internal audit and risk 26
management systems used in the Company in the
preparation of financial statements and consolidated
financial statements
5.4. Shareholders that directly or indirectly hold 28
significant parcels of shares, number of shares held by
such entities, their participation in the share capital
in %, number of votes arising out of the participation
in the s:30hare capital and their share in % in the
total number of votes at the General Meeting of the
Company
5.5. Holders of any securities giving special controlling 29
powers and description of such powers
5.6. Any limitations related to exercising the right to vote, 29
such as limitation to exercise the right to vote by
holders of a certain portion or number of votes, time
limitations related to exercising the right to vote or
regulations providing that, with Company`s co-operation,
capital rights related to securities are separated from
holding securities
5.7. Any limitations related to the transfer of ownership 29
title to the Company`s securities
5.8. Rules of appointing and dismissing managing and 29
supervising persons and their powers, in particular
their power to decide about shares issuance or buying
out
5.9. Rules of amending the Statute or Articles of Association 30
5.10. General Meeting rules of procedure and basic powers as 31
well as Shareholders` rights and way of exercising such
rights, in particular the rules arising out the General
Meeting rules of procedure, if such the rules were
adopted, unless information in this regard arises out of
the law
5.11. Members of and changes to the composition of the 34
Company`s Management and Supervisory Boards or
administration body made over the last fiscal year, the
procedure of operation of the Company`s Management and
Supervisory Boards or administration body and their
committees
1. BACKGROUND
As of the balance sheet date Mondi Swiecie Group is composed of:
- parent company - Mondi Swiecie S.A., and
- subsidiary - Swiecie Recykling Sp. z o.o.,
- associated company - Polski System Recyklingu - Organizacja Odzysku
S.A.
The consolidated financial statements as of 31 December 2011 cover the
following companies:
a) parent company - Mondi Swiecie S.A.,
b) company valued with the full method - Swiecie Recykling Sp. z o.o.,
c) company valued with the equity method - Polski System Recyklingu -
Organizacja Odzysku S.A.
Mondi Swiecie S.A. was established at the beginning of the nineteen
nineties. In January 1991, the state-owned entity - Zaklady Celulozy i
Papieru w Swieciu - was transformed into a joint-stock company owned
entirely by the State Treasury. In April 1997, 15% of the Company`s shares
were floated on the Warsaw Stock Exchange. In August 1997, a majority
stake of shares was sold to a strategic investor, Framondi NV of the
Netherlands. The Company was renamed Frantschach Owiecie.
In November 2004, the Frantschach Group and Mondi Packaging Europe Group
merged to form the Mondi Packaging Group with the common brand and logo.
As a result of the merger, the Company changed its name from Frantschach
Swiecie S.A. to Mondi Packaging Paper Owiecie S.A. on 20 January 2005.
The Frantschach Group was wholly owned by Mondi - one of the leading paper
and packaging companies. Mondi was a member of Anglo American plc, the
worldwide leader in mining and natural resources industry, till the end of
June 2007. On 25 June 2007, the Extraordinary Meeting of Shareholders of
Anglo American plc, with the Mondi Group being its member, approved
demerger of the Mondi Group from Anglo American plc and decided to list
Mondi on the London and Johannesburg Stock Exchanges on 3 July 2007.
On 16 May 2008, the Registration Court registered the rebranded Company`s
business name - Mondi Swiecie S.A.
Swiecie Recykling commenced its business activities in January 2002 based
on the Recovered Paper Purchasing Department of Frantschach Owiecie S.A.
Frantschach Swiecie S.A. (now Mondi Swiecie S.A.) took over 100% of shares
in the limited liability company (Swiecie Recykling), thus becoming its
sole shareholder. Owiecie Recykling is the major domestic supplier of
recovered paper, being one of the key raw materials for paper production,
for Mondi Swiecie S.A. In December 2004, the Extraordinary General Meeting
of Shareholders adopted the resolution regarding rebranding of this
subsidiary from Frantschach Swiecie Recykling Sp. z o.o. to Swiecie
Recykling Sp. z o.o. The new name was registered in KRS (National Court
Register of Companies) on 6 January 2005.
