| Thu 23 Feb 2012, 10:50 | | MND/MNP - Mondi Limited/ Mondi plc - Full year res |
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MND MNP
MND MNP
MND/MNP - Mondi Limited/ Mondi plc - Full year results for the year ended 31
December 2011
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)
(Registered 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 Listings Requirements
of the JSE and/or the Disclosure and Transparency and Listing Rules of the
United Kingdom Listing Authority.
Full year results for the year ended 31 December 2011
Highlights
- Record financial performance
- underlying operating profit up 36%;
- earnings per share - alternative measure up 57%; and
- return on capital employed of 15%, significantly in excess of through the
cycle target of 13%.
- Excellent cash generation
- net debt down 39% to EUR831 million; and
- free cash flow of 72 euro cents per share, up 72%.
- Significant contribution from Syktyvkar modernisation project
- Successful demerger of Mpact, further focusing Group strategic priorities
- Investment grade credit ratings from Standard & Poors` and Moody`s Investors
Service
- Proposed full year dividend of 26.0 euro cents per share, up 30%
Financial Summary
Year ended Year ended 31
31 December December
2011 2010 1 Change %
EUR million, except for percentages
and per share measures
From continuing operations
Group revenue 5,739 5,610 2.3
Underlying EBITDA2 964 798 20.8
Underlying operating profit2 622 458 35.8
Underlying profit before tax2 512 354 44.6
Operating profit 568 462 22.9
Profit before tax 457 333 37.2
Per share measures
Basic earnings per share -
alternative measure3 (EUR cents) 71.8 45.6 57.5
Basic earnings per share from
continuing operations (EUR cents) 57.5 37.8 52.1
Basic earnings per share from total
operations (EUR cents) 66.1 44.1 49.9
Total dividend per share (EUR cents) 26.0 20.0 30
Free cash flow per share4 (EUR cents) 72.4 42.2 71.6
Cash generated from operations 917 778 17.9
Net debt 831 1,364 (39.1)
Group return on capital employed (ROCE)5 15.0 12.3 22.0
Notes:
1 Comparative information has been restated where appropriate to take
cognisance of the discontinued operation.
2 The Group presents underlying EBITDA, operating profit and profit before tax
as measures which exclude special items in order to provide a more effective
comparison of the underlying financial performance between reporting periods.
3 The directors have elected to present an alternative, non-IFRS measure of
earnings per share from continuing operations. As more fully set out in note 8
of the enclosed extract of the audited annual financial statements, the
effects of the recapitalisation and the demerger of Mpact (formerly Mondi
Packaging South Africa) and the Mondi Limited share consolidation have been
adjusted to reflect the position as if the transaction had been completed at
the beginning of each period presented. This will enable a useful comparison
of earnings per share from continuing operations, based on the consolidated
number of shares.
4 Free cash flow per share is net increase in cash and cash equivalents before
changes in net debt and dividends paid divided by the net number of shares in
issue at year end.
5 ROCE is underlying operating profit expressed as a percentage of the average
capital employed for the year, adjusted for impairments and spend on strategic
projects which are not yet in operation.
David Hathorn, Mondi Group chief executive, said:
"The Group`s focus on performance, low-cost operating model, and robust
financial position, enabled Mondi to deliver record results in 2011. This was
against a backdrop of a strong trading environment in the first half followed
by a more difficult second half as macroeconomic uncertainties weighed on our
markets.
Our strong cash flow generation through the cycle enables us to ensure our
asset base remains appropriately invested and exploit value adding growth
opportunities, whilst maintaining our investment grade credit ratings and
increasing returns to shareholders. In this regard, we have approved
investments in certain high return energy and de-bottlenecking projects and
launched a tender offer for the non-controlling interest in Mondi Swiecie.
Furthermore, the directors have recommended a final dividend of 17.75 euro
cents per share, bringing the total dividend to 26.0 euro cents per share for
the year, an increase of 30% on the prior year.
Looking ahead, while macroeconomic risks remain, it is encouraging to note
that in recent weeks order books have improved and prices have stabilised,
with price increases announced in certain grades. This should allow some
recovery of price declines experienced over the course of the second half of
2011, although recent strengthening of emerging market currencies is impacting
margins. Supply side fundamentals in our core grades remain good following
further announcements of capacity closures in the industry."
