TIDMMNDI
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
23 February 2017
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.
To comply with the requirements in Articles 7 and 9 of the regulatory technical
standards of the Transparency Directive (2004/109/EC), this announcement is
classified as additional regulated information required to be disclosed under
the laws of a Member State.
Full year results for the year ended 31 December 2016
Highlights
* Strong financial performance
+ Underlying operating profit of EUR981 million, up 3%
+ Underlying earnings of 137.8 euro cents per share, up 3%
+ Cash generated from operations of EUR1,401 million, up 10%
+ Return on capital employed of 20.3%
* Capital projects delivering growth
+ Completed major projects contributed incremental EUR50 million to
underlying operating profit in 2016
+ Strong expansionary capital investment pipeline: over EUR800 million in
major projects approved and in progress
* Four acquisitions totalling EUR185 million, expanding our packaging interests
* Implemented Growing Responsibly model, defining our sustainability
commitments to 2020
* Recommended full year dividend of 57.0 euro cents per share, up 10%
Financial Summary
EUR million, except for percentages Year ended Year Change Six months Six Change
and per share measures 31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Group revenue 6,662 6,819 (2) 3,350 3,360 -
Underlying EBITDA1 1,366 1,325 3 652 654 -
Underlying operating profit1 981 957 3 452 467 (3)
Operating profit 943 900 5 414 449 (8)
Profit before tax 843 796 6 361 404 (11)
Per share measures
Basic underlying earnings per 137.8 133.7 3
share1 (euro cents)
Basic earnings per share 131.8 124.0 6
(euro cents)
Total dividend per share 57.0 52.0 10
(euro cents)
Cash generated from operations 1,401 1,279 10
Net debt 1,383 1,498
Group return on capital employed 20.3% 20.5%
(ROCE)2
Notes:
1 The Group presents underlying EBITDA, operating profit and related per
share information as measures which exclude special items in order to provide a
more effective comparison of the underlying financial performance of the Group
between financial reporting periods. A reconciliation of underlying operating
profit to profit before tax is provided in note 3 of the condensed financial
statements.
2 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:
"I am pleased to announce another strong performance, building on our track
record of steadily improving profitability over the last five years. Underlying
operating profit was up 3% to EUR981 million and our return on capital employed
was 20.3%.
We saw good contributions from all our businesses despite pricing headwinds in
a number of key paper grades.
We made considerable progress in driving growth through our capital investment
programme, delivering incremental operating profit of around EUR50 million in
2016 from recently completed capital projects, with a further EUR30 million
anticipated in 2017. In addition to our significant pipeline of projects
already in progress, the Boards have approved the replacement of the recovery
boiler at our Steti mill in the Czech Republic and installation of a 90,000
tonne per annum machine glazed speciality kraft paper machine for a total
investment of EUR470 million.
We completed four acquisitions totalling EUR185 million in 2016, enhancing our
product offering and geographic reach in our Corrugated and Consumer Packaging
businesses.
Our outlook for the business is positive. We have implemented or announced
price increases in containerboard, sack kraft and uncoated fine paper grades,
supported by good demand. We expect some inflationary cost pressures across the
Group and a lower forestry fair value gain. Furthermore, we anticipate a more
challenging trading environment in certain uncoated fine paper markets
following price erosion in Europe over the course of 2016, combined with
emerging market currency volatility. However, we expect to continue to benefit
from contributions from our recently completed capital projects and
acquisitions, together with steady organic growth in our downstream converting
businesses.
Our consistent and focused strategy, robust business model and firm focus on
operational excellence all continue to contribute to our performance. We remain
confident of continuing to deliver industry-leading returns."
Group performance review
Our strong performance in 2016 builds on our track record of continuous
improvement in profitability over the last five years. Our consistent and
focused strategy, robust business model and firm focus on operational
excellence all continued to contribute to our performance.
Group revenue of EUR6,662 million was down 2% on the prior year. Excluding the
impact of currency movements, revenue was in line with the prior year. Good
volume growth in Packaging Paper and Consumer Packaging and higher domestic
selling prices in South Africa and Russia were offset by lower average selling
prices in Packaging Paper and Fibre Packaging.
Underlying operating profit of EUR981 million was up 3% on the prior year.
Packaging Paper was negatively impacted by lower selling prices across most key
grades and lower green energy prices, partially offset by like-for-like sales
volume growth. Fibre Packaging continued its positive development, with volume
growth in Corrugated Packaging and a good performance from the core European
industrial bags business, partly offset by negative currency translation
effects and ongoing challenges in the US industrial bags business. We continue
to make good progress in Consumer Packaging with strong volume growth and
improving margins. In Uncoated Fine Paper, Russian domestic price increases and
a strong focus on productivity and efficiency more than offset negative
currency effects from the weaker rouble and flat average European pricing. Our
South Africa Division was negatively affected by sharply lower average export
pulp selling prices and higher input costs which were only partially offset by
positive currency effects and a higher fair value gain on forestry assets.
After taking the impact of special items of EUR38 million into consideration,
operating profit of EUR943 million was up 5% (2015 : EUR900 million).
Our passion for performance is central to the way we run our business and is
demonstrated through a continuous focus on quality, productivity and
efficiency. We invest in our existing operations and, where appropriate, in
strategic acquisitions to strengthen our cost advantages, generate synergies
through integration and enhance our product and service offering and/or
geographic reach to better serve our customers. In 2016 our recently completed
capital investments contributed around EUR50 million in incremental operating
profit. We completed four acquisitions during the year: two corrugated
packaging acquisitions, SIMET in Poland and Lebedyan in Russia; and two in
Consumer Packaging, Kalenobel in Turkey and Uralplastic in Russia. In February
2017, we announced the acquisition of Excelsior Technologies Limited in the UK,
further supporting the development of Consumer Packaging.
The impact of maintenance shuts on underlying operating profit in 2016 was
around EUR75 million (2015: EUR90 million), slightly above expectation due to a
longer than anticipated shut at our Richards Bay mill (South Africa). Based on
prevailing market prices, we estimate that the impact of planned maintenance
shuts on underlying operating profit in 2017 will be around EUR80 million.
Input costs were generally lower across our European businesses. Wood costs
were lower than the prior year with a stable supply and demand balance. Average
benchmark costs for paper for recycling were up around 11% on 2015 as prices
increased in the second half of the year on strong export demand and increased
European consumption. Energy costs were lower than the prior year due to lower
average crude oil and gas prices. Looking forward, rising commodity input costs
are expected to put some upward pressure on energy costs. Following the
significant volatility in polyethylene prices in 2015, pricing was more stable
during the year, but on average at similar levels to the prior year. In our
South Africa Division, inflationary pressures and higher imported costs
resulted in an increase in input costs.
Volatility in foreign exchange rates had a net negative impact on underlying
operating profit of EUR31 million. The weakening of a number of emerging market
currencies, particularly the Russian rouble, Turkish lira, Polish zloty and
Mexican peso, had a negative impact on translation of the profits of our Fibre
Packaging and domestically focused Russian uncoated fine paper operations,
while our South Africa Division benefited from the weakening of the rand due to
its significant export position.
Our cash generation remained strong with cash generated from operations of EUR
1,401 million up 10% on the prior year. Net debt reduced by EUR115 million to EUR
1,383 million, or 1.0 times EBITDA.
Underlying earnings of 137.8 euro cents per share were up 3% compared to 2015.
After taking the effect of special items into account, basic earnings of 131.8
euro cents per share were up 6% compared to 2015.
Our Boards have recommended payment of a final dividend of 38.19 euro cents per
share, bringing the total dividend for the year to 57.0 euro cents per share,
an increase of 10% on 2015.
Packaging Paper (Europe & International Division)
EUR million Year ended Year Change Six months Six Change
31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Segment revenue 2,056 2,156 (5) 1,011 1,034 (2)
Underlying EBITDA 483 505 (4) 232 239 (3)
Underlying operating profit 361 391 (8) 169 180 (6)
Underlying operating profit 17.6% 18.1% 16.7% 17.4%
margin
Special items - (14) - -
Capital expenditure 156 259 86 155
Net segment assets 1,760 1,753
ROCE 22.4% 25.5%
Profitability in Packaging Paper, down 8% on the prior year, was impacted by
lower average selling prices across most key grades, lower green energy prices
and the loss of contribution from the Raubling mill sold during 2015, partially
offset by the benefits of completed capital investment projects. However, the
business unit delivered a strong ROCE performance of 22.4%.
On a like-for-like basis, excluding the impact of the sale of the Raubling
mill, sales volumes were marginally up across all containerboard grades.
As anticipated, we saw some price erosion in the kraftliner grades in the first
half of the year. While demand growth remained solid, the market came under
some pressure from increased supply from new capacity in Europe and competition
from importers benefiting from weak emerging market currencies. Average
European benchmark selling prices for unbleached kraftliner were down 5% on the
prior year and white-top kraftliner prices were down around 2%. Supported by
sustained good demand and a strong order position, a price increase of EUR20 per
tonne was implemented for unbleached kraftliner in August across all European
markets excluding southern Europe, partly offsetting the price erosion seen
over the course of the first half of the year. In Russia, price increases for
white-top kraftliner were implemented at the beginning of 2016 and remained
stable throughout the year.
In response to strong demand, price increases of EUR50 per tonne were recently
implemented on all unbleached kraftliner grades in Europe, effective from March
2017. A price increase of EUR50 per tonne has also been announced for white-top
kraftliner to take effect from the beginning of the second quarter of 2017. In
Russia, prices for white-top kraftliner were increased from the beginning of
2017.
Average European benchmark selling prices for recycled containerboard were down
3% on the prior year period. Price increases of EUR40 per tonne were achieved
from February 2017 and a further increase of EUR40 per tonne has been announced
to take effect from the beginning of the second quarter of 2017.
Sales volumes for sack kraft paper increased compared to the prior year,
benefiting from good demand, fewer planned maintenance shuts and productivity
improvements. Average selling prices for sack kraft paper produced in Europe
declined by 5-6% in the early part of 2016 and remained at those levels through
the balance of the year. Given strong demand, selling prices were increased by
3-4% from the beginning of 2017 in all markets.
We saw good demand across our range of speciality kraft papers, although sales
volumes of certain grades were impacted by the closure of high cost production
capacity in 2015. Selling prices were, on average, marginally lower than in the
prior year.
We have completed a number of investments across our mills in recent years and
our focus in 2016 was on fully realising the benefits of these investments.
These benefits include a reduction in energy costs at our Swiecie mill (Poland)
following the completion in 2015 of the new recovery boiler, and improved
productivity following the completion of a number of smaller investments across
our production base.
Input costs were at a similar level to the prior year with the business
benefiting from cost savings initiatives and generally lower raw material and
energy costs which offset higher paper for recycling costs and other
inflationary increases. Green energy prices were significantly lower in Poland
due to legislative changes, resulting in a EUR20 million reduction in income from
green energy credits compared to the prior year, including the impact of a
write-down of EUR6 million in the carrying value of the inventory of green energy
credits held at year end.
Planned maintenance shuts at our Syktyvkar (Russia) and Swiecie (Poland) mills
were completed during the first half of the year, and a further planned
maintenance shut at Swiecie and the majority of our kraft paper mill shuts were
completed in the second half of the year. A similar planned maintenance
schedule is anticipated in 2017 although the shuts at our Swiecie and Steti
mills will be extended as we progress our major capital investments in those
operations.
