| Thu 7 Aug 2014, 9:56 | | Mondi Ltd Half-yearly results June 2014 |
|
MNP MND 201408070007A
Half-yearly results for the six months ended 30 June 2014
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
7 August 2014
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 Limited 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 2014
Highlights
- Steady improvement in all key financial metrics
- Underlying operating profit of EUR377 million, up 3%
- Underlying earnings of 51.9 euro cents per share, up 5%
- Cash generated from operations of EUR439 million, up 2%
- ROCE of 16%, well in excess of through-the-cycle hurdle rate of 13%
- Acquisition of Graphic Packaging's bags and kraft paper operations consolidates global market leadership
position in Industrial Bags
- Capital projects
- Recently completed projects delivering on expectation
- Ongoing major projects on time, within budget
- Interim dividend of 13.23 euro cents per share, up 39%
Financial summary
Six months
Six months Six months ended 31
ended 30 ended 30 June December
EUR million, except for percentages and per share measures June 2014 2013 2013
Group revenue 3,148 3,342 3,134
Underlying EBITDA (1) 553 554 514
Underlying operating profit (1) 377 366 333
Underlying profit before tax (1) 328 310 276
Operating profit 374 285 320
Profit before tax 312 229 270
Per share measures
Basic underlying earnings per share (EUR cents) 51.9 49.4 45.6
Basic earnings per share (EUR cents) 48.6 35.3 44.5
Interim dividend per share (EUR cents) 13.23 9.55
Free cash flow per share (2)(EUR cents) 12.4 14.7
Cash generated from operations 439 431 605
Net debt 1,751 1,844 1,621
Group Return on Capital Employed (ROCE)(3)(%) 16.0 14.8 15.3
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, 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.
David Hathorn, Mondi Group chief executive, said:
"The Mondi Group continues to deliver a strong performance, generating a return on capital employed
of 16%. Strong cost management and contributions from successfully completed strategic capital
investments, together with the benefits from downstream integration in key packaging segments,
enabled the Group to offset the impact of lower prices in a number of paper grades.
We have continued to invest in the business for future growth. Highlights for the period included the
successful commissioning of the 155,000 tonne bleached kraft paper machine at the Steti mill in the
Czech Republic and the acquisition of Graphic Packaging's bags operations and kraft paper mill in the
United States. Together with the Group's ongoing capital expenditure programme, including
significant projects at our Ruzomberok, Swiecie and Syktyvkar operations, we are confident that these
investments will deliver strongly into the future.
In the near term, anticipated price increases in some of our packaging paper grades should provide
positive momentum. As in prior years, the second half of the year will be impacted by the planned
annual mill maintenance shuts.
Market fundamentals remain sound, which, coupled with a continued economic recovery, should
prove positive for further growth in the packaging businesses.
Overall, we remain confident that Mondi will continue to deliver an industry leading performance."
Contact details
Mondi Group
David Hathorn +27 11 994 5418
Andrew King +27 11 994 5415
Lora Rossler +27 83 627 0292
FTI Consulting
Richard Mountain +44 20 3727 1374
Sophie McMillan +44 20 3727 1359
Bheki Mpofu +27 83 552 2109
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/HYResults14.
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 7 August
2014.
Editors' notes
Mondi is an international packaging and paper Group, employing around 26,000 people in production facilities
across 31 countries. In 2013, Mondi had revenues of EUR6.5 billion and a ROCE of 15.3%. The Group's key
operations are located in central Europe, Russia, the Americas and South Africa.
The Mondi Group is fully integrated across the packaging and paper value chain - from the management of its
own forests 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 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's performance, and the responsible approach it takes to good business practice, has
been recognised by its inclusion in the FTSE4Good Global, European and UK Index Series (since 2008) and
the JSE's Socially Responsible Investment (SRI) Index since 2007.
Forward-looking statements
This document includes forward-looking statements. All statements other than statements of historical facts
included herein, including, without limitation, those regarding Mondi's financial position, business strategy,
market growth and developments, expectations of growth and profitability and plans and objectives of
management for future operations, are forward-looking statements. Forward-looking statements are
sometimes identified by the use of forward-looking terminology such as "believe", "expects", "may", "will",
"could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "continues", "assumes",
"positioned" or "anticipates" or the negative thereof, other variations thereon or comparable terminology. 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 and other statements contained in this document regarding
matters that are not historical facts involve predictions and are based on numerous assumptions regarding
Mondi's present and future business strategies and the environment in which Mondi will operate in the future.
