TIDMMNDI
Mondi plc
(Incorporated in England and Wales)
(Registered number: 6209386)
LEI: 213800LOZA69QFDC9N34
LSE share code: MNDI ISIN: GB00B1CRLC47
JSE share code: MNP
27 February 2020
Full year results for the year ended 31 December 2019
Highlights
* Robust financial performance
+ Underlying EBITDA of EUR1,658 million, with margin of 22.8%
+ Operating profit of EUR1,221 million
+ Cash generated from operations of EUR1,635 million
+ ROCE of 19.8%
+ Strong balance sheet at 1.3x net debt to 12-month trailing underlying
EBITDA
+ Recommended full year ordinary dividend of 83.0 euro cents per share,
up 9%
* Strong cost control across the Group
* Good contribution from capital investments and acquisitions completed in
2018
* Capital investment pipeline to deliver further growth
* Simplification of corporate structure completed
* Uniquely positioned as a manufacturer of paper and flexible plastic
packaging to help our customers transition to more sustainable packaging -
paper where possible, plastic when useful
* Delivering against our 2020 Growing Responsibly commitments and updated
science-based climate commitment
Financial summary1
EUR million, except for percentages Year ended Year ended Change Six months Six months Change
and per share measures 31 December 31 December % ended ended %
2019 2018 31 December 31 December
2019 2018
Group revenue 7,268 7,481 (3) 3,497 3,754 (7)
Underlying EBITDA2 1,658 1,764 (6) 764 912 (16)
Underlying operating profit2 1,223 1,318 (7) 544 688 (21)
Operating profit 1,221 1,192 2 542 662 (18)
Profit before tax 1,103 1,105 - 471 615 (23)
Per share measures
Basic underlying earnings per 171.1 189.1 (10)
share2 (euro cents)
Basic earnings per share (euro 167.6 170.1 (1)
cents)
Total ordinary dividend per share 83.0 76.0 9
(euro cents)
Cash generated from operations 1,635 1,654 (1)
Net debt2 2,207 2,220
Underlying EBITDA margin2 22.8% 23.6%
Return on capital employed (ROCE)2 19.8% 23.6%
Notes:
1 As previously announced, the Group reorganised its business units to
strengthen value chain integration and improve customer focus effective from
7 October 2019. Comparative business unit figures in this document have been
restated to reflect the new organisational structure. The reorganisation had no
impact on the overall Group result.
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 consolidated financial statements.
Andrew King, Mondi Group Chief Executive Officer designate, said:
"Mondi delivered a robust performance in 2019 against a backdrop of challenging
trading conditions, with underlying EBITDA of EUR1,658 million and ROCE of 19.8%.
A solid operational performance, strong cost control and a good contribution
from acquisitions and capital investment projects, partially offset the effects
of market pressures in a number of key pulp and paper grades.
Our capital investment programme to deliver value accretive growth and enhance
the ongoing cost competitiveness of our operations remains on track. Having
commissioned the pulp mill rebuild at our Ruzomberok mill (Slovakia) in the
second half of the year, we are making good progress on the related investment
in a new 300,000 tonne kraft top white machine at the same site and previously
announced major capital investment projects at our Syktyvkar (Russia) and Steti
(Czech Republic) mills. Smaller expansionary projects underway at a number of
our converting packaging operations will further enhance our production
capabilities and product offering to customers.
We completed the Simplification of our corporate structure from dual listed
into a single holding company under Mondi plc in July 2019, simplifying cash
and dividend flows, increasing transparency, removing the complexity associated
with the previous structure and enhancing our strategic flexibility.
Offering sustainable packaging solutions has continued to be core to our
strategy. With our unique product portfolio and our EcoSolutions approach, we
remain well positioned to support our customers in meeting their sustainability
goals with packaging that is sustainable by design - paper where possible,
plastic when useful.
Looking ahead, we remain confident in the structural growth drivers in the
packaging sectors in which we operate. Heightened macro-economic uncertainties
are likely to continue to affect markets in the short term and, while we are
seeing indications of stability in pricing in certain segments, we start the
year with lower prices across our key paper grades. Input cost relief, our
ongoing profit improvement programmes and customer-centric innovation
initiatives, and the benefits from our capital expenditure pipeline will
continue to support our performance.
With our robust business model, centred around our high-quality,
cost-advantaged asset base, our culture of continuously driving performance and
the strategic flexibility our strong cash generation and financial position
bring, we continue to look to the future with confidence."
Group performance review
Delivering innovative, sustainable packaging solutions for our customers was
again a key focus in 2019. We are uniquely positioned, as a manufacturer of
paper, but also flexible plastic packaging, to create the best solutions for
forward-thinking, consumer brands in collaboration with sustainable materials
suppliers and recyclers. During the year we centred our efforts on developing
paper-based packaging solutions to replace unnecessary plastic packaging,
helping our customers to achieve their own sustainability targets and reduce
their environmental footprint. Paper-based packaging is renewable and
recyclable which means it is an optimal solution for many of today's
applications. When certain functionality barriers are required, plastic-based
flexible packaging can deliver many benefits when manufactured, used and
disposed appropriately, from reducing food waste through shelf-life extension
to resource efficiency.
Underlying EBITDA of EUR1,658 million was down 6% on the prior year. Strong
performances from Flexible Packaging and Engineered Materials helped to
mitigate the margin pressures seen in Corrugated Packaging and Uncoated Fine
Paper in the face of market driven price decreases.
Group revenue was down 3% as a result of a combination of lower average selling
prices and lower sales volumes, in turn primarily due to longer planned
maintenance shuts and restructuring initiatives.
Input costs were generally higher year-on-year, although we did see some cost
relief in the second half of the year, measured both on a sequential and
year-on-year basis. On average, wood costs were higher in local currency terms.
We saw higher wood costs in Russia, South Africa and northern Europe, while
costs in some countries in central and eastern Europe were lower due to
favourable regional wood supply dynamics. Driven by Chinese import policies,
average benchmark paper for recycling costs were down 21% on the prior year,
with the rate of decline accelerating in the second half of the year. Chemical
costs were higher on average versus the prior year, albeit we did see them
coming down over the course of the year, while energy costs were lower. Cash
fixed costs were higher on average as a result of inflationary cost pressures
and mill maintenance shut effects, although again we saw a positive trend over
the course of the year.