Fibre Packaging (Europe & International Division)
EUR million Year ended Year Change Six months Six Change
31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Segment revenue 1,929 2,031 (5) 961 985 (2)
Underlying EBITDA 194 187 4 100 86 16
Underlying operating profit 123 120 3 64 52 23
Underlying operating profit 6.4% 5.9% 6.7% 5.3%
margin
Special items (13) (21) (13) (11)
Capital expenditure 107 118 57 60
Net segment assets 1,006 935
ROCE 13.5% 13.9%
In Fibre Packaging our underlying operating profit increased 3% to EUR123 million
and ROCE was 13.5%, with volume growth in Corrugated Packaging and a good
performance from the core European industrial bags business partly offset by
negative currency translation effects and ongoing challenges in the US and CIS
industrial bags businesses.
Corrugated Packaging achieved good organic volume growth, particularly in the
Czech Republic and Germany, supplemented by two acquisitions to expand our
corrugated network. Mondi SIMET S.A. (Poland) complements our existing
geographic footprint, allows for logistics optimisation and provides increased
production capacity in the growing Polish market. We started building work for
the conversion of this plant to a high-efficiency, heavy-duty box plant early
in 2017. Mondi Lebedyan (Russia) provides us with excellent opportunities in
the local agricultural market and increases our ability to serve our
multinational customers. Sales volumes were negatively impacted in Turkey, due
to ongoing political turbulence in the region, and Poland, where sales growth
was tempered by the Russian embargo preventing the export of fresh fruit and
vegetables to that market. Profitability was also negatively affected by the
weaker Turkish lira and Polish zloty. Over the last two years, we have invested
significantly in all our corrugated operations, helping us to better serve our
customers and meet their more sophisticated product needs. The business
benefited from lower paper input costs and productivity gains.
In Industrial Bags, while European markets remained robust, the business was
negatively impacted by challenging market conditions in the US and CIS.
Overall, sales volumes declined 1% with good growth in Europe and the Middle
East offset by declines in the US and CIS. The breadth and geographic reach of
our Industrial Bags network gives us the unique ability to fully optimise our
production network to better serve our customers. In 2016, we closed our
facility at Sendenhorst (Germany), while continuing to serve our customers from
other sites and, in December 2016, announced the closure of our facility in
southern Belgium. We have also significantly increased the level of exports
from our Mexican operations into the US, and started production at our new
operation in Cote d'Ivoire. Lower sales volumes were partly compensated by
significant cost savings resulting from a strong focus on cost management and
the benefits of the restructuring and rationalisation activities. The weaker
Mexican peso had a negative impact on the translation of profits from our
Mexican operations.
Consumer Packaging (Europe & International Division)
EUR million Year ended Year Change Six months Six Change
31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Segment revenue 1,562 1,469 6 797 739 8
Underlying EBITDA 198 177 12 98 94 4
Underlying operating profit 121 108 12 57 59 (3)
Underlying operating profit 7.7% 7.4% 7.2% 8.0%
margin
Special items (19) (22) (19) (7)
Capital expenditure 91 92 49 42
Net segment assets 1,270 1,146
ROCE 10.5% 10.7%
Consumer Packaging made good progress with strong volume growth and improving
margins. Underlying operating profit increased 12% to EUR121 million with a ROCE
of 10.5%.
Good progress was made in our ongoing initiatives to improve the product mix.
Strong volume growth was achieved in our higher value-added segments of
personal care components, consumer laminates, technical films, and release
liners. The favourable product mix and focus on value-added segments resulted
in an improvement in our gross margin. On a like-for-like basis, excluding the
impact of acquisitions and disposals, sales volumes grew around 4%. We remain
well positioned for further growth.
The integration of the businesses acquired during 2015 is progressing well and
we are realising the synergies from these acquisitions. Two further
acquisitions were completed in 2016, growing our product offering and
geographic reach. Mondi Kalenobel (Turkey) produces flexible consumer packaging
for ice cream and other applications, as well as aseptic cartons, and serves
both international FMCG companies and regional food and beverage producers. The
company exports approximately half of its production - mainly to Western
Europe, the Middle East, and North Africa. Mondi Uralplastic (Russia)
manufactures a range of consumer flexible packaging products for food, personal
care, homecare, and other applications for both local and international
customers. A small net charge to underlying operating profit was incurred from
these acquisitions in the second half of the year due to the effects of
acquisition accounting and transaction costs.
In February 2017, we announced the acquisition of Excelsior Technologies
Limited in the UK, further supporting the development of Consumer Packaging in
high growth product applications. Excelsior is a vertically-integrated producer
of innovative flexible packaging solutions, mainly for food applications, with
a unique packaging technology for microwave steam cooking, complementing and
enhancing our global food packaging offering.
We completed the closure of operations in Italy and Spain, announced in 2015,
while retaining the ability to continue to serve customers from our sites in
central and eastern Europe. During 2016, we further debottlenecked some of our
plants and reallocated production between our sites to allow for site
specialisation, optimised production activities, cost savings, productivity
improvements, and reduced waste. In the US, we announced the restructuring of
our release liner operations, including the closure of one site. We appointed a
chief innovation officer and reorganised our research and development
activities to further strengthen our capabilities in this area. Fixed costs
were higher, in line with our increased focus on innovation and customer
service, partially offset by one-off gains in the first half of the year.
Uncoated Fine Paper (Europe & International Division)
EUR million Year ended Year Change Six months Six Change
31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Segment revenue 1,246 1,233 1 621 607 2
Underlying EBITDA 343 291 18 171 139 23
Underlying operating profit 264 212 25 131 99 32
Underlying operating profit 21.2% 17.2% 21.1% 16.3%
margin
Capital expenditure 53 65 26 33
Net segment assets 851 821
ROCE 36.0% 25.6%
Our Uncoated Fine Paper business delivered an exceptional performance,
generating underlying operating profit of EUR264 million, up 25% on the prior
year, with a ROCE of 36%. Domestic price increases in the CIS markets and a
strong focus on productivity and efficiency more than offset negative currency
effects from the weaker rouble and flat European pricing.
Uncoated fine paper sales volumes increased 1% over the prior year, reflecting
a strong performance in an overall declining market. European market demand is
estimated to have contracted in 2016 by 3-4%, following stable demand in 2015,
bringing the average demand contraction over the past two years to 1-2% per
year, in line with the longer-term trend. Demand in the CIS remained stable.
Benchmark average selling prices in Europe were similar to the prior year, but
2% down in the second half of the year compared to the first half. Selling
price increases were implemented at the beginning of the year but came under
pressure early in the second half due to weak European demand and pressure from
imports offsetting the benefits of industry capacity rationalisation in the
prior year. Demand improved towards the end of year and a price increase of
5-7% has been announced across all uncoated fine paper grades in Europe from
February 2017.
Selling prices were increased in Russia at the beginning of 2016, offsetting
the effects of domestic cost inflation. Prices remain stable going into 2017.
The business benefited from generally lower input costs, particularly energy
costs. In Russia, wood costs were lower in rouble terms, while in Europe wood
costs increased marginally. Our commercial excellence programmes, focused on
purchased material, operating efficiencies and productivity improvements,
contributed to good cost control, offsetting inflationary cost pressures, most
notably in Russia. Hardwood pulp prices were 11% lower in euro terms providing
a benefit to our semi-integrated Neusiedler (Austria) operations.
Planned maintenance shuts were completed at Syktyvkar in the first half of the
year, at Ruzomberok in both the first and second half, and at Neusiedler in the
second half of the year. In 2017, our Syktyvkar shut is planned for the first
half of the year and our Ruzomberok and Neusiedler mill shuts are scheduled for
the second half.
South Africa Division
EUR million Year ended Year Change Six months Six Change
31 December ended 31 % ended months %
2016 December 31 December ended 31
2015 2016 December
2015
Segment revenue 594 652 (9) 304 338 (10)
Underlying EBITDA 182 199 (9) 68 110 (38)
Underlying operating profit 147 161 (9) 49 92 (47)
Underlying operating profit 24.7% 24.7% 16.1% 27.2%
margin
Special items (6) - (6) -
Capital expenditure 58 61 33 29
Net segment assets 731 563
ROCE 27.8% 30.1%
Our South Africa Division was negatively affected by sharply lower average pulp
export selling prices and higher input costs which were only partially offset
by positive currency effects, a higher fair value gain on forestry assets and
domestic price increases. Underlying operating profit of EUR147 million was down
9% on a very strong performance in the prior year and ROCE was 27.8%.
Strong domestic demand for uncoated fine paper and white-top kraftliner was met
by reducing exports of these products and increasing the amount of pulp
converted to these paper grades. Domestic demand for pulp decreased,
compensated by a higher level of exports. Overall, sales volumes were
marginally lower than in the prior year.
Domestic selling prices were higher across all our grades. Export prices for
white-top kraftliner were broadly in line with the prior year and average
benchmark US dollar pulp prices were around 11% lower than the previous year.
Lower export prices were partially compensated by the weaker rand.
Forestry gains are dependent on a variety of factors over which we have limited
control. In 2016, selling prices of timber increased significantly and a fair
value gain of EUR64 million (2015: EUR40 million) was recognised, of which EUR48
million was recognised in the first half of the year. The increase in the fair
value gain was offset by the consequent impact of higher felling costs.
Inflationary price increases in labour and electricity, higher wood costs
mainly due to the forestry revaluation, and the impact of the weaker South
African rand on imported materials put pressure on input costs. These impacts
were partially mitigated by our focus on cost optimisation, driving
efficiencies and reducing waste.
An extended planned maintenance shut at Richards Bay, which included the tie-in
of our recent capital investments, took place during the second half of 2016
and a much shorter shut is planned for the second half of 2017.
Special items
Special items are those items of financial performance that we believe should
be separately disclosed to assist in the understanding of our underlying
financial performance. Special items are considered to be material either in
nature or in amount.
The net special item charge of EUR38 million before tax comprised the following:
* Restructuring and closure costs of EUR17 million and related impairments of EUR
15 million for the closure of an Industrial Bags (Fibre Packaging) plant in
southern Belgium and restructuring of our US release liner business (Consumer
Packaging), including the closure of one operation.
* In our South Africa Division, we took the decision to restart our second
uncoated fine paper machine to meet domestic demand for reels and, at the same
time, reduce our production of newsprint in response to declining demand. This
gave rise to a further impairment of the newsprint assets of EUR7 million, the
reversal of impairment of the uncoated fine paper assets of EUR2 million, and
restructuring costs of EUR1 million.
Further detail is provided in note 4 of our condensed combined and consolidated
financial statements.
Tax
Based on our geographic profit mix and the applicable tax rates, we would
expect our tax rate to be around 22%. However, we benefited from tax incentives
related to our capital investments in Slovakia, Poland and Russia. In addition,
we recognised deferred tax assets related to previously unrecognised tax losses
which we now expect to be able to utilise in the coming years. As such, our
underlying tax charge for 2016 of EUR166 million (2015: EUR161 million) reflects an
effective tax rate of 19%, consistent with 2015. Tax relief on special items
amounted to EUR9 million (2015: EUR10 million).
Tax paid in 2016 of EUR173 million (2015: EUR160 million) is higher than the 2016
tax charge as a result of the timing of final tax payments for 2015 and earlier
financial years.
Going forward, assuming a similar profit mix, we would anticipate marginal
upward pressure on the tax rate over the next three years as it moves towards
the expected tax rate of 22%.
Cash flow
Our cash generation remained strong. In 2016, the cash generated from our
operations was EUR1,401 million, up 10%. On average over the last five years,
cash generated from operations has increased by 10.5% per year.