These forward-looking statements speak only as of the date on which they are made.
No assurance can be given that such future results will be achieved; various factors could cause actual future
results, performance or events to differ materially from those described in these statements. Such factors
include in particular but without any limitation: (1) operating factors, such as continued success of
manufacturing activities and the achievement of efficiencies therein, continued success of product
development plans and targets, changes in the degree of protection created by Mondi's patents and other
intellectual property rights and the availability of capital on acceptable terms; (2) industry conditions, such as
strength of product demand, intensity of competition, prevailing and future global market prices for Mondi's
products and raw materials and the pricing pressures thereto, financial condition of the customers, suppliers
and the competitors of Mondi and potential introduction of competing products and technologies by
competitors; and (3) general economic conditions, such as rates of economic growth in Mondi's principal
geographical markets or fluctuations of exchange rates and interest rates.
Mondi expressly disclaims a) any warranty or liability as to accuracy or completeness of the information
provided herein; and b) any obligation or undertaking to review or confirm analysts' expectations or estimates
or to update any forward-looking statements to reflect any change in Mondi's expectations or any events that
occur or circumstances that arise after the date of making any forward-looking statements, unless required to
do so by applicable law or any regulatory body applicable to Mondi, including the JSE Limited and the LSE.
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 Group's underlying operating profit of EUR377 million was 3% above that of the first half of the previous
year and 13% above the second half of 2013. This reflects a strong performance from Packaging Paper,
Fibre Packaging and the South Africa Division, offset in part by weaker results from Uncoated Fine Paper and
Consumer Packaging.
On a like-for-like basis, excluding currency movements and disposal effects, revenue was in line with the
comparable prior year period.
Sales volumes in most of the Group's key paper grades remained largely unchanged from the levels of the
previous year, reflecting the continued slow economic recovery in Europe.
As anticipated, except for recycled containerboard, average benchmark selling prices across the Group's key
paper grades were lower than those of the previous year. Average benchmark recycled containerboard prices
were 10% above those of the first half of 2013 and 2% above the levels of the second half of 2013. Certain of
the downstream packaging businesses, most notably Corrugated Packaging and Consumer Packaging, saw
an increase in average price levels on the back of higher input costs.
Wood costs were higher in most European operations, while in Russia the weaker rouble offset higher
domestic wood costs. Average paper for recycling costs were similar to the comparable prior year period
although some reduction in benchmark prices was observed in the second quarter, with prices at the end of
the quarter 5% lower than the average for the half-year. The Group benefited from lower energy costs in the
period as a consequence of the effects of both the recently commissioned energy related capital expenditure
projects and a reduction in European natural gas prices.
Annual maintenance shuts took place at the Group's Swiecie mill in Poland and Richards Bay mill in South
Africa during June 2014. The balance of the annual maintenance shuts are scheduled for the second half of
the year. Consistent with the previous year, and based on prevailing market prices, the impact on underlying
operating profit of the Group's maintenance shuts is estimated at around EUR50 million to EUR60 million, of
which the first half effect was around EUR10 million.
The South Africa Division benefited from the weakening of the rand against both the euro and the US dollar
during the period. The Fibre Packaging and Uncoated Fine Paper business units were negatively impacted by
the weakening of the US dollar, Turkish lira and Russian rouble against the euro. The remaining currencies in
which the Group operates continued to trade in a relatively narrow band. The net effect of currency
movements only had a marginal impact on the Group's underlying operating profit when compared to the first
half of the prior year.
The Group continues to monitor the political developments in Russia and the Ukraine. To date there has been
no material impact on the Group's operations.
Underlying earnings per share increased by 5% over the comparable prior year period to 51.9 euro cents per
share, with lower net finance charges offset in part by an increase in the effective tax rate from 18% in the
prior year to 19% in the first half of 2014.
The Group remains strongly cash generative with cash generated from operations of EUR439 million similar to
that of the comparable prior year period. Working capital at 30 June 2014 was 13% of revenue (excluding the
working capital attributable to the recently acquired Graphic Packaging operations), consistent with 30 June
2013 but up on the December 2013 ratio of 11%, reflecting the normal seasonal uptick in the first half of the
year.
