| Thu 8 Aug 2013, 9:45 | | Mondi Limited - Mondi Group interim results for 6 |
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Mondi Limited - Mondi Group interim results for 6 8 Aug 2013
MND MNP 201308080006A
Mondi Group interim results for 6 months ended 30 June 2013
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
8 August 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 JSE Listings
Requirements and/or the Disclosure and Transparency and Listing Rules of the United Kingdom Listing
Authority.
Half-yearly results for the six months ended 30 June 2013
Financial highlights
- Underlying operating profit of EUR366 million, up 35%
- Underlying earnings of 49.4 euro cents per share, up 60%
- Cash generated from operations of EUR431 million, up 21%
- Interim dividend of 9.55 euro cents per share, up 7%
- ROCE of 14.8%, well in excess of through-the-cycle hurdle rate of 13%
Operational highlights
- Integration of acquisitions and related synergy targets on track
- Major capital projects on time and within budget
Financial summary
Six months
Six months Six months ended 31
ended 30 ended 30 June December
June 2013 2012 2012
EUR million, except for percentages and per share measures (Restated)(4) (Restated)(4)
Group revenue 3,342 2,819 2,971
Underlying EBITDA(1) 554 437 490
Underlying operating profit(1) 366 272 302
Underlying profit before tax(1) 310 216 243
Operating profit 285 272 275
Profit before tax 229 222 146
Per share measures
Basic underlying earnings per share (EUR cents) 49.4 30.9 38.3
Basic earnings per share (EUR cents) 35.3 31.7 18.4
Interim dividend per share (EUR cents) 9.55 8.90
Free cash flow per share(2) (EUR cents) 14.7 10.3 42.4
Cash generated from operations 431 355 494
Net debt 1,844 1,257 1,872
Group Return on Capital Employed (ROCE)(3)(%) 14.8 13.4 13.6
Notes:
1. 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.
2. Free cash flow per share is net increase in cash and cash equivalents before the effects of acquisitions and disposals of businesses and
changes in net debt and dividends paid divided by the net number of shares in issue at the end of the reporting period.
3. ROCE is the 12 month rolling average underlying operating profit expressed as a percentage of the average rolling 12 month capital employed,
adjusted for impairments and spend on strategic projects which are not yet in operation.
4. The Group has restated comparative information following the adoption of revised IFRS standards relating to consolidations, joint ventures and
employee benefits. Full details of the restatements are set out in note 2 of the half-yearly financial statements.
David Hathorn, Mondi Group chief executive, said:
"A strong operating performance and benefits derived from our strategic acquisitions completed
towards the end of the previous year have enabled Mondi to deliver record financial results despite
what remains a challenging economic backdrop.
The strong profitability and relentless focus on performance is reflected in a return on capital
employed of 14.8%, which remains well above our through-the-cycle hurdle rate of 13%.
A focus over the past six months has been on integrating and optimising the significant acquisitions
made towards the end of 2012 and executing the major expansion projects initiated over the past
eighteen months. I am pleased to report that we continue to make good progress in this regard. The
Group's major expansion projects are progressing according to plan and remain within budget. Some
of the synergies identified at the time of the acquisitions have already been achieved, and we remain
on track to meet the previously announced synergy targets. Just as important, we have made good
progress in aligning organisational culture, which sets the platform for the future success of the
combined business.
Looking forward, new industry capacity in the uncoated fine paper segment, coupled with prevailing
demand softness in Europe, may impact the supply/demand balance in the short term. Furthermore,
the second half will be impacted by the Group's regular annual mill maintenance programmes.
However, with the momentum from the strong first half performance and the expected continuation of
a good pricing environment in the packaging grades, management remains confident of delivering in
line with its expectations."
Contact details
Mondi Group
David Hathorn +27 11 994 5418
Andrew King +27 11 994 5415
Lora Rossler +27 83 627 0292
Kerry Crandon +27 83 389 3738
FTI Consulting
Richard Mountain +44 20 7269 7186
Sophie McMillan +44 20 7909 684 466
Lerato Matsaneng +27 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 10:00 (UK) and 11:00 (SA).
The conference call dial-in numbers are:
South Africa 0800 200 648 (toll-free)
UK 0808 162 4061 (toll-free)
Europe & Other +800 246 78 700 (toll-free) or +27 11 535 3600
An online audio cast facility will be available via: www.mondigroup.com/HYResults13.