2. CORE PRODUCTS
2.1. Industry
In line with the strategy implemented by Mondi Swiecie S.A., the Group`s
activities are focused on manufacturing containerboard. The Group is the
Polish leader in its own products and a significant European manufacturer
of containerboard.
The Group also manufactures sack paper, whose output in 2012 should be
reduced in line with Mondi Group`s strategy of grade consolidation.
However, the intention is to focus on manufacturing lightweight
kraftliners (with a basis weight below 100 gsm) on the fast-growing
segment of paper bags and other applications.
The substantial improvement in paper quality was made thanks to the
implementation of the capital investment programme, which allows the Group
to effectively compete with leading paper producers in Europe and
worldwide.
The start-up of ECO7 in September 2009 allowed increasing capacity in 2010
to 1.3 million tonnes and in 2011 to 1.4 million tonnes.
The following trends on the main product markets are identified:
Sack Paper:
- Since the Group focus is on manufacturing containerboard, the output
of sack paper decreased by 6.6 thousand tonnes compared to 2010.
Kraftliner:
- It is one of the Group`s core products. In 2011, its share in the
sales volume was 33%. In 2011, the sales volume of this product
decreased, whereas its prices increased.
Recycled papers:
- The popularity of this group of papers on the packaging market is
rising systematically (average dynamics of growth over last 15 years
was approx. 6.5% annually) and now it comprises approx. 68% of total
containerboard consumption.
- Major factors supporting the substitution of virgin fibre-based
grades (Kraftliner, Semi-chemical Fluting) with recycled papers
(Testliners, KraftTop X, WB Fluting) are lower prices for the latter
grades and their improved quality. Another important factor is a
rising environmental awareness of communities, which has a real
impact on consumer preferences and their purchasing-related
decisions.
- Recycled papers are the dominant product group on the Polish
containerboard market.
2.2. Product types
Containerboard papers are sold under the common name "ProVantage" used
across the entire Mondi Group:
Containerboard:
- ProVantage Kraftliner (virgin fibre-based paper with an addition of
recycled fibre for outer layers of corrugated board),
- ProVantage Kraftliner XLite (lightweight, virgin fibre-based paper
for outer layers of corrugated board),
- ProVantage Kraft X (lightweight, virgin fibre-based paper with the
addition of recycled fibre for outer layers of corrugated board and
for manufacture of paper bags),
- ProVantage Kraftliner Aqua (virgin fibre-based paper with the
addition of recycled fibre for outer layers of corrugated board, with
increased moisture resistance, offered as a substitute for paraffin-
coated papers),
- ProVantage KraftTop X (virgin and recycled fibre-based paper for
outer layers of corrugated board),
- ProVantage Testliner 3 (recycled fibre-based paper for outer layers
of corrugated board),
- ProVantage Fresco Fluting (paper with increased parameters, made of
semi-chemical and OCC pulp for inner layers of corrugated board),
- ProVantage Fluting WB (recycled fibre-based paper for inner layers of
corrugated board),
- ProVantage Fluting Aqua (paper for inner layers of corrugated board,
made of semi-chemical pulp, with increased moisture resistance,
recommended as the substitute for paraffin and resin-coated
Flutings).
2.3. The position of the Group in the sector and compared to the
competition
ECO7 that manufactures lightweight recycled paper, and is the response to
the increasing industrial demand for such grades allowed significantly
increasing the Group`s competitiveness in Central-Eastern Europe.
The Group still offers innovative "Aqua" products (ProVantage Kraftliner
Aqua and ProVantage Fluting Aqua) that are primarily designed for the
manufacture of fruit board packaging. Their characteristic features are
increased moisture and water resistance. In October 2011, a modified
product, ProVantage Kraft X, was introduced. It is designed for the
production of paper bags. This is a fast-growing, ecological, packaging
segment on the European market.