The impact of planned maintenance shuts on underlying EBITDA in 2019 was around
EUR150 million (2018: EUR110 million). Based on prevailing market prices, we
estimate that the impact of planned maintenance shuts on underlying EBITDA in
2020 will be around EUR100 million, of which the first half year effect is
estimated at around EUR55 million (2019: EUR80 million).
Currency movements had a net positive impact on underlying EBITDA versus the
comparable prior year period. The negative impact of a weaker Turkish lira on
translation of our domestically focused Turkish businesses was more than offset
by the benefits to certain of our export orientated businesses of a stronger US
dollar and weaker South African rand.
Depreciation and amortisation charges were marginally lower during the period
as the effects of acquisitions and our capital investment programme were more
than offset by the impact of a revision in the estimated useful lives on
certain fixed assets (refer to note 2 of the condensed consolidated financial
statements).
Basic underlying earnings of 171.1 euro cents per share were down 10% compared
to 2018. After taking the effect of special items into account, basic earnings
of 167.6 euro cents per share were down 1% compared to 2018.
The Group remains strongly cash generative with cash generated from operations
of EUR1,635 million (2018: EUR1,654 million). The impact of lower underlying EBITDA
generation was mitigated by a net working capital inflow. Net debt at 31
December 2019 was down to EUR2,207 million (2018: EUR2,220 million), 1.3 times
(2018: 1.3 times) net debt to 12-month trailing underlying EBITDA, despite
capital investments of EUR757 million or around 187% of depreciation, as we
pursue our investment programme to continue to deliver value accretive growth.
Our Board has recommended payment of a final ordinary dividend of 55.72 euro
cents per share, bringing the total ordinary dividend for the year to 83.0 euro
cents per share, an increase of 9% on 2018.
Corrugated Packaging
EUR million Year ended Year ended Change Six months Six months Change
31 December 31 December % ended ended %
2019 2018 31 December 31 December
2019 2018
Segment revenue 2,014 2,115 (5) 969 1,100 (12)
Underlying EBITDA 583 707 (18) 286 383 (25)
Underlying EBITDA margin 28.9% 33.4% 29.5% 34.8%
Underlying operating profit 459 582 (21) 224 317 (29)
Capital expenditure cash 257 157 164 74
payments
Operating segment net assets 2,166 2,001
ROCE 24.9% 34.7%
While margins and returns remain strong, underlying EBITDA was down 18% on the
prior year to EUR583 million, with lower average containerboard selling prices
and the effects of longer planned maintenance shuts more than offsetting the
full year contribution from the acquisition of Powerflute (Finland) completed
in 2018 and a strong performance in the downstream corrugated solutions
business. Performance in the year was further supported by enhanced value chain
alignment and our ongoing profit improvement programme.
Following sharp declines in the first half, containerboard prices stabilised in
the third quarter before some further price erosion towards the end of the
year. The magnitude of the decreases varied by grade. Average benchmark
European prices for unbleached kraftliner were down 11% year-on-year while
benchmark recycled containerboard prices were down around 18% year-on-year.
Prices in the specialty grades of white top kraftliner and semi-chemical
fluting were down around 3% year-on-year. Encouragingly, we saw a deceleration
of customer de-stocking and improvement in order books as we progressed through
the second half and into the new year. In response to these improved market
conditions we are currently in discussions with customers around price
increases for unbleached kraftliner and recycled containerboard.
Corrugated Solutions achieved 3% overall box volume growth, with strong growth
in central and eastern Europe, underpinned by good demand in fast moving
consumer goods, retail, e-commerce and specialised applications. This was
partly offset by weaker volumes in Turkey. The business benefited from lower
input paper prices while it remained focused on further enhancing its product
offering, quality and service to customers and implementing continuous
improvement initiatives to reduce conversion costs. Pleasingly, Corrugated
Solutions won three 2020 WorldStar awards, building on its success in winning
twelve such awards in the prior two years, proof of our ambition to continue
delivering innovative solutions that best meet our customers' needs.
Input costs were on average stable year-on-year. Cash fixed costs were modestly
higher, driven by maintenance costs and inflationary cost pressures.
As part of our ongoing portfolio review, accelerated by weaker domestic market
conditions, we shut a 65,000 tonne per annum recycled containerboard machine at
our mill in Tire Kutsan (Turkey) in the second quarter, while continuing to
operate the 75,000 tonne per annum machine on-site.
Planned maintenance shuts were completed during the first half of the year at
Syktyvkar, Powerflute and Richards Bay (South Africa) and during the second
half at Swiecie (Poland). A similar maintenance shut plan is scheduled for
2020.
Note:
The WorldStar awards are open to packaging organisations from across the world;
the competition acknowledges the best ideas, innovations and technologies in
the market. Judges look for sustainable solutions to packaging challenges,
demonstration of enhanced user convenience and reduced material waste. 2020
winners were announced in December 2019.
Flexible Packaging
EUR million Year ended Year ended Change Six months Six months Change
31 December 31 December % ended ended %
2019 2018 31 December 31 December
2019 2018
Segment revenue 2,708 2,708 - 1,314 1,330 (1)
Underlying EBITDA 543 461 18 239 205 17
Underlying EBITDA margin 20.1% 17.0% 18.2% 15.4%
Underlying operating profit 389 301 29 160 125 28
Special items (4) (102) (4) (21)
Capital expenditure cash 248 360 117 196
payments
Operating segment net assets 2,603 2,442
ROCE 15.7% 14.3%
Underlying EBITDA was up 18% on the prior year to EUR543 million, with higher
average selling prices, positive currency effects and good cost containment
more than offsetting lower paper bags volumes.
Kraft paper prices were, on average, up around 6%, compared to the prior year
as strong demand growth supported meaningful price increases during the second
half of 2018 and into early 2019. Like-for-like sales volumes were higher
versus the prior year period with an improved product mix, benefiting from the
contribution of recently completed capital investment projects and our product
development initiatives. The drive to replace plastic carrier bags with
paper-based alternatives and consumer preferences for fibre based primary
packaging continues to support good demand across our range of speciality kraft
papers. However, slowing economic activity, particularly in the construction
related sectors in various export markets, coupled with increased competition,
resulted in kraft paper price reductions in the second half and into early
2020.
Paper bags sales volumes were down on a like-for-like basis, due to a
combination of pricing discipline and weaker markets, in particular in the
Middle East. Price increases were achieved in the early part of 2019 to
compensate for higher paper input costs. Strong cost management and the benefit
of rationalisation activities resulted in significant fixed cost savings during
the period.
