MONDI PLC: Interim Management Statement

Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND ISIN: ZAE000156550 
Mondi plc
(Incorporated in England and Wales)
(Registered number: 6209386)
JSE share code: MNP ISIN: GB00B1CRLC47
LSE share code: MNDI 
As part of the dual listed company structure, Mondi Limited and Mondi plc
(together 'Mondi Group') notify both the JSE Limited and the London Stock
Exchange of matters required to be disclosed under the JSE Listings
Requirements and/or the Disclosure and Transparency and Listing Rules of the
United Kingdom Listing Authority. 
Mondi Group: Interim Management Statement 31 October 2012 
This interim management statement provides an update on the financial
performance and financial position of the Group since the half-year ended 30
June 2012, based on management accounts up to 30 September 2012 and estimated
results for October 2012. These results have not been audited or reviewed by
Mondi's external auditors. 
Audited results for the year ending 31 December 2012 will be published on or
around 21 February 2013. 
Except as discussed in this interim management statement, there have been no
other significant events or transactions impacting either the financial
performance or financial position of Mondi since 30 June 2012 up to the date of
this statement. 
Group Performance Overview 
Underlying operating profit for the third quarter ended 30 September 2012 was
EUR135 million (year to date EUR405 million, 2011 EUR490 million) in line with
that of the comparable prior year period (Q3 2011 EUR136 million) and below
that of the prior quarter (Q2 2012 EUR150 million). This was in line with
expectations and reflects a stable trading environment considering the impact
of the traditionally weaker European summer months, annual maintenance shuts at
a number of the Group's larger operating sites during the quarter and ongoing
strong cost containment. 
Sales volumes were, on average, similar to those achieved in the previous
quarter but above those of the comparable prior year period, although demand in
the downstream converting operations was below that of the prior year. Third
quarter average benchmark selling prices across all grades were below those of
the comparable prior year period. Selling price increases were realised in
kraft paper during the quarter and price increases for containerboard are
effective from early in the fourth quarter of 2012. 
On average, input costs in the third quarter were similar to the previous
quarter and below that of the comparable prior year period. Benchmark recovered
fibre costs decreased by 23% in the quarter and were 30% below the comparable
prior year period. As a result of the anticipated start-up of new recycled
containerboard capacity in Poland in early 2013, regional market pressure on
recovered fibre costs is expected in the near term. 
The weaker South African rand and stronger US dollar versus the euro benefited
mainly the South Africa division and, to a lesser extent, the Packaging Paper
business. 
During the quarter, all conditions precedent for the acquisition of Nordenia
International AG were met and, with effect from 1 October 2012, the Group
acquired a 99.93% interest in Nordenia for a cash consideration of EUR259
million. 
As part of its continuing focus on its core businesses, the Group concluded the
sale of its 50% share in Aylesford Newsprint to The Martland Holdings on 2
October 2012. The shares were sold for a nominal consideration following
recapitalisation of the business. The net cash flow effect of the transaction
was a EUR17 million outflow, while the estimated loss on disposal was EUR71
million. Following the sale of Aylesford Newsprint, the Group has restructured
its reporting in South Africa to combine the Mondi Shanduka Newsprint joint
venture into the South Africa division. 
Divisional Overview 
Europe & International 
As indicated in the half-year end results, following the completion of the
acquisition of Nordenia, the Group has rearranged its Europe & International
business into four segments: Packaging Paper, Fibre Packaging, Consumer
Packaging and Uncoated Fine Paper. The commentary that follows is based on
these new reporting segments. 
Packaging Paper performed well during the period benefiting from continued
strong cost containment. Underlying operating profit was at similar levels to
the second quarter, although still below that of the comparable prior year
period. 
Average benchmark selling prices for the quarter for virgin containerboard were
approximately 3% higher than the previous quarter, white-top containerboard
selling prices were largely unchanged whilst average prices for recycled
containerboard were well below those of the previous quarter (9% lower), on the
back of lower recovered fibre input costs (23% lower). Containerboard prices
remain well below the levels of the previous year. During the quarter, sales
volumes were negatively impacted by the planned maintenance shut at Swiecie,
but demand remained at similar levels to the previous period. On the back of
supply contraction in the virgin containerboard market and stable demand,
selling price increases have been negotiated across all containerboard grades,
the benefits of which are expected to be realised in the fourth quarter of the
year. 
Price increases for sack kraft paper took effect from July 2012. Good demand
continued to be seen in export markets offsetting ongoing weakness in southern
Europe. The major annual maintenance shuts in this segment are planned for the
fourth quarter when demand in the downstream businesses is traditionally lower. 
Fibre Packaging performed well during the quarter with underlying operating
profit well above the comparable prior year period and similar to that achieved
in the previous quarter, benefiting from a comprehensive commercial excellence
project leading to improved margin management and strong cost containment as
well as non-recurring income of EUR3 million from the sale of land. Selling
prices were at similar levels to those of the previous quarter whilst sales
volumes were lower than the previous quarter and those achieved in the
comparable prior year period. Input costs were relatively stable, with the main
paper price increases only starting to take effect in the fourth quarter. 
The industrial bags business benefited from stable demand in northern Europe
and good demand in non-European markets, offsetting the impact of the weaker
southern European markets. Restructuring activities in light of the
structurally weaker demand are currently being evaluated for implementation
during the fourth quarter of 2012. Higher paper input costs and seasonally
weaker demand will impact returns in the fourth quarter. 
Corrugated packaging enjoyed the benefits of lower recycled containerboard
prices in the third quarter, although margins are expected to come under some
pressure in the fourth quarter on the back of generally higher paper input
prices. 
Performance in the Coatings business remained stable, albeit still below our
