MND MNP MND MNP MND/MNP - Mondi Limited/ Mondi plc - Full year results for the year ended 31 December 2011 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 Listings Requirements of the JSE and/or the Disclosure and Transparency and Listing Rules of the United Kingdom Listing Authority. Full year results for the year ended 31 December 2011 Highlights - Record financial performance - underlying operating profit up 36%; - earnings per share - alternative measure up 57%; and - return on capital employed of 15%, significantly in excess of through the cycle target of 13%. - Excellent cash generation - net debt down 39% to EUR831 million; and - free cash flow of 72 euro cents per share, up 72%. - Significant contribution from Syktyvkar modernisation project - Successful demerger of Mpact, further focusing Group strategic priorities - Investment grade credit ratings from Standard & Poors` and Moody`s Investors Service - Proposed full year dividend of 26.0 euro cents per share, up 30% Financial Summary Year ended Year ended 31 31 December December 2011 2010 1 Change % EUR million, except for percentages and per share measures From continuing operations Group revenue 5,739 5,610 2.3 Underlying EBITDA2 964 798 20.8 Underlying operating profit2 622 458 35.8 Underlying profit before tax2 512 354 44.6 Operating profit 568 462 22.9 Profit before tax 457 333 37.2 Per share measures Basic earnings per share - alternative measure3 (EUR cents) 71.8 45.6 57.5 Basic earnings per share from continuing operations (EUR cents) 57.5 37.8 52.1 Basic earnings per share from total operations (EUR cents) 66.1 44.1 49.9 Total dividend per share (EUR cents) 26.0 20.0 30 Free cash flow per share4 (EUR cents) 72.4 42.2 71.6 Cash generated from operations 917 778 17.9 Net debt 831 1,364 (39.1) Group return on capital employed (ROCE)5 15.0 12.3 22.0 Notes: 1 Comparative information has been restated where appropriate to take cognisance of the discontinued operation. 2 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. 3 The directors have elected to present an alternative, non-IFRS measure of earnings per share from continuing operations. As more fully set out in note 8 of the enclosed extract of the audited annual financial statements, the effects of the recapitalisation and the demerger of Mpact (formerly Mondi Packaging South Africa) and the Mondi Limited share consolidation have been adjusted to reflect the position as if the transaction had been completed at the beginning of each period presented. This will enable a useful comparison of earnings per share from continuing operations, based on the consolidated number of shares. 4 Free cash flow per share is net increase in cash and cash equivalents before changes in net debt and dividends paid divided by the net number of shares in issue at year end. 5 ROCE is underlying operating profit expressed as a percentage of the average capital employed for the year, adjusted for impairments and spend on strategic projects which are not yet in operation. David Hathorn, Mondi Group chief executive, said: "The Group`s focus on performance, low-cost operating model, and robust financial position, enabled Mondi to deliver record results in 2011. This was against a backdrop of a strong trading environment in the first half followed by a more difficult second half as macroeconomic uncertainties weighed on our markets. Our strong cash flow generation through the cycle enables us to ensure our asset base remains appropriately invested and exploit value adding growth opportunities, whilst maintaining our investment grade credit ratings and increasing returns to shareholders. In this regard, we have approved investments in certain high return energy and de-bottlenecking projects and launched a tender offer for the non-controlling interest in Mondi Swiecie. Furthermore, the directors have recommended a final dividend of 17.75 euro cents per share, bringing the total dividend to 26.0 euro cents per share for the year, an increase of 30% on the prior year. Looking ahead, while macroeconomic risks remain, it is encouraging to note that in recent weeks order books have improved and prices have stabilised, with price increases announced in certain grades. This should allow some recovery of price declines experienced over the course of the second half of 2011, although recent strengthening of emerging market currencies is impacting margins. Supply side fundamentals in our core grades remain good following further announcements of capacity closures in the industry." Contact details Mondi Group David Hathorn +27 (0)11 994 5418 Andrew King +27 (0)11 994 5415 Lora Rossler +27 (0)31 451 2040 / +27 (0)83 627 0292 FTI Consulting Richard Mountain / Sophie McMillan +44 20 7269 7186 / +44 20 7909 684 466 Chloe Webb +27 (0)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 09:00 (UK) and 11:00 (SA). The conference call dial-in numbers are: South Africa 0800 200 648 (toll-free) UK 0800 917 7042 (toll-free) Europe & Other 00800 246 78 700 (toll-free) An online audio cast facility will be available via: www.mondigroup.com/FYResults11. The presentation will be available online via the