Consumer flexibles made progress during the year, benefiting from an improved
product mix, previously implemented restructuring initiatives, and good cost
control. The business has been focused on innovating with customers and other
stakeholders along the value chain to develop recyclable plastic flexible
packaging solutions and increase recycled plastic content in new packaging.
Further product development and commercialisation will be a focus in 2020 and
beyond.
We are pleased Flexible Packaging won two 2020 WorldStar awards for our
StripPouch and Protector Bag innovations.
Input costs were stable year-on-year. While cash fixed costs were higher due to
inflationary cost pressures and the impact of maintenance shuts, this was
mitigated by our cost reduction programmes.
We continue to drive operational excellence initiatives to increase
productivity and efficiency and reduce conversion costs. During the year we
reorganised our US and Egyptian paper bag operations and streamlined production
across our European network. In early 2020, we announced the proposed closure
of our two consumer flexibles plants in the UK due to the change in demand for
the niche products produced at these sites, leading to a special item charge
estimated at over EUR10 million, of which EUR4 million was recognised in 2019.
All planned maintenance shuts at the kraft paper mills were completed in the
second half of the year. In 2020, the majority of planned maintenance shuts are
again scheduled for the second half.
Engineered Materials
EUR million Year ended Year ended Change Six months Six months Change
31 December 31 December % ended ended %
2019 2018 31 December 31 December
2019 2018
Segment revenue 979 984 (1) 461 490 (6)
Underlying EBITDA 122 112 9 66 54 22
Underlying EBITDA margin 12.5% 11.4% 14.3% 11.0%
Underlying operating profit 86 73 18 48 35 37
Special items - (3) - (2)
Capital expenditure cash 32 31 20 15
payments
Operating segment net assets 612 672
ROCE 13.8% 11.4%
Underlying EBITDA of EUR122 million was up 9% on the prior year.
Engineered Materials benefited from an improved product mix, its continued
focus on innovation with customers, previously implemented restructuring
initiatives, good cost control and a one-off gain on disposal of a plant in
Belgium of EUR9 million.
Performance in personal care components improved year-on-year, although we
expect this area will continue to face pressure going forward as a key product
matures. Release liner made progress as it benefited from an improved product
mix, pricing discipline and good cost control. Extrusion solutions was impacted
by lower like-for-like volumes in certain segments, which were partly offset by
the benefits of cost reduction programmes. We continue to see strong demand for
sustainable coating solutions for a range of packaging applications, an area of
innovation and product development that offers further growth potential.
In September 2019, the Group sold a specialised extrusion coated products plant
in Duffel (Belgium) serving customers across protective clothing, imaging,
automotive and other speciality products markets. Mondi's remaining extrusion
coatings plants in Europe are primarily focused on consumer and other selected
applications.
Uncoated Fine Paper
EUR million Year ended Year ended Change Six months Six months Change
31 December 31 December % ended ended %
2019 2018 31 December 31 December
2019 2018
Segment revenue 1,758 1,877 (6) 845 936 (10)
Underlying EBITDA 444 516 (14) 190 286 (34)
Underlying EBITDA margin 25.3% 27.5% 22.5% 30.6%
Underlying operating profit 324 395 (18) 130 227 (43)
Special items 2 (21) 2 (3)
Capital expenditure cash 220 161 117 77
payments
Operating segment net assets 1,758 1,494
ROCE 25.1% 31.9%
Underlying EBITDA was down 14% to EUR444 million as the business was impacted by
lower average selling prices, longer planned maintenance shuts and higher
costs. This was partially compensated for by ongoing profit improvement
initiatives, positive currency effects and a higher forestry fair value gain.
ROCE remains strong at 25.1% and margins robust at 25.3%.
Uncoated fine paper sales volumes were lower, mainly due to planned extended
maintenance shuts and the closure of a small machine in Merebank (South Africa)
in 2018. We continue to see ongoing structural decline in demand for uncoated
fine paper in mature markets, with demand in Europe estimated to have declined
around 5% in 2019. Demand in Russia and South Africa was also softer during the
year, although we expect broadly flat demand in the medium term in these
markets. Our superior cost position and emerging market exposures continue to
provide us with competitive advantage.
Average uncoated fine paper selling prices achieved by our European operations
were flat year-on-year but down in the second half as a result of price
pressures in European markets and a higher proportion of exports. Uncoated fine
paper selling prices in Russia and South Africa were higher year-on-year,
offsetting domestic cost inflation.
Average benchmark European bleached hardwood pulp prices were 13% lower than
the prior year and 21% down in the second half compared to the first half.
Encouragingly, prices have stabilised in early 2020, notably in the key Asian
markets. On an annualised basis, and including the pulp sales in our packaging
businesses, we estimate the Group's net long pulp position in 2020 will be
around 400,000 tonnes.
We saw overall higher input costs, most notably for wood and chemicals while
fixed costs were higher due to domestic inflationary cost pressures and the
impact of maintenance shuts, partly compensated for by our ongoing cost
reduction initiatives.
The forestry assets' fair value is dependent on a variety of external factors
over which we have limited control, the most significant being the export price
of timber, the exchange rate and domestic input costs. Higher export prices and
net volume increases during the period resulted in a forestry fair value gain
of EUR71 million, up EUR28 million on the prior year, but with the second half gain
EUR33 million below that recognised in the first half of 2019. Based on current
market conditions, we would expect a significantly lower forestry fair value
gain in 2020 compared with 2019.
Planned maintenance shuts at our Syktyvkar and Richards Bay mills were
completed during the first half of the year. In the second half, we completed a
project related shut at Ruzomberok and smaller planned maintenance shuts at our
remaining operations. In 2020, our Syktyvkar and Richards Bay shuts are planned
for the first half of the year while the remaining shuts are scheduled for the
second half.
Special items
The net special item charge before tax of EUR16 million (2018: EUR126 million)
comprised the following by business unit:
* Flexible Packaging
- Announced closure of two consumer flexibles plants in the UK. Restructuring
and closure costs of EUR1 million and related impairment of assets of EUR3 million
were recognised. Additional restructuring costs will be incurred in 2020 with
total costs expected to exceed EUR10 million.
- Release of restructuring and closure provisions of EUR5 million, partly offset
by additional restructuring costs of EUR1 million, and reversal of impairment of
assets of EUR1 million were recognised. All credits/(charges) related to special
items from prior years.
- Additional provision of EUR5 million relating to the 2012 Nordenia acquisition
was recognised. The provision relates to a special item from prior years.