On 30 June 2014, Mondi acquired the bags and kraft paper business of Graphic Packaging for a total
consideration of USD105 million (EUR76 million) on a debt and cash-free basis. The business is a leading
player in the production and distribution of kraft paper and bags in the United States. The production base
comprises an integrated kraft paper mill located in Pine Bluff, Arkansas, with production capacity of 135,000
tonnes per annum, and nine bags plants across the US. The combination of these operations with Mondi's
creates a leading player in the North American bags market and further expands the Group's growing global
footprint in this market.
During the period, EUR249 million was incurred on capital expenditure. A number of the previously
announced strategic projects have been completed and are contributing positively to the Group's
performance. The remaining large projects remain on schedule and on budget.
On 10 June 2014, Mondi announced its intention to redeem the 9.75% EUR280 million Eurobond which was
assumed as part of the acquisition of Nordenia in October 2012. The notes were redeemed on 15 July 2014
at a premium of EUR14 million, utilising proceeds from the Group's existing borrowing facilities.
Net debt of EUR1,751 million at 30 June 2014 increased by EUR130 million from 31 December 2013. This
reflects the ramp-up of capital expenditure on major capital projects, the impact of the Graphic Packaging
acquisition, seasonally higher working capital levels at 30 June 2014 and the bias of the Group's financing
outflows towards the first half of the year. In the absence of further strategic acquisitions, strong de-
leveraging in the second half is anticipated.
An interim dividend of 13.23 euro cents per share, up 39% on the prior year interim dividend of 9.55 euro
cents per share, has been declared.
Europe & International – Packaging Paper
Six months
Six months Six months ended 31
ended 30 ended 30 December
EUR million, unless otherwise stated June 2014 June 2013 2013
Segment revenue 982 1,043 957
Underlying EBITDA 209 195 199
Underlying operating profit 162 148 150
% margin 16.5% 14.2% 15.7%
Capital expenditure 115 55 84
Operating net segment assets 1,558 1,441 1,484
ROCE 22.6% 20.1% 21.9%
Underlying operating profit of EUR162 million was 9% above that of the comparable prior year period despite
lower average virgin containerboard and kraft paper prices. The business benefited from higher green energy
revenues, higher average recycled containerboard prices, lower energy costs and generally strong cost
control.
European containerboard demand is estimated to be up around 2% year on year, reflecting the modest
economic growth seen across Europe. This demand growth has been balanced by new capacity in the
recycled grades. Demand for sack kraft paper remains strong in both European and export markets, with
growth in Europe supported by the mild winter.
Sales prices for virgin containerboard grades came under pressure in the early part of the year before
stabilising in the second quarter. Average benchmark selling prices for the period under review were 5%
lower than the comparable prior year period.
Average benchmark selling prices for recycled containerboard were 10% higher than the comparable prior
year period, benefiting from the implementation of price increases in the second half of the prior year. Prices
came under some pressure in the second quarter due to increased supply from newly installed capacity.
Given good demand and low inventory levels, price increases of EUR60/tonne for recycled containerboard
and EUR40/tonne for unbleached kraftliner and semi-chemical fluting have been announced in Europe with
effect from August and September 2014, respectively.
As anticipated, in kraft paper average selling prices were around 5% down on the comparable prior year
period and 4% down on the second half of 2013. On the back of a strong pick-up in demand, selling price
increases for unbleached sack kraft paper are currently being implemented.
In the first half of 2013, the carrying value of the Group's green energy credits was written down by
EUR11 million. Green energy prices in Poland have since recovered somewhat, although the uncertainties in
the regulatory environment surrounding green energy in Poland remain.
The annual maintenance shut at the Swiecie mill took place at the end of June 2014 and was completed in the
early part of July. The remaining annual maintenance shuts are scheduled for the second half of the year.
Europe & International – Fibre Packaging
Six months
Six months Six months ended 31
ended 30 ended 30 December
EUR million, unless otherwise stated June 2014 June 2013 2013
Segment revenue 1,003 1,002 965
Underlying EBITDA 88 83 80
Underlying operating profit 53 48 45
% margin 5.3% 4.8% 4.7%
Capital expenditure 34 35 43
Operating net segment assets 942 982 903
ROCE 11.6% 12.0% 10.8%
Operating profit increased by 10% to EUR53 million with a positive year-on-year contribution from all business
segments, reflecting generally higher volumes, higher selling prices in the Corrugated Packaging segment,
and lower input costs in Industrial Bags and Coatings, partially offset by foreign exchange losses.
