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)
LEI: 213800LOZA69QFDC9N34
JSE share code: MNP ISIN: GB00B1CRLC47
LSE share code: MNDI
As part of the dual listed company structure, Mondi Limited and Mondi plc
(together 'Mondi Group') notify both the JSE Limited and the London Stock
Exchange of matters required to be disclosed under the Listings Requirements of
the JSE Limited and/or the Disclosure Guidance and Transparency and Listing
Rules of the United Kingdom Listing Authority.
Mondi Group: Trading update 11 October 2017
This trading update provides an overview of our financial performance and
financial position since the half year ended 30 June 2017, based on management
information up to 30 September 2017. These results have not been audited or
reviewed by Mondi's external auditors.
Except as discussed in this update, there have been no significant events or
transactions impacting either the financial performance or financial position
of the Group since 30 June 2017 up to the date of this statement.
Group performance overview
Underlying operating profit for the third quarter of 2017 of €245 million was
8% above the comparable prior year period (€227 million). The Group benefited
from higher average selling prices partly offset by higher costs and negative
currency effects. Underlying operating profit was in line with the second
quarter of 2017, with the positive pricing momentum seen across most product
segments offset by rising costs, negative currency effects and the usual
seasonal downturn in Uncoated Fine Paper.
Like-for-like sales volumes were above the comparable prior year period, driven
by good growth in containerboard and Fibre Packaging. Selling prices for the
Group's key paper grades were above those of both the comparable prior year
period and the previous quarter as the upward momentum in pricing witnessed
over the first half continued.
Costs were generally higher than the comparable prior year period and the
previous quarter. Wood, energy and chemical costs were higher than the
comparable prior year period while benchmark paper for recycling prices were up
15% compared to the third quarter of 2016, and 6% higher sequentially. Cash
fixed costs were higher as a result of inflationary cost pressures and the
impact of maintenance shuts, while depreciation and amortisation charges were
up due to the impact of the Group's ongoing capital investment programme. Our
recently completed projects in Packaging Paper and Fibre Packaging are making
good contributions.
Currency movements had a net negative impact on operating profit versus the
comparable prior year period driven mainly by a weaker US dollar and sharply
weaker Turkish Lira. On a sequential basis, the weakening Russian rouble and US
dollar contributed to a net negative impact.
Planned mill maintenance shuts were completed during the quarter with an
estimated impact on operating profit of €30 million (2016: €20 million). Based
on prevailing market prices, we continue to estimate that the impact of planned
maintenance shuts on operating profit for 2017 will be around €90 million, with
an expected impact in the fourth quarter of around €20 million (2016: €35
million).
Business unit overview
In Packaging Paper, containerboard markets remain strong with healthy demand
and limited industry capacity additions continuing to support pricing, albeit
with the level of price increases achieved varying by grade. Average benchmark
European unbleached kraftliner prices were up 20% on the prior year comparable
period, and up 8% sequentially. By contrast, benchmark European white-top
kraftliner prices were up by a more moderate 4% on the prior year comparable
period, and up 1% sequentially. Average benchmark European recycled
containerboard prices were up 18% on the prior year, and up 5% sequentially.
Price increases in recycled containerboard (€30/tonne) and unbleached
kraftliner (€50/tonne) were implemented in July and August respectively.
The sack kraft paper market remains tight, supported by good demand growth in
our export markets, stable core European markets, and constrained supply
growth. Sales volumes for sack kraft paper remained at similar levels to the
comparable prior year period and selling prices were higher following the
implementation of previously announced price increases. On a sequential basis,
prices were marginally up on average as most external volume is sold on fixed
price annual contracts.
The €335 million modernisation of the Steti mill (Czech Republic) is
progressing well. As previously announced, we have postponed the €135 million
investment in a new 90,000 tonne per annum machine glazed paper machine at the
same site due to concerns around a potential market imbalance following
recently announced industry capacity expansions.
Our Fibre Packaging business continues to benefit from good volume growth,
particularly in Corrugated Packaging. Recent paper price increases were partly
recovered through box price increases during the quarter. In Industrial Bags
the opportunity to recover paper price increases implemented early in the
second quarter was limited due to annual fixed price contracts. Strong cost
management continues to limit the impact of cost pressures.
Consumer Packaging delivered an improved performance in the quarter although
low growth in certain value added product areas remains a challenge. In
response, a programme has been launched to restructure the cost base and align
capacity to current market requirements. This involves various initiatives,
including the closure of a plant in Poland, streamlining the UK operations and
reducing the fixed cost base across the business. As a result, a special item
charge estimated at €45 million, including an asset impairment of €27 million,
will be recognised during the second half of 2017.
