| Thu 21 Feb 2013, 10:42 | | Mondi Limited - Full year results for the year end |
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Mondi Limited - Full year results for the year end 21 Feb 2013
MND MNP 201302210014A
Full year results for the year ended 31 December 2012
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
21 February 2013
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 2012
Financial highlights
- Strong profitability despite challenging start to the year
- Supported by excellent operating performance and cost management
- ROCE of 13.7%, in excess of the Group's through-the-cycle target of 13%
- Strong cash generation from operations of EUR845 million
- Total dividend for the year of 28.0 euro cents per share, up 8%
Strategic highlights
- Significant progress with strategic initiatives
- EUR1.2 billion spent on acquisitions increasing exposure to higher growth packaging segments
- Disposal of interest in non-core Aylesford Newsprint
- Capital employed in packaging businesses now 67% of Group total (57% at end of 2011)
- Integration of acquisitions on track
- Cost synergies from recent acquisitions now estimated at EUR30 million per annum, up 33%
Financial Summary
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million, except for percentages and per
share measures 2012 2011 Change % 2012 2011 Change %
From continuing operations
Group revenue 5,807 5,739 1 2,967 2,797 6
Underlying EBITDA(1) 923 964 (4) 487 438 11
Underlying operating profit(1) 568 622 (9) 299 268 12
Underlying profit before tax(1) 462 512 (10) 245 216 13
Operating profit 541 568 (5) 272 213 28
Profit before tax 371 457 (19) 148 157 (6)
Per share measures
Basic earnings per share - alternative measure(2)
(EUR cents) 69.6 71.8 (3)
Basic earnings per share from continuing operations
(EUR cents) 50.5 57.5 (12)
Total dividend per share (EUR cents) 28.0 26.0 8
Free cash flow per share(3) (EUR cents) 51.3 78.8 (35)
Cash generated from operations 845 917 (8)
Net debt 1,864 831
Group return on capital employed (ROCE)(4) 13.7% 15.0%
Notes:
1 The Group presents underlying EBITDA, operating profit, profit before tax and related per share information as measures which exclude special
items in order to provide a more effective comparison of the underlying financial performance of the Group between financial reporting periods.
2 The directors have elected to continue to present an alternative, non-IFRS measure of earnings per share from continuing operations. As more
fully set out in note 8 of the condensed financial statements, the effects of the demerger of Mpact Limited and the Mondi Limited share
consolidation have been adjusted in the 2011 comparative earnings per share figures to reflect the position as if the transaction had been
completed on 1 January 2011. This is intended to enable a more useful comparison of underlying earnings per share from continuing
operations, based on the consolidated number of shares. In 2012, there is no difference between the alternative measure presented and
underlying earnings per share.
3 Free cash flow per share is the net increase in cash and cash equivalents before the effects of acquisitions and disposals of businesses,
changes in net debt and dividends paid divided by the net number of shares in issue at year end.
4 ROCE is underlying 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:
'Mondi delivered a solid financial performance in what remains an uncertain economic environment.
While the early part of the year was particularly challenging, trading picked up as the year progressed,
culminating in a strong final quarter.
Continued strong profitability resulted in a return on capital employed (ROCE) of 13.7%, once again
above our through-the-cycle target of 13%. Net debt finished the year at EUR1,864 million, largely due
to the EUR1.2 billion of strategic acquisitions in higher growth packaging segments completed during
the year. Our continued strong cash generation and underlying earnings per share of 69.6 euro cents
per share has resulted in the directors recommending a final dividend of 19.1 euro cents per share,
bringing the total dividend to 28.0 euro cents per share for the year, an increase of 8%.
Our focus in the near term is on the integration and optimisation of the recent acquisitions and
successful delivery of the significant capital investment projects we have initiated over the course of
the past year. I am very pleased to see the progress we have already made in integrating our recent
acquisitions, exemplified by the fact we have revised upwards by 33% our estimate of expected
synergies to EUR30 million per annum within two years.
Fundamentals for our core segments remain sound, although recently announced capacity additions
by various manufacturers in selected paper grades are a concern, exacerbated by the prevailing
demand softness as Europe remains affected by the macroeconomic slowdown. However, with the
strong finish to the year, coupled with the expected contribution from the recent acquisitions, we
remain confident of making progress in the year ahead.'
Contact details
Mondi Group
David Hathorn +27 11 994 5418
Andrew King +27 11 994 5415
Lora Rossler +27 11 994 5400 / +27 83 627 0292
FTI Consulting
Richard Mountain / Sophie McMillan +44 20 7269 7186 / +44 20 7909 684 466
Sandra Sowray / Lerato Matsaneng +27 11 214 2422 / +27 11 214 2407
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 Primary 0808 162 4061 (toll-free)
UK Alternative 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/FYResults12.
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 11 535
3600.
Should you have any issues on the day with accessing the audio cast, please e-mail mondi@kraftwerk.co.at
and you will be contacted immediately.