Corrugated Packaging's results improved through volume growth, selling price increases and improved
margins. The segment achieved good volume growth in central Europe, particularly in Poland and the Czech
Republic, while volumes in Turkey were impacted by the decision to rationalise production capacity in the prior
year. The business was negatively impacted by currency translation losses in its Turkish business due to the
sharp devaluation of the Turkish lira.
Industrial Bags had a very positive start to the year, with strong order books and a significant increase in sales
volumes versus the comparable prior year period, particularly in the building segment. As anticipated,
average selling prices were down on the comparable prior year period due to the pass through of the
reduction in paper prices seen towards the end of the previous year. In line with the acquisition business plan,
the US industrial bags plants acquired at the end of June are not expected to contribute significantly to
underlying operating profit this year. However, as the synergies from the combination are realised and the
Group's expertise as the global market leader in this segment is applied, it is expected that the investment will
make a solid contribution in the future.
The Coatings business benefited from lower input costs and a reduction in fixed costs. Sales volumes
increased in some of the high value-add products, more than offset by declines in the industrial sector.
Europe & International – Consumer Packaging
Six months
Six months Six months ended 31
ended 30 ended 30 December
EUR million, unless otherwise stated June 2014 June 2013 2013
Segment revenue 550 582 571
Underlying EBITDA 60 66 63
Underlying operating profit 34 39 35
% margin 6.2% 6.7% 6.1%
Capital expenditure 32 24 32
Operating net segment assets 870 875 855
ROCE 8.5% 7.8% 9.1%
Operating profit of EUR34 million was 13% below that of the comparable prior year period, largely due to
volume declines in the mature markets of Europe and North America. Constant currency revenue reduced by
4.8%. While steps have been taken to pro-actively phase out lower value-added mature products, these
volumes are not currently being adequately replaced by sales into higher value-added segments due to the
ongoing weak trading conditions.
The business continues to enjoy good growth in the higher growth central and eastern European markets. On
31 July, the acquisition of a consumer packaging plant in Poland from Printpack Inc, for USD23 million
(EUR17 million) on a cash and debt free basis, was completed, adding to the Group's production capacity in
that region.
The structural growth drivers remain in place and steps are being implemented to address the current
challenges faced by the business. However, in the short term, performance is not expected to improve
significantly given the ongoing difficult trading environment.
Europe & International – Uncoated Fine Paper
Six months
Six months Six months ended 31
ended 30 ended 30 December
EUR million, unless otherwise stated June 2014 June 2013 2013
Segment revenue 674 740 648
Underlying EBITDA 133 157 120
Underlying operating profit 85 102 70
% margin 12.6% 13.8% 10.8%
Capital expenditure 59 36 44
Operating net segment assets 1,157 1,176 1,135
ROCE 15.8% 17.4% 16.2%
Uncoated Fine Paper generated underlying operating profit of EUR85 million, down on the comparable prior
year period as a result of lower selling prices in Europe and the weaker Russian rouble, partly offset by good
cost control and operational improvements, notably at the restructured Neusiedler mill in Austria.
Average European benchmark selling prices were 3% lower than the comparable prior year period and 1%
lower than the second half of 2013. Price increases were implemented in Russia in the first quarter on the
back of the weaker rouble with further increases announced for the second half of the year in certain grades.
Sales volumes were lower than the comparable prior year period following the restructuring in Austria,
although industry demand across Europe was modestly up. Demand in Russia remained stable.
In line with the previous year, the second half will be impacted by annual maintenance shuts at all key
facilities.
South Africa Division
Six months
Six months Six months ended 31
ended 30 ended 30 December
EUR million, unless otherwise stated June 2014 June 2013 2013
Segment revenue 284 325 299
Underlying EBITDA 78 67 68
Underlying operating profit 58 44 49
% margin 20.4% 13.5% 16.4%
Capital expenditure 9 14 38
Operating net segment assets 608 687 622
ROCE 20.5% 12.8% 16.0%
The South Africa Division continued to perform well and benefited from a weaker South African rand and fair
value gains on its forestry assets, delivering operating profit of EUR58 million, 32% above the comparable
prior year period.