The position of the Group in the sector and compared to the competition in
particular groups of products is as follows:
CONTAINERBOARD:
Kraftliner
- ProVantage Kraftliner (virgin fibre-based paper for outer layers of
corrugated board) - the Group`s core product - Sales in 2011 reached
33% of the total sales volume, i.e. down 2% (442.8 thousand tonnes in
2011 versus 452.8 thousand tonnes in 2010).
- ProVantage Kraft X (lightweight, virgin fibre-based paper with the
addition of recycled fibre for outer layers of corrugated board and
for the manufacture of paper bags). Thanks to the ecological trend in
Europe towards reducing the manufacture and use of plastic bags,
there are good prospects for this product`s future success. In 2011,
its sales volume reached 2.3 thousand tonnes.
- ProVantage Kraftliner XLite - thanks to this paper`s exceptionally
high strength parameters and very low basis weight, it offers
corrugated board manufacturers an additional benefit - more m2 of
corrugated board to be made from one tonne of paper. In the audited
period, the sales volume of this paper amounted to 24.8 thousand
tonnes, i.e. up 24% compared to 2010.
- ProVantage Aqua Kraftliner - an innovative product introduced to the
Company`s product portfolio in 2005. In 2011, the sales volume of
this product amounted to 5.4 thousand tonnes, down 14% compared to
the sales level in 2010.
Semi-chemical Fluting
- ProVantage Fluting Fresco - this paper is designed, among other things,
for fruit packaging that needs increased moisture resistance. In the
audited period, the sales volume of this product reached 162.4 thousand
tonnes, i.e. up 5.4% compared to 2010.
- ProVantage Aqua Fluting - an innovative product introduced to the
Company`s product portfolio in 2005. The sales volume of this product in
2011 reached 23.8 thousand tonnes, up 10% compared to 2010.
Recycled fibre-based papers
- ProVantage Testliner 2: this grade was not produced in 2011. In 2010, its
sales volume reached 4.4 thousand tonnes.
- ProVantage Testliner 3: in the audited period, the sales volume increased
by 4% (from 178.6 thousand tonnes in 2010 to 185.1 thousand tonnes in
2011).
- ProVantage WB Fluting: in the audited period, the sales volume increased
by 13% (from 245.8 thousand tonnes in 2010 to 277.6 thousand tonnes in
2011).
- ProVantage KraftTop X - very good quality virgin and recycled fibre-based
paper for outer layers of corrugated board - the sales volume reached
199.0 thousand tonnes, up 15% (compared to 173.4 thousand tonnes in 2010).
Containerboard products are sold to many foreign manufacturers. Containerboard
sold abroad accounted for 67.8% of the sales volume.
On the domestic market, 76.6% of the sold volume of containerboard is recycled
papers. The main domestic competitors are Stora Enso Poland S.A. and foreign
manufacturers, mainly from Germany and Hungary.
SACK PAPER:
- The product is fully made from virgin fibre. The main competitor on the
domestic sack market is Stora Enso Poland S.A.
- The sales volume in 2011 reached 34.8 thousand tonnes, down 16% compared
to 2010. Due to the implementation of Group`s strategy and the fact that
Mondi Swiecie S.A. focuses on manufacturing containerboard, production of
sack paper has ceased since January 2012.
After the periodic paper market stagnation caused by the global economic
crisis, paper prices were quite stable, with an upward trend in the first half-
year of 2011. Another economic slump and prospects of another recession means
paper prices have been dropping since the fourth quarter of 2011.
In line with the Group`s strategy, the focus was placed on providing a wide-
range Service to our Customers in 2011. We commenced work on the "ONE" Project
with the aim of optimising and harmonising all logistics and sales-related
processes, which should strengthen our position in the near future. In spite of
the growing prices of raw materials (pulpwood logs, recovered paper) and of
transport services, the Group`s competitiveness remains at quite a high level
thanks to the consistent implementation of the long-term sales strategy by the
Management Board.