An audio recording of the presentation will be available on Mondi's website during the afternoon of 21
February 2013.
Editors' notes
Mondi is an international packaging and paper Group, with production operations across 30 countries and
revenues of EUR5.8 billion in 2012. The Group's key operations are located in central Europe, Russia and
South Africa and as at the end of 2012, Mondi employed 25,700 people.
Mondi Group is fully integrated across the packaging and paper value chain, from the growing of wood and
the production of pulp and paper (packaging paper and uncoated fine paper), to the conversion of packaging
paper into corrugated packaging, industrial bags, extrusion coatings and release liner. Mondi is also a supplier
of innovative consumer packaging solutions, advanced films and hygiene products components.
Mondi Group 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 Global, European and UK Index Series (since 2008) and the JSE's Socially Responsible
Investment (SRI) Index since 2007. The Group was also included in the Carbon Disclosure Project's (CDP)
Carbon Disclosure Leadership Index for the third year and in CDP's Carbon Performance Leadership Index
(CPLI) for the first time in 2012.
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
Financial review
While the first quarter was particularly difficult, characterised by a continuation of the weak order books seen
towards the end of 2011, trading picked up as the year progressed. Sales volumes recovered into the second
quarter and this, in turn, saw some price recovery in certain of the Group's major grades going into the second
half of the year. The third quarter was impacted by the traditional European summer slowdown in trading, but
a strong finish to the year, with good volumes and reasonable price levels in Europe, meant the Group was
able to deliver full year underlying operating profit of EUR568 million, 9% down on the very strong prior year
result.
Fundamentals for each of the Group's core businesses remain good, although recently announced capacity
additions in segments that remain in oversupply are a concern. While the uncoated fine paper business
remains in structural decline in the mature western European region, prices have remained stable due to
continued supply side contraction in the face of poor profitability among the more marginal players. Such
rationalisation will need to continue in order to ensure market stability. On the packaging side, fundamentals
for growth in the medium term remain firmly in place with only the kraft paper/industrial bags value chain in
western Europe suffering some secular demand decline, offset by strong export markets.
The Group continued to be strongly cash generative with cash generated from operations of EUR845 million.
Working capital levels were maintained within the Group's targeted level of 10-12% as a percentage of
turnover, closing the year (based on the annualised sales of Nordenia) at 11.8%. During the year, capital
expenditure amounted to EUR298 million.
Net debt at 31 December 2012 was EUR1,864 million, an increase of EUR1,033 million from 31 December
2011. The increase is attributable to the EUR1.2 billion of strategic acquisitions completed during the year
(further detailed below). The acquisitions were financed by the proceeds from an 8-year 3.375% EUR500
million Eurobond and from existing borrowing facilities. Excluding the effects of acquisitions, net debt reduced
by EUR180 million.
At the underlying earnings per share level, results were down only 3% on the comparable prior year figure,
supported by lower interest charges and a reduction in the non-controlling interest charge, primarily due to the
acquisition of the remaining minority interest in Mondi Swiecie in the first half of the year. This strong
performance bears testament not only to the strength of our strategic positioning, but also the unrelenting
focus on cost management and strong operating performance achieved across the Group.
The Group is proposing to pay a final dividend of 19.1 euro cents per share, bringing the total dividend for the
year to 28.0 euro cents per share, an increase of 8% on 2011.
Progress on strategy
During the year good progress was made in the ongoing process of shifting Mondi's portfolio to higher growth
products. This included EUR1.2 billion of acquisitions in the growing corrugated packaging and consumer
packaging value chains and the disposal of the 50% interest in Aylesford Newsprint, which operates in the
structurally challenged newsprint sector.
Key acquisitions included:
- Packaging Paper
- the acquisition of the remaining minority interest in Mondi Swiecie;
- Mondi Swiecie acquired a combined heat and power generating plant, providing the bulk of its
electricity requirements and all of its heat and steam needs;
- Consumer Packaging
- the acquisition of a 99.93% interest in Nordenia; and
- Fibre Packaging
- the acquisition of Duropack's two corrugated packaging plants in Germany and the Czech
Republic.
Over the past year, the share of the Group's capital employed in the packaging businesses, with typically
higher structural growth rates than the graphic paper grades, has increased from 57% to 67%.
Following the completion of the Nordenia acquisition and disposal of Aylesford Newsprint, the Group
management and reporting structures were reorganised. The Europe & International Division has been
restructured into four business units, divided into upstream and downstream activities with a clear separation
between packaging and uncoated fine paper: Packaging Paper, Fibre Packaging, Consumer Packaging and
Uncoated Fine Paper. The remaining Newsprint business, Mondi Shanduka Newsprint, has been
incorporated into the South Africa Division. Europe & International contributed EUR538 million to underlying
operating profit and the South Africa Division EUR68 million. Corporate costs remained at similar levels to the
previous year.