The maintenance shut in Richards Bay was brought forward to June, compared to October in the previous
year, resulting in lower sales volumes of pulp and white-top containerboard versus the comparable prior year
period. Sales volumes for uncoated fine paper were in line with the prior year.
Average domestic selling prices were above both the comparable prior year period and the second half of the
previous year across all product grades. Export selling prices for white-top containerboard were unchanged,
while export prices for hardwood pulp declined, with international US dollar benchmark hardwood pulp prices
5% lower than the comparable prior year period.
Higher domestic input costs, impacted by inflationary increases and the weaker rand, were partially offset by
the sale of energy from the new steam turbine in Richards Bay, commissioned at the end of 2013.
Wood prices increased during the period, with the Division recognising a EUR20 million fair value gain in
respect of its forestry assets, EUR10 million higher than the gain recognised in the comparable prior year
period.
Financial review
Tax
The Group's underlying effective tax rate of 19% is 1% higher than the comparable prior year period, reflecting
a small shift in the underlying profit mix and a reduction in the benefit from investment related incentives.
Special items
The net special item charge of EUR16 million before tax is attributable to:
- EUR7 million charge for restructuring activities in the Group's Coatings business;
- EUR4 million gain in respect of the release of a provision for transaction costs attributable to the
Nordenia acquisition; and
- EUR13 million net charge on early redemption of the EUR280 million Eurobond.
Cash flow
Cash generated from operations of EUR439 million, including the impact of the seasonal increase in working
capital of EUR106 million, reflects the continued strong cash generating capacity of the Group.
Net cash outflows from financing activities of EUR165 million include the payment of dividends to holders of
non-controlling interests, the payment of the final 2013 dividend in May 2014 and payment of the 5.75%
coupon on the EUR500 million 2017 Eurobond.
Capital expenditure
Capital expenditure for the period amounted to EUR249 million.
The Group's significant energy related investments completed in the second half of 2013 are all operating
according to schedule.
In April 2014, the 155,000 tonne bleached kraft paper machine at the Steti mill in the Czech Republic was
successfully started up and production is being ramped up according to schedule.
The EUR128 million recovery boiler project in Ruzomberok and EUR30 million pulp dryer project in Syktyvkar
are expected to be commissioned towards the end of the third quarter, while the EUR166 million Swiecie
recovery boiler project remains on schedule for completion towards the end of 2015. The Group has
committed a further EUR60 million capital expenditure to its Kraft Paper and Corrugated Packaging business
units, bringing forward some planned future expenditure in order to further improve its competitive position in
these markets and take advantage of growth opportunities. All projects are running on schedule and on
budget.
The impact of the accelerated capital expenditure programmes in Kraft Paper and Corrugated Packaging,
together with the capital expenditure related to the newly acquired Graphic Packaging assets in the United
States, gives rise to a modest increase in the capital expenditure targets for the 2014/2015 period from around
EUR500 million per year as previously indicated, to around EUR550 million per year, in the absence of any
further major strategic capital investments.
Treasury and borrowings
Net debt at 30 June 2014 was EUR1,751 million, an increase of EUR130 million from 31 December 2013.
The net debt to 12 month trailing EBITDA ratio was 1.6 times and gearing at 30 June 2014 was 38%.
On 10 June 2014, Mondi announced the redemption of the EUR280 million Eurobond which was assumed as
part of the acquisition of Nordenia in October 2012. The notes were redeemed on 15 July 2014 at a premium
of EUR14 million, funded from the Group's existing borrowing facilities. The net charge on redemption of
EUR13 million was recognised as a special item at 30 June 2014.
On 14 July 2014, Mondi announced that it had extended the maturity of its EUR750 million revolving credit
facility from 2016 to 2019.
At 30 June 2014, the Group had EUR2.5 billion of committed facilities of which EUR745 million were undrawn.
Following the subsequent redemption of the Nordenia bond and extension of the Group's revolving credit facility, the
weighted average maturity of the Eurobonds and committed debt facilities is approximately 4.3 years.
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. Standard and Poor's has put their rating on a
positive outlook.
Finance charges of EUR50 million were below those of the comparable prior year period, reflecting the lower
average net debt for the period. The effective interest rate of 5.5% was unchanged from the comparable prior
year period.