2.4. Structure of sales
In 2011, the structure of product sales of the Mondi Swiecie Group by major
groups of products was as follows (in thousand tonnes):
Product group 2011 2010
Sack paper 35 41
Kraftliner 475 479
Semi-chemical fluting 186 176
Recycled paper 662 602
Total 1358 1298
2.5. Sales markets
In 2011, the export share of finished products (by volume) remained at a level
similar to that of the previous year:
Year 2011 2010
Export share 67% 66%
In 2011, the sale of paper grades manufactured by the Group was still focused
on European markets (including the Polish market). The sales volume to these
markets in the audited period accounted for 87.5%.
In the audited period, the geographical structure of revenues from the sale of
paper by Mondi Swiecie S.A. by main sales markets is as follows:
Country Share in gross revenues
Poland 31.0%
Germany 14.0%
Italy 6.1%
Benelux 5.2%
France 5.1%
Great Britain 5.1%
Sweden 3.6%
Turkey 3.5%
Israel 2.5%
Finland 2.1%
Sales to the above-mentioned markets accounted for 78% of Group`s gross
revenues from the sale of paper.
In the audited period, the domestic market share in the revenues from the sale
of paper remained at a similar level and accounted for 31.0% in 2011 versus
30.8% in 2010, whereas the domestic market share by volume decreased by 0.9 %.
This resulted from the increase in the prices of recycled papers such as
Testliner and WB Fluting, which was clearly higher than that applied to other
grades.
3. SIGNIFICANT IMPACTS ON THE ACHIEVED RESULTS
3.1. Analysis of sales revenues
In 2011, the Group`s sales revenues totalled PLN 2,771.1 million,
which was 22.4% higher than the figure of PLN 2,263.7 million posted
in 2010. The change resulted from an increase in both product sales
revenues and goods and materials sales revenues.
In 2011, the revenues from the sale of products advanced by PLN 475.0 million
(up 21.1%) when compared to 2010. The primary factors contributing to the
increase were the rise in the revenues from the sale of finished products (up
PLN 450.3 million), positive difference on exchange rates from the valuation
and settlements of receivables (up PLN 24.5 million).
Higher revenues from the sale of finished products chiefly resulted from the
rise in prices for all the grades of paper manufactured by the Group and, to
the lower degree, from the higher sales volume.
The share of paper sales in total sales revenues was 92%.
In 2011, the weighted average price denominated in EUR increased by 13.1% when
compared to the last years` level. Due to the weakening of Polish zloty against
the euro (by 2.8%), the price denominated in PLN rose by 16.3%. Higher prices
in EUR applied to all the Group`s papers. The price for recycled grades such as
Testliner and WB Fluting increased by 20.6% on average, chiefly because of a
sharp rise in recovered paper prices in the reporting period. The prices of the
Group`s other grades also rose. Prices increased as follows: Kraftliner by 8.6
%, Kraft Top X by 15.0%, and Fresco Fluting by 14.9%. The price of sack paper
rose by 17.3%.
In 2011, the paper sales volume climbed by 59.5 thousand tonnes (up 5%) year on
year, while the production output rose by 54.5 thousand tonnes (up 4%).
In 2011, the revenues from green (renewable) energy and red energy (co-
generated with heat) certificates totalled PLN 137.6 million. These revenues
compare with PLN 139.3 million in 2010. The increase of PLN 19.0 million in the
revenues from green certificates originated primarily from separating, at the
beginning of 2011, the new units generating electric energy from renewable
sources. This allowed obtaining an increased number of green certificates from
biomass burning in the CFB and BFB boilers. Another important cause was the
higher output of pulp, which resulted in a rise in Recovery Boiler steam
generation and thus in an increased output of electric power. The revenues from
the sale of red certificates in 2011 are decidedly lower (by PLN 20.7 million)
compared to the previous year. Sales in 2010 were affected by a one-off event,
which was the allocation by the Energy Regulatory Office of certificates in
arrears for 2008-2009 for the total amount of PLN 13.5 million. However, since
the half-year of 2011 the prices of red certificates have been dropping
significantly, which adversely affects the sales value and the valuation of
certificates on stock. The increase in the output of finished products and pulp
only partially offset the negative impacts of the above-mentioned events on the
value of sales of red certificates.