Europe & International - Packaging Paper
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2012 2011 Change % 2012 2011 Change %
Segment revenue 1,896 2,006 (5) 936 943 (1)
- of which inter-segment revenue 469 469 220 209
Underlying EBITDA 321 392 (18) 171 168 2
Underlying operating profit 227 295 (23) 123 122 1
Special items - (11) - (11)
Capital expenditure 89 67 55 47
Net segment assets 1,466 1,249
ROCE 17.9% 24.4%
Packaging Paper delivered another good financial performance despite the more challenging trading
environment, with a ROCE of 17.9% and underlying operating profit of EUR227 million.
The early part of the year was characterised by weak demand, with market related downtime continuing from
the end of 2011 into the first quarter of 2012. Demand improved during the first half, enabling the business to
implement price increases in the virgin containerboard and kraft paper grades, which became effective during
the second half of the year. Sales volumes of containerboard were similar to those of the previous year whilst
volumes of kraft paper increased as a result of stronger export markets.
Whilst industry wide demand for the various containerboard grades was marginally lower than the previous
year, with growth in the emerging central European countries only partly offsetting the decline in the more
mature western markets, Mondi increased its volumes by 3% during the year. European markets for sack
kraft paper remained weak with demand below prior year levels. The sack kraft business, however, continued
to benefit from strong export growth, particularly in Asia and Africa.
In 2012, virgin containerboard pricing was weaker on average than in 2011. Average benchmark kraftliner
prices were 6% lower. However, supply side contraction coupled with reduced imports from the US resulted
in an improved supply/demand balance with price increases being realised in stages throughout the second
half of 2012. Average benchmark prices in the second half of 2012 for kraftliner were 7% higher than in the
first half. European virgin containerboard markets remain firm in early 2013.
Surplus capacity in recycled containerboard continued to influence pricing and average benchmark prices
were 10% lower than in 2011. After recovering through the end of the first quarter and into the second quarter
from the January 2012 lows, pricing weakened in the second half on lower input costs. Average benchmark
prices in the second half of 2012 were 4% lower than in the first half. Recent capacity closures coupled with a
stable demand environment have firmed up the recycled containerboard market. As yet, there has been little
impact from the start-up of new capacity in Poland. A price increase of EUR60/tonne was announced in
January 2013.
Sack kraft paper prices were on average 2-4% lower than in 2011 despite price increases having been
implemented in the third quarter, reflected in average prices in the second half being around 2% higher than
the first half. European price levels have weakened marginally in early 2013, while pricing in export markets
remains stable.
Packaging Paper benefited from lower input costs particularly in the second half of the year with lower wood
costs in central Europe, and recycled paper costs being on average 16% lower than in 2011. The acquisition
by Mondi Swiecie of the power and heat generating plant benefited the business with lower costs and
increased green energy credits, although the lower average selling prices achieved for green energy credits
did provide some offset.
The business also benefited significantly from profit improvement initiatives, which, along with improved
productivity, enabled the business to continue to realise good returns on invested capital.
The containerboard business is expected to benefit from synergies from the acquisition of the Duropack
corrugated packaging plants in Germany and the Czech Republic, completed in November 2012, primarily
through reduced transportation costs (refer to Europe & International - Fibre Packaging for more detail).
Europe & International - Fibre Packaging
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2012 2011 Change % 2012 2011 Change %
Segment revenue 1,860 1,881 (1) 914 908 1
- of which inter-segment revenue 42 33 23 15
Underlying EBITDA 168 149 13 88 72 22
Underlying operating profit 101 86 17 54 40 35
Special items (16) (8) (16) (10)
Capital expenditure 76 72 48 38
Net segment assets 958 866
ROCE 12.5% 11.0%
Fibre Packaging realised a 17% increase in underlying operating profit to EUR101 million in 2012. The
improvement reflects the benefits of ongoing profit improvement initiatives and lower input costs. The ROCE
of 12.5%, whilst still below our 13% target, reflects a pleasing improvement on 2011 levels.
The corrugated packaging business benefited from generally stable pricing and volumes coupled with lower
paper input costs. Market demand for corrugated packaging products was broadly unchanged in the mature
central European markets whilst pleasing growth continued to be seen in emerging Europe. Average selling
prices in emerging Europe were higher than in 2011 which offset in part the declines experienced in the more
mature markets.
In line with the Group's strategy to strengthen its leading market position in corrugated packaging in central
and eastern Europe, Mondi acquired two corrugated box plants in Germany and the Czech Republic
consuming 130,000 tonnes of containerboard per annum, and a 105,000 tonne recycled containerboard mill in
the Czech Republic from Duropack GmbH on 5 November 2012. On 19 November 2012, Mondi announced
its intention to close the recycled containerboard mill. The acquisition of the packaging plants is expected to
provide the Group with improved access to these regional markets and generate logistics synergies from their
proximity to the Swiecie containerboard mill in Poland. Cost synergies are estimated at approximately EUR10
million per annum, up around one-third from the original estimate at the time of acquisition. After taking into
account the restructuring and closure costs of the containerboard mill of EUR3 million, the contribution to
underlying operating profit in 2012 from this acquisition was a loss of EUR2 million.