above website address before the audio cast commences. Questions can be submitted via the dial-in conference call or by e-mail via the audio cast. Should you have any issues on the day with accessing the dial-in conference call, please call +27 (0)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 23 February 2012. Editors` notes Mondi is an international paper and packaging Group, with production operations across 28 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 employed 23,400 people. Mondi 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 papers 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 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 UK, Europe and Global indices 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, plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mondi, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Mondi`s present and future business strategies and the environment in which Mondi will operate in the future. Among the important factors that could cause Mondi`s actual results, performance or achievements to differ materially from those in the forward- looking statements include, but are not limited to, those discussed under `Principal risks and uncertainties`. These forward-looking statements speak only as of the date on which they are made. Mondi expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Mondi`s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Overview of results The Group`s underlying operating profit of EUR622 million was up 36% compared to 2010. The Group benefited from a generally positive trading environment, although a noticeable slowdown in demand in the second half led to some volume and pricing pressures when compared to the strong first half of the year. The Europe & International Division, through its Uncoated Fine Paper, Corrugated and Bags & Coatings businesses contributed EUR611 million to underlying operating profit and the South Africa Division EUR62 million. The Newsprint operating loss of EUR18 million was disappointing, whilst corporate costs were at similar levels to previous years. Input costs, particularly wood, pulp and recycled fibre, increased by approximately 7% compared to the prior year. This was mainly attributed to market price increases, offset in part by currency gains and lower volumes, although some softening in key fibre input costs was seen in the second half of the year. Net finance charges of EUR111 million were EUR5 million higher than those of the prior year reflecting the lower average net debt, more than offset by lower net foreign exchange gains and reduced capitalisation of finance charges following the completion of the Syktyvkar modernisation project. The tax charge, before special items, for the year was EUR102 million (2010: EUR88 million), representing an effective tax rate before special items of 20% compared to 25% in 2010. The demerger of Mpact (formerly Mondi Packaging South Africa) and related consolidation of Mondi Limited shares was concluded during August 2011. Comparative figures in the income statement have been restated to reflect Mpact as a discontinued operation. The details of the transaction are more fully described in note 6 of the enclosed extract of the audited annual financial statements. Consequently, to reflect the continuing business of Mondi, the Group has elected to present an alternative, non-IFRS measure of earnings per share as if the recapitalisation and demerger of Mpact and Mondi Limited share consolidation had taken place at the beginning of each period presented. Basic earnings per share - alternative measure was 71.8 cents, an increase of 57% on the prior year. In line with the increased turnover, working capital increased during the year with a net cash outflow of EUR68 million. The decrease in demand and selling prices, coupled with a focus on active inventory management in certain grades in light of the lower demand towards the end of 2011, resulted in some reduction of year end working capital levels compared to average levels during the year. The net working capital to turnover ratio was 10% at the year end, the bottom of our targeted range of 10-12%. Capital expenditure of EUR263 million was EUR131 million lower than the prior year, reflecting the reduction in spend following completion of the major capital investment in Russia. Excluding major expansionary capital investments, the capital expenditure to depreciation ratio was 63%, unchanged from 2010. Strong cash generation and the proceeds from the demerger of Mpact led to a reduction in net debt to EUR831 million at year end, from EUR1,364 million at 31 December 2010. The Group is proposing to pay a final dividend of 17.75 euro cents per share giving a total dividend of 26.0 euro cents for the year, an increase of 30% compared to 2010. Europe & International - Uncoated Fine Paper (UFP) business Year ended Year ended 31 31 December December EUR million 2011 2010 Change % Segment revenue 1,429 1,516 (5.7) - of which inter-segment revenue 20 129 EBITDA 309 279 10.8 Underlying operating profit 205 179 14.5 Special items 2 5 Capital expenditure 61 151 Net segment