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
FTI Consulting
Richard Mountain / Sophie McMillan +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/FYResults11.
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 23 February 2012.
Editors` notes
Mondi is an international paper and packaging Group, with production
operations across 28 countries and revenues of EUR5.7 billion in 2011. The
Group`s key operations are located in central Europe, Russia and South Africa
and as at the end of 2011, Mondi employed 23,400 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 since 2008 and the JSE`s Socially
Responsible Investment (SRI) Index since 2007.
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 EUR622 million was up 36% compared
to 2010. The Group benefited from a generally positive trading environment,
although a noticeable slowdown in demand in the second half led to some volume
and pricing pressures when compared to the strong first half of the year.
The Europe & International Division, through its Uncoated Fine Paper,
Corrugated and Bags & Coatings businesses contributed EUR611 million to
underlying operating profit and the South Africa Division EUR62 million. The
Newsprint operating loss of EUR18 million was disappointing, whilst corporate
costs were at similar levels to previous years.
Input costs, particularly wood, pulp and recycled fibre, increased by
approximately 7% compared to the prior year. This was mainly attributed to
market price increases, offset in part by currency gains and lower volumes,
although some softening in key fibre input costs was seen in the second half
of the year.
Net finance charges of EUR111 million were EUR5 million higher than those of
the prior year reflecting the lower average net debt, more than offset by
lower net foreign exchange gains and reduced capitalisation of finance charges
following the completion of the Syktyvkar modernisation project.
The tax charge, before special items, for the year was EUR102 million (2010:
EUR88 million), representing an effective tax rate before special items of 20%
compared to 25% in 2010.
The demerger of Mpact (formerly Mondi Packaging South Africa) and related
consolidation of Mondi Limited shares was concluded during August 2011.
Comparative figures in the income statement have been restated to reflect
Mpact as a discontinued operation. The details of the transaction are more
fully described in note 6 of the enclosed extract of the audited annual
financial statements. Consequently, to reflect the continuing business of
Mondi, the Group has elected to present an alternative, non-IFRS measure of
earnings per share as if the recapitalisation and demerger of Mpact and Mondi
Limited share consolidation had taken place at the beginning of each period
presented. Basic earnings per share - alternative measure was 71.8 cents, an
increase of 57% on the prior year.
In line with the increased turnover, working capital increased during the year
with a net cash outflow of EUR68 million. The decrease in demand and selling
prices, coupled with a focus on active inventory management in certain grades
in light of the lower demand towards the end of 2011, resulted in some
reduction of year end working capital levels compared to average levels during
the year. The net working capital to turnover ratio was 10% at the year end,
the bottom of our targeted range of 10-12%.
Capital expenditure of EUR263 million was EUR131 million lower than the prior
year, reflecting the reduction in spend following completion of the major
capital investment in Russia. Excluding major expansionary capital
investments, the capital expenditure to depreciation ratio was 63%, unchanged
from 2010.
Strong cash generation and the proceeds from the demerger of Mpact led to a
reduction in net debt to EUR831 million at year end, from EUR1,364 million at
31 December 2010.
The Group is proposing to pay a final dividend of 17.75 euro cents per share
giving a total dividend of 26.0 euro cents for the year, an increase of 30%
compared to 2010.
Europe & International - Uncoated Fine Paper (UFP) business
Year ended Year ended 31
31 December December
EUR million 2011 2010 Change %
Segment revenue 1,429 1,516 (5.7)
- of which inter-segment revenue 20 129
EBITDA 309 279 10.8
Underlying operating profit 205 179 14.5
Special items 2 5
Capital expenditure 61 151
Net segment assets 1,283 1,512
ROCE 16.7% 16.9%
Underlying operating profit increased by EUR26 million to EUR205 million. The
Syktyvkar mill delivered a very strong result, benefiting from the first full
year contribution from the mill modernisation investment completed in the
second half of 2010. Together with a solid performance from the Ruzomberok and
Neusiedler mills, this more than offset the lost contribution from the sale at
the end of 2010 of Mondi`s controlling interest in Mondi Hadera.