Industrial bags benefited from lower paper input costs and productivity and cost improvement initiatives, which
more than offset lower sales volumes and lower average selling prices. Growth in the CIS, Middle East,
North Africa and Asia regions was positive whilst the western European markets continued to be weak,
particularly in the south. This has necessitated restructuring in Belgium, Spain and France with restructuring
provisions and an asset impairment charge amounting to EUR21 million being recognised in special items.
The coatings business benefited from lower input costs for both paper and resin as well as from stringent cost
management measures and productivity improvements. These gains were offset in part by weaker demand,
particularly from the automotive and building industries, and consequently lower selling prices. The new
facility in the US continues to ramp up its activities, particularly in respect of product qualification in higher
value markets.
Europe & International - Consumer Packaging
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2012 2011 Change % 2012 2011 Change %
Segment revenue 502 372 35 352 165 113
- of which inter-segment revenue 4 5 3 2
Underlying EBITDA 45 37 22 30 17 76
Underlying operating profit 19 25 (24) 9 11 (18)
Special items (11) (5) (7) (5)
Capital expenditure 28 15 21 8
Net segment assets 872 131
ROCE 6.2% 15.0%
Adjusted for non-recurring items in 2012 and the effect
of the disposal of Unterland in 2011
Adjusted underlying EBITDA 54 30 80
Adjusted underlying operating profit 33 20 65
Adjusted ROCE 10.8% 16.9%
The growth in consumer packaging reflects a significant step in the Group's strategic development in higher
growth markets. Mondi acquired a 99.93% interest in Nordenia International AG with effect from 1 October
2012.
Nordenia, as an international supplier of innovative consumer packaging solutions and hygiene components,
enables the Group to develop a leading consumer packaging business, building on existing deep, long-term
customer relationships. Nordenia enjoys a strong competitive advantage through its proprietary technology,
global presence and a proven track record of innovation and growth.
Stripping out the effects of one-off costs and depreciation and amortisation charges largely related to the
acquisition accounting of EUR18 million detailed below, the ex-Nordenia business delivered underlying
operating profit of EUR19 million in the fourth quarter, in line with expectations at the time of the acquisition.
On acquisition, the Group recognised the net assets of Nordenia at their fair market value (the details of which
are set out in note 12 of the condensed financial statements) resulting in a higher depreciation and
amortisation charge than recognised in the stand-alone Nordenia business. In the three months to 31
December 2012, this charge amounted to EUR4 million. The increase in depreciation and amortisation from 2013
will be approximately EUR13 million per year.
In the fourth quarter a number of one-off costs, amounting to EUR14 million were recognised. These costs
mainly related to the acquisition accounting for the Nordenia transaction and include the effect of the
recognition of short-term assets at their fair value which were subsequently recognised as an expense in the
income statement.
Comparability with the prior year is further complicated by the sale of Unterland in October 2011 which
contributed EUR7 million of EBITDA and EUR5 million of underlying operating profit up to the date of disposal.
In addition to the full year contribution from Nordenia in 2013, synergies amounting to approximately EUR20
million per annum are expected to be realised by the end of 2014, with approximately half the benefit already
expected in 2013. This synergy target exceeds the original estimates at the time of the acquisition of EUR15
million per annum, largely due to increased confidence in the delivery of a number of cost reduction initiatives.
Consumer Packaging has a strong product pipeline in development. The business expects its plant in
Taicang, China to commence operations towards the end of 2013 with full capacity being reached by 2015.
Europe & International - Uncoated Fine Paper
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2012 2011 Change % 2012 2011 Change %
Segment revenue 1,466 1,429 3 717 695 3
- of which inter-segment revenue 13 20 5 7
Underlying EBITDA 300 309 (3) 146 140 4
Underlying operating profit 191 205 (7) 91 87 5
Special items - 2 - -
Capital expenditure 58 61 34 28
Net segment assets 1,248 1,283
ROCE 16.7% 16.7%
Uncoated Fine Paper again delivered a strong operating performance with underlying operating profit of
EUR191 million and a ROCE of 16.7%.
Whilst western European markets remained soft, impacted by both short-term cyclical and longer-term
structural challenges, demand growth in eastern Europe (excluding the CIS region) was marginally positive.
Market demand in Russia was down on a very strong 2011. In aggregate, Mondi's sales volumes for uncoated
fine paper were on a similar level to that of the previous year.
In Europe, selling prices were stable throughout the year with average benchmark European uncoated fine
paper prices declining by 1% in the year, while marginal price increases were achieved in the Russian market.
Russia entered the World Trade Organisation in August 2012 and, as a consequence, import duties for
uncoated fine paper will reduce by 2.5% per year until they reach a level of 5% in 2016. Implementation is due
to start in 2013. The reduction in trade duties, coupled with new capacity coming on stream in both Russia
and France, is expected to place some pressure on pricing in the short to medium term.