The Uncoated Fine Paper business continues to perform strongly, although the
quarterly performance was impacted by ongoing cost pressures, particularly in
South Africa, planned maintenance shuts and limited pricing momentum. Average
benchmark European uncoated fine paper prices were flat on the comparable prior
year period and up 1% on the second quarter of 2017. Pricing in the domestic
Russian and South African markets remained stable over the period. Supported by
steady demand and cost pressures from rising pulp prices, price increases are
currently in the process of implementation in the European, Russian and South
African markets for selected products.
Due to the accelerated rate of local demand decline, the decision has been
taken to cease production of newsprint at our Merebank mill (South Africa). A
special item charge of around €15 million will be recognised during the second
half of 2017. During the quarter, we restarted an idled uncoated fine paper
machine which will produce annually around 70,000 tonnes of uncoated fine paper
to serve the local market, displacing imports.
Cash flow and financing activities
Strong cash generation from operating activities more than offset the cash
outflows related to our capital expenditure programme and financing activities,
resulting in a reduction in net debt during the quarter.
Finance charges were lower than the comparable prior year period and in line
with the previous quarter primarily due to the 5.75% 2017 Eurobond maturing in
the first half of the year.
There have been no other significant changes in the Group's borrowing
facilities since 30 June 2017.
During the quarter, Moody's Investors Service upgraded the Group's credit
rating from Baa2 to Baa1 (stable outlook).
Outlook
We remain confident of making progress for the year and expect a strong final
quarter, supported by generally higher average selling prices and good growth.
However, continuing cost pressures and negative currency impacts are expected
to result in an underlying performance for the year modestly below market
expectations.
With our robust business model, strong project pipeline and culture of driving
performance, we remain confident of continuing to grow and deliver industry
leading returns.
Reorganisation of business segments
As previously announced, effective from 1 October 2017, the Group reorganised
its business units to reflect the nature of the underlying products produced.
The changes to the Group's business units, and consequently to the Group's
segmental reporting, are as follows:
* Uncoated Fine Paper and South Africa, excluding the containerboard
operations, were merged into a single business unit;
* the containerboard operations of South Africa were merged into Packaging
Paper; and
* there were no changes to the Fibre Packaging or Consumer Packaging business
units.
Restated segmental information is included as an appendix to this statement.
The reorganisation had no impact on the overall Group result.
Operating segments (restated)
Six months ended 30 June 2017
€ million, unless Packaging Fibre Consumer Uncoated Corporate Intersegment Total
otherwise stated Paper Packaging Packaging Fine elimination
Paper
Segment revenue 1,141 1,031 839 947 - (376) 3,582
Internal revenue (333) (17) (2) (24) - -
376
External revenue 808 1,014 837 923 - - 3,582
Underlying EBITDA 296 98 106 232 (22) - 710
Depreciation and (69) (35) (32) (59) (1) - (196)
impairments
Amortisation (2) (3) (11) (1) - - (17)
Underlying operating 225 60 63 172 (23) - 497
profit/(loss)
Special items 5 - - - - - 5
Operating segment 2,338 1,390 1,555 1,751 7 (202) 6,839
assets
Operating net segment 2,020 1,049 1,312 1,437 4 - 5,822
assets
Additions to 120 49 76 76 - - 321
non-current
non-financial assets
Capital expenditure 122 47 36 49 - - 254
cash payments
Operating margin (%) 19.7 5.8 7.5 18.2 - - 13.9
Return on capital 23.1 13.0 9.7 27.6 - - 18.7
employed (%)
Average number of 5.4 8.1 6.0 6.8 0.1 - 26.4
employees (thousands)1
Six months ended 30 June 2016
€ million, unless Packaging Fibre Consumer Uncoated Corporate Intersegment Total
otherwise stated Paper Packaging Packaging Fine elimination
Paper
Segment revenue 1,065 968 765 853 - (339) 3,312
Internal revenue (302) (17) (2) (18) - 339 -
External revenue 763 951 763 835 - - 3,312
Underlying EBITDA 274 94 100 263 (17) - 714
Depreciation and (62) (33) (28) (50) - - (173)
impairments
Amortisation (1) (2) (8) (1) - - (12)
Underlying operating 211 59 64 212 (17) - 529
profit/(loss)
Operating segment 2,180 1,288 1,347 1,663 7 (165) 6,320
assets
Operating net segment 1,821 993 1,148 1,395 6 - 5,363
assets
Additions to 68 65 40 56 - - 229
non-current
non-financial assets
Capital expenditure 78 50 42 44 - - 214
cash payments
Operating margin (%) 19.8 6.1 8.4 24.9 - - 16.0
Return on capital 24.5 12.6 11.6 32.5 - - 21.2
employed (%)
Average number of 5.3 7.6 4.9 7.0 0.1 - 24.9