The ROCE of 16.7%, marginally down on the previous year, reflects the positive
trading environment, low cost base and strong operating performance as well as
the contribution from the Syktyvkar modernisation.
Average benchmark UFP prices were approximately 7% higher than in 2010,
although they closed the year at similar levels to December 2010, reflecting
some selling price pressure towards the end of the year. Product mix
improvements also contributed to improved profitability. Sales volumes,
excluding the contribution of Mondi Hadera in 2010, were largely flat. Sales
into emerging Europe increased during the year to approximately 43% of total
sales volumes.
Input costs increased versus the prior year. Wood costs were up on average in
excess of 10%, although benchmark hardwood pulp costs were down around 4% per
tonne on average. The Syktyvkar modernisation had the effect of reducing
overall fibre input costs, as increased pulp self-sufficiency meant that
higher wood usage was more than offset by the reduction in purchased pulp
costs. Gas and electricity costs increased in both Syktyvkar and Ruzomberok.
Productivity, measured in terms of output per person, improved by
approximately 12% during the year, with annual production records in both
Syktyvkar and Ruzomberok.
The Syktyvkar modernisation project generated a return on capital employed in
excess of 10% through increased volumes, energy sales and lower consumption of
purchased pulp, with further benefits expected in 2012 as full ramp up is
achieved. The business continues to focus on further optimisation with
particular emphasis on energy, procurement and operating efficiencies. In
addition, initiatives to improve forestry operations will be implemented over
the next two years, with an expected increase in underlying operating profit
in excess of EUR15 million per year.
Capital expenditure for the year was EUR61 million, of which EUR24 million
related to the Syktyvkar modernisation project.
Europe & International - Corrugated business
Year ended Year ended 31
31 December December
EUR million 2011 2010 Change %
Segment revenue 1,384 1,235 12.1
- of which inter-segment revenue 64 59
EBITDA 251 187 34.2
Underlying operating profit 178 119 49.6
Special items 3 (15)
Capital expenditure 44 87
Net segment assets 967 898
ROCE 18.5% 14.9%
The substantial improvement in the underlying profit of the Corrugated
business in 2010 continued in 2011, reflecting the benefit of the improved
trading conditions, recent capital investments and restructuring and cost
reduction initiatives undertaken over the last few years. Underlying operating
profit increased by 50% to EUR178 million. The profitability of the business
and well invested capital base is reflected in the ROCE of 18.5%, improving
from 14.9% in 2010.
The Syktyvkar containerboard machine rebuild, completed as part of the
Syktyvkar modernisation programme, made a strong contribution, while the
Swiecie mill delivered a further significant improvement in performance.
Total containerboard sales volumes increased by 3% compared to 2010, with
kraftliner and recycled containerboard volumes remaining largely unchanged
whilst white top kraftliner volumes increased by 14%. Demand slowed in the
second half of the year, necessitating some commercial downtime in the fourth
quarter. The order book has improved during the first weeks of 2012 although
demand for white-top containerboard still remains subdued.
Average benchmark kraftliner prices increased by 14%, recycled containerboard
prices by 20% and white top containerboard prices by 14% compared to 2010
levels. However, closing prices were down by 11% for kraftliner from 31
December 2010 and closing benchmark prices of all containerboard products were
well below the highs achieved during the year. Price increases were announced
in January 2012. The actual price increases achieved will be subject to
individual negotiations with customers, and will take effect towards the end
of the first quarter of 2012.
Box price increases more than offset the increased paper prices, leading to
margin expansion and a significant increase in underlying operating profit,
albeit off a low base.
Costs of recovered fibre and wood increased significantly during the year,
with average benchmark recovered fibre prices increasing by 28%. Some relief
was experienced in the second half of the year with recovered fibre prices
dropping sharply off their highs. Wood costs increased in excess of 10% during
the year. Fixed cost increases were largely inflation driven.
Productivity, measured by output per person, improved by 10% compared to the
prior year. Capital expenditure of EUR44 million was incurred during the year.
