Mondi PLC delivered a strong performance

Mondi PLC (LON:MNDI) today announced Half-yearly results for the six months ended 30 June 2018.

Highlights

Strong financial performance
Underlying EBITDA of €852 million, up 17%, with margin of 22.9%
Profit before tax of €490 million, up 6%
Basic underlying earnings of 89.2 euro cents per share, up 26%
Cash generated from operations up 18%
Return on capital employed 21.3%
Excellent performance from Packaging Paper
Good progress on major capital investment projects
Integration of recent acquisitions on track, expanding the Group’s containerboard portfolio and network of industrial bag plants in high growth regions
Interim dividend declared of 21.45 euro cents per share

Financial Summary

1 The Group has early adopted the new ‘Leases’ accounting standard, IFRS 16. Consequently, the audited annual financial statements for the year ended 31 December 2017 and the reviewed interim financial statements for the six months ended 30 June 2017 have been restated. Further details are disclosed in notes 2a and 2b of the condensed combined and consolidated financial statements

2 The Group presents certain measures of financial performance, position or cash flows that are not defined or specified according to International Financial Reporting Standards (IFRS). These measures, referred to as Alternative Performance Measures (APMs), are defined at the end of this document and where relevant, reconciled to IFRS measures in the notes to the condensed combined and consolidated financial statements. APMs are prepared on a consistent basis for all periods presented in this report

Peter Oswald, Mondi Group Chief Executive Officer, said:

“Mondi delivered a strong performance in the first half of 2018, with underlying EBITDA of €852 million, up 17% in the period. We benefited from good demand across our packaging businesses as well as higher average selling prices, while remaining focused on initiatives to drive performance and mitigate inflationary pressures on our cost base. We saw a strong operational performance across the pulp and paper businesses, with the exception of the extended shut at our Richards Bay mill (South Africa).

We continue to make good progress in securing future growth and ensuring the ongoing cost competitiveness of our operations through the delivery of our major capital expenditure programme of over €750 million, which is expected to contribute to earnings from 2019. The modernisation of our kraft paper facility in Steti (Czech Republic) is on track to start-up in late 2018 and work to upgrade the pulp mill at our Ruzomberok mill (Slovakia) has commenced, while we await final permits to proceed with our investment in a new 300,000 tonne kraft top white machine at the same site. We continue to make good progress on smaller capital expenditure projects at a number of our packaging operations, while integration of the recently completed acquisitions is progressing according to plan.

The trading environment remains positive going into the second half of the year, with pricing in key fibre based product segments remaining supportive. The second half of the year will be impacted by the usual seasonal downturn in Uncoated Fine Paper. We also expect continued pressure on the cost base across the Group, mitigated by our ongoing proactive and comprehensive cost reduction programmes.

Mondi is uniquely positioned to develop sustainable fibre and plastic based packaging solutions. With our robust business model, focus on leveraging key industry trends of sustainability, e-commerce and convenience, and culture of driving performance, we remain confident of sustaining our track record of delivering value accretive growth.”

Group performance review

Underlying EBITDA for the half-year ended 30 June 2018 of €852 million was up 17% compared to the first half of 2017. Stable volumes and higher prices more than offset higher costs, negative currency effects and the impact of maintenance shuts. The fibre based packaging value chain, comprising Packaging Paper and Fibre Packaging, was the main contributor to the improved performance, driven by a combination of higher prices and strong operational performance.

Revenue was up 4% on a like-for-like basis, supported by higher average selling prices across all our businesses and volume growth in Containerboard and Industrial Bags. Input costs were higher than the comparable prior year period with the notable exception of paper for recycling costs, with average European benchmark prices down 27% and 30% on the comparable prior year period and the second half of 2017, respectively. While there remains uncertainty, caused mainly by Chinese import policies, we are seeing signs of stabilisation in European paper for recycling markets, with benchmark prices holding steady during the second quarter and July. Wood costs were generally higher in local currency terms in northern and central Europe during the first half of the year. Energy costs were higher than the comparable prior year period driven by increasing commodity input prices. Cash fixed costs were higher as a result of inflationary cost pressures across the Group and the impact of mill maintenance shuts. Depreciation and amortisation charges were marginally lower during the period.

In June 2018, we completed the acquisition of Powerflute, an integrated pulp and paper mill in Kuopio (Finland) with an annual production capacity of 285,000 tonnes of high-performance semi-chemical fluting, for a total consideration of €363 million on a debt and cash-free basis. We are pleased with the progress made to date with the integration of this business, which further broadens our containerboard product portfolio and geographic reach.

In the first half of 2018, we completed a longer than anticipated annual maintenance shut at our Richards Bay mill, a maintenance shut at our Syktyvkar mill (Russia) and smaller shuts at some of our other mills. The balance of our maintenance shuts are scheduled for the second half of the year. Based on prevailing market prices, the full year impact on underlying EBITDA of the Group’s maintenance shuts is estimated at around €115 million (2017: €95 million) of which the first half effect was around €55 million (2017: €40 million).

Currency movements had a net negative impact on underlying EBITDA versus the comparable prior year period. The weaker US dollar had a net negative impact mainly on dollar denominated sales of a number of the Group’s globally traded products, while the weaker Russian rouble had a net negative impact on translation of the profits of the domestically focused Uncoated Fine Paper business.

Basic underlying earnings were up 26% to 89.2 euro cents per share, with strong improvement in underlying operating profit and lower net finance charges partly offset by an increase in the effective tax rate from 19% in the prior year period to 22% in the current period. After taking the effect of special items into account, basic earnings of 72.5 euro cents per share were up 1% on the comparable prior year period.

An interim dividend of 21.45 euro cents per share has been declared.