Dividend
An interim dividend of 13.23 euro cents per share has been declared by the directors and will be paid on
16 September 2014 to those shareholders on the register of Mondi plc on 22 August 2014. An equivalent
South African rand interim dividend will be paid on 16 September 2014 to shareholders on the register of
Mondi Limited on 22 August 2014. 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 2013.
Outlook
In the near term, anticipated price increases in some of the Group's packaging paper grades should provide
positive momentum. As in prior years, the second half of the year will be impacted by the planned annual mill
maintenance shuts.
Market fundamentals remain sound, which, coupled with a continued economic recovery, should prove
positive for further growth in the packaging businesses.
Overall, management remains confident that Mondi will continue to deliver an industry leading performance.
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.
The executive committee, mandated by the Boards, has established a Group-wide system of internal control
to manage Group risks. The Group-wide system, which complies with corporate governance codes in South
Africa and the UK, supports the Boards in discharging their responsibility for ensuring that the wide range of
risks associated with Mondi's diverse international operations is effectively managed.
Continuous monitoring of risk and control processes across all key risk areas provides the basis for regular
reports to management, the executive committee and the Boards. On an annual basis, the executive
committee, the audit committee and the Boards conduct a formal systematic review of the Group's most
significant risks and uncertainties and the monitoring of and response to those risks. These risks are
assessed against pre-determined risk tolerance limits, established by the Boards, taking both the likelihood
and severity of the risk factors into consideration.
The 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 directors are satisfied that the Group has effective systems and controls in place to manage its key risks
within the risk tolerance levels established by the Boards. There have been no significant changes in the
Group's risk profile since the year end.
Competitive environment in which Mondi operates
The industry in which Mondi operates is highly competitive and selling prices are subject to significant
volatility. New capacity additions are usually in large increments which, combined with product substitution
towards lighter weight products, electronic substitution, alternative packaging solutions and increasing
environmental considerations, have a significant impact on the supply-demand balance and hence on market
prices.
The Group monitors industry developments in terms of changes in capacity as well as trends and
developments in its product markets and potential substitutes. Mondi's strategic focus on low-cost production
in growing markets with consistent investment in its operating capacity ensures that the Group remains
competitive. Mondi invests in research and development activities to improve existing processes and to
identify new markets and new products.
The locations in which the Group operates
The Group operates in a number of geographical locations in countries with differing levels of political,
economic and legal systems.
The Group continues to actively monitor and adapt to changes in the environments in which it operates.
Management engages in regular formal and informal interaction with the authorities to ensure they remain
abreast of new developments. Thorough country risk assessments are conducted and return requirements
adjusted to take country risk into consideration.
The Group's geographical diversity and decentralised management structure, utilising local resources in
countries in which it operates, reduces exposure to any specific jurisdiction. The Boards have established
limits on exposure to any particular geographic environment and new investments are subject to rigorous
strategic and commercial evaluation.
Mondi has around 15% of its capital employed in Russia and a limited presence in the Ukraine. The US, the
European Union and a number of other countries have recently imposed economic sanctions and certain
other measures on persons and corporate entities in Russia and the Ukraine. Possible additional sanctions
and/or other measures on Russia could have a material adverse effect on Mondi's business, financial
condition and/or results of operations. To date the measures imposed have had no material impact on the
Group's operations.
Capital intensive operations
Mondi operates large facilities, often in remote locations. The ongoing safety and sustainable operation of all
its facilities is critical to the success of the Group.
The management systems in place ensure 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.
Cost and availability of a sustainable supply of fibre
Paper for recycling and wood account for approximately one third of 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.
International market prices are constantly monitored and, where appropriate, cost pass through mechanisms
are in place with customers.
The Group maintains strong forestry management teams in Russia and South Africa to actively monitor
environmental influences impacting its owned sources of fibre. Mondi's relatively high levels of integration and
access to own FSCTM certified wood in Russia and South Africa serve to mitigate this risk. All the Group's
mills have chain-of-custody certificates in place ensuring that wood procured is from non-controversial
sources.
Cost of energy and related input costs
Energy and related input costs comprise approximately a third of the Group's variable costs. Increasing
energy costs, and the consequential impact thereof on both chemical and transport costs, may impact profit
margins.
Energy usage levels, emission levels and usage of renewable energy are monitored and energy costs are
benchmarked against external sources. The Group continues to invest in energy infrastructure at its key
operating facilities in order to improve energy efficiency and electricity self-sufficiency as well as to reduce its
environmental footprint.