Europe & International - Bags & Coatings business
Year ended Year ended 31
31 December December
EUR million 2011 2010 Change %
Segment revenue 2,478 2,226 11.3
- of which inter-segment revenue 46 39
EBITDA 327 238 37.4
Underlying operating profit 228 133 71.4
Special items (27) 28
Capital expenditure 110 92
Net segment assets 1,279 1,333
ROCE 19.0% 11.8%
The ROCE of the Bags & Coatings business of 19.0%, compared to 11.8% in 2010,
reflects the very positive trading environment, particularly in the first half
of the year.
A 71% increase in underlying operating profit to EUR228 million was largely
due to significant selling price increases in kraft paper (approximately 20%
increase in year-on-year average prices) and strong sales volumes during the
first half of the year. Weaker end user demand and destocking in the value
chain led to the kraft paper business taking significant downtime to manage
inventory levels in the second half of the year. While weakness in end user
demand in Europe was evident from early in the second half, export demand
remained strong throughout the period, weakening only in the fourth quarter.
Exports comprise approximately 55% of total kraft paper sales. Limited further
downtime is anticipated during the first quarter of 2012 as the outlook is
improving with evidence of an end to the destocking process. However, sales
prices in the first quarter are down compared to average prices in the fourth
quarter of 2011.
Increases in wood costs, currency headwinds and the detrimental impact of the
commercial downtime taken negatively impacted the overall cost base.
Operating performance in all kraft paper mills was excellent, although
downtime in the second half of the year impacted productivity. The total
commercial downtime, the majority of which was taken towards the end of the
third quarter and during the fourth quarter of 2011, amounted to approximately
10% of annual production capacity.
In the downstream industrial bags business, selling price increases more than
offset increased paper input costs. Together with the benefits of integrating
the Smurfit Kappa bag plants acquired in 2010, this gave rise to a significant
improvement in underlying operating profit. Weaker end user demand impacted
sales volumes in the second half of the year resulting in a small decline in
total sales volumes for the year. The restructuring, following the acquisition
in 2010 of the Smurfit Kappa bag plants in Spain, France, Italy and Poland
(acquired in January 2011), has been largely completed.
The coatings and consumer packaging business continued to perform well, with
underlying operating profit at similar levels to the previous year. Some
margin pressure was experienced, with growth constrained by the macroeconomic
environment, although variable cost increases were largely passed on to
customers. Following some internal restructuring and renewed focus on higher
growth and value adding products, the extrusion coating segment delivered a
pleasing improvement in performance while the consumer packaging segment
remained stable. The release liner segment was negatively impacted in the
second half by the costs of starting up new production lines, the benefits of
which are expected to be realised in 2012. The sale of Unterland, a flexible
packaging business, was completed in October 2011.
South Africa Division
Year ended Year ended 31
31 December December
EUR million 2011 2010 Change %
Segment revenue 569 580 (1.9)
- of which inter-segment revenue 155 211
EBITDA 114 117 (2.6)
Underlying operating profit 62 64 (3.1)
Special items - (10)
Capital expenditure 27 28
Net segment assets 828 953
ROCE 8.9% 8.4%
Underlying operating profit of EUR62 million was marginally down on the
previous year. The ROCE of 8.9% reflects a continuing improvement, but remains
short of targeted levels.
Average benchmark pulp prices declined by 4% year-on-year. While pricing held
up well in the first half, the second half saw a significant decline in
prices, such that the benchmark closing price for BEKP pulp was down around
23% on the level at the end of 2010. Average benchmark white top
containerboard prices increased by approximately 14% year-on-year, but weaker
demand towards the end of the year resulted in some commercial downtime and a
somewhat weaker pricing environment. Input costs increased, mainly as a result
of increased wood, energy and chemical costs.
Despite the weaker trading environment, management actions have ensured that
underlying operating profit remained largely unchanged. The business benefited
from the mothballing of the 120,000 tonne per annum UFP machine in Merebank
and the related restructuring programme which delivered both substantial cost
savings and improved margins arising from an increased focus on the domestic
market. The integrated pulp and paper operation at Richards Bay achieved
record saleable production in excess of 750,000 tonnes in the calendar year.