The Group`s revenues from the sale of goods and materials in 2011 totalled PLN
45.9 million, compared to the revenues of PLN 12.7 million in 2010. One of the
major factors was the increase in the revenues from the sale of CO2 emission
allowances, which also included the surplus generated in 2008-2010.
In addition to the sale of paper, green and red energy certificates and CO2
excess emission allowances, the Group obtains revenues from lease, sale of
electric energy, heat and by-products - primarily resin soap and turpentine.
3.2. Analysis of other income statement items
3.2.1. Production volume
The production volume for main groups of products (in thousand tonnes) was as
follows:
Products 2011 2010
Containerboard 1 333 1 272
Sack paper 35 41
Total 1 368 1 313
The significantly increased production output of containerboard (when compared
to the analogical period of last year) chiefly results from the optimisation of
performance of the new paper machine - PM7 - the output of which in 2011 was
465 thousand tonnes of paper. This figure is higher by 54 thousand tonnes than
the output in 2010.
3.2.2. Basic raw materials and services
Basic raw materials used in production are as follows:
- Wood (Pulpwood): In view of the insufficient supply of wood on the domestic
market, the Group had to satisfy its needs through the less cost-effective
import of raw materials.
In 2011, the Group`s wood purchasing volume grew by 8% year on year. The rise
is attributable to the rebuilding of raw material stocks. In the reporting
period, the purchase prices of pine and birch rose by 18% on average compared
to the price level in 2010. The rise in the average price reflects the price
increase from specific supply sources. The State Forest Enterprise remained the
key pulpwood supplier.
- Recovered paper: In the period under review, recovered paper was acquired
through Swiecie Recykling. In the reporting period, the average purchase price
of recovered paper increased by 17% compared to 2010.
- Coal: In 2011, the average price of coal increased by 24% compared to 2010.
The Group continued its supply sources diversification policy through coal
import.
- Biofuels: Biomass was obtained mostly from sawmill sources (bark, wood strap
and chips). The remaining portion of biofuels was generated in the internal
woodworking and paper production processes. In the period under review, energy
generated by the Group from renewable sources accounted for approx. 83%. This
performance gave rise to the additional revenues from the sale of green energy
certificates.
- Transportation of finished products: In 2011, the Group`s expenditures
incurred for transportation of finished products increased by approx 17.1%
compared to the previous year. The rise in transportation costs was primarily
the result of the increase in the average transportation rate and to a lower
extent of the rise in the sales volume. The average transportation rate
denominated in EUR rose by 8.7% compared to 2010. The rise in fuel prices was
the major factor contributing to the change in the average transportation rate.
The impacts of the above-mentioned factors (as discussed above: the changes of
the prices of products and raw materials and hedge) were reflected in the net
profit of PLN 395.9 million compared to the profit of PLN 249.3 million
generated in 2010.