The presentation will be available online via the above website address an hour 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
8 August 2013.
Capital Markets Day
On 2 September 2013 Mondi will host a Capital Markets Day for investors and analysts in London, where
executive directors David Hathorn, Andrew King and Peter Oswald, together with other key senior
management, including business unit heads and innovation managers, will share insights into the Mondi
business.
Editors' notes
Mondi is an international packaging and paper Group, with production operations across 30 countries and
revenue 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 Group employed 25,700 people.
Mondi Group is fully integrated across the paper and packaging process, from the growing of wood and the
manufacture 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)
FTSE350 Carbon Disclosure Leadership Index for the third year and in CDP's FTSE350 Carbon Performance
Leadership Index 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.
Any reference to future financial performance included in this announcement has not been reviewed or
reported on by the Group's auditors.
Group performance review
The positive momentum from the end of the previous year, with good sales volumes and reasonable price
levels in Europe, continued into the first half of the year. The Group's underlying operating profit of
EUR366 million, a record result for the Group, was 21% above that of the second half of 2012 and 35% above
that of the comparable prior year period. This reflects both the strong operating performance and reasonable
trading environment, particularly in Packaging Paper and the South Africa Division, and the benefit of the
Group's strategic acquisitions completed in the latter part of the previous year. Excluding the impact of the
major strategic acquisitions, underlying operating profit increased by 12% compared to the second half of
2012 and 24% on the comparable prior year period. The period under review also benefited from the absence
of any major mill maintenance shuts.
Compared to the first half of 2012, sales volumes increased across all major paper grades. While European
demand remains generally sluggish, this was compensated by market share gains, and in the case of kraft
paper, strong gains in export markets. A reasonable industry supply/demand dynamic, supported by some
supply side rationalisation, enabled the Group to maintain or increase selling prices in most key paper grades
during the period.
The Group's annual major maintenance shuts will all take place in the second half of the year, the impact of
which, at prevailing profit margins, is estimated to be in the range of EUR50 million to EUR60 million on underlying
operating profit when compared to the first half of the year.
At the underlying earnings per share level, in addition to the strong underlying operating profit, the Group
benefited from a lower effective tax rate and a lower non-controlling interest charge, the latter positively
impacted by the acquisition of the remaining minority interest in Mondi Swiecie in the first half of 2012.
Underlying earnings per share in the six months ended 30 June 2013 was 49.4 euro cents per share, a 60%
increase on the comparable prior year period and 29% better than that achieved in the second half of 2012.
The Group remains strongly cash generative with cash generated from operations of EUR431 million. Working
capital as a percentage of turnover was 13%, reflecting the normal seasonal pick-up in the first half of the year
as well as the changing business mix following the acquisition of Nordenia in the fourth quarter of 2012.
Capital expenditure of EUR167 million represents 89% of the Group's depreciation charge. Good progress is
being made on the major strategic projects, which should see the rate of capital expenditure increase in the
second half as planned.
Net debt of EUR1,844 million at 30 June 2013 decreased from EUR1,872 million at 31 December 2012. The bias of
the Group's financing related outflows towards the first half, coupled with the increase in working capital levels
negatively impacted net debt. This was offset by exchange gains of around EUR41 million from the devaluation of
certain currencies in which the Group's net debt is held, most notably the South African rand and Russian
rouble.
An interim dividend of 9.55 euro cents per share, up 7% on the prior year interim dividend of 8.90 euro cents
per share, has been declared.
Europe & International – Packaging Paper
Six months
Six months Six months ended 31
ended 30 ended 30 June December
EUR million, unless otherwise stated June 2013 2012 2012
Segment revenue 1,043 960 936
– of which inter-segment revenue 267 249 220
EBITDA 195 150 171
Underlying operating profit 148 104 123
Capital expenditure 55 34 55
Net segment assets 1,441 1,373 1,466
ROCE % 20.1 18.5 17.9
Packaging Paper benefited from increased sales volumes and higher average selling prices compared to both
the comparable prior year period, and the previous six months. These positive trading conditions resulted in
an underlying operating profit of EUR148 million, 42% above the comparable prior year period, delivering a very
strong ROCE of 20.1%.