* Uncoated Fine Paper
- Impairment of the Neusiedler operation in Austria. Impairment of assets of EUR
39 million was recognised.
- On 13 December 2018 a change in the Austrian Social Security Law was enacted.
Effective 1 January 2020, the law states that the plan liabilities of the
Group's Austrian health insurance fund are assumed by the Republic of Austria.
The effect of the change in law is classified as a third party taking on the
obligation for future contributions which is a one-off non-cash benefit to the
Group of EUR41 million. Further detail is provided in note 13 of the condensed
consolidated financial statements.
* Corporate
- To effect the Simplification of the corporate structure from a dual listed
company ('DLC') structure into a single holding company structure under Mondi
plc, the Group incurred one-off transaction costs of EUR20 million, of which EUR14
million were charged as a financing special item to the condensed consolidated
income statement and EUR6 million were attributed to equity in accordance with
IAS 32. Further detail is provided in note 11 of the condensed consolidated
financial statements.
Further detail is provided in note 4 of our condensed consolidated financial
statements.
Tax
Our underlying tax charge for the year was EUR257 million (2018: EUR273 million)
giving an effective tax rate of 23%, in line with our expectations. Tax relief
on special items was nil (2018: EUR34 million).
Assuming a similar geographic profit mix and stable statutory tax rates, we
expect our effective tax rate in 2020 to remain around 23%.
Cash flow
Cash generated from operations of EUR1,635 million (2018: EUR1,654 million),
reflects the continued strong cash generating capability of the Group.
Working capital as a percentage of revenue was 13.1%, in line with the prior
year (13.0%) and within our expected range of 12% to 14%. The net cash inflow
from movements in working capital during the year was EUR35 million (2018: EUR
117 million outflow).
In 2019, capital expenditure amounted to EUR757 million (2018: EUR709 million),
driven by our major capital expenditure programme. Tax paid of EUR248 million
(2018: EUR248 million) was in line with the prior year.
Further outflows from financing activities included the payment of ordinary
dividends of EUR396 million (2018: EUR309 million) and interest paid of EUR96 million
(2018: EUR73 million).
Capital investments
Investing in our cost-advantaged asset base to maintain and enhance our
competitiveness is of particular importance for our pulp and paper operations
where products are generally more standardised and relative cost
competitiveness is a key value driver. We focus on driving organic growth,
strengthening our cost competitiveness, enhancing our product offering, quality
and service to customers and improving our environmental footprint.
Our disciplined approach to investigating, approving and executing capital
projects is one of our key strengths and plays an important role in
successfully delivering strong returns through the cycle.
During the year, we benefited from the contribution of the Steti mill
modernisation project, completed in late 2018, to replace the recovery boiler,
rebuild the fibre lines and debottleneck the existing packaging paper machines.
This project provides cost and energy efficiencies, an improved environmental
footprint, and additional annual production of 90,000 tonnes of softwood market
pulp and 55,000 tonnes of packaging paper once fully ramped up.
We have a focused capital expenditure project pipeline securing future organic
growth:
* The investment in a new 300,000 tonne per annum kraft top white machine and
related pulp mill upgrade at Ruzomberok is making good progress. The pulp
mill rebuild was successfully commissioned in the second half of 2019 while
the kraft top white machine is expected to start up at the end of 2020.
* The project to convert a containerboard machine at Steti to be fully
dedicated to the production of speciality kraft paper with a mix of
recycled and virgin fibre content for shopping bag applications is on
track. The investment is supported by the drive to replace plastic carrier
bags with paper-based alternatives and allows us to optimise productivity
and efficiency at Swiecie, where this grade is currently produced. The
project will result in an additional 75,000 tonnes per annum of speciality
kraft paper capacity while reducing our containerboard capacity by around
30,000 tonnes per annum. Start-up is expected by the end of 2020.
* Our investment programme to debottleneck production and avoid unplanned
shuts at our Syktyvkar mill is progressing well, including various upgrades
of the mill infrastructure, fibre lines and pulp dryer, and a new
evaporation plant.
* We are investing in the modernisation of our Richards Bay mill, including
upgrading the energy and chemical plants to improve reliability and avoid
unplanned shutdowns.
* We continue to invest in our packaging and Engineered Materials' converting
plants to grow with our customers, enhance our product and service offering
and reduce conversion costs.
Our recently completed and planned major capital expenditure projects in the
Czech Republic, Slovakia and Russia are expected to increase our current
saleable pulp and paper production by around 8% when in full operation.
Over the past three years, our major capital projects have cumulatively
contributed an estimated EUR75 million of annual incremental operating profit.
The incremental operating profit contribution from capital investment projects
in 2019 was around EUR30 million and we expect to generate a further EUR40 million
in 2020.
Given the approved project pipeline, our capital expenditure is expected to be
in the range of EUR700-800 million in 2020 and EUR450-550 million in 2021 in the
absence of any other major investment.
Treasury and borrowings
Net debt at 31 December 2019 was EUR2,207 million, down from EUR2,220 million at 31
December 2018, reflecting the strong cash generating capacity of our business,
while we continue to deliver on our capital investment programme.
The Group's liquidity position remains robust. At the end of the year, EUR
660 million of our EUR2.5 billion committed debt facilities were undrawn and the
weighted average maturity of committed debt facilities was 3.2 years. Gearing
at the same date was 33.5% and our net debt to 12-month trailing underlying
EBITDA ratio was 1.3 times, well within our key financial covenant requirement
of 3.5 times. In February 2020, the Group entered into an additional debt
facility with a maturity of 18 months, increasing the undrawn, committed debt
facilities available to the Group by EUR250 million, further strengthening the
Group's liquidity position.
The Group's investment grade credit metrics were reaffirmed during the course
of the year, at BBB+ and Baa1 for Standard & Poor's and Moody's Investors
Service, respectively.
Underlying net finance costs of EUR104 million were EUR16 million higher than the
previous year. While the effective interest rate was stable at 4.2% (2018:
4.2%), trailing 12-month average net debt of EUR2,243 million was higher (2018: EUR
1,979 million) as a result of the special dividend paid to shareholders (EUR484
million) and acquisitions totalling EUR424 million completed during 2018.
Simplification of corporate structure
At the end of July 2019, we completed the simplification of our corporate
structure from a dual listed company structure into a single holding company
under Mondi plc (the "Simplification"). We believe this has simplified cash and
dividend flows, increased transparency, removed the complexity associated with
the previous structure and enhanced strategic flexibility.