The business continues to focus on operational efficiencies and improvement
opportunities with strong emphasis on energy efficiency and self generating
capacity.
Newsprint
Year ended Year ended 31
31 December December
2011 2010
EUR million
Segment revenue 164 492
- of which inter-segment revenue - 1
EBITDA (5) 10
Underlying operating loss (18) (4)
Special items (33) (29)
Capital expenditure 4 7
Net segment assets 59 106
ROCE (19.2)% (2.8)%
Note:
Europapier business included in 2010 information until the date of disposal of
4 November 2010.
The returns of the Newsprint businesses were extremely disappointing with the
segment recording an underlying operating loss of EUR18 million in the period.
Selling price increases were insufficient to restore the Aylesford Newsprint
joint venture to profitability. In addition, the business incurred further non-
recurring waste disposal costs in the second half. The poor operating
performance and outlook for this business necessitated an impairment of the
underlying assets with the Group`s attributable share being EUR33 million.
Restructuring activities have been announced with further cost containment
initiatives to be implemented during 2012 as a result of ongoing pricing
pressure in European newsprint.
The Mondi Shanduka Newsprint joint venture in South Africa was negatively
impacted by currency translation effects and rising electricity costs. The
business has however concluded renewed contracts with its major domestic
customers at prices which will offset input cost increases over the coming
year and restore a reasonable level of profitability.
Financial review
Special items
Special items for the year include the following:
- Impairment of Aylesford Newsprint joint venture assets;
- Restructuring activities and impairment of certain assets in the Bags &
Coatings business;
- Loss on disposal of the Unterland flexible packaging business; and
- Various other smaller adjustments relating to the finalisation of
transactions from prior years.
Further detail is provided in note 4 of the enclosed extract of the audited
annual financial statements.
Input costs
Wood, recovered fibre and pulp comprise approximately one third of the input
costs of the Group. Wood prices increased by approximately 10% over the year.
Average benchmark prices for recovered fibre increased by 28% when compared to
the average price for 2010, although the benchmark price at the end of 2011
was 12% lower than that at 31 December 2010. Average prices for hardwood pulp
and softwood pulp were largely unchanged through the year although this masks
significant price fluctuations experienced during the year. At year end,
prices were respectively 24% and 11% below the levels seen at 31 December
2010. As the Group is largely balanced in respect of pulp production and
consumption, pulp prices do not have a significant impact on the Group as a
whole, but do impact the performance of individual business units.
Energy and chemical costs increased across the business, with particular
pressure on electricity prices in South Africa, which continued to increase at
well above inflationary levels. Various initiatives to reduce dependence on
purchased energy and utilise energy more efficiently are being pursued both in
South Africa and at the Group`s European operations.
Currencies
The impact of exchange rates was relatively muted in 2011. The first half of
the year was characterised by strengthening emerging market currencies which,
coupled with relatively high levels of inflation in these jurisdictions,
increased the underlying cost base of operations in those countries. This
trend was largely reversed in the second half with higher levels of volatility
and, on average, weakening of the emerging market currencies against the euro.
Most currencies ended the year weaker against the euro than 31 December 2010
levels and weaker than the average rate applicable during the year, although
there has been some strengthening of these currencies during the first weeks
of 2012.
Tax
The effective tax rate before special items was 20%, compared to 25% in 2010.
The main reasons for the reduction in the tax rate include the 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 during the year
to EUR70 million, reflecting mainly the increased profit contribution from 66%
owned Mondi Swiecie SA.
Cash flow
EBITDA from continuing operations of EUR964 million was EUR166 million higher
than in 2010. The Group generated EUR917 million of cash from operations
(2010: EUR778 million), notwithstanding the EUR68 million increase in working
capital on the back of increased revenues (2010: EUR129 million). The cash
generated has been applied to invest in the Group`s asset base and provide
increased dividends to shareholders with the balance being utilised to reduce
net debt.
Capital Investment programme
Excluding major expansionary investments, the Group has targeted to maintain
its capital expenditure at between 60% and 80% of its depreciation charge.