Sales volumes increased for all grades despite a generally soft demand environment in Europe. The business
benefited from market share gains and good demand in export markets for kraft paper. Selling price
increases were achieved across all containerboard grades during the second quarter. In recycled
containerboard, increased competitor capacity in Poland has to date only had a muted effect on markets,
while the recently announced capacity closures in the UK have served to improve market fundamentals.
Nonetheless, industry profitability in the recycled containerboard grades remains unsatisfactory. During July,
the Group announced price increases of EUR50/tonne for recycled containerboard, to take effect from August
2013. In kraft paper, the pricing environment remained stable, with Europe remaining under pressure but
offset by continued good export markets.
Except for paper for recycling costs, which were lower than the comparable prior year period, input costs per
tonne were largely unchanged. Average benchmark paper for recycling costs were 4% higher than the
second half of the previous year. Synergy benefits, in the form of reduced transport and logistics costs from
the acquisition of the corrugated box plants in Germany and the Czech Republic in the latter half of 2012,
were realised during the period. Production and productivity were strong in all mills, with the white-top
kraftliner mill in Syktyvkar showing a notable improvement.
The market price of green energy credits in Poland remained below prevailing levels of the previous year as a
consequence of ongoing uncertainty created by proposed changes to the regulatory environment surrounding
renewable energy in Poland. As previously reported, the carrying value of green energy credits was written
down by EUR11 million in the first quarter of the year. In addition, the benefits from green energy credits in
Poland in the first half of 2013 were more than 50% lower than the comparable prior year period.
Europe & International – Fibre Packaging
Six months
Six months Six months ended 31
ended 30 ended 30 June December
EUR million, unless otherwise stated June 2013 2012 2012
Segment revenue 1,002 946 914
– of which inter-segment revenue 17 19 23
EBITDA 83 80 88
Underlying operating profit 48 47 54
Capital expenditure 35 28 48
Net segment assets 982 916 958
ROCE % 12.0 10.9 12.5
Underlying operating profit of EUR48 million was in line with the comparable prior year period, but below that of
the second half of the previous year as the business was impacted by higher input costs, primarily due to
rising paper prices.
The acquisition of the corrugated box plants in Germany and the Czech Republic in the last quarter of 2012
contributed positively to underlying operating profit in the corrugated business. However, paper input price
increases put pressure on margins, offsetting in large part the gains from the acquisitions.
Industrial bags benefited from good demand from the US and Middle East, offsetting reduced sales volumes
in central and western Europe. Margins were at similar levels to the comparable prior year period, supported
by strong cost reduction initiatives.
Weak demand, particularly for automotive and building applications, and increasing raw material costs,
coupled with increased competitor capacity have impacted on margins in the coatings business.
Europe & International – Consumer Packaging
Six months
Six months Six months ended 31
ended 30 ended 30 June December
EUR million, unless otherwise stated June 2013 2012 2012
Segment revenue 582 150 352
– of which inter-segment revenue 2 1 3
EBITDA 66 15 30
Underlying operating profit 39 10 9
Capital expenditure 24 7 21
Net segment assets 875 145 872
ROCE % – adjusted* 10.1 14.6 10.8
* Adjusted to exclude EUR14 million of one-off costs in the second half of 2012 relating to the acquisition of Nordenia.
Consumer Packaging generated underlying operating profit of EUR39 million with an adjusted ROCE of 10.1%.
The significant increase in underlying operating profit versus both the comparable prior year period and the
second half of the previous year is due to the acquisition of Nordenia, completed on 1 October 2012. The
comparability of the results for the second half of 2012 were further impacted by one-off effects associated
with the acquisition of EUR14 million. On a pro-forma basis, assuming Nordenia was acquired at the beginning of
2012, and excluding the effects of acquisition accounting, the underlying operating profit of the combined
business increased by around 11% versus the comparable prior year period.
Sales volumes were marginally down on the comparable prior year period, driven by weakness in the films
business. This was more than compensated by the delivery of net synergy gains and other cost reduction
initiatives.
Integration activities remain well on track, with delivery of synergies in line with expectations. The previously
announced closure of the Lindlar operation in Germany and resulting transfer of production to plants in
Germany, Hungary and the Czech Republic is progressing according to plan.