The business benefited from lower input costs, driven by lower pulp costs for the unintegrated Neusiedler
operation, partially offset by higher wood costs in Russia and generally higher energy costs. Fixed costs were
higher, largely due to a higher depreciation charge offset by ongoing cost optimisation initiatives.
South Africa Division
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2012 2011 Change % 2012 2011 Change %
Segment revenue 653 645 1 330 339 (3)
- of which inter-segment revenue 109 155 52 64
Underlying EBITDA 123 117 5 68 62 10
Underlying operating profit 68 63 8 40 36 11
Special items 6 - - -
Capital expenditure 46 29 30 14
Net segment assets 811 860
ROCE 9.9% 8.7%
South Africa Division delivered an improved result with underlying operating profit increasing by 8% to EUR68
million and ROCE to 9.9%. Whilst still below the Group's target rate, it is pleasing to note the continued
improvement in this business from the lows of 2009.
Sales volumes increased across all grades, largely on the back of increasing domestic demand.
Domestic selling price increases for uncoated fine paper and newsprint were implemented early in 2012 and
prices remained at those levels throughout the year. Both pulp and white-top kraftliner sales prices decreased
on the back of lower average international benchmark US dollar selling prices. Lower average selling prices
were offset in large part by gains from the weaker rand versus the US dollar and euro.
Above inflation wage and energy price increases were mitigated through ongoing cost management and
efficiency improvement initiatives such that overall cost increases were kept below prevailing inflation rates.
Good progress is being made in land claims with a further eight claims having been settled during the year.
Financial review
Special items
Special items for the year, giving rise to a net charge of EUR91 million before tax, include the following:
- Loss of EUR70 million on disposal of Aylesford Newsprint;
- Transaction costs of EUR11 million attributable to the Nordenia acquisition;
- Restructuring activities and asset impairment in Fibre Packaging amounting to EUR21 million;
- Profit of EUR6 million on sale of land in South Africa Division; and
- A EUR5 million gain on settlement of an insurance claim.
Further detail is provided in note 4 of the condensed financial statements.
Input costs
Wood, recovered fibre and pulp comprise approximately one third of the input costs of the Group.
Wood costs decreased on average for both hardwood and softwood (1% and 5% respectively) versus the
prior year. On average benchmark European recovered paper prices in 2012 were around 16% lower than in
2011 with an increase in the early part of the year followed by a significant drop off in the second half of the
year. Current recovered paper prices are at their lowest levels since March 2010.
Average benchmark euro denominated pulp prices were 8% lower for softwood pulp and largely unchanged
for hardwood pulp versus 2011. Softwood pulp prices continued to decline over the course of the year whilst
average hardwood pulp prices were 6% higher in the second half of 2012 than the first half.
Energy cost increases for the year were significant, with oil increasing by 7%, gas by 12% and coal and power
by 17% on average. This highlights the importance of the Group's efforts to increase both energy efficiency
and energy self-sufficiency.
Mondi's well established and relentless pursuit of cost saving initiatives bore significant benefits across the
value chain. These initiatives enabled the Group to realise significant savings on input costs and fixed cost
increases were kept well within inflation.
Currencies
The weaker rand and a stronger Polish zloty and US dollar against the euro provided a net positive impact to
the Group. Positive translational and transaction gains were realised in Packaging Paper, Fibre Packaging
and the South Africa Division. Exchange rate volatility was more muted during the year with most currencies
trading within a relatively narrow range against the euro.
Tax
The effective tax rate before special items was 20% - consistent with that of 2011. The low tax rate continues
to be a result of 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
Earnings attributable to holders of non-controlling interests declined significantly from EUR70 million in the
prior year to EUR35 million, primarily as a result of the acquisition of the non-controlling interest in Mondi
Swiecie in the second quarter of 2012.
Cash flow
Despite the challenging economic environment, EBITDA from continuing operations of EUR923 million was
only 4% lower than in 2011. The strong cash generation reflects the contribution in the fourth quarter from the
acquisition of Nordenia and the successful profit improvement and cost management initiatives throughout the
Group.
Mondi generated EUR845 million in cash from operations (2011: EUR917 million) after taking into account a
net increase in working capital of EUR80 million. The increase in working capital includes the settlement of a
number of short-term obligations recognised as part of the acquisition of Nordenia as well as the cancellation
of the factoring arrangements that were in place prior to the acquisition.
The strong cash flow generation, supplemented by additional borrowings raised during the year, were applied
to fund the Group's capital expenditure of EUR298 million, its strategic acquisitions and distributions to
shareholders.
Capital expenditure
Capital expenditure of EUR298 million was EUR35 million higher than the prior year. The capital expenditure
to depreciation ratio was 86% including expenditure on a number of the Group's strategic energy projects.