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.
The Group monitors its staff turnover levels, diversity and training activities and conducts regular employee
surveys. 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
The Group's employees work in potentially dangerous environments where hazards are ever-present and
must be managed.
The Group engages in extensive safety communication sessions, involving employees and contractors, at all
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 all safety and health programmes. All business units and operations are
required to have safety improvement plans in place.
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 operates a comprehensive training and compliance programme, supported by regular self-
certification and reporting as well as its confidential reporting hotline for all stakeholders, Speakout.
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.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position, the most significant risks and the Group's related management and mitigating actions are set out
above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the condensed 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 continued investment in its operations, 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 EUR745 million of undrawn committed debt facilities as at 30 June 2014 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, 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 most recent forecast for 2014 and subsequent
years, considered the assumptions contained therein and reviewed the critical risks which may impact the
Group's performance. After making such enquiries, the directors are satisfied that the Group remains solvent
and has adequate liquidity in order to meet its obligations and continue in operational existence for the
foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing this
report.
Related parties
As set out in the condensed combined and consolidated financial statements for the six months ended
30 June 2014, there have been no significant individual related party transactions during the first six months of
the financial year and there have been no significant changes to the Group's related party relationships as
disclosed in note 36 of the Group's annual financial statements for the year ended 31 December 2013.
Directors' responsibility statement
The directors confirm that to the best of their knowledge:
- the condensed combined and consolidated financial statements have 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 significant events during the six months ended
30 June 2014 and a description of the principal risks and uncertainties for the remaining six months of
the year ending 31 December 2014;
- there have been no significant individual related party transactions during the first six months of the
financial year; and
- there have been no significant changes in the Group's related party relationships.
David Hathorn Andrew King
Director Director
6 August 2014
Independent auditor's review report on interim financial information to
the shareholders of Mondi Limited
We have reviewed the condensed combined and consolidated financial statements of Mondi Limited
contained in the accompanying interim report, which comprise the condensed combined and consolidated
statement of financial position as at 30 June 2014 and the condensed combined and consolidated statement
of comprehensive income, condensed combined and consolidated statement of changes in equity, condensed
combined and consolidated statement of cash flows for the six months then ended, and selected explanatory
notes.
Directors' responsibility for the interim financial statements
The directors are responsible for the preparation and presentation of these interim financial statements in
accordance with International Accounting Standard (IAS) 34,'Interim Financial Reporting', the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
by the Financial Reporting Standards Council 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. 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'. ISRE 2410 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 ISRE 2410 is a limited assurance engagement.
We perform procedures, primarily consisting of making inquiries of management and others within the entity,
as appropriate, and applying analytical procedures and evaluate the evidence obtained.
The procedures performed in a review are substantially less than and differ in nature from those performed in
an audit conducted in accordance with International Standards on Auditing. Accordingly, we do not express
an audit opinion on these financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
condensed combined and consolidated financial statements of Mondi Limited for the six months ended 30
June 2014 are not prepared, in all material respects, in accordance with IAS 34,'Interim Financial Reporting',
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the
Companies Act of South Africa.