4. INFORMATION ON OTHER EVENTS THAT TOOK PLACE IN 2011
4.1. Information on significant agreements
In the reporting period the following agreements were signed with Panstwowe
Gospodarstwo Lesne Lasy Panstwowe (State Forest Enterprise) with its registered
office in Warsaw and State Forest Enterprise subsidiaries:
- Wood purchase contracts based on the first and second phases of Internet-
based negotiations for the second half-year of 2011 with the total value of PLN
38.9 million. As security for State Forest liability the Group signed a bank
guarantee facility agreement of up to PLN 18 million, issued by the bank for
the benefit of the State Forest Enterprise;
- Wood purchase contract for the second half-year of 2011 entered into on
Internet-based system auctions with the value of PLN 60.4 million. As security
for State Forest liability a bank guarantee facility agreement of up to PLN 18
million was entered into and the guarantee facility was issued by the bank for
the benefit of the State Forest Enterprise;
- Wood purchase contract based on the first phase of Internet-based
negotiations for the first half-year of 2012 with the value of PLN 46.3
million. As security for State Forest liability a bank guarantee facility
agreement of up to PLN 18 million was entered into and the guarantee facility
was issued by the bank for the benefit of the State Forest Enterprise;
In addition, the Management Board of Mondi Swiecie S.A. entered into:
- on 11 February 2011, a new three-year Guarantee Facility Agreement that
covers the existing nine-year credit from the European Investment Bank dated as
of 30 June 2008 for the amount of PLN 521.8 million with the following banks:
RBS Bank (Polska) S.A., the Royal Bank of Scotland NV, BRE Bank S.A., Bank
Polska Kasa Opieki S.A., and Raiffeisen Bank International AG. After the new
Agreement becomes effective (after conditions precedent are fulfilled), the
existing, valid three-year Guarantee Facility Agreement as of 30 June 2008
(annexed on 30 October 2009, 30 June 2010 and 30 September 2010) will
terminate;
- an additional agreement to the Credit Agreement with Mondi Finance plc
(previous name Mondi Finance Ltd) as of 29 October 2009 with the credit limit
of PLN 200 million, that extends the period of credit`s availability till 31
March 2014;
- Credit Facility (Overdraft) Agreement with the credit facility of PLN 60
million, available by 1 February 2012, with RBS Bank Polska S.A. with the
registered office in Warsaw.
4.2. Changes in organisational and capital relationships
In the reporting period no changes were made.
4.3. Related party transactions
Revenues from sales to Mondi Group companies (in thousand PLN):
Mondi Packaging Paper Sales GmbH 1 745 357
Mondi Packaging Swiecie Sp. z o.o. 93 039
Mondi Packaging Warszawa Sp. z o.o. 75 918
Mondi Packaging BZWP Sp. z o.o. 45 113
Mondi Packaging Szczecin S.A. 44 097
Mondi plc 39 425
Mondi Packaging Dorohusk Sp. z o.o. 31 525
Mondi Bags Swiecie Sp. z o.o. 29 900
Mondi Bags Mielec Sp. z o.o. 14 028
Mondi Wierzbica Sp. Z o.o. 7 167
Slovwood Ruzomberok, a.s. 1 349
Mondi AG 468
Mondi Coating GmbH 259
Mondi Packaging Solec Sp. z o.o 33
Mondi Coating Steti A.S. 17
Mondi Uncoated Fine & Kraft Paper GmbH 15
Mondi Corrugated Services GmbH 10
Mondi Gruenburg GmbH 10
Total 2 127 730
4.4. Credits, loan agreements, sureties and guarantees
Credits and loans
As of the reporting date the Group had the following loan agreements signed:
- with European Investment Bank - a nine-year credit facility for financing the
costs of construction of a new paper machine, PM7, for the amount of PLN 474.3
million (secured with a three-year guarantee facility for 110% of the credit
from the following banks: RBS Bank (Polska) S.A., the Royal Bank of Scotland
N.V., Bank Polska Kasa Opieki S.A., Raiffeisen Bank International AG and BRE
Bank S.A.). This credit facility was valued at PLN 418.2 million in the balance
sheet as of 31 December 2011 (nominal value of PLN 417.4 million, increased
with the reserve for interests of PLN 0.8 million). As per the time schedule,
the Group paid the first three quarterly installments in 2011;
- Loan from Mondi Finance plc (a Mondi Group plc entity - the major shareholder
of Mondi Swiecie S.A.) with the credit limit of PLN 200 million.
- Credit Facility (Overdraft) Agreement with RBS Bank (Polska) S.A. with the
credit facility of PLN 60 million.
Consumption of credit facilities and loans in thousands PLN
Available Consumed %
Short-term 136 717 77 707 57%
Long-term 541 531 341 531 63%
Total 678 248 419 238 62%
Bonds
In the reporting period the Group did not issue any bonds. As of 31 December
2011, the Group did not carry out any bonds.