Working capital as a percentage of revenue was 12%, marginally up on the prior
year (11.6%). The net cash inflow from movements in working capital during the
year was EUR68 million (2015: inflow of EUR9 million).
We paid dividends of EUR274 million to shareholders (2015: EUR209 million).
Interest paid of EUR82 million (2015: EUR93 million) was lower than the prior year,
mainly due to the lower average net debt and composition of our borrowings.
In 2016, we invested EUR465 million (2015: EUR595 million) in capital expenditure
and completed four acquisitions with a total purchase price, on a debt and cash
free basis, of EUR185 million.
Capital investments
Investing in our high-quality, low-cost assets to maintain and enhance our
competitive advantage is of particular importance in our pulp and paper assets
where products are generally more commoditised and low-cost production is key.
Our focus is on enhancing our cost competitiveness, improving energy
efficiency, meeting the needs of our customers and delivering organic growth in
our packaging businesses.
Our disciplined approach to investigating, approving and executing capital
projects is one of our key strengths and plays an important role in
successfully delivering the returns we require. Over the last three years, our
major capital projects have contributed around EUR150 million of incremental
operating profit, including EUR50 million in 2016, and we expect to generate a
further EUR30 million in 2017.
We are in the process of commissioning the second phase of our project at
Swiecie (Poland), which will provide an additional 100,000 tonnes per annum of
softwood pulp and 80,000 tonnes per annum of lightweight kraftliner. At our
Steti mill (Czech Republic), the ramp-up of our rebuilt paper and inline
coating machine has been slower than anticipated. We have allocated additional
capital to meet quality requirements that are higher than the original project
specifications, and expect to ramp up production over the course of 2017.
Towards the end of 2016 we completed the investment project to upgrade the
woodyard at our Richards Bay mill (South Africa), which has significantly
improved efficiencies at the mill and facilitated improved efficiencies in wood
handling processes in our forests, providing higher-quality fibre, reduced
maintenance costs, improved reliability, and some energy savings. Our
investment to produce unbleached kraftliner in addition to white-top kraftliner
at our Richards Bay mill gives us the opportunity to supply our customers with
this specialised product.
In recent years, we have invested significantly in the modernisation and growth
of our Corrugated Packaging and Consumer Packaging businesses. Looking forward,
while still considering capital investment opportunities in these businesses,
we are focused on the optimisation of our existing operations and recent
investments.
We have a strong pipeline of large projects over the next few years:
* The new 300,000 tonne per annum kraft top white machine at Ruzomberok (EUR
310 million). This project remains subject to obtaining approval of tax
incentives from the European Commission and necessary permitting.
* During 2016, the Boards approved a new woodyard and bleaching line
modernisation at Steti (EUR41 million).
* In January 2017, the Boards approved a further EUR470 million for the
replacement of the recovery boiler at Steti, the rebuild of the fibre lines,
the debottlenecking of the paper machines and an investment in a new 90,000
tonnes per annum machine glazed speciality kraft paper machine. This project
remains subject to obtaining tax incentives and necessary permitting.
Given the approved project pipeline, our annual capital expenditure is expected
to be in the range of EUR600-650 million in 2017 and EUR800-850 million in 2018 as
expenditure on these large projects accelerates.
Treasury and borrowings
Net debt at 31 December 2016 was down EUR115 million at EUR1,383 million (2015: EUR
1,498 million), reflecting our strong cash generating capacity despite our
ongoing capital expenditure programme and EUR185 million spent on acquisitions.
On 14 April 2016, we issued a 1.5% EUR500 million Eurobond with an eight year
term under our European Medium Term Note Programme, thereby extending the
Group's maturity profile and ensuring ample liquidity. At the end of the year,
EUR812 million of our EUR2.5 billion committed debt facilities remained undrawn and
we held net cash of EUR377 million. The weighted average maturity of our
Eurobonds and committed debt facilities was 3.9 years at 31 December 2016.
Gearing at 31 December 2016 was 27.2% and our net debt to 12 month trailing
EBITDA ratio was 1.0 times, well within our key financial covenant requirement
of 3.5 times.
Our credit ratings were reaffirmed during the year. Our credit rating from
Standard & Poor's is BBB (stable outlook) and from Moody's Investors Service is
Baa2 (stable outlook).
Net finance costs of EUR101 million were EUR4 million lower than the previous year.
Average net debt of EUR1,476 million was 11% lower than the prior year and our
effective interest rate was 6.2% (2015: 6.3%). Net finance costs are expected
to reduce in 2017 due to the redemption of the April 2017 5.5% EUR500 million
Eurobond from available cash and committed undrawn debt facilities.
Growing Responsibly
Our long-term success is dependent on our ability to integrate sustainability
across the Group. This ensures that we can continue to address the risks and
opportunities that arise from global environmental and societal trends, retain
our competitive edge and generate value for our stakeholders. We believe that
being part of the solution to global challenges will secure the long-term
success of our business and secure the wellbeing of our communities and other
stakeholders.
We have a strong track record of delivering on our sustainability commitments.
At the end of 2015 we completed our previous commitment period and this year we
launched our Growing Responsibly model. While growing responsibly has long been
part of our philosophy, the model provides the business with a formal framework
to demonstrate, monitor and improve the way sustainability is embedded in the
business. The model includes 16 clearly defined 2020 commitments (the climate
commitment runs to 2030) across 10 action areas.
With the resultant strong focus on a safe, fair and diverse workforce, working
towards a more transparent and responsible supply chain, and continued
commitment to minimising our climate footprint, we are able to address risks
and opportunities across our business. A number of our recent, ongoing and
planned capital expenditure projects will help us to meet our new commitments,
particularly those relating to green energy and emissions reduction.
Our people are important to us, particularly when it comes to ensuring that
everyone returns home safely to their families every day. It is very
encouraging that the steps we have taken resulted in a significantly improved
total recordable case rate in 2016. With zero harm our ultimate goal, we have
been working hard to eliminate fatal and life-altering injuries. Our focus on
the top fatal risks at all operations has allowed us to better anticipate and
manage our highest risk activities - which usually occur during annual
maintenance shuts and project implementation. These efforts thankfully
contributed to us experiencing no fatalities or life-altering injuries during
the year. Regrettably in February 2017 we suffered a fatality in our South
African forestry operations following a timber vehicle accident. We remain
determined to focus on top risks so that fatalities and life-altering injuries
are not a part of our future.
Dividend
The Boards' aim is to offer shareholders long-term dividend growth within a
targeted dividend cover range of two to three times over the business cycle.
Given our strong financial position and the Boards' stated objective to
increase distributions to shareholders through the ordinary dividend, the
Boards have recommended an increase in the final dividend.
The Boards of Mondi Limited and Mondi plc have recommended a final dividend of
38.19 euro cents per share (2015: 37.62 euro cents per share), payable on
18 May 2017 to shareholders on the register on 21 April 2017. Together with the
interim dividend of 18.81 euro cents per share, paid on 13 September 2016, this
amounts to a total dividend for the year of 57.0 euro cents per share, an
increase of 10% on the 2015 total dividend of 52.0 euro cents per share.
The final dividend is subject to the approval of the shareholders of Mondi
Limited and Mondi plc at the respective Annual General Meetings scheduled for
11 May 2017.
Outlook
Our outlook for the business is positive. We have implemented or announced
price increases in containerboard, sack kraft and uncoated fine paper grades,
supported by good demand. We expect some inflationary cost pressures across the
Group and a lower forestry fair value gain. Furthermore, we anticipate a more
challenging trading environment in certain uncoated fine paper markets
following price erosion in Europe over the course of 2016, combined with
emerging market currency volatility. However, we expect to continue to benefit
from contributions from our recently completed capital projects and
acquisitions, together with steady organic growth in our downstream converting
businesses.
Our consistent and focused strategy, robust business model and firm focus on
operational excellence all continue to contribute to our performance. We remain
confident of continuing to deliver industry-leading returns.
Principal risks and uncertainties
The Boards are responsible for the effectiveness of the Group's risk management
activities and internal control processes. They have put procedures in place
for identifying, evaluating, and managing the significant risks that the Group
faces. In combination with the audit committee, the Boards have conducted a
robust assessment of the principal risks to which Mondi is exposed and they are
satisfied that the Group has effective systems and controls in place to manage
its key risks within the risk tolerance levels established.
Risk management is by nature a dynamic and ongoing process. Our approach is
flexible to ensure that it remains relevant at all levels of the business, and
dynamic to ensure we can be responsive to changing business conditions. This is
particularly important given the diversity of the Group's locations, markets
and production processes. Our internal control environment is designed to
safeguard the assets of the Group and to provide reasonable assurance that the
Group's business objectives will be achieved.
Strategic risks
The industries and geographies in which we operate expose us to specific
long-term risks which are accepted by the Boards as a consequence of the
Group's chosen strategy and operating footprint.
While there have been no significant changes in our strategic risk exposure
during the year, we continue to monitor recent capacity announcements and the
developments in the process as the UK seeks to exit the European Union.
The executive committee and Boards monitor our exposure to these risks and
evaluate investment decisions against our overall exposures so that our
strategic capital investments and acquisitions take advantage of the
opportunities arising from our deliberate exposure to such risks.
Industry productive capacity
Plant utilisation levels are the main driver of profitability in paper mills.
New capacity additions are usually in large increments which, through their
impact on the supply/demand balance, influence market prices. Unless market
growth exceeds capacity additions, excess capacity may lead to lower selling
prices. In our converting operations newer technology may lower operating costs
and provide increased product functionality impacting margins.
We monitor industry developments in terms of changes in capacity and
utilisation levels, as well as trends and developments in our own product
markets.
Our strategic focus on low-cost production and innovation activities to produce
higher value added products, combined with our focus on growing markets and
consistent investment in our operating capacity, ensures that we remain
competitive.
Product substitution
Changing global socio-economic and demographic trends and consumption patterns
and increased public awareness of sustainability challenges affect the demand
for Mondi's products. Customers' needs and purchasing power are changing in
emerging markets. Substitution may be to different products not produced by
Mondi or to different solutions meeting the same customer requirement. Factors
that impact the demand for our products include reduced weight of packaging
materials, increased use of recycled materials, electronic substitution of
paper products, increased demand for high-quality printed material, certified
and responsibly produced goods, and specific material qualities.
Our ability to meet changes in consumer demand depends on our capacity to
correctly anticipate change and develop new products on a sustainable,
competitive and cost-effective basis. Opportunities also exist for us to take
market share from substitutes produced by our competitors. Our focus is on
products enjoying positive substitution dynamics and growing regional markets
as we work with our customers to develop new markets and new products. Our
broad range of converting products provides some protection from the effects of
substitution between paper and plastic-based packaging products.
Fluctuations and variability in selling prices or gross margins
Our selling prices are determined by changes in capacity and demand for our
products, which are, in turn, influenced by macro-economic conditions, consumer
spending preferences, and inventory levels maintained by our customers. Changes
in prices differ between products and geographic regions and the timing and
magnitude of such changes have varied significantly over time.
Our strategic focus is on higher growth markets and products where we enjoy a
competitive advantage through innovation, proximity or production cost. We
continue to invest in our high-quality, low-cost production assets to ensure we
maintain our competitive cost position. We are committed to meeting service
levels and product quality requirements. Our high levels of vertical
integration reduce our exposure to price volatility of our key input costs. Our
financial policies and structures take the inherent price volatility of the
markets in which we operate into consideration.
Country risk
We have production operations across more than 30 countries; some in
jurisdictions where the political, economic, and legal systems are less
predictable than in countries with more developed institutional structures.