assets 1,283 1,512 ROCE 16.7% 16.9% Underlying operating profit increased by EUR26 million to EUR205 million. The Syktyvkar mill delivered a very strong result, benefiting from the first full year contribution from the mill modernisation investment completed in the second half of 2010. Together with a solid performance from the Ruzomberok and Neusiedler mills, this more than offset the lost contribution from the sale at the end of 2010 of Mondi`s controlling interest in Mondi Hadera. The ROCE of 16.7%, marginally down on the previous year, reflects the positive trading environment, low cost base and strong operating performance as well as the contribution from the Syktyvkar modernisation. Average benchmark UFP prices were approximately 7% higher than in 2010, although they closed the year at similar levels to December 2010, reflecting some selling price pressure towards the end of the year. Product mix improvements also contributed to improved profitability. Sales volumes, excluding the contribution of Mondi Hadera in 2010, were largely flat. Sales into emerging Europe increased during the year to approximately 43% of total sales volumes. Input costs increased versus the prior year. Wood costs were up on average in excess of 10%, although benchmark hardwood pulp costs were down around 4% per tonne on average. The Syktyvkar modernisation had the effect of reducing overall fibre input costs, as increased pulp self-sufficiency meant that higher wood usage was more than offset by the reduction in purchased pulp costs. Gas and electricity costs increased in both Syktyvkar and Ruzomberok. Productivity, measured in terms of output per person, improved by approximately 12% during the year, with annual production records in both Syktyvkar and Ruzomberok. The Syktyvkar modernisation project generated a return on capital employed in excess of 10% through increased volumes, energy sales and lower consumption of purchased pulp, with further benefits expected in 2012 as full ramp up is achieved. The business continues to focus on further optimisation with particular emphasis on energy, procurement and operating efficiencies. In addition, initiatives to improve forestry operations will be implemented over the next two years, with an expected increase in underlying operating profit in excess of EUR15 million per year. Capital expenditure for the year was EUR61 million, of which EUR24 million related to the Syktyvkar modernisation project. Europe & International - Corrugated business Year ended Year ended 31 31 December December EUR million 2011 2010 Change % Segment revenue 1,384 1,235 12.1 - of which inter-segment revenue 64 59 EBITDA 251 187 34.2 Underlying operating profit 178 119 49.6 Special items 3 (15) Capital expenditure 44 87 Net segment assets 967 898 ROCE 18.5% 14.9% The substantial improvement in the underlying profit of the Corrugated business in 2010 continued in 2011, reflecting the benefit of the improved trading conditions, recent capital investments and restructuring and cost reduction initiatives undertaken over the last few years. Underlying operating profit increased by 50% to EUR178 million. The profitability of the business and well invested capital base is reflected in the ROCE of 18.5%, improving from 14.9% in 2010. The Syktyvkar containerboard machine rebuild, completed as part of the Syktyvkar modernisation programme, made a strong contribution, while the Swiecie mill delivered a further significant improvement in performance. Total containerboard sales volumes increased by 3% compared to 2010, with kraftliner and recycled containerboard volumes remaining largely unchanged whilst white top kraftliner volumes increased by 14%. Demand slowed in the second half of the year, necessitating some commercial downtime in the fourth quarter. The order book has improved during the first weeks of 2012 although demand for white-top containerboard still remains subdued. Average benchmark kraftliner prices increased by 14%, recycled containerboard prices by 20% and white top containerboard prices by 14% compared to 2010 levels. However, closing prices were down by 11% for kraftliner from 31 December 2010 and closing benchmark prices of all containerboard products were well below the highs achieved during the year. Price increases were announced in January 2012. The actual price increases achieved will be subject to individual negotiations with customers, and will take effect towards the end of the first quarter of 2012. Box price increases more than offset the increased paper prices, leading to margin expansion and a significant increase in underlying operating profit, albeit off a low base. Costs of recovered fibre and wood increased significantly during the year, with average benchmark recovered fibre prices increasing by 28%. Some relief was experienced in the second half of the year with recovered fibre prices dropping sharply off their highs. Wood costs increased in excess of 10% during the year. Fixed cost increases were largely inflation driven. Productivity, measured by output per person, improved by 10% compared to the prior year. Capital expenditure of EUR44 million