Including the approved strategic projects mentioned below, over the next three
years, it is anticipated that total capital expenditure will approximate the
Group`s depreciation charge.
The Group has approved certain energy related investments across a number of
its operations. These include:
- A bark boiler in Syktyvkar;
- A steam turbine and recovery boiler economiser in Stambolijski;
- A new recovery boiler in Frantschach; and
- A steam turbine in Richard`s Bay.
The focus of these and other projects still under consideration is to improve
energy efficiency and self-sufficiency whilst providing opportunities to
capture additional benefits in the form of electricity sales. In addition, a
de-bottlenecking project has been approved to invest in a 100,000 tonne per
annum pulp dryer in Syktyvkar to further exploit the benefits of the recently
completed mill modernisation programme.
The approved projects, totalling approximately EUR170 million in capital
expenditure, are expected to generate significant benefits with returns in
excess of 40%, from 2013 onwards.
A number of other similar projects are under consideration at several of the
Group`s operations. If approved, these projects are expected to be completed
over the next three to four years, with a total estimated capital expenditure
of about EUR250 million.
Subsequent events
In February 2011, Mondi Swiecie announced its intention to exercise an option
to acquire the power and heat generating plant which supplies Mondi Swiecie
with the majority of its electricity requirements and all its heat and steam
needs. The option was subject to certain conditions precedent, being a ruling
from the Arbitration Court of the National Chamber of Commerce in Poland,
consent of the financing banks of the power and heat generating plant and
receipt of approval from the competition authorities. On 10 February 2012, the
Arbitration Court ruled in favour of Mondi Swiecie, fulfilling the first of
these conditions. Competition approval has been received and application has
been made to the financing banks for approval. Based on the option price, the
implied enterprise value of the business is around EUR90 million. The outcome
and timing of any potential acquisition remains uncertain.
On 16 February 2012, Mondi made an all cash offer of PLN69.00 (EUR16.48) per
share for the 34% of Mondi Swiecie S.A. shares that it does not already own.
Mondi Swiecie is listed on the Warsaw Stock Exchange. The maximum
consideration, should all outstanding shares be acquired, is PLN1.2 billion
(EUR280 million).
Treasury and borrowings
Net debt at the end of the year was EUR831 million, a EUR533 million reduction
from the prior year end. The demerger of Mpact accounted for EUR172 million of
this reduction whilst the balance was a result of the strong operating cash
flows and the reduction in capital expenditure together with a positive
currency impact of EUR68 million. Gearing reduced to 21.5% at the end of 2011,
down from 29.7% at the end of 2010 and the net debt to 12 month trailing
EBITDA ratio improved from 1.55 to 0.83 over the year.
The Group`s public credit ratings, first issued in March 2010, improved as a
result of the strong financial performance. Standard and Poor`s upgraded the
Group`s long-term rating to investment grade from BB+ to BBB- in October
whilst Moody`s Investors Service put their Baa3 investment grade rating on
positive outlook for upgrade.
The Group actively manages its liquidity risk by ensuring it maintains
diversified sources of funding and debt maturities. During the year the Euro
Medium Term Note programme under which the EUR500 million, seven year bond was
issued in March 2010 was renewed allowing continued access to debt capital
markets. The Group`s EUR1.5 billion bank facility that was due to mature in
June 2012 was refinanced early with a new five year, EUR750 million revolving
credit facility. Further diversification of funding sources was achieved with
the signing of a EUR100 million ten year facility with the European Investment
Bank (EIB) and a EUR40 million 11 year facility from the European Bank for
Reconstruction and Development (EBRD).
At the end of the year the Group`s committed debt facilities amounted to
EUR1.8 billion with EUR889 million undrawn, which together with cash of EUR191
million provides significant liquidity to meet short-term funding
requirements. Drawn committed facilities maturing in 2012 amount to EUR251
million. To the extent they are not renewed, they can be financed out of
existing cash and undrawn committed facilities.
Following the refinancing of the Group`s principal bank facility and the new
long-term facilities from the EIB and EBRD the weighted average maturity of
the Eurobond and committed debt facilities increased to 4.3 years as at 31
December 2011 compared to 2.6 years a year earlier.