As a result of the Simplification, each Mondi plc shareholder has the same
voting and capital interests in the Group as each Mondi plc ordinary
shareholder and Mondi Limited ordinary shareholder had under the DLC structure.
The Simplification did not result in any changes to management, operations,
locations, activities or staffing levels of the Group. Nor did it, save for
one-off expenses to effect the Simplification, have any significant impact on
the reported profits or net assets of the Group.
Dividend
The Board aims to offer shareholders long-term ordinary dividend growth within
a targeted dividend cover range of two to three times on average over the
business cycle. Given our strong financial position and confidence in the
future of the business, the Board has recommended an increase in the final
ordinary dividend to 55.72 euro cents per share (2018: 54.55 euro cents per
share). The final ordinary dividend, together with the interim ordinary
dividend of 27.28 euro cents per share, paid on 20 September 2019, amount to a
total ordinary dividend for the year of 83.0 euro cents per share, an increase
of 9% on the 2018 total ordinary dividend of 76.0 euro cents per share.
The final ordinary dividend is subject to the approval of the shareholders of
Mondi plc at the Annual General Meeting scheduled for 7 May 2020 and, if
approved, is payable on 14 May 2020 to shareholders on the register on 3 April
2020.
Growing Responsibly
Sustainability lies at the centre of our strategy to drive value accretive
growth. We believe that being part of the solution to global sustainability
challenges will secure the long-term success of our business and benefit our
stakeholders.
The attention to sustainable packaging continues to gain momentum. We have been
making sustainable packaging products for our customers for over 50 years and
we are pleased to see recent heightened awareness. As a leading producer of
paper- and plastic-based packaging we are uniquely positioned to help our
customers transition to more sustainable packaging through our customer-centric
EcoSolutions approach, using paper where possible, plastic when useful.
Ensuring the safety of our people always comes first. Our employees and
contractors work in potentially hazardous environments. We embed clearly
defined methodologies, procedures and robust controls to ensure they, and other
people who have reason to be on Mondi sites, stay safe. Above all we look to
develop a safety mind-set across the Group. We sincerely regret two fatalities
during 2019. In January, a contractor lost his life conducting pile drilling
activities at the construction site of our new paper machine in Ruzomberok and
in August, a contractor was fatally injured during towing activities at our
Russian forestry operations. We are also deeply saddened that a contractor died
as a result of an incident during demolition activities at our Syktyvkar mill
in January 2020. Thorough investigations are conducted after all incidents and
action plans implemented to address root causes and prevent repeat incidents.
We continue to focus on the top fatal risks at each site, implementing clearly
defined methodologies, procedures and robust controls to drive continuous
improvement in safety across the business.
In 2019, we had 222 recordable cases (2018: 262), which equates to a Total
Recordable Case Rate (TRCR) of 0.59 (2018: 0.68) representing a 13% reduction
compared to 2018 and a 22% improvement against our 2015 baseline, well ahead of
our 2020 commitment to reduce TRCR by 5%.
Our Growing Responsibly model is the framework through which we respond to
opportunities to address sustainability and societal challenges, especially by
contributing to the UN SDGs and other global initiatives. It enables us to
demonstrate, monitor and improve our sustainability performance across the
value chain. The model comprises 10 Action Areas which reflect the aspects of
sustainability that are most relevant for us and our stakeholders. Within these
Action Areas we have made 16 public commitments, running to the end of 2020. In
addition, we have updated our science-based climate commitment in line with the
Paris agreement to keep global temperature rise below 2°C. Our science-based
targets cover more than 95% of our total Scope 1 and 2 greenhouse gas
emissions, including our energy sales. We have committed to reduce Scope 1 and
2 emissions 34% by 2025, and 72% by 2050 (per tonne of saleable production)
against a 2014 baseline.
A number of our ongoing and recently completed major capital projects are
expected to contribute to our sustainability commitments, in particular
reducing greenhouse gas emissions and waste. As we continue to make progress in
making our business less carbon intensive, we are pleased our total greenhouse
gas emissions (per tonne of saleable production) have declined to 0.71, a 15.5%
reduction against the 2014 baseline. The contribution of biomass-based
renewable energy to the total fuel consumption of our mills has increased from
59% in 2014 to 64% in 2019.
In addition to climate change, we continue working closely with WWF in the
sixth year of our global partnership on key focus areas such as responsible
fibre sourcing and water security. Our initiatives include water stewardship in
South Africa, protection of intact forest landscapes in Russia, sustainable
forest management and biodiversity.
We are helping to lead the transformation towards circular thinking through our
collaboration with customers and multi-stakeholder initiatives such as CEPI's
4evergreen, CEFLEX and the Ellen MacArthur Foundation's New Plastics Economy
initiative. We signed up to the New Plastics Economy Global Commitment made by
leading brand owners, retailers and packaging companies in 2018, pledging to
ensure 100% of plastic-based packaging is reusable, recyclable or compostable
and a minimum of 25% of post-consumer waste is incorporated across all our
flexible packaging where food contact regulations allow by 2025. Our focus is
on developing innovative plastic packaging solutions that are in line with
circular design principles, and working with stakeholders across the value
chain to address the current challenges we face in securing high quality
recycled plastic input required to transition to a circular plastic economy.
We want to develop and inspire a diverse and inclusive workforce where
opportunities for employment, engagement, promotion, training and any other
benefits are based on skills and ability. During the year, we initiated several
programmes across our operations to attract, retain, and develop our people and
we also made progress on our diversity and inclusion journey introducing
'conscious inclusion' training designed to address unconscious bias and
identify practical actions to create an inclusive work environment. In 2019, we
joined the growing community of businesses publicly demonstrating their
commitment to gender equality in the workplace by signing the UN Women's
Empowerment Principles.
The social, economic and environmental health of local communities is important
to our long-term success. During the year we supported local livelihoods and
businesses to build strong, proactive and transparent relationships with local
stakeholders. As part of our stakeholder engagement initiatives and to deepen
the understanding of our relationship and impact on local communities, we
conducted in-depth socio-economic assessments in two of our mills during the
year.
As we come to the end of our current sustainability commitment period, we are
working on our post-2020 commitments to build on our achievements and enable
our future success.
Coronavirus (COVID-19) outbreak
We have considered and will continue to closely monitor the potential impact of
COVID-19 on our business. We have not seen any impact on the Group to date. The
Group's direct exposure to China is limited, with revenues in the country
accounting for less than 1% of the total. We continue to monitor its impact on
global trade and the macro-economic outlook.