Political or economic upheaval, inflation, changes in laws, nationalisation, or
expropriation of assets may have a material effect on our operations in those
countries.
Despite improvements in certain segments of the global economy, uncertainties
remain over slowing growth, political and economic structural weakness in the
eurozone's single currency framework, and uncertainty over the outcomes of the
UK's decision to exit from the European Union.
Areas of weaker governance also present the challenge of addressing potential
human rights issues in our operations and supply chain. The introduction of the
UK Modern Slavery Act has further highlighted the need to identify and address
potential risks of child labour, forced or bonded labour and human trafficking
in our supply chain. From a human capital perspective, we face different
demographic and social conditions in each country which affects the
availability of skills and talent for the Group.
We actively monitor all countries and environments in which we operate. Regular
formal and informal interaction with government officials, local communities,
and business partners assist us to remain abreast of changes and new
developments. The Boards have approved specific country risk premiums to be
added to the required returns on investment projects in those countries where
risks are deemed to be higher and new investments are subject to rigorous
strategic and commercial evaluation. Where we have large operations in higher
risk locations, we maintain a permanent internal audit presence and operate
asset protection units.
We are in the process of reviewing how we assess, monitor, and manage risks in
our supply chain, including the use of country-based risk assessment tools and
databases. We actively engage with our employees, communities and other
stakeholders for a better understanding of local socio-economic conditions and
development needs. Our geographic diversity and decentralised management
structure, utilising local resources in countries in which we operate, reduces
our exposure to any specific jurisdiction.
Financial risks
We aim to maintain an appropriate capital structure and to conservatively
manage our financial risk exposures in compliance with all laws and
regulations.
Despite ongoing short-term currency volatility and increased scrutiny of the
tax affairs of multinational companies, our overall residual risk exposure
remains similar to previous years, reflecting our conservative approach to
financial risk management.
Capital structure
A strong and stable financial position increases our flexibility and provides
us with the ability to take advantage of strategic opportunities as they arise.
Our ability to raise debt and/or equity financing is significantly influenced
by general economic conditions, developments in credit markets, equity market
volatility, and our credit rating. Failure to obtain financing at reasonable
rates could prevent us from realising our strategy and have a negative impact
on our competitive position.
We operate a central treasury function under a board-approved treasury policy.
We provide regular reporting to the Boards on our treasury management policies.
We aim to maintain an investment grade credit rating and we have access to a
variety of sources of funding with varying maturities. We only enter into
contracts relating to financial instruments with counterparties that have
investment grade credit ratings.
Currency risk
We operate in more than 30 countries and are thus exposed to the effect of
changes in foreign currency rates. The impact of currency fluctuations affect
us because of mismatches between the currencies in which our operating costs
are incurred and those in which revenues are received. Key operating cost
currencies that are not fully offset by local currency denominated revenues
include the South African rand, Polish zloty, Swedish krona, and Czech koruna;
while the revenues generated in US dollar, Russian rouble and UK pound sterling
are greater than operating costs incurred in those currencies. In addition,
appreciation of the euro compared with the currencies of the other key paper
producing regions or paper pricing currencies, notably the US dollar, would
reduce the competitiveness of the products Mondi produces in Europe compared to
imports from such key paper-producing regions which could potentially lead to
lower revenues and earnings.
We fund our entities in their local currencies to minimise translation risk.
This exposes us to interest rate risk from these currencies which we aim to
manage through interest rate swaps and fixed rate borrowings. Balance sheet
exposure and material forecast future capital expenditure transactions are
hedged. We do not permit speculative currency positions. We do not hedge our
exposure to projected future sales or purchases and our businesses respond to
currency fluctuations through changes in selling prices or increasing the level
of exports where competitiveness improves as currencies weaken. Our strategic
focus on low-cost production assets and operational efficiency provide inherent
cost advantages, protecting us from adverse currency fluctuations.
Tax risks
We operate in a number of countries - all with different tax systems. We make
significant intragroup charges, the basis for which is subject to review during
tax audits. In addition, the international tax environment is becoming more
onerous, requiring increasing transparency and reporting and in-depth scrutiny
of the tax affairs of multinational companies.
The Boards have approved the Group's Tax Policy. We aim to manage our affairs
conservatively and our operations are structured tax efficiently to take
advantage of available incentives and exemptions. We have dedicated tax
resources throughout the Group supported by a centralised Group tax team. We
obtain external advisory opinions for all major tax projects, such as
acquisitions and restructuring activities, and make use of external benchmarks
where possible. Arm's length principles are applied in the pricing of all
intra-group transactions in accordance with Organisation for Economic
Cooperation and Development guidelines.
Operational risks
A low residual risk tolerance is demonstrated through our focus on operational
excellence, investment in our people and commitment to the responsible use of
resources.
Our investments to improve our energy efficiency, engineer out our most
significant fatal risks, improve operating efficiencies, and renew our
equipment continue to reduce the likelihood of operational risk events.
However, the potential impact of any such event remains unchanged.
Cost and availability of raw materials
Access to sustainable sources of raw materials is essential to our operations.
We have access to our own sources of wood in Russia and South Africa and we
purchase wood, paper for recycling, pulp, and polymers for film production to
meet our needs in the balance of our operations. Wood prices and availability
may be adversely affected by reduced quantities of available wood supply that
meet our standards for chain-of-custody certified or controlled wood and
initiatives to promote the use of wood as a renewable energy source.
We are committed to acquiring our raw materials from sustainable, responsible
sources and avoiding the use of any controversial or illegal supply. We are
involved in multi-stakeholder processes to address challenges in meeting the
global demand for sustainable, responsible fibre and we encourage legislation
supporting the local collection of recycled materials. The sustainable
management of our forestry operations is key in managing our overall
environmental impact, helping to protect ecosystems, and developing resilient
landscapes. We have built strong forestry management resources in Russia and
South Africa to actively monitor and manage our wood resources in those
countries. We have multiple suppliers for each of our operations and our
centralised procurement teams work closely with our operations in actively
pursuing longer term agreements with strategic suppliers. We have developed an
internal monitoring and risk assessment system to understand and manage the
performance of our suppliers and their adherence to our Suppliers' Code of
Conduct.
Energy security and related input costs
Mondi is a significant consumer of electricity which is generated internally
and purchased from external suppliers. Where we do not generate electricity
from biomass and by-products of our production processes, we are dependent on
external suppliers for raw materials such as gas, oil and coal. Increasing
energy costs contribute significantly to increasing chemical, fuel, and
transportation costs which are often difficult to pass on to customers. As an
energy-intensive business, we face potential physical and regulatory risks
related to climate change.
We monitor our electricity usage, carbon emission levels and use of renewable
energy. Most of our larger operations have high levels of electricity
self-sufficiency. We focus on improving the energy efficiency of our operations
by investing in improvements to our energy profile and increased electricity
self-sufficiency, while reducing ongoing operating costs and carbon emission
levels. Where we generate electricity surplus to our own requirements, we may
sell such surplus externally. We also generate revenue from the sale of green
energy credits in certain of our operations at prices determined in the open
market.
Technical integrity of our operating assets
We have five major mills which account for approximately 74% of our total pulp
and paper production capacity and a significant consumer packaging
manufacturing facility in Germany. If operations at any of these key facilities
are interrupted for any significant length of time, it could have a material
adverse effect on our financial position or performance. Accidents or incidents
such as fires, explosions, or large machinery breakdowns could result in
property damage, loss of production, reputational damage, and/or safety
incidents.
Our capital investment programme supports the replacement of older equipment to
improve both reliability and integrity and our proactive repair and maintenance
strategy is designed to improve production reliability and minimise breakdown
risks. We conduct detailed risk assessments of our high-priority equipment and
have specific processes and procedures in place for the ongoing management and
maintenance of such equipment. We actively monitor all incidents and have a
formal process which allows us to share lessons learnt across our operations,
identify emerging issues, conduct benchmarking, and evaluate the effectiveness
of our risk reduction activities.
Environmental impact of our operations
We operate in a high-impact sector and need to manage the associated risks and
responsibilities. Our operations are water, carbon and energy intensive;
consume materials such as fibre, polymers, metals and chemicals; and generate
emissions to air, water and land. We are the custodian of more than two million
hectares of forested land. We are subject to a wide range of international,
national and local environmental laws and regulations, as well as the
requirements of our customers and expectations of our broader stakeholders.
Costs of continuing compliance, potential restoration and clean-up activities,
and increasing costs from the effects of emissions have an adverse impact on
our profitability.
We ensure that we are complying with all applicable environmental, health and
safety requirements where we operate. Our own policies and procedures, at or
above local policy requirements, are embedded in all our operations and are
supported through the use of externally accredited environmental management
systems. We focus on a clean production philosophy to address the impact from
emissions, discharge, and waste. We focus on increasing the energy efficiency
of our operations and using biomass-based fuels in order to reduce our use of
fossil-based energy sources. We have undertaken detailed compliance assessments
regarding Industry Emissions and Energy Efficiency Directives to determine
future investment requirements. We emphasise the responsible management of
forests and associated ecosystems and protect high conservation value areas.
Employee and contractor safety
We operate large facilities, often in remote locations. Accidents/incidents
cause injury to our employees or contractors, property damage, lost production
time, and/or harm to our reputation. Risks include: fatalities, serious
injuries, illness, disease, and substance abuse.
We have a goal of zero harm. We continually monitor incidents and close calls
and actively transfer learnings across our operations. We apply an externally
accredited safety management system and conduct regular audits of our
operations to ensure our facilities remain fit-for-purpose. We have implemented
a project to engineer out the most significant risks in our operations which is
supported by robust controls and procedures for operating those assets. We
provide extensive training to ensure that performance standards and practice
notes are communicated and understood and our incentives are impacted by the
non-achievement of safety milestones.
Compliance risks
We have a zero tolerance approach to compliance risks. Our strong culture and
values, emphasised in every part of our business with a focus on integrity,
honesty, and transparency, underpins our approach.
Reputational risk
Non-compliance with the legal and governance requirements and globally
established responsible business conduct in any of the jurisdictions in which
we operate and within our supply chain could expose us to significant risk if
not actively managed. These requirements include laws relating to the
environment, exports, price controls, taxation, human rights, and labour. Fines
imposed by authorities for non-compliance are severe and, in some cases,
legislation can result in criminal sanction for entities and individuals found
guilty.
We operate a comprehensive training and compliance programme, supported by
self-certification and reporting, with personal sanction for failure to comply
with Group policies. Our legal and governance compliance is supported by a
centralised legal compliance team and is subject to regular internal audit
review. We operate a confidential reporting hotline, Speakout, enabling
employees, customers, suppliers, managers and other stakeholders to raise
concerns about conduct that may be contrary to our values. We increasingly work
with our suppliers to promote responsible business conduct in the value chain.
Information technology risk
Many of our operations are dependent on the availability of IT services and an
extended interruption of such services may result in plant shutdown and an
inability to meet customer requirements. Cyber crime continues to increase and
attempts are increasingly sophisticated, with the consequences of successful
attacks including compromised data, financial fraud, and system shutdowns.
We have a comprehensive IT Security Policy approved by our Boards. We conduct
regular threat assessments and utilise external providers to evaluate and
review our security policies and procedures. Where possible, we have
redundancies in place, our system landscape is based on well-proven products,
and we have cyber crime insurance. We operate an extensive training and
awareness programme for all our users.
Going concern
The directors have reviewed the Group's budget, considered the assumptions
contained in the budget, and reviewed the critical risks which may impact the
Group's performance in the near term. These include an evaluation of the
current macroeconomic environment and reasonably possible changes in the
Group's trading performance.