Sustained delivery on Group strategy
Mondi`s strategic positioning continues to demonstrate the required
combination of focus and flexibility to deliver results across the business
cycle as we:
- build on leading positions in packaging and UFP, particularly in high-growth
emerging markets;
- maintain our low-cost, high-quality asset base by selectively investing in
production capacity in lower-cost regions and realising benefits from upstream
integration (including forestry); and
- focus on performance through continuous productivity improvement and cost
reduction, delivered through business excellence programmes and rigorous asset
management.
Leading market positions
Mondi continues to focus on achieving the right product and geographic mix in
order to promote sustained profitability. The Group benefits from our exposure
to faster growing emerging markets such as eastern Europe, Russia and South
Africa, with 71% of the Group`s net operating assets and 50% of revenue by
destination in these geographical areas. While our strategy clearly focuses on
emerging markets, Mondi continues to enjoy a uniquely strong market position
in the Bags & Coatings segment in both eastern and western Europe, where the
coatings & consumer packaging segment enjoys attractive growth rates and
returns.
High-quality, low-cost asset base
Both Mondi`s recent major capital investments, the modernisation of the
Syktyvkar mill in Russia and the new lightweight recycled containerboard paper
machine at Swiecie in Poland, are running well and contributed significantly
to the Group`s profitability in 2011. Over the past 10 years, Mondi has
invested more than EUR4.5 billion in its high-quality, low-cost asset base and
our appropriately invested operations are delivering superior returns across
the cycle.
Mondi`s UFP business is reaping the rewards of its integrated low-cost
positioning while the restructured Corrugated business delivered strong
results. The Bags & Coatings business enjoys good, and in many cases leading,
market shares in its key markets and benefited from the very strong market
recovery in the first half of 2011.
Focus on performance
Our relentless focus on cost containment ensured that the Group`s fixed cost
increases remained within inflation in the countries we operate in. Ongoing
initiatives are directed towards ensuring efficient procurement of our most
critical raw materials and operational efficiency.
The ROCE of 15%, despite the challenging market conditions in the second half
of the year, was significantly in excess of the 13% targeted across the cycle.
Overall, 2011 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.
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 and the
Group`s responses to those risks. These risks are assessed against pre-
determined risk tolerance limits, established by the Boards. Additional risk
reviews are undertaken on an ad-hoc basis for significant investment decisions
and when changing business conditions dictate.
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.
- Cost and availability of a sustainable supply of fibre
Fibre (wood, pulp, recovered paper) is Mondi`s most important raw material,
comprising approximately one-third of total input costs. Increases in the
costs of any of these raw materials, or any difficulties in procuring a
sustainable supply of wood, pulp or recovered paper 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 FSCTM certified virgin fibre in Russia and
South Africa, serve to mitigate these risks. It is the Group`s objective to
acquire fibre (wood and pulp) from sustainable sources with internationally
credible certification and to avoid any illegal or controversial supply.
- Foreign currency exposure and exchange rate volatility
The location of a number of the Group`s significant operations in a range of
different countries 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 currency exposures
are to the South African rand, Russian rouble, Czech koruna, Polish zloty,
Swedish krona and Turkish lira.
The Group`s policy is to hedge balance sheet exposures against short-term
currency volatility. Furthermore, the Group`s geographic diversification
provides some level of protection.
- 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 with differing political, economic
and legal systems. In some countries, such systems are less predictable than
in countries with more developed institutional structures. The current
macroeconomic uncertainties in the Eurozone have heightened the political and
economic risks in this region. Significant changes in the political, economic
or legal landscape of any country in which the Group is invested may have a
material effect on the Group`s operations in that country.
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. The Group continues to
actively monitor its exposure to the Eurozone environment.
- Employee attraction, retention and safety
The complexity of operations and geographic diversity of the Group demands
high quality, experienced employees in all operations.
Appropriate reward and retention strategies are in place to attract and retain
talent at all levels of the organisation. Mondi has a policy of working
towards zero-harm. Incidents are fully investigated, remedial actions taken
and early warning indicators used to direct preventative work. Mondi adopts
internationally recognised safety and health management systems across all its
operations.