was incurred during the year. Europe & International - Bags & Coatings business Year ended Year ended 31 31 December December EUR million 2011 2010 Change % Segment revenue 2,478 2,226 11.3 - of which inter-segment revenue 46 39 EBITDA 327 238 37.4 Underlying operating profit 228 133 71.4 Special items (27) 28 Capital expenditure 110 92 Net segment assets 1,279 1,333 ROCE 19.0% 11.8% The ROCE of the Bags & Coatings business of 19.0%, compared to 11.8% in 2010, reflects the very positive trading environment, particularly in the first half of the year. A 71% increase in underlying operating profit to EUR228 million was largely due to significant selling price increases in kraft paper (approximately 20% increase in year-on-year average prices) and strong sales volumes during the first half of the year. Weaker end user demand and destocking in the value chain led to the kraft paper business taking significant downtime to manage inventory levels in the second half of the year. While weakness in end user demand in Europe was evident from early in the second half, export demand remained strong throughout the period, weakening only in the fourth quarter. Exports comprise approximately 55% of total kraft paper sales. Limited further downtime is anticipated during the first quarter of 2012 as the outlook is improving with evidence of an end to the destocking process. However, sales prices in the first quarter are down compared to average prices in the fourth quarter of 2011. Increases in wood costs, currency headwinds and the detrimental impact of the commercial downtime taken negatively impacted the overall cost base. Operating performance in all kraft paper mills was excellent, although downtime in the second half of the year impacted productivity. The total commercial downtime, the majority of which was taken towards the end of the third quarter and during the fourth quarter of 2011, amounted to approximately 10% of annual production capacity. In the downstream industrial bags business, selling price increases more than offset increased paper input costs. Together with the benefits of integrating the Smurfit Kappa bag plants acquired in 2010, this gave rise to a significant improvement in underlying operating profit. Weaker end user demand impacted sales volumes in the second half of the year resulting in a small decline in total sales volumes for the year. The restructuring, following the acquisition in 2010 of the Smurfit Kappa bag plants in Spain, France, Italy and Poland (acquired in January 2011), has been largely completed. The coatings and consumer packaging business continued to perform well, with underlying operating profit at similar levels to the previous year. Some margin pressure was experienced, with growth constrained by the macroeconomic environment, although variable cost increases were largely passed on to customers. Following some internal restructuring and renewed focus on higher growth and value adding products, the extrusion coating segment delivered a pleasing improvement in performance while the consumer packaging segment remained stable. The release liner segment was negatively impacted in the second half by the costs of starting up new production lines, the benefits of which are expected to be realised in 2012. The sale of Unterland, a flexible packaging business, was completed in October 2011. South Africa Division Year ended Year ended 31 31 December December EUR million 2011 2010 Change % Segment revenue 569 580 (1.9) - of which inter-segment revenue 155 211 EBITDA 114 117 (2.6) Underlying operating profit 62 64 (3.1) Special items - (10) Capital expenditure 27 28 Net segment assets 828 953 ROCE 8.9% 8.4% Underlying operating profit of EUR62 million was marginally down on the previous year. The ROCE of 8.9% reflects a continuing improvement, but remains short of targeted levels. Average benchmark pulp prices declined by 4% year-on-year. While pricing held up well in the first half, the second half saw a significant decline in prices, such that the benchmark closing price for BEKP pulp was down around 23% on the level at the end of 2010. Average benchmark white top containerboard prices increased by approximately 14% year-on-year, but weaker demand towards the end of the year resulted in some commercial downtime and a somewhat weaker pricing environment. Input costs increased, mainly as a result of increased wood, energy and chemical costs. Despite the weaker trading environment, management actions have ensured that underlying operating profit remained largely unchanged. The business benefited from the mothballing of the 120,000 tonne per annum UFP machine in Merebank and the related restructuring programme which delivered both substantial cost savings and improved margins arising from an increased focus on the domestic market. The integrated pulp and paper operation at Richards Bay achieved record saleable production in excess of 750,000 tonnes in the calendar year. The business continues to focus on operational efficiencies and improvement opportunities with strong emphasis on energy efficiency and self generating capacity. Newsprint Year ended Year e