Outlook
Looking ahead, we remain confident in the structural growth drivers in the
packaging sectors in which we operate. Heightened macro-economic uncertainties
are likely to continue to affect markets in the short term and, while we are
seeing indications of stability in pricing in certain segments, we start the
year with lower prices across our key paper grades. Input cost relief, our
ongoing profit improvement programmes and customer-centric innovation
initiatives, and the benefits from our capital expenditure pipeline will
continue to support our performance.
With our robust business model, centred around our high-quality,
cost-advantaged asset base, our culture of continuously driving performance and
the strategic flexibility our strong cash generation and financial position
bring, we continue to look to the future with confidence.
Principal risks and uncertainties
The Board is responsible for the effectiveness of the Group's risk management
activities and internal control processes. It has put procedures in place for
identifying, evaluating, and managing the significant risks that the Group
faces. In combination with the audit committee, the Board has conducted a
robust assessment of the principal risks to which Mondi is exposed and has
reviewed emerging risks during the year. The Board is 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.
The majority of the Group's most significant risks are long term in nature and
in general do not change significantly in the short term. The assessment of
principal risks is updated annually to reflect the developments in our
strategic priorities and Board discussions on emerging risks. During the year,
we enhanced our understanding of the risks and implications related to climate
change, demand for sustainable packaging solutions including substitution of
plastic packaging and the UK's exit from the European Union. We recognise
investors and other stakeholders are seeking a better understanding of how
companies are evaluating and responding to climate change related risks. We
have been evaluating the impact and reporting on these risks for a number of
years and this year have included climate change related risk as a separate
principal risk to provide further clarity on the key impacts on our business
and our associated response. As we start 2020, we are also closely monitoring
the outbreak of COVID-19 and the potential implications for our business.
Strategic risks
The industries and geographies in which we operate expose us to specific
long-term risks which are accepted by the Board as a consequence of the Group's
chosen strategy and operating footprint.
We continue to monitor recent capacity announcements and demand developments,
how consumers are demanding more sustainable packaging, the developments in the
transition period after the UK ended its membership of the European Union, the
stability of the Eurozone, the increasing prevalence of trade tariffs and
economic sanctions and the potential impacts of the coronavirus outbreak.
Furthermore, while we continue to increase our understanding of climate change
related risks and the impacts become clearer, we will continue to improve our
disclosures and develop our responses.
The executive committee and Board 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 influence market
prices through their impact on the supply/demand balance. Unless market growth
exceeds capacity additions, excess capacity may lead to lower selling prices.
In the markets where our converting plants operate, investments in newer
technology may lower operating costs and provide increased product
functionality, increasing competition and impacting margins.
Our strategic focus on low-cost production and innovation aims to achieve cost
advantages and produce higher value-added, sustainable and responsibly
produced products. This is combined with our focus on growing markets and
consistent investment in our existing asset base securing our competitiveness.
We monitor industry developments in terms of changes in capacity, utilisation
levels both short and long term, as well as market trends and trade flows in
our own product markets. This helps us to establish target capacity utilisation
levels in the short term and to evaluate capital investment projects in the
long term. We maintain strong relationships with machine suppliers to identify
current market developments and technologies, and we routinely review our asset
portfolio and capacity utilisation levels to identify underperforming assets
and take decisive action to drive performance.
Product substitution
Global socio-economic and demographic trends and changing consumption patterns,
including increased public awareness of sustainability and increasing customer
purchasing power, are driving changes in customers' needs and attitudes, and
could affect the demand for Mondi products. The increased public and
stakeholder focus on the impact of plastic-based packaging on marine and
terrestrial ecosystems has led to heightened environmental considerations,
changes in legislation and a shift in consumer attitudes towards packaging.
While this could create opportunities for the Group, there could also be a risk
of substitution, which may be to different solutions not produced by Mondi
meeting the same customer requirements. Factors that may positively or
negatively impact the demand for our products include reduced weight of
packaging materials, electronic substitution of paper products, increased use
of recycled raw materials, substitution of plastic packaging, substitution of
rigid plastic by flexible packaging, increased demand for high-quality printed
material, increased demand for paper based packaging, certified and responsibly
produced goods, and changes in demand for specific material qualities such as
recyclable/biodegradable packaging.
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.
We regularly monitor trends, new developments and innovations in our product
markets. We conduct customer surveys to get a better insight into our
customers' needs. Our sustainability task force on EcoSolutions collaborates
across the organisation to identify and respond to sustainability requirements
from suppliers, customers and consumers. It also monitors the current market
trends and legislative developments around sustainability of our plastic-based
packaging. As a member of the Ellen MacArthur Foundation's New Plastics Economy
initiative, we collaborate with stakeholders across the plastic value chain.
Our research and development pipeline ensures that our products remain
cutting-edge with added focus on sustainability properties (e.g. recyclable,
compostable or biodegradable products, sourced responsibly). 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
The Group operates in cyclical markets and fluctuations in our key packaging
and paper prices or converting margins can have material profit and cash flow
implications. Our selling prices are determined by changes in capacity and
demand for our products, which are, in turn, influenced by macroeconomic
conditions, competitive behaviour, 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. Gross margins in our downstream converting operations
are impacted by fluctuations in key input costs, which cannot be passed on to
customers in all cases.
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, cost-advantaged asset base to ensure we
maintain our competitive cost position. We continue to further develop
businesses in higher growth markets with better long-term fundamentals. Our
high levels of vertical integration reduce our exposure to price volatility of
our key input costs. In our downstream operations the focus is on passing
through our main material costs to sales prices. Our financial policies and
structures take the inherent price volatility of the markets in which we
operate into consideration. We regularly review and monitor the current market
fundamentals, market demand trends and market prices to evaluate price
expectations in the short term but also to understand the long-term trends. We
monitor our order intake to identify changing trends and developments in our
own product markets.
Country risk
The Group has operations across more than 30 countries with differing
political, economic and legal systems. In some countries, such systems are less
predictable than in countries with more developed institutional structures.
Political or economic upheaval, inflation, changes in laws, protectionism,
nationalisation, or expropriation of assets may have a material effect on our
operations in those countries. The current macroeconomic environment is
impacted by a number of uncertainties, including the effects of increased
protectionism, use of trade tariffs, economic sanctions, the stability of the
Eurozone, the uncertainty over the outcome of agreements between the UK and the
European Union after the UK ended its membership of the European Union and more
recently the potential effects of the coronavirus outbreak in China (COVID-19).