Europe & International – Uncoated Fine Paper
Six months
Six months Six months ended 31
ended 30 ended 30 June December
EUR million, unless otherwise stated June 2013 2012 2012
Segment revenue 740 749 717
– of which inter-segment revenue 8 8 5
EBITDA 157 154 146
Underlying operating profit 102 100 91
Capital expenditure 36 24 34
Net segment assets 1,176 1,270 1,248
ROCE % 17.4 15.7 16.7
Uncoated Fine Paper generated underlying operating profit of EUR102 million, marginally above the comparable
prior year period. Sales volumes were slightly above that of the comparable prior year period, mainly due to
the timing of the annual maintenance shut in Syktyvkar which took place in June of the previous year and will
take place in the third quarter of 2013. Average net selling prices were lower than the comparable prior year
period and the second half of the previous year. The stronger Russian rouble in the early part of the year
resulted in increased competition from importers, impacting margins in that region. This was partly
compensated by further cost reduction initiatives.
Sales volumes into western Europe continue to be affected by the structural decline in those markets whilst
central and eastern Europe remain largely unchanged. Sales volumes into Russia and overseas markets
increased. To date there has been little market impact from the new capacity coming on stream from
competitors in Russia and France.
In May 2013, Mondi announced plans to restructure the non-integrated Neusiedler operation to improve the
competitiveness of the mill. Negotiations with employee unions are currently in progress. An impairment
charge of EUR42 million and related restructuring costs of EUR8 million were recognised as a special item in the
period.
Input costs remain well controlled. Unit wood costs at both the Syktyvkar and Ruzomberok mills decreased,
with the benefits from improved forestry management practices at Syktyvkar offsetting inflationary cost
pressures. Higher pulp prices negatively impacted margins at the non-integrated Neusiedler mill. Fixed cost
increases continue to be well controlled with increases below inflation.
South Africa Division
Six months
Six months Six months ended 31
ended 30 ended 30 June December
June 2013 2012 2012
EUR million, unless otherwise stated (restated) (restated)
Segment revenue 325 348 354
– of which inter-segment revenue 56 57 51
EBITDA 67 56 69
Underlying operating profit 44 29 40
Capital expenditure 14 17 26
Net segment assets 687 903 821
ROCE % 12.8 9.1 9.6
Comparative information has been restated with Mondi Shanduka Newsprint now consolidated as a subsidiary for all periods presented.
South Africa Division delivered a strong performance, with underlying operating profit of EUR44 million, a 52%
increase on the comparable prior year period, and ROCE of 12.8%. This reflects the impact of higher
domestic selling prices, good domestic containerboard volume growth, and improved export margins due to
the weaker South African rand coupled with higher average export pulp and containerboard prices.
South Africa Division continues to focus on cost containment, in particular on reducing forestry costs through
increased mechanisation in the current year.
Comparison with the previous six months is distorted by a large fair value gain on the revaluation of forestry
assets of EUR27 million recognised in the six months to end 2012. The comparable amount for the first half of
2013 was EUR10 million.
In May 2013, Mondi announced the proposed closure of one of the two newsprint machines located in
Merebank. The machine stopped production with effect from 1 July 2013. The business will continue to
operate the remaining 120,000 tonne per annum newsprint machine. Further restructuring activities in the
Merebank mill as a result of the closure of the newsprint machine were also implemented. In total, a special
item charge of EUR18 million was recognised.
Financial review
Input costs
Wood costs were, on average, lower than the comparable prior period and reflect a steady downward trend
over the last three half-year periods.
Average benchmark hardwood pulp prices increased by 7% from the comparable prior year period and by 1%
over the second half of 2012, largely as a consequence of price increases in the second quarter. Softwood
pulp prices increased by 3% over the second half of 2012, but remained 1% below the average in the
comparable prior year period.
Average benchmark paper for recycling prices were 15% lower than the comparable prior year period but 4%
higher than the prices of the second half of 2012.
The average benchmark low density polyethylene price, an indicator of the key raw material input cost in
Consumer Packaging, was at similar levels to the comparable prior year period and 1% above that of the
second half of 2012. Average prices decreased by approximately 6% in the second quarter from the levels
experienced at the beginning of the year.
Currencies
With the exception of the South African rand, the currencies in which the Group operates continue to trade
within a relatively narrow range and the impact on underlying operating profit remains muted. The South
African rand weakened by a further 12% against the euro from the average rate in the second half of the prior
year and has weakened by more than 25% from levels at June 2012. This devaluation provided a net benefit
to the Group due to South Africa Division's large export position (accounting for approximately 40% of sales)
and predominantly rand-denominated cost base.