Mondi's approved energy related investments totalling approximately EUR140 million announced in early
2012 included a bark boiler at Syktyvkar in Russia, a steam turbine and recovery boiler economiser at
Stambolijski, Bulgaria, a new recovery boiler at Frantschach, Austria and a new steam turbine at the Richards
Bay mill in South Africa. The benefits of these investments, mainly in the form of reduced energy costs,
improved efficiencies and energy self-sufficiency are expected to be realised from the end of 2013 as these
projects reach completion. In addition, the decision has recently been taken to commence the EUR30 million
pulp dryer project in Syktyvkar. The project was initially announced in early 2012 but put on hold pending
clarification of various technical parameters, which have since been resolved.
As announced early in 2012 various additional energy related projects, amounting to approximately EUR250
million, were under consideration. In this regard, the Boards have since approved a further EUR128 million
strategic energy investment at the 51% held Ruzomberok mill. Further options remain under evaluation.
The Ruzomberok investment, including a new recovery boiler at the mill, will increase pulp production, reduce
the mill's environmental footprint and improve the overall cost position. The project will also include
improvements in chemical recovery and green energy and heat production during the pulp production
process. Some of the project benefits also result from avoiding otherwise essential stay-in-business capital
expenditure. The project is expected to be completed in the fourth quarter of 2014, delivering an after-tax
internal rate of return in excess of 40%.
The Boards also approved a EUR70 million project in the Steti kraft paper mill which will enable the mill to
integrate the remaining open market pulp production on site by producing additional volumes of bleached kraft
paper and will provide growth opportunities for the kraft business. The project is expected to be completed in
the latter part of 2014 delivering an after tax internal rate of return of around 20%.
Including the announced strategic projects, capital expenditure is expected to be approximately 125% of the
Group's depreciation charge on average over the next two years.
Treasury and borrowings
Net debt at the end of the year was EUR1,864 million, a EUR1,033 million increase from the prior year end.
Gearing increased to 39.3% at the end of 2012, up from 21.5% at the end of 2011, and the net debt to 12
month trailing EBITDA ratio was 2.0, well within the Group's key financial covenant requirements.
Finance charges of EUR107 million were similar to the previous year (EUR111 million) due to a lower effective
average interest rate offset by the increased net debt. The majority of the increase in the Group's net debt
occurred in the last quarter of the year as a consequence of the acquisitions of Nordenia and the corrugated
packaging plants of Duropack in Germany and the Czech Republic. The debt assumed in the Nordenia
acquisition included a high yield bond, which was recognised on acquisition at its fair market value, with the
premium over book value amortised over the remaining term of the bond. As a consequence, the effective
interest rate recognised in the financial statements approximates the Group's average borrowing rate, well
below the 9.75% coupon applicable to that bond.
Mondi's public credit ratings, first issued in March 2010, were reaffirmed during the year at BBB - from
Standard and Poor's and Baa3 from Moody's Investors Service.
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 (EMTN) programme under which the EUR500
million, seven year bond was issued in March 2010 was renewed. In September 2012 Mondi successfully
launched an eight year, 3.375% fixed coupon, EUR500 million bond maturing in 2020 under the same
programme.
At the end of the year the Group's committed debt facilities amounted to EUR2.6 billion with EUR762 million
undrawn, which provides significant liquidity to meet Mondi's short and medium-term funding requirements.
Drawn committed facilities maturing in 2013 amount to EUR191 million.
The weighted average maturity of the Eurobonds and committed debt facilities increased to 4.8 years as at 31
December 2012 compared to 4.3 years a year earlier.
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. In addition, the DLC audit committee
reviews each of the principal risks in detail over the course of the year. Additional risk reviews are undertaken
on an ad-hoc basis for significant investment decisions and when changing business conditions dictate.
The Boards' risk management framework addresses all significant strategic, sustainability, financial,
operational and compliance-related risks which could undermine the Group's ability to achieve its business
objectives in a sustainable manner. The risk management framework is designed to be flexible, to ensure that
it remains relevant at all levels of the business given the diversity of the Group's locations, markets and
production processes; and dynamic, to ensure that it remains current and responsive to changing business
conditions.
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.
Competitive environment in which Mondi operates
The industry in which Mondi operates is highly competitive and subject to significant volatility. New capacity
additions are usually in large increments which, combined with product substitution towards lighter weight
products and alternative packaging solutions and increasing environmental considerations, have an impact on
the supply-demand balance and hence on market prices.
Mondi monitors industry developments in terms of changes in capacity as well as trends and developments in
its own product range and potential substitutes. A flexible and responsive approach to market and operating
conditions and the Group's strategic focus on low-cost production in growing markets, with consistent
investment in its operating capacity serve to mitigate this risk.
In 2012, the acquisitions of Nordenia and the corrugated packaging plants in Germany and the Czech
Republic, as well as the disposal of Aylesford Newsprint, further position the Group in its selected strategic
growth areas.
Cost and availability of a sustainable supply of raw materials
Fibre (wood, pulp and recovered paper) and resins accounts for approximately one-third of the Group's input
costs. It is the Group's objective to acquire fibre from sustainable sources and to avoid the use of any illegal
or controversial supply.