In South Africa, the Group is subject to land claims and could face adverse
land claims rulings. In February 2018, a motion was passed in the National
Assembly in South Africa for Section 25 of the South African Constitution to be
reviewed and amended to allow government to expropriate land without
compensation. A process to have the South African Constitution amended
accordingly has started and is expected to be finalised in 2020. There could be
other changes in legislation governing land ownership in South Africa.
Our geographic diversity and decentralised management structure, utilising
local resources in countries in which we operate, reduce our exposure to any
specific jurisdiction. To mitigate the effect of country specific risks we
structure our capital and debt in each country based on assessed risks and
exposures. We regularly review our sales strategies to mitigate export risk in
countries with less predictable environments and, where possible, we obtain
credit insurance. The Board has 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.
During the year, further analysis has been undertaken to better understand the
possible consequences of the UK's exit from the European Union. However, the
Group's exposure to the UK is limited. The Group operates two Flexible
Packaging plants in the UK, which are expected to be closed in 2020 and exports
containerboard and uncoated fine paper to the UK. Revenues from customers in
the UK represent around 3% of the Group's total. The impact on trade flows
between the UK and the European Union continues to be monitored closely. We are
continuously assessing the risks, analysing the supply chain and developing
backup plans to manage any short-term disruptions. Given the limited direct
trading exposure of the Group to the UK, we do not expect Brexit to materially
impact our ability to continue normal business operations. Although the Group
operates one Engineered Materials plant in China and its overall direct
exposure is limited, with revenues in the country accounting for less than 1%
of the Group's revenue, we continue to closely monitor the potential impact of
the coronavirus outbreak. In South Africa the Group has settled a number of
land claims structured as sale and leaseback arrangements which provide a
framework for settling future land claims and continues to work with other
stakeholders to engage with government on land matters. We actively monitor all
countries and environments in which we operate. Regular formal and informal
interaction with government officials, local communities, and business partners
assists us to remain abreast of changes and new developments.
Climate change related risk
Climate change has the potential to affect our business in various ways. While
these may not be severe in the short term, we believe climate change related
risks are likely to have a medium and long-term impact on our business. Our
manufacturing operations are energy-intensive, resulting in both Scope 1 and
Scope 2 greenhouse gas emissions. In addition, fibre is the main raw material
for our products and forests are an important carbon store, with sustainably
managed forests having the opportunity to support a circular bioeconomy.
Customers and consumers are increasingly concerned about the consequences of
climate change and are looking for solutions produced from renewable materials
and reduced carbon footprints. Our climate change related risks relate to
transition and physical risks and are described below.
Governments and regulators are likely to take action to curb carbon emissions
that may impact our business, such as the introduction of carbon taxes. For
example, the EU Parliament recently declared a climate emergency and called on
all EU countries to phase out all direct and indirect fossil fuel subsidies by
2020, in addition to encouraging an EU policy to reach climate neutrality as
soon as possible, and latest by 2050. In Europe, all of our pulp and paper
mills fall under the EU Emissions Trading Scheme (EU ETS) and in South Africa,
the government has committed to introduce a carbon tax. In Russia, the strategy
for the development of a low-carbon economy is currently under development.
Changes in precipitation patterns and extreme weather conditions such as
floods, storms, droughts and fires may impact our plantations and the forests
we source wood from and could result in fibre supply chain interruptions and
higher fibre costs. Higher temperatures may also increase the vulnerability of
forests to pests and disease. Increased severity of extreme weather events may
also interrupt our operations. In water-scarce countries, we may see an impact
on our production process as a result of limited water availability.
We focus on measures to reduce our GHG emissions by improving our energy
efficiency, optimising the use of biomass-based fuels in order to reduce our
use of fossil-based energy sources, and to decrease carbon-intensive energy
sources such as coal. We do this with a combination of capital investments and
ongoing efficiency programmes. We look to source our wood from diverse regions
and forest types to mitigate the potential impacts of climate change on our
wood supplies, in particular in Europe. In South Africa, we continue to
investigate and develop wood species which require less rainfall and are more
resistant to pests and disease. We monitor and measure our impact on climate
change. Our reporting on GHG emissions and energy is independently assured and
we have set science-based targets for our Scope 1 and Scope 2 emissions. We
support WWF Climate Savers programme and the We Mean Business Coalition which
aims to catalyse business action and drive policy ambition to accelerate the
zero-carbon transition.
We are committed to adhering to internationally accepted recommendations, such
as those published by the Financial Stability Board's Task Force on
Climate-related Financial Disclosures (TCFD), to investigate and report on
climate-related risks and opportunities. We will continue to investigate the
financial implication of our mid- and long-term climate-related risks and
opportunities using the International Energy Agency's 2°C scenario and a
business as usual scenario (RCP8.5).
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 target investment grade credit ratings and we have access to diverse sources
of funding with varying maturities. The majority of our external debt is issued
centrally. We use a blend of floating and fixed rate debt contracts to mitigate
the interest rate risk. We report regularly to the Board on our treasury
management policies. Our central treasury function monitors compliance with
treasury policies at operating level and we engage external advisors to review
the treasury function at regular intervals.
Currency risk
As a multinational group, operating globally, we are exposed to the effect of
changes in foreign currency rates. The impact of currency fluctuations affects
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; whilst the fluctuations in the US dollar, Russian
rouble, UK pound sterling and Turkish lira can also have a material impact as
our revenues in these currencies are greater than operating costs incurred.
Additionally, appreciation of the euro compared with the currencies of the
other key paper-producing regions or paper pricing currencies, notably the US
dollar, reduces the competitiveness of Mondi products in Europe compared with
imports from such key paper-producing regions which can result in lower
revenues and earnings.
Balance sheet exposures and material forecasted capital expenditures are hedged
upon identification. We do not hedge our exposure to projected future sales or
operating costs and our businesses respond to adverse currency fluctuations by
increasing selling prices or increasing exports where competitiveness improves
as operating currencies weaken. Entities also borrow in their local currencies
to minimise translation risk. We continuously monitor exchange rate movements
and sensitivities, and evaluate the impact of exchange variances on our
results. We regularly review our prices and monitor the import and export trade
flows.
Tax risk
We operate in a number of countries - all with different tax systems. 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. We make significant intragroup charges, the basis
for which is subject to review during tax audits.