Non-controlling interests
The reduction in earnings attributable to non-controlling interests is largely as a result of the acquisition of the
remaining minority interest in Mondi Swiecie in the second quarter of 2012, offset in part by higher net
earnings at the 51% owned Ruzomberok mill.
Tax
The Group's underlying effective tax rate of 18% is lower than the comparable prior year period primarily due
to a favourable underlying profit mix as well as the continued benefit of investment incentives in eastern
Europe, principally in Poland.
Special items
The net special item charge of EUR81 million before tax, the cash component of which amounts to EUR26 million, is
attributable to:
- the closure of Consumer Packaging's Lindlar operation in Germany (EUR13 million);
- the closure of the newsprint machine in Merebank, South Africa and related restructuring activities;
(EUR18 million), and
- impairment of Uncoated Fine Paper's Neusiedler mill and related restructuring costs (EUR50 million).
Cash flow
Cash generated from operations of EUR431 million, including the impact of the increase in working capital of
EUR129 million, reflects the continued strong cash generating capacity of the Group.
Net cash outflows from financing activities of EUR178 million include the payment of dividends to holders of non-
controlling interests, the payment of the final 2012 dividend in May 2013 and payment of the 5.75% coupon on
the EUR500 million Eurobond, reflecting the bias of financing activities towards the first half of the year.
Capital expenditure
Capital expenditure for the period amounted to EUR167 million, 89% of depreciation.
The energy investments in the Group's Frantschach, Richards Bay and Stambolijski mills are progressing in
line with expectations and are expected to be completed towards the end of the second half of the year.
These projects will significantly improve the energy efficiency and self-sufficiency at those mills. Good
progress is being made on the other major projects announced earlier in the year, with the bleached kraft
paper machine in Steti expected to start up in the first half of 2014 and the recovery boiler in Ruzomberok in
the latter part of 2014.
The Group's capital expenditure is expected to remain around the previously envisaged range of
approximately 125% of depreciation on average over the 2013/2014 period, with 2014 being the peak spend
year.
Treasury and borrowings
Net debt at 30 June 2013 was EUR1,844 million, a decrease of EUR28 million from 31 December 2012. The net
debt to 12 month trailing EBITDA ratio was 1.8 times and gearing at 30 June 2013 was 40%.
At the end of June 2013, the EUR100 million European Investment Bank facility put in place in December 2011
was fully drawn down. The amortising loan matures in 2025 and incurs interest based on Euribor. The South
African bilateral facilities that matured in the first half of 2013 have been extended for an additional year on
similar terms. At 30 June 2013, the Group had EUR2.6 billion of committed facilities of which EUR743 million were
undrawn. The weighted average maturity of the Eurobonds and committed debt facilities was 4.0 years at 30
June 2013.
The Group's long-term investment grade credit ratings of Baa3 (Moody's Investor Services) and BBB-
(Standard and Poor's) were reaffirmed during the period.
Finance charges of EUR57 million were similar to those of the comparable prior year notwithstanding the
significant increase in average net debt from the levels at 30 June 2012. The lower effective interest rate of
5.5% (first half of 2012: 9.4%) is due to the effect of the EUR500 million Eurobond issued in October 2012 with a
coupon of 3.375% and the unwinding of various fixed rate swaps during 2012.
Dividend
An interim dividend of 9.55 euro cents per share has been declared by the directors and will be paid on 17
September 2013 to those shareholders on the register of Mondi plc on 23 August 2013. An equivalent South
African rand interim dividend will be paid on 17 September 2013 to shareholders on the register of Mondi
Limited on 23 August 2013. The dividend will be paid from distributable reserves of Mondi Limited and of
Mondi plc, as presented in the respective company annual financial statements for the year ended 31
December 2012.
Outlook
New industry capacity in the uncoated fine paper segment, coupled with prevailing demand softness in
Europe, may impact the supply/demand balance in the short term. Furthermore, the second half will be
impacted by the Group's regular annual mill maintenance programmes. However, with the momentum from
the strong first half performance and the expected continuation of a good pricing environment in the packaging
grades, management remains confident of delivering in line with its expectations.
Supplementary information
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 paper for recycling) and resins account 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 (paper for recycling and resins) and, where possible, has 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) at 30 June 2013 was 0.76 (31 December 2012: 0.79). Regrettably, there were two
fatalities at our Syktyvkar operations in the first half of the year.