expectations due to low returns from the US business, impacted by the start-up
of a new plant. 
In September 2012, Mondi concluded an agreement with Duropack GmbH to acquire
two corrugated box plants in Germany and the Czech Republic, consuming 130,000
tonnes containerboard per annum, and a 105,000 tonne recycled containerboard
mill in the Czech Republic for a consideration of EUR125 million. The
acquisition is in line with the Group's strategy to strengthen its leading
position in corrugated packaging in central and eastern Europe. The transaction
remains on track for completion during the fourth quarter. 
Consumer Packaging delivered steady returns with underlying operating profit
similar to that of the previous quarter. Sales volumes were higher than the
comparable prior year period whilst sales prices were largely unchanged. 
The acquisition of Nordenia with effect from 1 October 2012 will significantly
enhance this business. Integration activities are progressing well and all
closing activities have been completed. The focus in the near term will be on
integrating Nordenia into Mondi, aligning processes and refining and
implementing the expected synergy benefits. 
Uncoated Fine Paper continues to deliver strong results despite a generally
difficult trading environment, driven by a cost reduction programme. Underlying
operating profit for the quarter was above that of the comparable prior year
period but below that of the second quarter, due to the normal seasonal summer
slowdown and planned maintenance shuts at Neusiedler and SCP Ruzomberok.
Benchmark selling prices were slightly higher than the previous quarter, at
similar levels to those achieved in the previous year, whilst sales volumes
remained at similar levels to the comparable prior year period. Although wood
costs were largely unchanged, some relief was seen towards the end of the third
quarter. 
The anticipated start-up of a new paper machine in Russia in early 2013 as well
as the phased reduction in import duties following Russia's integration into
the World Trade Organisation over a four year period starting in 2013 will
impact this business. Ongoing cost optimisation initiatives in Russia will seek
to mitigate any potential margin pressure. 
South Africa Division 
South Africa Division (including Mondi Shanduka Newsprint) benefited from a
positive domestic trading environment and the weaker South African rand.
Operating profit was slightly lower than the comparable prior year period and
below that of the immediately preceding quarter primarily due to inventory
build leading up to, and the impact of, a planned maintenance shut at Richards
Bay which was concluded early in October. 
A recent increase in domestic pulpwood prices will result in an estimated
additional EUR10 million gain on fair value of forestry assets in the income
statement in the fourth quarter, based on prevailing wood prices. 
Financial position 
Net debt was EUR1,188 million at the end of the quarter, down EUR85 million on
the half-year. The acquisitions of Nordenia and the Duropack corrugated assets
as well as the disposal of Aylesford will increase net debt in the fourth
quarter of 2012. 
On 21 September 2012, Mondi successfully launched a 3.375%, 8-year,
EUR500 million Eurobond maturing in September 2020. The Group also cancelled
its unutilised EUR250 million bridging facility arranged specifically for the
acquisition of Nordenia. On 29 October 2012, Mondi issued an unconditional and
irrevocable guarantee to the holders of the Nordenia bond. 
During the quarter, the Group's investment grade credit ratings of Baa3
(Moody's Investor Services) and BBB- (Standard and Poor's) were reaffirmed. 
The Group continues to be strongly cash generative and working capital levels
remain within the Group's targeted range. Capital expenditure increased during
the period compared to the previous quarter due to the preponderance of
maintenance shuts during the period as well as increased spending on the energy
improvement projects. Total capital expenditure for the year is expected to be
around 90% of the Group's annual depreciation charge. 
Finance charges during the period were lower than the previous quarter on both
lower average net debt and lower effective interest rates, but are expected to
increase in the fourth quarter as net debt rises following the completion of
the Nordenia and Duropack acquisitions. 
The average maturity of the Group's committed debt facilities at 30 September
2012 was approximately 5 years. The Group had available EUR941 million of
committed, unutilised borrowing facilities at 30 September 2012, immediately
preceding the completion of the Nordenia transaction. 
Summary 
Price increases in the main packaging paper grades offer support for the
remainder of the year. Looking further forward, continued soft demand on the
back of the prevailing macroeconomic uncertainties and some additional capacity
expansions in certain of our core markets remain a concern, although it is
encouraging to note that the strong supply side fundamentals remain generally
intact. 
Contact details: 
Mondi Group                                                                     
                                                                           
David Hathorn             +27 (0)11 994 5418                                    
                                                                           
Andrew King               +27 (0)11 994 5415                                    
                                                                           
Lora Rossler              +27 (0)11 994 5400 / +27 (0)83 627 0292               
                                                                           
FTI Consulting                                                                  
                                                                           
Richard Mountain          +44 20 7269 7186 / +44 20 7909 684 466                
                                                                           
Chloe Webb                +27 (0)11 214 2421                                    
Editors' notes 
Mondi is an international packaging and paper Group, with production operations
across 29 countries and revenues of EUR5.7 billion in 2011. The Group's key
operations are located in central Europe, Russia and South Africa and as at the
end of 2011, Mondi Group employed 23,400 people. 
Mondi Group is fully integrated across the paper and packaging process, from
the growing of wood and the manufacture of pulp and paper (including recycled
paper), to the conversion of packaging paper into corrugated packaging,
industrial bags and coatings. 
The Group is principally involved in the manufacture of packaging paper,
converted packaging products and uncoated fine paper (UFP). 
Mondi 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 FTSE350 Carbon Disclosure Leadership Index for the second year. 
Sponsor in South Africa: UBS South Africa (Pty) Ltd 
END 
-0- Oct/31/2012 07:00 GMT