Guarantee facilities
Information on contingent liabilities (guarantees and sureties) is presented in
the "Consolidated Financial Statements of the Group for 2011" under item 30.
4.5. Utilisation of inflows from issue of securities
In the reporting period the Group did not issue any securities.
4.6. Variances from the last published forecast
No forecasts were published in the reporting period.
4.7. Management of financial resources and liquidity assessment
In 2011, the Group generated surplus cash inflows from operating activities,
which allowed providing the debt service on due dates and locating cash in
short-term deposits. As of 31 December 2011, the available credit facilities
and loans were 62% consumed. The remaining credit reserve of approx. PLN 259
million, increased with the balance of cash and cash equivalents (PLN 489
million) as well as stable sales revenues ensure the Group`s unfailing
liquidity.
Main financial indicators:
31.12.2011 31.12.2010
Return on Sales 14% 11%
Return on Equity 28% 21%
Total assets turnover ratio 1.02 0,98
Debt/total assets ratio 33% 38%
Equity/total assets ratio 67% 62%
Quick ratio 1.66 0.89
4.8. Possibility to implement investment projects
Over the next 12 months the planned expenditures for non-financial fixed
assets, under a cash basis, will amount to PLN 121.7 million and will be
financed by the Group`s own resources.
4.9. Information that is essential for the evaluation of the personnel related
situation, assets related situation, financial condition, financial results and
changes in the situation as well as information that is essential for the
evaluation of the possibility of paying liabilities
The Group`s financial results in 2011 reflect the good economic situation on
the European paper market throughout most of the year. Throughout the last
period, the average paper sales price increased compared to the previous year;
however, the characteristic feature for the last quarter of 2011 was a
declining trend. In 2011, the prices of basic raw materials, namely wood and
recovered paper increased, although the price increase dynamics were
significantly weaker than those of the previous years. The prices of transport
services grew considerably. The sale of excess CO2 emission allowances strongly
contributed to the financial performance of 2011.
In the last period, the assumptions regarding the production area, including
further progress in ECO7 performance optimisation, came true fully.
To further optimise manufacturing costs, the Management Board of the Company
decided to commence the process with the aim to buy back the shares in the
entity that owns the Power Plant assets, which provides services to the
Company and is covered by a long-term contract of lease.
4.10. Factors and untypical events impacting the result
In 2011, no untypical events and factors impacting significantly the Group`s
result occurred.
4.11. Activities in the Special Economic Zone
Due to the execution of the investment project (PM7 machine), Mondi Swiecie
S.A. was granted, on 20 December 2007, the permit to run economic activities in
the Pomorska Special Economic Zone. Thus, the Company was granted the
entitlement to be exempt from income tax for some part of its income. The
existing enterprise of Mondi Swiecie S.A., as well as the areas acquired from
State Forest Enterprise, were included into the area of the Pomorska Special
Economic Zone in pursuance with the Regulation of the Council of Ministers of 2
November 2007 amending the Regulation regarding the Pomorska Special Economic
Zone (Journal of Laws 2007 no. 211 item 1545).
The above-mentioned permit authorised Mondi Swiecie S.A. to obtain public aid,
which comprises the exemption from corporate income tax starting from the
following month after the month when conditions of bearing capital expenditures
and reaching the specific employment level have been fulfilled. Mondi Swiecie
S.A. fulfilled the above-mentioned conditions in July 2009 and was granted the
entitlement to be exempt from the tax for the part of its income since August
2009 till the time for which the Pomorska Special Economic Zone was
established, which is till 30 November 2017. Thus, the incomes from basic
activities, i.e. sale of finished products were exempt. The permit is now being
examined by the European Commission for compliance of the public aid granted
with the common market under Regulation (EC) No. 659/1999 laying down detailed
rules for the application of Article 93 of the EC Treaty. The Group expects
that this process will end in 2012.