The Group's financial position, cash flows, liquidity position, and borrowing
facilities are described in the annual financial statements. At 31 December
2016, Mondi had EUR812 million of undrawn, committed debt facilities. The Group's
debt facilities have maturity dates of between 1 and 9 years, with a weighted
average maturity of 3.9 years.
Based on their evaluation, the Boards are satisfied that the Group remains
solvent and has adequate liquidity 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
the financial statements.
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 1340 / +44 7909 684 466
Roger Newby +44 20 3727 1340
Max Gebhardt +27 11 214 2402
Conference call dial-in and webcast details
Please see below details of our dial-in conference call and webcast that will
be held at 08.30 (UK) and 10.30 (SA).
The conference call dial-in numbers are:
South Africa 0800 200 648 (toll-free)
UK 0808 162 4061 (toll-free)
Europe/ other 00800 246 78 700 (toll-free)
The webcast will be available via www.mondigroup.com/FYResults16.
The presentation will be available to download from the above website an hour
before the webcast commences. Questions can be submitted via the dial-in
conference call or via the webcast.
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 webcast, please e-mail
mondi@kraftwerk.co.at and you will be contacted immediately.
A video recording of the presentation will be available on Mondi's website
during the afternoon of 23 February 2017.
Directors' responsibility statement
These financial statements have been prepared under the supervision of the
Group chief financial officer, Andrew King CA (SA), and have been audited in
compliance with the applicable requirements of the Companies Act of South
Africa 2008 and the UK Companies Act 2006.
The responsibility statement has been prepared in connection with the Group's
Integrated report and financial statements 2016, extracts of which are included
within this announcement.
The directors confirm that to the best of their knowledge:
* the condensed combined and consolidated financial statements have been
prepared in accordance with the recognition and measurement principles of
International Financial Reporting Standards (IFRS) and are derived from the
audited combined and consolidated financial statements of the Group,
prepared in accordance with IFRS. (They do not contain sufficient
information to comply with IFRS.)
* the Group's combined and consolidated financial statements, prepared in
accordance with IFRS, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;
* the Strategic report includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties they face;
* the Integrated report and financial statements 2016, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the company's performance, business model and
strategy;
* there have been no significant individual related party transactions during
the year; and
* there have been no significant changes in the Group's related party
relationships from that reported in the half-yearly results for the six
months ended 30 June 2016.
The Group's condensed combined and consolidated financial statements, and
related notes, including this responsibility statement, were approved by the
Boards and authorised for issue on 22 February 2017 and were signed on their
behalf by:
David Hathorn
Andrew
King
Director
Director
Audited financial information
The condensed combined and consolidated financial statements and notes 1 to 19
for the year ended 31 December 2016 have been audited by the Group's auditors,
Deloitte LLP and Deloitte & Touche. Their unmodified audit reports are
available for inspection at the Group's registered offices.
Condensed combined and consolidated income statement
for the year ended 31 December 2016
2016 2015
EUR million Notes Underlying Special Total Underlying Special Total
items items
(Note 4) (Note 4)
Group revenue 3 6,662 - 6,662 6,819 - 6,819
Materials, energy and consumables (3,249) - (3,249) (3,413) - (3,413)
used
Variable selling expenses (499) - (499) (512) - (512)
Gross margin 2,914 - 2,914 2,894 - 2,894
Maintenance and other indirect (301) - (301) (308) - (308)
expenses
Personnel costs (996) (13) (1,009) (1,003) (28) (1,031)
Other net operating expenses (251) (5) (256) (258) (25) (283)
Depreciation, amortisation and (385) (20) (405) (368) (4) (372)
impairments
Operating profit 981 (38) 943 957 (57) 900
Net profit from equity accounted 1 - 1 1 - 1
investees
Profit before net finance costs 982 (38) 944 958 (57) 901
Net finance costs 6 (101) - (101) (105) - (105)
Profit before tax 881 (38) 843 853 (57) 796
Tax charge 7 (166) 9 (157) (161) 10 (151)
Profit for the year 715 (29) 686 692 (47) 645
Attributable to:
Non-controlling interests 48 48 45 45
Shareholders 667 638 647 600
Earnings per share (EPS) attributable
to shareholders
(euro cents)
Basic EPS 8 131.8 124.0
Diluted EPS 8 131.7 123.7
Basic underlying EPS 8 137.8 133.7
Diluted underlying EPS 8 137.7 133.4
Basic headline EPS 8 135.9 123.4
Diluted headline EPS 8 135.8 123.1
Condensed combined and consolidated statement of comprehensive income
for the year ended 31 December 2016
2016 2015
EUR million Before Tax Net of Before Tax Net of
tax benefit tax tax expense tax
amount amount amount amount
Profit for the year 686 645
Items that may subsequently be
reclassified to the combined and
consolidated income statement
Cash flow hedges - - - (1) - (1)
Gains on available-for-sale investments 1 - 1 - - -
Exchange differences on translation of 150 - 150 (122) - (122)
foreign operations
Items that will not subsequently be
reclassified to the combined and
consolidated income statement
Remeasurements of retirement benefits (19) 4 (15) 27 (3) 24
plans
Other comprehensive income/(expense) for 132 4 136 (96) (3) (99)
the year
Other comprehensive income/(expense)
attributable to:
Non-controlling interests (4) - (4) (4) - (4)
Shareholders 136 4 140 (92) (3) (95)
Total comprehensive income attributable
to:
Non-controlling interests 44 41
Shareholders 778 505
Total comprehensive income for the year 822 546
Condensed combined and consolidated statement of financial position
as at 31 December 2016
EUR million Notes 2016 2015
Property, plant and equipment 3,788 3,554
Goodwill 681 590
Intangible assets 120 105
Forestry assets 10 316 219
Other non-current assets 61 58
Total non-current assets 4,966 4,526
Inventories 850 838
Trade and other receivables 1,049 994
Cash and cash equivalents 14b 404 64
Other current assets 41 47
Total current assets 2,344 1,943
Total assets 7,310 6,469
Short-term borrowings 11 (651) (250)
Trade and other payables (1,100) (1,038)
Other current liabilities (167) (165)
Total current liabilities (1,918) (1,453)
Medium and long-term borrowings 11 (1,119) (1,319)
Net retirement benefits liability 12 (240) (212)
Deferred tax liabilities (267) (241)
Other non-current liabilities (70) (57)
Total non-current liabilities (1,696) (1,829)
Total liabilities (3,614) (3,282)
Net assets 3,696 3,187
Equity
Share capital and stated capital 542 542
Retained earnings and other reserves 2,850 2,363
Total attributable to shareholders 3,392 2,905
Non-controlling interests in equity 304 282
Total equity 3,696 3,187
The Group's condensed combined and consolidated financial statements, and
related notes 1 to 19, were approved by the Boards and authorised for issue on
22 February 2017 and were signed on their behalf by:
David Hathorn Andrew King
Director
Director
Mondi Limited company registration number: 1967/013038/06
Mondi plc company registered number: 6209386
Condensed combined and consolidated statement of changes in equity
for the year ended 31 December 2016
EUR million Equity Non-controlling Total
attributable interests equity
to
shareholders
At 1 January 2015 2,628 266 2,894
Total comprehensive income for the year 505 41 546
Dividends paid (209) (25) (234)
Purchases of treasury shares (31) - (31)
Other 12 - 12
At 31 December 2015 2,905 282 3,187
Total comprehensive income for the year 778 44 822
Dividends paid (274) (32) (306)
Purchases of treasury shares (20) - (20)
Other 3 10 13
At 31 December 2016 3,392 304 3,696
Equity attributable to shareholders
EUR million 2016 2015
Combined share capital and stated capital 542 542
Treasury shares (24) (29)
Retained earnings 3,217 2,868
Cumulative translation adjustment reserve (536) (685)
Post-retirement benefits reserve (75) (65)
Share-based payment reserve 22 20
Cash flow hedge reserve (2) (2)
Merger reserve 259 259
Put option liability reserve (9) -
Other sundry reserves (2) (3)
Total 3,392 2,905
Condensed combined and consolidated statement of cash flows
for the year ended 31 December 2016
EUR million Notes 2016 2015
Cash flows from operating activities
Cash generated from operations 14a 1,401 1,279
Dividends received from equity accounted investees 1 -
Income tax paid (173) (160)
Net cash generated from operating activities 1,229 1,119
Cash flows from investing activities
Investment in property, plant and equipment (465) (595)
Investment in intangible assets (13) (9)
Investment in forestry assets (45) (41)
Acquisition of subsidiaries, net of cash and cash equivalents 13 (162) (72)
Proceeds from the disposal of businesses, net of cash and - 38
cash equivalents
Other investing activities 20 46
Net cash used in investing activities (665) (633)
Cash flows from financing activities
Proceeds from medium and long-term borrowings 501 2
Repayment of medium and long-term borrowings (166) (221)
(Repayment of)/proceeds from short-term borrowings 14c (152) 52
Interest paid (82) (93)
Dividends paid to shareholders 9 (274) (209)
Dividends paid to non-controlling interests (33) (26)
Purchases of treasury shares (20) (31)
Other financing activities 7 72
Net cash used in financing activities (219) (454)
Net increase in cash and cash equivalents 345 32
Cash and cash equivalents at beginning of year 36 9
Cash movement in the year 14c 345 32
Effects of changes in foreign exchange rates 14c (4) (5)
Cash and cash equivalents at end of year 14b 377 36
Notes to the condensed combined and consolidated financial statements
for the year ended 31 December 2016
1 Basis of preparation
The Group has two separate legal parent entities, Mondi Limited and Mondi plc,
which operate under a dual listed company (DLC) structure. The substance of the
DLC structure is such that Mondi Limited and its subsidiaries, and Mondi plc
and its subsidiaries, operate together as a single economic entity through a
sharing agreement, with neither parent entity assuming a dominant role.
Accordingly, Mondi Limited and Mondi plc are reported on a combined and
consolidated basis as a single reporting entity.
The Group's condensed combined and consolidated financial statements have been
prepared in accordance with the recognition and measurement principles of
International Financial Reporting Standards (IFRS). They have been derived from
the audited combined and consolidated financial statements of the Group,
prepared in accordance with IFRS; the South African Institute of Chartered
Accountants Financial Reporting Guides as issued by the Accounting Practices
Committee; the requirements of the Companies Act of South Africa 2008;
Financial Pronouncements as issued by the Financial Reporting Standards
Council; and Article 4 of the EU IAS Regulation. They do not contain
sufficient information to comply with IFRS.
The condensed combined and consolidated financial statements have been prepared
on a going concern basis as discussed in the commentary under the heading
'Going concern'.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2016 or 2015 but is derived
from those accounts. Statutory accounts for 2015 have been delivered to the
Registrar of Companies, and those for 2016 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the UK Companies Act 2006.
Copies of their unqualified auditors' reports on the Integrated report and
financial statements 2016 as well as the condensed combined and consolidated
financial statements are available for inspection at the Mondi Limited and
Mondi plc registered offices.
These condensed combined and consolidated financial statements have been
prepared on the historical cost basis, except for the fair valuing of financial
instruments and forestry assets.
2 Accounting policies
The same accounting policies, methods of computation and presentation have been
followed in the preparation of the condensed combined and consolidated
financial statements as were applied in the preparation of the Group's annual
financial statements for the year ended 31 December 2015, except that the
quantitative threshold for recognition of special items incurred after 1
January 2016 has been increased to EUR10 million (2015: EUR5 million). Subsequent
adjustments to items previously recognised as special items continue to be
reflected as special items in future periods even if they do not exceed the
reporting threshold.