- Capital intensive operations
Mondi operates large facilities, often in remote locations. The on-going
safety and sustainable operation of such sites is critical to the success of
the Group.
Mondi`s management system ensures on-going monitoring of all operations to
ensure they meet the requisite standards and performance requirements. A
structured maintenance programme is in place under the auspices of the Group
technical director. Emergency preparedness and response procedures are in
place and subject to periodic drills. Mondi has adequate insurance in place to
cover material property damage, business interruption and liability risks.
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 financial statements.
In addition, the notes to the integrated report and financial statements 2011
will 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. Ongoing
initiatives by management in implementing profit improvement initiatives which
include plant optimisation, cost-cutting, and restructuring and
rationalisation activities 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 as more
fully described in note 10 of the enclosed extract of the audited annual
financial statements. 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 EUR889 million of undrawn committed debt
facilities as at 31 December 2011 which should provide sufficient liquidity in
the medium term.
The Group`s forecasts and projections, taking account of reasonably possible
changes in trading performance, including an assessment of the current
macroeconomic environment, particularly in Europe, indicate that the Group
should be able to operate well within the level of its current facilities and
related covenants.
The directors have reviewed the overall Group strategy, the budget for 2012
and subsequent years, considered the assumptions contained in the budget and
reviewed the critical risks which may impact the Group`s performance. After
making such enquiries, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing the annual report and accounts.
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 full year dividend.
The boards of Mondi Limited and Mondi plc have recommended a final dividend of
17.75 euro cents per share (2010: 16.5 euro cents per share), payable on 10
May 2012 to shareholders on the register at 13 April 2012. Together with the
interim dividend of 8.25 euro cents per share, paid on 13 September 2011, this
amounts to a total dividend for the year of 26.0 euro cents per share. In
2010, the total dividend for the year was 20.0 euro cents per share. Both the
interim and final dividends are based on the consolidated number of Mondi
Limited shares following completion of the share consolidation in August 2011.
Outlook
Looking ahead, while macroeconomic risks remain, it is encouraging to note
that in recent weeks order books have improved and prices have stabilised,
with price increases announced in certain grades. This should allow some
recovery of price declines experienced over the course of the second half of
2011, although recent strengthening of emerging market currencies is impacting
margins.
Supply side fundamentals in our core grades remain good following further
announcements of capacity closures in the industry. Mondi`s integrated low-
cost operations, emerging markets exposure and unrelenting focus on
sustainable performance ensure that the Group remains well positioned to
continue generating strong cash flow through the cycle and adding value for
shareholders over the longer term.
Directors` responsibility statement
These financial statements have been prepared under supervision of the Group
Chief Financial Officer, Andrew King CA (SA), as required by Section
29(1)(e)(ii) of the Companies Act of South Africa 2008.
The responsibilty statement below has been prepared in connection with the
Group`s annual report for the year ended 31 December 2011. Certain parts
thereof are not included within this announcement.
The directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit and 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.
David Hathorn Andrew King
Director Director
22 February 2012 22 February 2012
Audited financial information
Combined and consolidated income statement
for the year ended 31 December 2011
2011
Before Special After
special items special
Notes items (note 4) items
EUR million
Continuing operations
Group revenue 3 5,739 - 5,739
Materials, energy and consumables
used (2,998) - (2,998)
Variable selling expenses (511) - (511)
Gross margin 2,230 - 2,230
Maintenance and other indirect
expenses (272) - (272)
Personnel costs (808) (4) (812)
Other net operating expenses (186) (2) (188)
Depreciation, amortisation and
impairments (342) (48) (390)
Operating profit/(loss) 3 622 (54) 568
Non-operating special items 4 - (1) (1)
Net income from associates 1 - 1
Total profit/(loss) from operations
and associates 623 (55) 568
Net finance costs (111) - (111)
Investment income 30 - 30
Foreign currency gains - - -
Finance costs (141) - (141)
Profit/(loss) before tax 512 (55) 457
Tax (charge)/credit 5 (102) 2 (100)
Profit/(loss) from continuing
operations 410