In the event of the process prolonging beyond 2012, the total domestic limit
for public aid (EUR 37.5 million) that may be granted to the Group with no
necessity of obtaining the consent of the European Commission will be exhausted
this year. Then, the entitlement of Mondi Swiecie S.A. to be exempt from
corporate income tax under the permit as referred above would be suspended till
the European Commission procedure is closed. In this situation, the Group would
pay monthly advance payments for corporate income tax in the amount that
disregards the exemption, starting from the month when the allowed domestic
limit was exceeded. Since the Group does not expect that the European
Commission procedure will extend beyond 2012, the full amount of corporate
income tax as covered by the exemption under the permit to run business
activities in the Pomorska Special Economic Zone should be settled within the
corporate income tax for 2012.
New investment project related expenditures are the basis for calculating the
public aid pursuant to the rules specified in s 4 Clause 3 of the Regulation of
the Council of Ministers of 5 December 2006 on the Pomorska Special Economic
Zone (Journal of Laws 2006, no. 228 item 1667). Based on discounted
expenditures incurred by 31 December 2011, Mondi Swiecie S.A. was authorised to
receive public aid that is not higher than the amount of PLN 247 853 thousand.
The public aid comprising the exemption of the part of income from the
corporate income tax may be consumed in the period of time over which Mondi
Swiecie S.A. shows the income from the activities covered by exemption, which
is that the total income of Mondi Swiecie S.A. less taxed income, not covered
by the exemption, is positive. The calculated amount of public aid consumed by
31 December 2011 was PLN 91 802 thousand (this includes discounted amounts of
corporate income tax exemption, real property tax exemption and the amounts of
refunding the costs of equipment and providing equipment to workplaces). Out of
this amount, the discounted value of exemption from corporate income tax was
PLN 83 928 thousand (nominal value of exemption was PLN 104 119 thousand).
4.12. Description of the development and operating drivers
4.12.1. External drivers
The influence of external factors that are significant to the Group`s
operations and development is described under "Position of the Group in the
sector and compared to the Competition".
4.12.2. Planned development of the Group
In 2012, the Group will continue to make progress by concentrating on four
strategy pillars which comprise: strive for Operational Excellence, Customer
Focus, Innovation and Human Resources Development.
One of the key activities for this year is to end our works on the preparation
of the Group`s long-term development strategy till 2020, both in the areas of
paper production and ensuring the energy sources.
At the same time, in consideration of the depressed market, in particular in
the fourth quarter of 2011, the Group will undertake initiatives to sustain the
present high profitability of its activities through:
- Maintaining its position on key sales markets, in particular in Poland and EU
states, among other things, by implementing initiatives that aim to improve the
quality of products sold and service offered (harmonising logistics-sales
processes under the ONE Project, extending make-to-stock offer), while keeping
the price competitiveness;
- Further managing effectively the area of satisfying energy needs, including,
among other things, through implementation of the Call Option of power
generating assets from PEP S.A., responding actively to changing legislation;
- Improving the management of working assets of the Group and controlling
operating costs more strictly;
- Searching for further sources of optimisation for the wood, recovered paper,
biomass supply system.
The Management Board of the Group also puts a focus on people development and
improving employee skills. For this reason, the Group has launched and has been
implementing the Talent Management Programme. Also, the School of Leaders and E-
learning have been launched. In addition, the Leadership Development Programme
is being implemented across the organisation.
It is critical for the Group to increase employee safety. Based on the explicit
"Zero Tolerance for Unsafe Acts" principle, the work safety and occupational
hygiene growth strategy has been developed and is being implemented with the
aim to improve working conditions on a continuous basis.
4.12.3. Achievements in the area of research and development
In 2011, the Group implemented the investment programme with the total outlays
(capital expenditures) of PLN 39 million. The major capital projects included:
the continuation of PM7 optimisation (Capex of PLN 10 million in 2011) and
replacement of DCS at the Kraft Pulp Plant (Capex of PLN 3 million).
4.12.4. Current and expected financial position of the Group
As of the reporting date, the Group was in a good financial condition due to
its operational efficiency, strong sect