Environmental footprint
Maintaining the Group's socio-economic licence 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 life cycle 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 were set out in the Corporate
governance report in the integrated report 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 for the year ended 31 December 2012.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position are set out above. The financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the financial statements.
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. 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 EUR743 million of undrawn committed debt facilities as at 30 June 2013 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 Group's strategy and latest financial forecasts, considered the assumptions
in the forecast 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, the going concern basis continues to be
adopted in preparing the half-yearly financial statements.
Directors' responsibility statement
The directors confirm that to the best of their knowledge:
- the condensed set of combined and consolidated financial statements has been prepared in
accordance with International Financial Reporting Standards and in particular with International
Accounting Standard 34, ‘Interim Financial Reporting';
- the half-yearly report includes a fair review of the important events during the six months ended 30
June 2013 and a description of the principal risks and uncertainties for the remaining six months of the
year ending 31 December 2013;
- there have been no significant individual related party transactions during the first six months of the
financial year;
- with effect from 3 May 2013, Cyril Ramaphosa ceased to be a director of Mondi Limited and Mondi
plc. As a result, all transactions with the Shanduka Group Proprietary Limited, in which Mr
Ramaphosa held a 29.6% interest, and its subsidiaries, are no longer classified as related party
transactions from that date; and
- there have been no other significant changes in the Group's related party relationships.
David Hathorn Andrew King
Director Director
7 August 2013
Independent auditor's review report on interim financial information of
Mondi Limited
We have reviewed the accompanying interim financial information of Mondi Limited, comprising the
condensed statement of financial position as of 30 June 2013 and the condensed statement of comprehensive
income, condensed statement of changes in equity, condensed statement of cash flows and selected
explanatory notes for the six months then ended.
Directors' responsibility for the Interim Financial Statements
The directors are responsible for the preparation and presentation of this interim financial information in
accordance with International Financial Reporting Standard (IAS 34),‘Interim Financial Reporting', the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and the requirements of the
Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable
the preparation of interim financial statements that are free from material misstatement, whether due to fraud
or error.
Auditor's responsibility
Our responsibility is to express a conclusion on these interim financial statements based on our review. We
conducted our review in accordance with International Standard on Review Engagements (ISRE) 2410,
‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. This standard
requires us to conclude whether anything has come to our attention that causes us to believe that the interim
financial statements are not prepared in all material respects in accordance with the applicable financial
reporting framework. This standard also requires us to comply with relevant ethical requirements.
A review of interim financial statements in accordance with this standard consists of making inquiries, primarily
of persons responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with International
Standards on Auditing and consequently does not enable the auditor to obtain assurance that the auditor
would become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
We believe that the evidence we have obtained in our review is sufficient and appropriate to provide a basis
for our conclusion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
interim financial information of Mondi Limited for the six months ended 30 June 2013 are not prepared, in all
material respects, in accordance with International Financial Reporting Standards (IAS 34),'Interim Financial
Reporting', the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the
requirements of the Companies Act of South Africa.
Deloitte & Touche
Registered Auditor
Per: Bronwyn Kilpatrick
Partner
7 August 2013
Buildings 1 and 2, Deloitte Place, The Woodlands,
Woodlands Drive, Woodmead, Sandton, Republic of South Africa
National Executive: LL Bam Chief Executive AE Swiegers Chief Operating Officer GM Pinnock Audit DL
Kennedy Risk Advisory NB Kader Tax TP Pillay Consulting K Black Clients & Industries JK Mazzocco
Talent & Transformation CR Beukman Finance M Jordan Strategy S Gwala Special Projects TJ Brown
Chairman of the Board MJ Comber Deputy Chairman of the Board.
A full list of partners and directors is available on request.