All plantations in South Africa and leased/managed forests in Russia are FSC certified. With the exception
of Stambolijski, Bulgaria, all mills have chain-of-custody certificates in place, ensuring that the wood procured
in 2012 was from non-controversial sources. Stambolijski will be certified to FSC chain-of-custody
standards in 2013 and currently wood supplies meet Mondi's minimum wood standards that ensure legality
and non-controversial wood sources. Mondi constantly monitors international market prices for its other raw
materials (recovered paper and resins) and, where possible, have cost pass-through mechanisms in place
with customers to mitigate the risk of input cost increases. The Group's focus on high-quality, low-cost
operations, relatively high levels of integration and access to its own fibre in Russia and South Africa further
mitigate this risk.
Cost of energy and related input costs
Non-fibre input costs comprise approximately a third of the Group's total variable costs. Increasing energy
costs, and the consequential impact thereof on both chemical and transport costs, may impact the Group's
operating profit margins.
Active investment in energy related projects have significantly improved energy self-sufficiency and efficiency
in the Group.
Capital intensive operations
Mondi operates large facilities, often in remote locations. The ongoing safety and sustainable operation of
such sites is critical to the success of the Group.
Mondi's management system ensures ongoing monitoring of all operations to ensure they meet the requisite
standards and performance requirements. The Group has adequate insurance in place to cover material
property damage, business interruption and liability risks. 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.
The locations in which the Group operates
Mondi 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. In
addition, economic risks in certain regions are heightened following the macroeconomic uncertainties
experienced in recent years.
Mondi is invested in a number of geographical locations, with a strategic focus on low-cost high-growth
markets. This geographical diversity and decentralised management structure utilising local resources in
countries in which the Group operates reduces its exposure to any specific jurisdiction. Mondi continues to
actively monitor and adapt to changes in the environments in which it operates.
Attraction and retention of key skills and talent
The complexity of operations and geographic diversity of the Group is such that high-quality, experienced
employees are required in all locations.
Appropriate reward and retention strategies are in place to attract and retain talent across the organisation. At
more senior levels, these include a share based incentive scheme.
Employee and contractor safety
Mondi's employees work in potentially dangerous environments where hazards are ever-present and must be
managed. Mondi's objective is a zero harm environment.
The Group engages in extensive safety training sessions, involving employees and contractors, at all its
operations. The Nine Safety Rules to Live By, applied across the Group, are integral to the safety strategy.
Operations conduct statutory safety committee meetings where management and employees are represented.
A risk-based approach underpins safety and health programmes. All business units and operations are
required to have safety improvement plans in place. Mondi's Total Recordable Case Rate (TRCR per
200,000 hours worked) was 0.79 (2011: 0.92). Regrettably, there were two fatalities at our operations during
the year one in Finland and one in Russia.
Environmental footprint
Maintaining the Group's socio-economic license to trade is a strategic imperative. This encompasses
continued access to credible sources of fibre as described above, protection of High Conservation Value
(HCV) areas and bio-diversity, eco-efficiency of products throughout their lifecycle and the Group's carbon
and energy footprint.
Mondi's approach to product stewardship is based on the Life-Cycle Initiative set out in the United Nations
Environmental Programme (UNEP). The Group's certified products carry clear and informative labelling to
ensure that its customers are aware of the environmental process controls and health and safety assessments
conducted throughout the life cycles of Mondi's products. In 2012, no incidents of non-compliance relating to
the regulation and voluntary codes, to which the Group subscribes, concerning product and service
information and labelling were recorded. Mondi does not convert natural forests, riparian areas, wetlands or
protected areas into plantations. HCV areas are identified and preserved or enhanced, as is biological
diversity. In Russia 522,260 hectares have been set aside for conservation (24.8% of our landholding) and
76,398 hectares in South Africa (25% of our landholding). Mondi uses biomass energy sources such as black
liquor as an alternative to fossil fuels at all of its mills. Some 58% of Mondi's fuel consumption comes from
biomass and a number of operations are completely energy self-sufficient.
Governance risks
The Group operates in a number of legal jurisdictions and non-compliance with legal and governance
requirements in these jurisdictions could expose the Group to significant risk if not adequately managed.
The Group's legal and governance risk management and compliance will be set out in the Corporate
governance report in the integrated reporting and financial statements 2012.
Financial risks
Mondi's trading and financing activities expose the Group to financial risks that, if left unmanaged, could
adversely impact current or future earnings. These risks relate to the currencies in which the Group conducts
its activities, interest rate and liquidity risks as well as exposure to customer credit risk.
Mondi's approach to financial risk management is described in notes 37 and 38 of the annual financial
statements.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position are set out in the business review. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the annual financial statements. In addition, the risk report
sets out the most significant risks facing the Group and the management and mitigation thereof.
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
condensed 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 EUR762 million of
undrawn committed debt facilities as at 31 December 2012 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 2013 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 integrated report and financial statements.