employees (thousands)1
Year ended 31 December 2016
€ million, unless Packaging Fibre Consumer Uncoated Corporate Intersegment Total
otherwise stated Paper Packaging Packaging Fine elimination
Paper
Segment revenue 2,103 1,929 1,562 1,720 - (652) 6,662
Internal revenue (579) (32) (4) (37) - 652 -
External revenue 1,524 1,897 1,558 1,683 - - 6,662
Underlying EBITDA 527 194 198 481 (34) - 1,366
Depreciation and (126) (66) (59) (104) (1) - (356)
impairments
Amortisation (4) (5) (18) (2) - - (29)
Underlying operating 397 123 121 375 (35) - 981
profit/(loss)
Special items - (13) (19) (6) - - (38)
Operating segment 2,215 1,315 1,502 1,781 4 (161) 6,656
assets
Operating net segment 1,876 1,006 1,270 1,466 - - 5,618
assets
Additions to 168 161 217 134 - - 680
non-current
non-financial assets
Capital expenditure 175 107 91 92 - - 465
cash payments
Operating margin (%) 18.9 6.4 7.7 21.8 - - 14.7
Return on capital 23.1 13.5 10.5 32.3 - - 20.3
employed (%)
Average number of 5.3 7.7 5.3 7.0 0.1 - 25.4
employees (thousands)1
Year ended 31 December 2015
€ million, unless Packaging Fibre Consumer Uncoated Corporate Intersegment Total
otherwise stated Paper Packaging Packaging Fine elimination
Paper
Segment revenue 2,213 2,031 1,469 1,764 - (658) 6,819
Internal revenue (578) (37) (4) (39) - 658 -
External revenue 1,635 1,994 1,465 1,725 - - 6,819
Underlying EBITDA 547 187 177 448 (34) - 1,325
Depreciation and (121) (63) (54) (105) (1) - (344)
impairments
Amortisation (3) (4) (15) (2) - - (24)
Underlying operating 423 120 108 341 (35) - 957
profit/(loss)
Special items (14) (21) (22) - - - (57)
Operating segment 2,202 1,224 1,333 1,542 6 (148) 6,159
assets
Operating net segment 1,861 935 1,146 1,276 1 - 5,219
assets
Additions to 302 118 173 139 1 - 733
non-current
non-financial assets
Capital expenditure 278 118 92 107 - - 595
cash payments
Operating margin (%) 19.1 5.9 7.4 19.3 - - 14.0
Return on capital 25.9 13.9 10.7 27.0 - - 20.5
employed (%)
Average number of 5.6 7.7 4.6 7.3 0.1 - 25.3
employees (thousands)1
Note:
1 Presented on a full time employee equivalent basis.
Capital Markets Day 2017
Mondi will hold a Capital Markets Day on the morning of Tuesday 17 October in
London, and a site visit to two consumer packaging plants in Germany on
Wednesday 18 October. This event will give attendees the opportunity to meet
our leadership team and gain insights into how we operate the business in line
with our strategic priorities.
The London presentations and a link to the live webcast of the event will be
available at www.mondigroup.com/CMD2017. Registration is still open for the
London event, please email CMD.Info@mondigroup.com if you would like to attend.
Contact details:
Mondi Group
Andrew King +44 193 282 6355
Lora Rossler +27 83 627 0292
FTI Consulting
Richard Mountain +44 7909 684 466
Frances Bussey +44 20 3727 1340
Conference call dial-in details
Please see below details of our dial-in conference call that will be held on 11
October 2017 at 8:00 (UK) and 9:00 (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 10 201 6800
Should you have any issues on the day with accessing the dial-in conference
call, please call +27 11 535 3600.
A replay facility will be available until 31 October 2017. Dial in: +27 (0)
11 305 2030.
Pin no: 17568#
Editors' notes
We are Mondi: In touch every day
At Mondi, our products protect and preserve the things that matter.
Mondi is an international packaging and paper Group, employing around 25,000
people across more than 30 countries. Our key operations are located in central
Europe, Russia, North America and South Africa.
We offer over 100 packaging and paper products, customised into more than
100,000 different solutions for customers, end consumers and industrial end
uses - touching the lives of millions of people every day. In 2016, Mondi had
revenues of €6.7 billion and a return on capital employed of 20.3%.
The Mondi Group is fully integrated across the packaging and paper value chain
- from managing forests and producing pulp, paper and compound plastics, to
developing effective and innovative industrial and consumer packaging
solutions. Our innovative technologies and products can be found in a variety
of applications including hygiene components, stand-up pouches, superstrong
cement bags, clever retail boxes and office paper. Our key customers are in
industries such as automotive; building and construction; chemicals; food and
beverage; home and personal care; medical and pharmaceutical; packaging and
paper converting; pet care; and office and professional printing.
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.
For us, acting sustainably makes good business sense and is part of the way we
work every day. We have been included in the FTSE4Good Index Series since 2008
and the JSE's Socially Responsible Investment (SRI) Index since 2007.
Sponsor in South Africa: UBS South Africa (Pty) Ltd