3 Operating segments
Identification of the Group's externally reportable operating segments
The Group's operating segments are reported in a manner consistent with the
internal reporting provided to the DLC executive committee, the chief operating
decision-making body. Due to its unique characteristics in terms of geography,
currency and underlying risks, the South Africa Division is managed and
reported as a separate geographic segment. The remaining operating segments,
consolidated as the Europe & International Division, are managed based on the
nature of the underlying products produced by those businesses and comprise
four distinct segments.
Each of the reportable segments derives its income from the sale of
manufactured products.
Year ended 31 December 2016
Europe & International
EUR million, unless Packaging Fibre Consumer Uncoated South Corporate Intersegment Segments
otherwise stated Paper Packaging Packaging Fine Africa elimination total
Paper Division
Segment revenue 2,056 1,929 1,562 1,246 594 - (725) 6,662
Internal revenue (585) (32) (4) (4) (100) - 725 -
External revenue 1,471 1,897 1,558 1,242 494 - - 6,662
Underlying EBITDA 483 194 198 343 182 (34) - 1,366
Depreciation and (118) (66) (59) (77) (35) (1) - (356)
impairments
Amortisation (4) (5) (18) (2) - - - (29)
Underlying operating 361 123 121 264 147 (35) - 981
profit
Special items - (13) (19) - (6) - - (38)
Operating segment 2,092 1,315 1,502 1,064 857 4 (178) 6,656
assets
Operating net segment 1,760 1,006 1,270 851 731 - - 5,618
assets
Additions to 149 161 217 50 103 - - 680
non-current
non-financial assets
Capital expenditure 156 107 91 53 58 - - 465
cash payments
Operating margin (%) 17.6 6.4 7.7 21.2 24.7 - - 14.7
Return on capital 22.4 13.5 10.5 36.0 27.8 - - 20.3
employed (%)
Average number of 5.0 7.7 5.3 5.6 1.7 0.1 - 25.4
employees (thousands)
Year ended 31 December 2015
Europe & International
EUR million, unless Packaging Fibre Consumer Uncoated South Corporate Intersegment Segments
otherwise stated Paper Packaging Packaging Fine Africa elimination total
Paper Division
Segment revenue 2,156 2,031 1,469 1,233 652 - (722) 6,819
Internal revenue (574) (37) (4) (6) (101) - 722 -
External revenue 1,582 1,994 1,465 1,227 551 - - 6,819
Underlying EBITDA 505 187 177 291 199 (34) - 1,325
Depreciation and (111) (63) (54) (77) (38) (1) - (344)
impairments
Amortisation (3) (4) (15) (2) - - - (24)
Underlying operating 391 120 108 212 161 (35) - 957
profit
Special items (14) (21) (22) - - - - (57)
Operating segment 2,094 1,224 1,333 1,001 669 6 (168) 6,159
assets
Operating net segment 1,753 935 1,146 821 563 1 - 5,219
assets
Additions to 281 118 173 56 104 1 - 733
non-current
non-financial assets
Capital expenditure 259 118 92 65 61 - - 595
cash payments
Operating margin (%) 18.1 5.9 7.4 17.2 24.7 - - 14.0
Return on capital 25.5 13.9 10.7 25.6 30.1 - - 20.5
employed (%)
Average number of 5.3 7.7 4.6 6.0 1.6 0.1 - 25.3
employees (thousands)
Reconciliation of underlying EBITDA and underlying operating profit to profit
before tax
EUR million 2016 2015
Underlying EBITDA 1,366 1,325
Depreciation and impairments (356) (344)
Amortisation (29) (24)
Underlying operating profit 981 957
Special items (see note 4) (38) (57)
Net profit from equity accounted investees 1 1
Net finance costs (101) (105)
Profit before tax 843 796
Reconciliation of operating segment assets
2016 2015
EUR million Segment Net segment Segment Net segment
assets assets assets assets
Segments total 6,656 5,618 6,159 5,219
Unallocated
Investment in equity accounted investees 9 9 9 9
Deferred tax assets/(liabilities) 26 (241) 23 (218)
Other non-operating assets/(liabilities) 209 (307) 201 (325)
Group capital employed 6,900 5,079 6,392 4,685
Financial instruments/(net debt) 410 (1,383) 77 (1,498)
Total assets/equity 7,310 3,696 6,469 3,187
External revenue by External revenue by
location of location of customer
production
EUR million 2016 2015 2016 2015
Revenue
Africa
South Africa 594 652 407 465
Rest of Africa 13 13 200 205
Africa total 607 665 607 670
Western Europe
Austria 1,018 981 143 144
Germany 897 964 929 960
United Kingdom 33 39 224 252
Rest of western Europe 529 607 1,278 1,360
Western Europe total 2,477 2,591 2,574 2,716
Emerging Europe
Poland 900 909 546 515
Rest of emerging Europe 1,246 1,225 883 877
Emerging Europe total 2,146 2,134 1,429 1,392
Russia 760 674 602 535
North America 588 664 729 771
South America - - 70 72
Asia and Australia 84 91 651 663
Group total 6,662 6,819 6,662 6,819
4 Special items
EUR million 2016 2015
Operating special items
Impairment of assets (22) (4)
Reversal of impairment of assets 2 -
Restructuring and closure costs:
Personnel costs (13) (28)
Other restructuring and closure costs (5) (17)
Adjustments relating to 2012 Nordenia acquisition - (8)
Total special items before tax and non-controlling interests (38) (57)
Tax credit (see note 7) 9 10
Total special items attributable to shareholders (29) (47)
Operating special items
Restructuring and closure costs and related impairments during the year
comprise:
* Fibre Packaging
+ Closure of an industrial bags plant in southern Belgium. Restructuring
costs of EUR10 million and impairment of assets of EUR3 million were
recognised.
* Consumer Packaging
+ Restructuring of release liner operations in USA, including closure of
one site. Restructuring costs of EUR7 million and impairment of assets of
EUR12 million were recognised.
* South Africa Division
+ Further impairment of newsprint assets of EUR7 million.
+ Partial reversal of impairment of uncoated fine paper machine
previously impaired of EUR2 million.
+ Restructuring costs of EUR1 million.
5 Write-down of inventories to net realisable value
EUR million 2016 2015
Write-down of inventories to net realisable value (29) (24)
Aggregate reversal of previous write-down of inventories 18 19
6 Net finance costs
Net finance costs are presented below:
EUR million 2016 2015
Investment income
Investment income 5 4
Foreign currency losses
Foreign currency losses (4) -
Finance costs
Interest expense
Interest on bank overdrafts and loans (97) (107)
Net interest expense on net retirement benefits liability (10) (9)
Total interest expense (107) (116)
Less: Interest capitalised 5 7
Total finance costs (102) (109)
Net finance costs (101) (105)
The weighted average interest rate applicable to capitalised interest on
general borrowings for the year ended 31 December 2016 is 7.15% (2015: 7.08%)
and was related to investments in Poland, Russia, the Czech Republic and South
Africa.
7 Tax charge
The Group's effective rate of tax before special items for the year ended
31 December 2016, calculated on profit before tax before special items and
including net profit from equity accounted investees, was 19% (2015: 19%).
EUR million 2016 2015
UK corporation tax at 20% (2015: 20.25%) 1 1
SA corporation tax at 28% (2015: 28%) 22 35
Overseas tax 134 136
Current tax in respect of prior years 5 1
Current tax 162 173
Deferred tax in respect of the current year 28 24
Deferred tax in respect of prior years (22) (36)
Deferred tax attributable to a change in the (2) -
rate of domestic income tax
Total tax charge before special items 166 161
Current tax on special items (1) (2)
Deferred tax on special items (8) (8)
Total tax credit on special items (see note 4) (9) (10)
Total tax charge 157 151
8 Earnings per share
The calculation of basic and diluted EPS, basic and diluted underlying EPS and
basic and diluted headline EPS is based on the following data:
Earnings
EUR million 2016 2015
Profit for the year attributable to shareholders 638 600
Special items (see note 4) 38 57
Related tax (see note 4) (9) (10)
Underlying earnings for the year 667 647
Special items not excluded from headline earnings (18) (53)
Profit on disposal of property, plant and equipment - (13)
Impairments not included in special items 5 3
Related tax 4 13
Headline earnings for the year 658 597
Weighted average
number of shares
million 2016 2015
Basic number of ordinary shares outstanding 484.2 483.9
Effect of dilutive potential ordinary shares 0.3 1.1
Diluted number of ordinary shares outstanding 484.5 485.0
9 Dividends
An interim dividend for the year ended 31 December 2016 of 288.84260 rand cents
/18.81 euro cents per share was paid on 13 September 2016 to all Mondi Limited
and Mondi plc ordinary shareholders on the relevant registers on
19 August 2016.
A proposed final dividend for the year ended 31 December 2016 of 38.19 euro
cents per ordinary share will be paid on 18 May 2017 to those shareholders on
the register of Mondi plc on 21 April 2017. An equivalent South African rand
final dividend will be paid on 18 May 2017 to shareholders on the register of
Mondi Limited on 21 April 2017. The final dividend is subject to the approval
of the shareholders of Mondi Limited and Mondi plc at the respective annual
general meetings scheduled for 11 May 2017.
Dividends paid to the shareholders of Mondi Limited and Mondi plc are presented
on a combined basis.
euro cents per share 2016 2015
Final dividend paid (in respect of prior year) 37.62 28.77
Interim dividend paid 18.81 14.38
Final dividend proposed for the year ended 31 December 38.19 37.62
EUR million 2016 2015
Final dividend paid (in respect of prior year) 183 140
Interim dividend paid 91 69
Total dividends paid 274 209
Final dividend proposed for the year ended 31 December 185 182
Declared by Group companies to non-controlling interests 32 25
Dividend timetable
The proposed final dividend for the year ended 31 December 2016 of 38.19 euro
cents per share will be paid in accordance with the following timetable:
Mondi Limited Mondi plc
Last date to trade shares cum-dividend
JSE Limited 18 April 2017 18 April 2017
London Stock Exchange Not applicable 19 April 2017
Shares commence trading ex-dividend
JSE Limited 19 April 2017 19 April 2017
London Stock Exchange Not applicable 20 April 2017
Record date
JSE Limited 21 April 2017 21 April 2017
London Stock Exchange Not applicable 21 April 2017
Last date for receipt of Dividend Reinvestment Plan (DRIP) 26 April 2017 26 April 2017
elections by Central Securities Depository Participants
Last date for DRIP elections to UK Registrar and South 28 April 2017 23 April 2017*
African Transfer Secretaries by shareholders of Mondi
Limited and Mondi plc
Payment Date
South African Register 18 May 2017 18 May 2017
UK Register Not applicable 18 May 2017
DRIP purchase settlement dates (subject to the purchase of 24 May 2017 22 May 2017**
shares in the open market)
Currency conversion date
ZAR/euro 23 February 23 February
2017 2017
Euro/sterling Not applicable 2 May 2017
*28 April 2017 for Mondi plc South African branch register shareholders
**24 May 2017 for Mondi plc South African branch register shareholders
Share certificates on the South African registers of Mondi Limited and Mondi
plc may not be dematerialised or rematerialised between 19 April 2017 and 23
April 2017, both dates inclusive, nor may transfers between the UK and South
African registers of Mondi plc take place between 12 April 2017 and 23 April
2017, both dates inclusive.