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 Group's strong financial position notwithstanding the
significant debt-funded acquisitions during the year, and the Boards' stated objective to increase distributions
to shareholders through the ordinary dividend, we are pleased to recommend an increase in the final dividend.
The boards of Mondi Limited and Mondi plc have recommended a final dividend of 19.1 euro cents per share
(2011: 17.75 euro cents per share), payable on 16 May 2013 to shareholders on the register at 19 April 2013.
Together with the interim dividend of 8.9 euro cents per share, paid on 18 September 2012, this amounts to a
total dividend for the year of 28.0 euro cents per share. In 2011, the total dividend for the year was 26.0 euro
cents per share.
Outlook
Mondi's focus in the near term will be the integration and optimisation of the recent acquisitions and
successful delivery of the significant capital investment projects initiated over the course of the past year. It is
pleasing to see the progress that has already been made in integrating the recent acquisitions, exemplified by
the fact that the Group has revised upwards by 33% its estimate of expected synergies to EUR30 million per
annum within two years.
Fundamentals for Mondi's core segments remain sound, although recently announced capacity additions by
various manufacturers in selected paper grades are a concern, exacerbated by the prevailing demand
softness as Europe remains affected by the macroeconomic slowdown. However, with the strong finish to the
year, coupled with the expected contribution from the recent acquisitions, the Boards remain confident of
making progress in the year ahead.
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, and
have been audited in compliance with the applicable requirements of the Companies Act of South Africa 2008
and the UK Companies Act 2006.
The responsibilty statement below has been prepared in connection with the Group's annual report for the
year ended 31 December 2012. Certain parts thereof are not included within this announcement.
The Boards 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.
The Group's combined and consolidated financial statements, and related notes, were approved by the
Boards and authorised for issue on 20 February 2013 and were signed on its behalf by:
David Hathorn Andrew King
Director Director
20 February 2013 20 February 2013
Audited financial information
The combined and consolidated financial statements for the year ended 31 December 2012 have been
audited by the Group's auditors, Deloitte LLP and Deloitte & Touche. Their unqualified audit reports are
available for inspection at the Group's registered offices.
Condensed combined and consolidated income statement
for the year ended 31 December 2012
2012 2011
Before Special After Before Special After
special items special special items special
EUR million Notes items (note 4) items items (note 4) items
Continuing operations
Group revenue 3 5,807 - 5,807 5,739 - 5,739
Materials, energy and consumables used (3,049) - (3,049) (2,998) - (2,998)
Variable selling expenses (523) - (523) (511) - (511)
Gross margin 2,235 - 2,235 2,230 - 2,230
Maintenance and other indirect expenses (279) - (279) (272) - (272)
Personnel costs (840) (16) (856) (808) (4) (812)
Other net operating expenses (193) (10) (203) (186) (2) (188)
Depreciation, amortisation and impairments (355) (1) (356) (342) (48) (390)
Operating profit/(loss) 3 568 (27) 541 622 (54) 568
Non-operating special items 4 - (64) (64) - (1) (1)
Net income from associates 1 - 1 1 - 1
Total profit/(loss) from operations and associates 569 (91) 478 623 (55) 568
Net finance costs (107) - (107) (111) - (111)
Investment income 10 - 10 30 - 30
Foreign currency losses (2) - (2) - - -
Finance costs (115) - (115) (141) - (141)
Profit/(loss) before tax 462 (91) 371 512 (55) 457
Tax (charge)/credit 5 (91) (1) (92) (102) 2 (100)
Profit/(loss) from continuing operations 371 (92) 279 410 (53) 357
Discontinued operation 6 - 43
Profit from discontinued operation 14
Net gain on distribution of discontinued operation 29
Profit for the financial year 279 400
Attributable to:
Non-controlling interests 35 70
Equity holders of the parent companies 244 330
Earnings per share (EPS) for profit attributable to
equity holders of the parent companies
From continuing operations
Basic EPS (EUR cents) 7 50.5 57.5
Diluted EPS (EUR cents) 7 50.3 56.8
Basic underlying EPS (EUR cents) 7 69.6 68.1
Diluted underlying EPS (EUR cents) 7 69.3 67.3
From continuing and discontinued operations
Basic EPS (EUR cents) 7 50.5 66.1
Diluted EPS (EUR cents) 7 50.3 65.3
Basic headline EPS (EUR cents) 7 63.4 69.9
Diluted headline EPS (EUR cents) 7 63.1 69.1
Condensed combined and consolidated statement of comprehensive
income
for the year ended 31 December 2012
EUR million 2012 2011
Profit for the financial year 279 400
Other comprehensive income/(expense):
Items that may subsequently be reclassified to the combined and consolidated income
statement:
Effect of cash flow hedges 2 12
Gains on available-for-sale investments 1 -
Exchange differences on translation of foreign operations 49 (196)
Share of other comprehensive income of associates - (1)
Tax effect thereof - (4)
Items that will not subsequently be reclassified to the combined and consolidated income
statement:
Actuarial losses on post-retirement benefit schemes
