Mondi announced half-yearly results for the six months ended 30 June 2016.
Highlights
- Continued strong financial performance on all key metrics
- Underlying operating profit of €529 million, up 8%
- Underlying earnings of 75.0 euro cents per share, up 11% ? Cash generated from operations of €620 million, up 15%
- Return on capital employed of 21.2% • Capital projects continue to deliver growth
- Strategic acquisitions enhance packaging portfolio
- Interim dividend declared of 18.81 euro cents per share
Group performance review
Our underlying operating profit for the half-year ended 30 June 2016 increased 8% to €529 million compared to the first half of 2015. We saw strong contributions from Consumer Packaging, Uncoated Fine Paper and the South Africa Division, driven by volume growth, pricing benefits and forestry fair value gains, respectively. This was partially offset by Packaging Paper, which was negatively impacted by lower average selling prices, and Fibre Packaging, which saw lower sales volumes and experienced negative currency effects. Revenue was down 4%, primarily due to currency effects and disposals completed in 2015. Excluding these effects revenue grew 1%.
Like-for-like sales volumes were similar to the comparable prior year period, with generally stable volumes in the paper businesses and strong volume growth in Consumer Packaging offset by lower sales volumes in the Industrial Bags and Extrusion Coatings segments of Fibre Packaging. Pricing movements in the Group's key paper grades were mixed, with domestic currency selling prices significantly up in Uncoated Fine Paper, more modestly up in the South Africa Division, and down in Packaging Paper on the comparable prior year period. Input costs were generally lower in our Europe & International businesses.
Wood, fuel and energy input costs were lower than the comparable prior year period, enhanced by the benefits of the green energy investments at Swiecie, Poland, completed in the second half of 2015. Average benchmark paper for recycling costs were up 13% on the comparable prior year period, at similar levels to the second half of 2015. In the South Africa Division, higher domestic wood costs and inflationary increases contributed to higher variable costs in local currency terms, partially offset by higher energy sales.
A significantly higher fair value gain on forestry assets reduced the net cost base in South Africa. In the first half of 2016, we completed the annual maintenance shut at our Syktyvkar mill in Russia and some smaller shuts at a number 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 operating profit of the Group's maintenance shuts is estimated at around €70 million (2015: €90 million) of which the first half effect was around €20 million (2015: €35 million).
Generally weaker emerging market currencies had a net negative impact on translation of the profits of our domestically focused uncoated fine paper and Fibre Packaging operations in those countries, partly offset by the benefits of the export oriented packaging paper and pulp operations in Russia, Poland and South Africa. Underlying earnings increased 11% to 75.0 euro cents per share, reflecting the increase in underlying operating profit and the benefit of lower net finance charges. An interim dividend of 18.81 euro cents per share has been declared.
Packaging Paper (Europe & International Division)
Underlying operating profit of €192 million was down 9% on the comparable prior year period. On a like-for-like basis, excluding the impact of the sale of the Raubling mill during 2015, sales volumes were marginally up across all containerboard grades. As anticipated, despite solid demand, increased supply from new capacity in Europe and competition from importers benefiting from weak emerging market currencies resulted in downward pressure on kraftliner prices during the period.
Average European benchmark selling prices for unbleached kraftliner were down 2% on the comparable prior year period and down 5% on the second half of 2015. European white-top kraftliner prices were similar to the comparable prior year period and down around 2% on the second half of 2015. In response to sustained good demand and a strong order position, by the beginning of August, selling price increases of €20/tonne had been implemented for both unbleached kraftliner and white-top kraftliner in all European markets excluding southern Europe.
In Russia, price increases for white-top kraftliner were implemented at the beginning of the year. Average European benchmark selling prices for recycled containerboard were up 3% on the comparable prior year period, but down around 3% on the second half of 2015. Sales volumes for sack kraft paper were at similar levels to the comparable prior year period. As previously indicated, demand softness in a number of export markets and seasonal weakness in European markets towards the end of the prior year lead to average selling prices for sack kraft paper produced in Europe declining by 5-6% in the early part of 2016. Demand has since improved in the important export markets of south east Asia and the Middle East, while Europe has seen the usual seasonal pickup in demand, supporting the stabilising of pricing.
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 higher than in the comparable prior year period. Input costs were at a similar level to the comparable prior year period with the business benefiting from stable raw material input costs and lower energy costs which offset higher paper for recycling costs and other inflationary increases. Green energy prices were lower in Poland, reducing the contribution from the sale of green energy credits. We completed planned maintenance shuts at our Syktyvkar, Russia and Swiecie, Poland mills during the first half. A further planned maintenance shut is scheduled at Swiecie in the third quarter and the majority of our kraft paper mill shuts will take place during the final quarter of the year.