Information relating to the dividend tax to be withheld from Mondi Limited
shareholders and Mondi plc shareholders on the South African branch register
will be announced separately, together with the ZAR/euro exchange rate to be
applied, on or shortly after 23 February 2017.
10 Forestry assets
EUR million 2016 2015
At 1 January 219 235
Capitalised expenditure 39 38
Acquisition of assets 6 3
Fair value gains 64 40
Disposal of assets (1) (1)
Felling costs (57) (51)
Currency movements 46 (45)
At 31 December 316 219
Comprising
Mature 193 139
Immature 123 80
Total forestry assets 316 219
The fair value of forestry assets is a level 3 measure in terms of the fair
value measurement hierarchy (see note 17), consistent with prior years. The
fair value of forestry assets is calculated on the basis of future expected net
cash flows arising on the Group's owned forestry assets, discounted based on a
pre tax yield on long-term bonds.
11 Borrowings
Financing facilities
Group liquidity is provided through a range of committed debt facilities. The
principal loan arrangements in place include the following:
EUR million Maturity Interest rate % 2016 2015
Financing facilities
Syndicated Revolving Credit July 2021 EURIBOR/LIBOR + 750 750
Facility margin
EUR500 million Eurobond April 2017 5.75% 500 500
EUR500 million Eurobond September 2020 3.375% 500 500
EUR500 million Eurobond April 2024 1.50% 500 -
European Investment Bank Facility June 2025 EURIBOR + margin 81 90
Export Credit Agency Facility June 2020 EURIBOR + margin 53 72
Other Various Various 113 90
Total committed facilities 2,497 2,002
Drawn (1,685) (1,404)
Total committed facilities 812 598
available
On 14 April 2016 Mondi issued a 1.5% EUR500 million Eurobond with an eight-year
term under its Euro Medium Term Note Programme.
The EUR500 million Eurobonds maturing in 2017 and 2020 contain a coupon step-up
clause whereby the coupon will be increased by 1.25% per annum if Mondi fails
to maintain at least one investment grade credit rating from either Moody's
Investors Service or Standard & Poor's. Mondi currently has investment grade
credit ratings from both Moody's Investors Service (Baa2, stable outlook) and
Standard & Poor's (BBB, stable outlook).
2016 2015
EUR million Current Non-current Total Current Non-current Total
Secured 1 2 3 3 3 6
Unsecured
Bonds 500 995 1,495 - 996 996
Bank loans and overdrafts 150 110 260 247 306 553
Other loans - 12 12 - 14 14
Total unsecured 650 1,117 1,767 247 1,316 1,563
Total borrowings 651 1,119 1,770 250 1,319 1,569
The Group's borrowings as at 31 December are analysed by nature and underlying
currency as follows:
2016/EUR million Floating Fixed rate Non-interest Total Fair value
rate borrowings bearing carrying
borrowings borrowings value
Euro 129 1,498 - 1,627 1,701
South African rand 60 - - 60 60
US dollar 6 9 - 15 14
Russian rouble 9 - - 9 9
Turkish lira 47 - - 47 47
Other currencies 10 2 - 12 13
Carrying value 261 1,509 - 1,770
Fair value 261 1,583 - 1,844
2015/EUR million Floating Fixed rate Non-interest Total Fair value
rate borrowings bearing carrying
borrowings borrowings value
Euro 278 1,002 - 1,280 1,363
Pounds sterling 159 - - 159 159
South African rand 36 - 6 42 42
Polish zloty 32 2 - 34 34
Turkish lira 33 - - 33 33
Other currencies 11 10 - 21 22
Carrying value 549 1,014 6 1,569
Fair value 549 1,098 6 1,653
The fair values of the EUR500 million Eurobonds are estimated with reference to
the last price quoted in the secondary market. All other financial liabilities
are estimated by discounting the future contractual cash flows at the current
market interest rate that is available to the Group for similar financial
instruments.
The Group swaps euro and sterling debt into other currencies through the
foreign exchange market using foreign exchange contracts which has the effect
of exposing the Group to interest rates of these currencies. The currencies
swapped into/(out of) and the amounts as at 31 December were as follows:
EUR million 2016 2015
Short-dated contracts with tenures of less than 12 months
Pounds sterling 12 (148)
Czech koruna 188 200
Polish zloty 317 250
Russian rouble 27 86
Swedish krona 39 42
US dollar 119 104
Other 96 57
Total swapped 798 591
12 Retirement benefits
All assumptions related to the Group's defined benefit schemes and
post-retirement medical plan liabilities were re-assessed individually for the
year ended 31 December 2016. The net retirement benefit liability increased by
EUR30 million mainly due to changes in assumptions. The assets backing the
defined benefit scheme liabilities reflect their market values as at
31 December 2016. Net remeasurement losses arising from changes in assumptions
amounting to EUR10 million have been recognised in the condensed combined and
consolidated statement of comprehensive income.
13 Business combinations
To 31 December 2016
Acquisition of SIMET S.A. (Poland)
Mondi acquired 100% of the outstanding share capital of SIMET S.A. (SIMET) on
27 April 2016 for a consideration of EUR13 million on a debt and cash-free basis.
SIMET is a corrugated plant that produces a wide range of flexo printed
packaging. Mondi intends to expand and upgrade this operation to a
high-efficiency, heavy-duty box plant, including the addition of a corrugator
line for on-site board production. The acquisition strengthens Mondi's
Corrugated Packaging market position in central and emerging Europe.
SIMET's revenue for the year ended 31 December 2016 was EUR17 million with a
profit after tax of EURnil. SIMET's revenue of EUR11 million and profit after tax
of EURnil since the date of acquisition have been included in the condensed
combined and consolidated income statement.
Acquisition of Kale Nobel Ambalaj Sanayi ve Ticaret Anonim Sirketi (Turkey)
On 12 July, Mondi acquired a 90% interest in Kale Nobel Ambalaj Sanayi ve
Ticaret Anonim Sirketi (Kalenobel) for a consideration of EUR90 million on a debt
and cash-free basis. Kalenobel is a consumer packaging company focused on the
manufacture of flexible consumer packaging for ice cream and other applications
as well as aseptic cartons. The acquisition supports Mondi's growing Consumer
Packaging business. The non-controlling interest holder has an option to put
its shares to Mondi until June 2021, but not before March 2018, at a price
determined based on future earnings, but capped at TRY100 million (EUR
27 million).
Kalenobel's revenue for the year ended 31 December 2016 was EUR72 million with a
profit after tax of EUR5 million. Kalenobel's revenue of EUR27 million and loss
after tax of EUR2 million since the date of acquisition have been included in the
condensed combined and consolidated income statement.
Acquisition of ZAO Uralplastic-N (Russia)
On 15 July, Mondi acquired a 100% interest in ZAO Uralplastic-N (Uralplastic)
for a consideration of RUB2,949 million (EUR41 million) on a debt and cash-free
basis. Uralplastic manufactures a range of consumer flexible packaging products
for food, hygiene, homecare and other applications and the acquisition supports
Mondi's growing Consumer Packaging business.
Uralplastic's revenue for the year ended 31 December 2016 was EUR34 million with
a loss after tax of EUR2 million. Uralplastic's revenue of EUR19 million and loss
after tax of EUR2 million since the date of acquisition have been included in the
condensed combined and consolidated income statement.
Acquisition of LLC Beepack (renamed LLC Mondi Lebedyan) (Russia)
On 20 October, Mondi acquired 100% of the outstanding share capital of LLC
Beepack (Lebedyan) for a consideration of RUB2,825 million (EUR41 million) on a
debt and cash-free basis.
Lebedyan produces a range of corrugated packaging trays and boxes for food and
agricultural products including beverages, fruit and vegetables, poultry and
dairy. Customers include local Russian and international producers. The
acquisition of Lebedyan supports the ongoing development of Mondi's Corrugated
Packaging business in central and eastern Europe.
Lebedyan's revenue for the year ended 31 December 2016 was EUR38 million with a
profit after tax of EUR3 million. Lebedyan's revenue of EUR8 million and profit
after tax of EUR1 million since the date of acquisition have been included in the
condensed combined and consolidated income statement.
Details of the net assets acquired, as adjusted from book to fair value, are as
follows:
EUR million Book value Revaluation Fair value
Net assets acquired
Property, plant and equipment 39 16 55
Intangible assets 5 22 27
Inventories 16 1 17
Trade and other receivables 44 (3) 41
Cash and cash equivalents 2 - 2
Total assets 106 36 142
Trade and other payables (23) (2) (25)
Provisions - (1) (1)
Net retirement benefits liability - (2) (2)
Deferred tax liabilities - (7) (7)
Total liabilities (excluding debt) (23) (12) (35)
Short-term borrowings (17) - (17)
Medium and long-term borrowings (19) - (19)
Debt assumed (36) - (36)
Net assets acquired 47 24 71
Goodwill arising on acquisitions 81
Goodwill arising from purchase price adjustment (KSP) 13
Deferred acquisition consideration (Ascania) 2
Non-controlling interests in equity (3)
Cash acquired net of overdrafts (2)
Net cash paid per combined and consolidated statement of 162
cash flows
EUR million Goodwill Net assets Net cash
paid
SIMET 4 6 10
Kalenobel 42 31 68
Uralplastic 22 6 28
Lebedyan 13 28 41
Acquisitions total 81 71 147
Purchase price adjustment (KSP) 13 - 13
Deferred acquisition consideration (Ascania) 2
Acquisitions total including adjustments 94 71 162
Transaction costs of EUR5 million were charged to the condensed combined and
consolidated income statement.
The fair value accounting of these acquisitions is provisional in nature. The
nature of these businesses is such that further adjustments to the carrying
values of acquired assets and/or liabilities, and adjustments to the purchase
price, are possible as the detail of the acquired businesses is evaluated post
acquisition. If necessary, any adjustments to the fair values recognised will
be made within 12 months of the acquisition dates.
In respect of trade and other receivables, the gross contractual amounts
receivable less the best estimates at the acquisition dates of the contractual
cash flows not expected to be collected approximate the book values and the
revaluation amounts respectively as presented.
Purchase price adjustment of KSP
In accordance with the KSP purchase agreement, a payment of EUR13 million has
been recognised in the current year, and reflected as an adjustment to Goodwill
recognised.
To 31 December 2015
Mondi acquired 100% of the outstanding share capital of Ascania nonwoven
Germany GmbH (Ascania) (Germany) on 2 November 2015 for a consideration of EUR53
million on a debt and cash-free basis. Ascania is a producer of nonwoven
fabrics and nonwoven composites primarily used for personal care, hygiene and
medical products as well as household applications.
On 14 December 2015, Mondi acquired a 95% interest in KSP, Co. (KSP) (South
Korea and Thailand), for a consideration of EUR54 million on a debt and cash-free
basis. The preliminary purchase price of EUR41 million reported in 2015 was based
on provisional results. On finalisation of the 2015 financial results the
purchase price was confirmed at EUR54 million. KSP is a flexible packaging
company specialising in the production of high-quality spouted and retort
stand-up pouches for the food, pet food and beverage industries.
The provisional fair values at acquisition of KSP have been adjusted. Property,
plant and equipment reduced by EUR1 million, trade and other receivables by EUR2
million. Trade and other payables increased by EUR1 million and borrowings
reduced by EUR4 million. The net effect of the adjustments is EURnil and has been
recorded during the year ended 31 December 2016.