B-BBEE rating: Level 2 contributor in terms of the Chartered Accountancy Profession Sector Code
Member of Deloitte Touche Tohmatsu Limited
Independent review report to Mondi plc
We have been engaged by the company to review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2013, which comprises the condensed combined and
consolidated income statement, the condensed combined and consolidated statement of comprehensive
income, the condensed combined and consolidated statement of financial position, the condensed combined
and consolidated statement of cash flows, the condensed combined and consolidated statement of changes in
equity and the related notes 1 to 22. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements
(UK and Ireland) 2410,'Review of Interim Financial Information Performed by the Independent Auditor of the
Entity', issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set
of financial statements included in this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34,‘Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in
the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and
Ireland) 2410,'Review of Interim Financial Information Performed by the Independent Auditor of the Entity',
issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of
financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared,
in all material respects, in accordance with International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
7 August 2013
Condensed combined and consolidated income statement
for the six months ended 30 June 2013
(Restated) (Restated)
(Reviewed) (Reviewed) (Audited)
Six months ended 30 June Six months ended 30 June Year ended 31 December
2013 2012 2012
Before Special After Before Special After Before Special After
special items special special items special special items special
EUR million Notes items (note 6) items items (note 6) items items (note 6) items
Group revenue 4 3,342 - 3,342 2,819 - 2,819 5,790 - 5,790
Materials, energy and consumables
used (1,758) - (1,758) (1,478) - (1,478) (3,024) - (3,024)
Variable selling expenses (282) - (282) (266) - (266) (527) - (527)
Gross margin 1,302 - 1,302 1,075 - 1,075 2,239 - 2,239
Maintenance and other indirect
expenses (122) - (122) (123) - (123) (279) - (279)
Personnel costs (484) (16) (500) (409) - (409) (834) (16) (850)
Other net operating expenses (142) (10) (152) (106) - (106) (199) (10) (209)
Depreciation, amortisation and
impairments (188) (55) (243) (165) - (165) (353) (1) (354)
Operating profit/(loss) 4;5 366 (81) 285 272 - 272 574 (27) 547
Non-operating special items 6 - - - - 6 6 - (64) (64)
Net income/(loss) from associates 1 - 1 (1) - (1) (5) - (5)
Total profit/(loss) from operations
and associates 367 (81) 286 271 6 277 569 (91) 478
Net finance costs (57) - (57) (55) - (55) (110) - (110)
Investment income 2 - 2 - - - 4 - 4
Foreign currency losses (1) - (1) (3) - (3) (2) - (2)
Finance costs 7 (58) - (58) (52) - (52) (112) - (112)
Profit/(loss) before tax 310 (81) 229 216 6 222 459 (91) 368
Tax (charge)/credit 8 (56) 13 (43) (43) (2) (45) (90) (1) (91)
Profit/(loss) for the financial
period 254 (68) 186 173 4 177 369 (92) 277
Attributable to:
Non-controlling interests 15 24 35
Equity holders of the parent
companies 171 153 242
Earnings per share (EPS) for
profit attributable to equity
holders of the parent companies
Basic EPS (EUR cents) 9 35.3 31.7 50.1
Diluted EPS (EUR cents) 9 35.3 31.6 49.9
Basic underlying EPS (EUR cents) 9 49.4 30.9 69.2
Diluted underlying EPS (EUR cents) 9 49.3 30.8 68.9
Basic headline EPS (EUR cents) 9 45.7 30.9 62.9
Diluted headline EPS (EUR cents) 9 45.6 30.8 62.7
Condensed combined and consolidated statement of comprehensive income
for the six months ended 30 June 2013
(Restated) (Restated)
(Reviewed) (Reviewed) (Audited)
Six months Six months Year ended 31
ended 30 June ended 30 June December
EUR million 2013 2012 2012
Profit for the financial period 186 177 277
Other comprehensive (expense)/income:
Items that may subsequently be reclassified to the combined and consolidated
income statement:
Effect of cash flow hedges - 3 2
Gains on available-for-sale investments - - 1
Exchange differences on translation of foreign operations (145) 48 49
Share of other comprehensive income of associates (1) - -
Tax effect thereof - - -
Items that will not subsequently be reclassified to the combined and consolidated
income statement
Remeasurement of post-retirement benefit schemes 18 (35) (61)
Effect of asset ceiling on post-retirement benefit schemes (1) 24 28
Tax effect thereof (4) - 8
Other comprehensive (expense)/income for the financial period, net of tax (133) 40 27
Total comprehensive income for the financial period 53 217 304
Attributable to:
Non-controlling interests 9 35 42
Equity holders of the parent companies 44 182 262
Condensed combined and consolidated statement of financial position
as at 30 June 2013
(Restated) (Restated)
(Reviewed) (Reviewed) (Audited)
As at 30 June As at 30 June As at 31
EUR million Notes 2013 2012 December 2012
Intangible assets 684 243 695
Property, plant and equipment 3,446 3,431 3,709
Forestry assets