Fibre Packaging (Europe & International Division)
Underlying operating profit of €59 million was down by 13%. Lower sales volumes in Industrial Bags and Extrusion Coatings and a one-off gain recorded in the comparable prior year period were partially offset by the benefits of restructuring and rationalisation activities. Weaker emerging market currencies had a significant negative impact on the translation of the results of our domestically focused Fibre Packaging operations. Sales volumes in our Corrugated Packaging segment were in line with the comparable prior year period. We achieved good growth in central Europe, offset by lower volumes in Turkey which continued to be impacted by political turbulence in the region.
In Poland, sales volumes were up following the acquisition of SIMET S.A. in the early part of the year, although sales growth was tempered by the ongoing Russian embargo preventing the export of fresh fruit and vegetables to that market. In the Industrial Bags segment, while volumes in European markets were up around 3%, capacity rationalisation and challenging market conditions in the US and weakness in the CIS region resulted in an overall decline in sales volumes. This was partly offset by significant cost savings resulting from a strong focus on cost management and the benefits of restructuring and rationalisation activities completed during 2015. Lower sales volumes in Extrusion Coatings were largely offset by improved sales margins and ongoing cost management.
Consumer Packaging (Europe & International Division)
Consumer Packaging continues to show good progress, with a 31% increase in operating profit over the comparable prior year period to €64 million driven by strong volume growth. Sales volumes grew across most product segments on a like-for-like basis, with particularly strong growth in the high value-added segment of consumer laminates and bags. Fixed costs were higher, in line with the increased focus on innovation and customer service, incorporating an enhanced sales and application engineering infrastructure.
This was partially offset by one off gains during the period. We are making good progress with initiatives to improve the productivity and efficiency of our operations and capital expenditure is directed at both growth opportunities and the modernisation of equipment at a number of our sites.
We also benefited from the successful integration of Ascania, Germany and KSP, South Korea and Thailand, acquired in the second half of 2015. During July 2016, we completed two further acquisitions supporting the growth of this business. In Turkey, we acquired 90% of the outstanding share capital in Kalenobel, a consumer packaging company focused on the manufacture of flexible consumer packaging for ice cream and other applications, as well as aseptic cartons.
The company is headquartered in Istanbul and operates two manufacturing sites northwest of the city, serving both international FMCG companies as well as regional food and beverage producers. In Russia, we acquired 100% of Uralplastic which manufactures a range of consumer flexible packaging products for food, hygiene, homecare and other applications. The company serves both local and international customers.
Uncoated Fine Paper (Europe & International Division)
Our Uncoated Fine Paper business continued to perform strongly, with underlying operating profit of €133 million, up 18% on the comparable prior year period. Strong pricing, stable volumes and lower input costs, particularly energy costs, more than offset negative currency effects and inflationary pressures on the fixed cost base. The business maintained sales volumes at a similar level to the comparable prior year period. European prices were stable following the increases seen in the second half of 2015, with the benefits of industry capacity rationalisation in the prior year offset by subdued demand and pressure from imports.
Average benchmark European selling prices were up 2.4% on the comparable prior year period and in line with the second half of 2015. In Russia, we achieved higher average selling prices following the increases implemented during 2015 and at the beginning of the current year. We completed maintenance shuts at Syktyvkar, Russia and Ruzomberok, Slovakia in the first half of 2016. A further shut is scheduled for the Ruzomberok mill during the second half of the year. In line with previous years, the second half is also expected to be impacted by the seasonal slowdown in demand during the third quarter.
South Africa Division
Underlying operating profit of €98 million was up 42% on the first half of 2015, benefiting from higher domestic selling prices, forestry gains and the timing of the Richards Bay shut. Average domestic selling prices were above both the comparable prior year period and the second half of 2015 across all product grades. Export selling prices for white-top kraftliner were in line with the comparable prior year period, while pulp export prices were well below those achieved in the first half of the previous year. Average benchmark US dollar hardwood pulp prices were down 5% on the comparable prior year period and down 9% on the second half of 2015.
Forestry gains are dependent on a variety of external factors, the most significant of which is the export price of timber. Significant increases in selling prices resulted in a fair value gain of €48 million being recognised in the first half of the year, an increase of €25 million over the comparable prior year period. This level of gain is not expected to recur in the second half of 2016. In 2015, the annual maintenance shut of our Richards Bay mill in South Africa took place in the first quarter of the year, while in 2016 it is scheduled for the fourth quarter.