Details of the net assets acquired are as follows:
Book value Revaluation Fair value
EUR million (restated) (restated)
Net assets acquired
Property, plant and equipment 14 25 39
Intangible assets - 6 6
Share of joint venture 1 3 4
Inventories 4 - 4
Trade and other receivables 17 (2) 15
Cash and cash equivalents 12 - 12
Total assets 48 32 80
Trade and other payables (8) (1) (9)
Income tax liabilities (2) - (2)
Net retirement benefits liability (2) - (2)
Deferred tax liabilities - (9) (9)
Total liabilities (excluding debt) (12) (10) (22)
Short-term borrowings (13) 2 (11)
Medium and long-term borrowings (8) 2 (6)
Debt assumed (21) 4 (17)
Net assets acquired 15 26 41
Goodwill arising on acquisitions 57
Non-controlling interests in equity (1)
Cash acquired net of overdrafts (12)
Net cash paid per combined and consolidated statement of 85
cash flows
Paid in 2015 72
Paid in 2016 13
85
EUR million Goodwill Net assets Net cash
paid
Ascania 25 26 47
KSP 32 15 38
Acquisitions total 57 41 85
No adjustments were made to the fair values of other prior year acquisitions.
14 Consolidated cash flow analysis
(a) Reconciliation of profit before tax to cash generated from operations
EUR million 2016 2015
Profit before tax 843 796
Depreciation and amortisation 380 365
Impairment of property, plant and equipment and intangible assets 5 3
(not included in special items)
Share-based payments 13 11
Net cash flow effect of current and prior year special items 17 15
Net finance costs 101 105
Net profit from equity accounted investees (1) (1)
Decrease in provisions and net retirement benefits (14) (15)
Decrease/(increase) in inventories 24 (11)
Increase in operating receivables (1) (51)
Increase in operating payables 45 71
Fair value gains on forestry assets (64) (40)
Felling costs 57 51
Profit on disposal of property, plant and equipment - (13)
Profit from disposal of businesses - (6)
Other adjustments (4) (1)
Cash generated from operations 1,401 1,279
(b) Cash and cash equivalents
EUR million 2016 2015
Cash and cash equivalents per condensed combined and consolidated 404 64
statement of financial position
Bank overdrafts included in short-term borrowings (27) (28)
Cash and cash equivalents per condensed combined and consolidated 377 36
statement of cash flows
The fair value of cash and cash equivalents approximate their carrying values
presented.
The Group operates in certain countries (principally South Africa) where the
existence of exchange controls may restrict the use of certain cash balances.
These restrictions are not expected to have any material effect on the Group's
ability to meet its ongoing obligations.
(c) Movement in net debt
The Group's net debt position is as follows:
EUR million Cash and Debt due Debt due Current Debt-related Total
cash within after financial derivative net
equivalents one one asset financial debt
year year investments instruments
At 1 January 2015 9 (129) (1,565) - 72 (1,613)
Cash flow 32 (52) 219 - - 199
Business combinations - 5 (8) - - (3)
Movement in unamortised loan costs - - (3) - - (3)
Net movement in derivative financial - - - - (73) (73)
instruments
Reclassification - (54) 54 2 - 2
Currency movements (5) 8 (16) - 6 (7)
At 31 December 2015 36 (222) (1,319) 2 5 (1,498)
Cash flow 345 152 (335) - - 162
Business combinations - (17) (19) - - (36)
Movement in unamortised loan costs - - (2) - - (2)
Net movement in derivative financial - - - - (23) (23)
instruments
Reclassification1 - (541) 547 - - 6
Currency movements (4) 4 9 - (1) 8
At 31 December 2016 377 (624) (1,119) 2 (19) (1,383)
Note:
1. Following the acquisition of the outstanding minority interest in a
subsidiary, the shareholder loan provided by the minority shareholder was
reclassified as an intercompany loan and has been eliminated on
consolidation.
15 Capital commitments
EUR million 2016 2015
Contracted for but not provided 222 213
Approved, not yet contracted for 1,516 817
Total capital commitments 1,738 1,030
These capital commitments relate to the following categories of non-current
non-financial assets:
EUR million 2016 2015
Intangible assets 35 22
Property, plant and equipment 1,703 1,008
Total capital commitments 1,738 1,030
The expected maturity of these capital commitments is:
EUR million 2016 2015
Within one year 538 418
One to two years 593 334
Two to five years 607 278
Total capital commitments 1,738 1,030
Capital commitments are based on capital projects approved by the end of the
financial year and the budget approved by the Boards. Major capital projects
still require further approval before they commence and are not included in the
above analysis. The Group's capital commitments are expected to be financed
from existing cash resources and borrowing facilities.
In January 2017, the Boards approved a further EUR470 million capital spend at
Steti (Czech Republic). Capital expenditure is expected to be incurred in the
three years from 2017 to 2019 and is not included in the capital commitments
detailed above.
16 Contingent liabilities
Contingent liabilities comprise aggregate amounts as at 31 December 2016 of EUR11
million (2015: EUR9 million) in respect of loans and guarantees given to banks
and other third parties. No acquired contingent liabilities have been recorded
in the Group's condensed combined and consolidated statement of financial
position for either year presented.
17 Fair value measurement
Financial instruments that are measured in the condensed combined and
consolidated statement of financial position at fair value, or where the fair
value of financial instruments have been disclosed in notes to the condensed
combined and consolidated financial statements, are based on the following fair
value measurement hierarchy:
* level 1 - quoted prices (unadjusted) in active markets for identical assets
or liabilities;
* level 2 - inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices); and
* level 3 - inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The only assets measured at fair value on level 3 of the fair value measurement
hierarchy are the Group's forestry assets as set out in note 10 and certain
assets acquired or liabilities assumed in business combinations.
There have been no transfers of assets or liabilities between levels of the
fair value hierarchy during the year.
The fair values of financial instruments that are not traded in an active
market (for example, over-the-counter derivatives) are determined using
generally accepted valuation techniques. These valuation techniques maximise
the use of observable market data where available and rely as little as
possible on Group specific estimates.
Specific valuation methodologies used to value financial instruments include:
* the fair values of interest rate swaps and foreign exchange contracts are
calculated as the present value of expected future cash flows based on
observable yield curves and exchange rates;
* the Group's commodity price derivatives are valued by independent third
parties, who in turn calculate the fair values as the present value of
expected future cash flows based on observable market data; and
* other techniques, including discounted cash flow analysis, are used to
determine the fair values of other financial instruments.
Except as detailed below, the directors consider that the carrying values of
financial assets and financial liabilities recorded at amortised cost in the
condensed combined and consolidated financial statements are approximately
equal to their fair values.
Carrying amount Fair value
EUR million 2016 2015 2016 2015
Financial liabilities
Borrowings 1,770 1,569 1,844 1,653
The non-controlling interest holder in Kalenobel holds an option to put its
shares to Mondi until June 2021, but not before March 2018, at a price
determined based on future earnings. The present value of the option is EUR9
million based on the current expected business plan, and is capped at TRY100
million (EUR27 million).
18 Related party transactions
The Group and its subsidiaries, in the ordinary course of business, enter into
various sale, purchase and service transactions with equity accounted investees
and others in which the Group has a material interest. These transactions are
under terms that are no less favourable than those arranged with third parties.
These transactions, in total, are not considered to be significant.
Transactions between Mondi Limited, Mondi plc and their respective
subsidiaries, which are related parties, have been eliminated on consolidation.
There have been no significant changes to the related parties as disclosed in
note 31 of the Group's annual financial statements for the year ended 31
December 2015.
19 Events occurring after 31 December 2016
With the exception of the events listed below there have been no material
reportable events since 31 December 2016:
* Final dividend proposed for 2016 (see note 9);
* Acquisition of 100% of the outstanding share capital of Excelsior
Technologies Limited (Excelsior) on 6 February 2017, for a total
consideration of GBP33 million (EUR38 million), on a debt and cash-free basis.
Production statistics
2016 2015
Packaging Paper
Containerboard '000 2,000 2,138
tonnes
Kraft paper '000 1,204 1,162
tonnes
Softwood pulp '000 1,870 1,759
tonnes
Internal consumption '000 1,698 1,609
tonnes
Market pulp '000 172 150
tonnes
Hardwood pulp - internal consumption '000 364 322
tonnes
Fibre Packaging
Corrugated board and boxes million m 1,448 1,350
²
Industrial bags million 4,881 4,925
units
Extrusion coatings million m 1,249 1,389
²
Consumer Packaging
Consumer packaging million 7,156 6,594
m2
Uncoated Fine Paper
Uncoated fine paper '000 1,408 1,379
tonnes
Softwood pulp '000 334 349
tonnes
Internal consumption '000 315 333
tonnes
Market pulp '000 19 16
tonnes
Hardwood pulp '000 853 839
tonnes
Internal consumption '000 777 741
tonnes
Market pulp '000 76 98
tonnes
Newsprint '000 202 197
tonnes
South Africa Division
Containerboard '000 253 247
tonnes
Uncoated fine paper '000 258 240
tonnes
Hardwood pulp '000 602 619
tonnes
Internal consumption '000 322 305
tonnes
Market pulp '000 280 314
tonnes
Newsprint '000 111 113
tonnes
Softwood pulp - internal consumption '000 148 138
tonnes
Exchange rates
Average Closing
versus euro 2016 2015 2016 2015
South African rand 16.27 14.17 14.46 16.95
Czech koruna 27.03 27.28 27.02 27.02
Mexican peso 20.66 17.61 21.77 18.91
Polish zloty 4.36 4.18 4.41 4.26
Pounds sterling 0.82 0.73 0.86 0.73
Russian rouble 74.16 68.04 64.30 80.67
Turkish lira 3.34 3.02 3.71 3.18
US dollar 1.11 1.11 1.05 1.09
Glossary of financial terms
This announcement contains a number of terms which are explained below:
Net debt A measure comprising short, medium, and long-term
interest-bearing borrowings and the fair value of
debt-related derivatives less cash and cash equivalents
and current financial asset investments.
Return on capital employed Trailing 12-month underlying operating profit, including
(ROCE) share of associates' net profit, divided by trailing
12-month average capital employed and for segments has
been extracted from management reports. Capital employed
is adjusted for impairments in the year and spend on
those strategic projects which are not yet in
production.
Special items Those financial items which the Group believes should be
separately disclosed on the face of the combined and
consolidated income statement to assist in understanding
the underlying financial performance achieved by the
Group. Special items affect year-on-year comparability
and the Group therefore excludes these items when
reporting underlying earnings and related measures in
order to provide a measure of the underlying performance
of the Group on a basis that is comparable from year to
year.
Underlying EBITDA Operating profit before special items, depreciation and
amortisation.
Underlying operating profit Operating profit before special items.
Underlying profit before Reported profit before tax and special items.
tax
Underlying earnings Net profit after tax before special items attributable
to shareholders.
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.
Editors' notes
We are Mondi: In touch every day
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. In 2016, Mondi had revenues of
EUR6.7 billion and a return on capital employed of 20.3%.
We are 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. With over
100 products customised into more than 100,000 solutions, we offer more than
you may expect. Leading brands around the world rely on our innovative
technologies and products across a variety of industries such as agriculture;
automotive; building and construction; chemicals and dangerous goods; food and
beverages; graphic and photographic; home and personal care; medical and
pharmaceutical; office and professional printing; packaging and paper
converting; pet care; retail and e-commerce; and shipping and transport.
We believe sustainable development makes good business sense. It's integral to
our responsible and profitable growth, and embedded in everything we do, every
day. We continue to look for ways to do more with less, promote the responsible
management of ecosystems, develop and inspire our people, and enhance the value
that our sustainable product solutions create.
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. 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 Proprietary Limited
END
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