Deloitte & Touche
Registered Auditor
Per: Bronwyn Kilpatrick
Partner
6 August 2014
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 MJ Jarvis Finance M Jordan Strategy S Gwala Managed Services 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 2014, 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 18. 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 2014 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
6 August 2014
Condensed combined and consolidated income statement
for the six months ended 30 June 2014
(Reviewed) (Reviewed) (Audited)
Six months ended 30 June Six months ended 30 June Year ended 31 December
2014 2013 2013
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 3,148 - 3,148 3,342 - 3,342 6,476 - 6,476
Materials, energy and consumables
used (1,654) - (1,654) (1,758) - (1,758) (3,391) - (3,391)
Variable selling expenses (251) - (251) (282) - (282) (523) - (523)
Gross margin 1,243 - 1,243 1,302 - 1,302 2,562 - 2,562
Maintenance and other indirect
expenses (120) - (120) (122) - (122) (278) - (278)
Personnel costs (456) (7) (463) (484) (16) (500) (940) (17) (957)
Other net operating expenses (114) 4 (110) (142) (10) (152) (276) (10) (286)
Depreciation, amortisation and
impairments (176) - (176) (188) (55) (243) (369) (67) (436)
Operating profit/(loss) 377 (3) 374 366 (81) 285 699 (94) 605
Non-operating special items 6 - - - - - - - 7 7
Net profit from associates 1 - 1 1 - 1 2 - 2
Total profit/(loss) from operations
and associates 378 (3) 375 367 (81) 286 701 (87) 614
Net finance costs (50) (13) (63) (57) - (57) (115) - (115)
Investment income 1 - 1 2 - 2 3 - 3
Foreign currency losses (1) - (1) (1) - (1) (1) - (1)
Finance costs (50) (13) (63) (58) - (58) (117) - (117)
Profit/(loss) before tax 328 (16) 312 310 (81) 229 586 (87) 499
Tax (charge)/credit 7 (62) - (62) (56) 13 (43) (98) 13 (85)
Profit/(loss) for the period 266 (16) 250 254 (68) 186 488 (74) 414
Attributable to:
Non-controlling interests 15 15 28
Shareholders 235 171 386
Earnings per share (EPS) for
profit attributable to
shareholders
Basic EPS (EUR cents) 8 48.6 35.3 79.8
Diluted EPS (EUR cents) 8 48.5 35.3 79.6
Basic underlying EPS (EUR cents) 8 51.9 49.4 95.0
Diluted underlying EPS (EUR cents) 8 51.8 49.3 94.8
Basic headline EPS (EUR cents) 8 48.3 45.7 91.3
Diluted headline EPS (EUR cents) 8 48.2 45.6 91.1
Condensed combined and consolidated statement of comprehensive income
for the six months ended 30 June 2014
(Reviewed) (Reviewed) (Audited)
Six months Six months Year ended 31
ended 30 June ended 30 June December
EUR million 2014 2013 2013
Profit for the period 250 186 414
Other comprehensive (expense)/income:
Items that may subsequently be reclassified to the condensed combined and
consolidated income statement:
Effect of cash flow hedges - - (2)
Gains on available-for-sale investments - - 2
Exchange differences on translation of foreign operations (23) (145) (233)
Share of other comprehensive income of associates - (1) (1)
Tax effect thereof - - -
Items that will not subsequently be reclassified to the condensed combined
and consolidated income statement:
Remeasurements on retirement benefits plans (16) 18 21
Asset ceiling movement 2 (1) (2)
Tax effect thereof 3 (4) (6)
Other comprehensive expense for the period, net of tax (34) (133) (221)
Total comprehensive income for the period 216 53 193
Attributable to:
Non-controlling interests 16 9 17
Shareholders 200 44 176
Condensed combined and consolidated statement of financial position
as at 30 June 2014
(Reviewed) (Reviewed) (Audited)
As at 30 June As at 30 June As at 31
EUR million Notes 2014 2013 December 2013
Intangible assets 670 684 675
Property, plant and equipment 3,505 3,446 3,428
Forestry assets 10 233 257 233
Net retirement benefits asset 11 - 2 -
Other non-current assets 37 39 38
Total non-current assets 4,445 4,428 4,374
Inventories 834 767 746
Trade and other receivables 1,058 1,112 954
Cash and cash equivalents 13b 49 84 130
Other current assets 22 27 36
Total current assets 1,963 1,990 1,866
Total assets 6,408 6,418 6,240
Short-term borrowings (458) (265) (181)
Trade and other payables (1,028) (1,008) (989)
Other current liabilities (142) (148) (126)
Total current liabilities (1,628) (1,421) (1,296)
Medium and long-term borrowings 13c (1,343) (1,664) (1,571)
Net retirement benefits liability 11 (226) (225) (211)
Deferred tax liabilities (254) (291) (264)
Other non-current liabilities (52) (53) (52)
Total non-current liabilities (1,875) (2,233) (2,098)
Total liabilities (3,503) (3,654) (3,394)
Net assets 2,905 2,764 2,846
Equity
Share capital and stated capital 542 542 542
Retained earnings and other reserves 2,103 1,963 2,049
Total attributable to shareholders 2,645 2,505 2,591
Non-controlling interests in equity 260 259 255
Total equity 2,905 2,764 2,846
The Group's condensed combined and consolidated financial statements, and related notes 1 to 18, were
approved by the Boards and authorised for issue on 6 August 2014 and were signed on their behalf by:
David Hathorn Andrew King
Director Director
Mondi Limited com