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. Arm's length principles are applied in the pricing of all
intragroup transactions in accordance with Organisation for Economic
Cooperation and Development guidelines. The Board has approved the Group tax
strategy and performs a formal review of the Group's tax affairs at least
annually. We obtain external advisory opinions for all major tax projects, such
as acquisitions and restructuring activities, and make use of external
benchmarks where possible. We regularly engage with external advisors to stay
up-to-date with changes in tax legislation and tax practice.
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 safety 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.
The raw materials used by the Group include significant amounts of wood, pulp,
paper for recycling, polymers and chemicals. The prices for many of these raw
materials generally fluctuate in correlation with global commodity cycles. Wood
prices and availability may be adversely affected by reduced quantities of
available wood supply that meet our standards for credibly certified or
controlled wood, increased frequency of severe weather events, changes in
rainfall or increased instances of pest and disease outbreaks and increasing
use of wood as a biofuel.
We have access to our own sources of wood in Russia and South Africa and we
purchase wood, paper for recycling, pulp, and polymers to meet our needs in the
balance of our operations. Where we source our raw materials in areas of weaker
governance, we may face potential social and environmental risks related to
waste, pollution, poor safety and labour practices and human rights issues.
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. Sustainable management
of our forestry operations is key in managing our overall social and
environmental impact, helping to protect ecosystems, protect worker and
community rights, and to develop resilient landscapes. 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. In Europe, we source our wood from diverse regions and
forest types to mitigate the potential impacts of unforeseen events on our wood
supplies. We have developed a responsible procurement process to assess and
evaluate the performance of our suppliers and their adherence to our Code of
Conduct for Suppliers. Supplier performance is evaluated through questionnaires
and audits. Wood and pulp suppliers are assessed as part of our Due Diligence
Management System which addresses the main legal and sustainability risks.
We have built strong forestry management resources in Russia and South Africa
to actively monitor and manage our wood resources in those countries. We
continue to certify our forests with credible external certifications. In South
Africa, we have tree improvement programmes in place, which aim to produce
stronger, more robust hybrids that are better able to resist disturbances such
as drought, pests and diseases.
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. Fossil-based
energy sources could pose a sustainability and regulatory risk to our energy
security. Higher 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, operating globally and relying on
global supply chains, we face potential physical and regulatory risks.
We focus on improving the energy efficiency of our operations by investing in
improvements to our energy profile and increased electricity self-sufficiency,
including the use of renewable energy sources, 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 income
from the sale of green energy credits in certain of our operations at prices
determined in the open market. We focus on optimising the use of biomass-based
fuels in order to reduce our use of fossil-based energy sources, and to
decrease carbon-intensive energy sources such as coal. Energy costs are closely
monitored and benchmarked against external sources and 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
actively monitor the renewable energy market fundamentals and changes in
legislation and maintain contact with local energy regulators. We have
undertaken detailed compliance assessments regarding Industry Emissions and
Energy Efficiency Directives to determine future investment requirements.
Technical integrity of our operating assets
We have five major mills which account for approximately 75% of our total pulp
and paper production capacity, and a significant engineered materials
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. Incidents such as
fires, explosions, or large machinery breakdowns or the inability of our assets
to perform the required function effectively and efficiently whilst protecting
people, business, the environment and stakeholders could result in property
damage, loss of production, reputational damage, and/or safety and
environmental incidents. We have established a central digital transformation
function to drive operational efficiency through advanced analytics, automation
and robotics.
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. Our Asset Management and
Technical Integrity Management systems have contributed to a continuous
improvement of our risk profile.
We continue to develop our Asset Management system to ensure best practices for
maintenance procedures and we have a maintenance training programme for our
employees. Benchmarking activities enable us to optimise our production
throughout the organisation by learning from our best performing operations and
to identify any emerging issues early.
We actively monitor all incidents and have a formal process which allows us to
share lessons learned across our operations, identify emerging issues, conduct
benchmarking, and evaluate the effectiveness of our risk reduction activities.
We engage external experts to perform technical integrity assessments at our
major sites and enhance our engineering and loss prevention competencies and
capabilities. Our Fire Protection programme is supported by external experts
and independent loss prevention audits and we take out property insurance cover
for key risks.
Environmental impact
We operate in a sector where the environmental impact of our business can be
high and we need to manage the associated risks. 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 consider
potential negative impacts on constrained resources and loss of biodiversity
and ecosystems from our forestry and manufacturing operations. 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
could have an adverse impact on our profitability.
We ensure that we are complying with all applicable environmental and 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 manage our water resources responsibly to
address risks related to water scarcity in some of our operations, and to
ensure equitable use of water resources among local stakeholders wherever we
operate. We emphasise the responsible management of forests and associated
ecosystems and protect high conservation value areas. We ensure that we manage
our forests responsibly and implement measures to protect biodiversity. We
collaborate with customers and supply chain stakeholders to better understand
the concerns related to the impact of plastics in the environment, and to work
together on scaleable, meaningful solutions to address this. Our product design
and innovation efforts focus on reducing the environmental impact of our
products throughout their life cycle. We monitor our environmental performance
indicators and report our progress against our 2020 commitments, with our GHG
emissions independently assured to reasonable assurance level. We monitor
regulatory developments to ensure compliance with existing operating permits
and perform SEAT (Socio-economic Assessment Toolbox) assessments and water
impact assessments locally to better understand our local environmental
footprint and stakeholder needs.
Employee and contractor safety
We operate large facilities, often in remote locations. Incidents cause injury
to our employees or contractors, property damage, lost production time, and/or
harm to our reputation. Risks include fatalities, serious injuries,
occupational diseases, and substance and drug abuse.
To ensure the safety of our employees and contractors, we apply safety
management systems, including amongst others, risk assessments, safety
procedures and controls. We have a goal of zero harm and aim to continuously
advance our 24-hour safety mind-set and safety culture of sending everybody
home safely. We continue with the project to engineer out the most significant
risks in our operations supported by robust controls and procedures for
operating those assets and conducting related tasks. We have a Permit to Work
methodology across the Group to improve our safety performance. 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 (lag indicators) as well as achievement of
lead indicators. We continually investigate and monitor incidents and major
close calls and actively transfer learnings across our operations. Our Task
Risk Management Methodology provides a practical approach to conducting
pre-task risk assessments, and our focus is on better understanding the high
risk tasks in our operations. We apply externally accredited safety management
systems and conduct regular audits of our operations to ensure our facilities
remain fit-for-purpose.
Attraction and retention of key skills and talent
Our success is driven by our people. Key to our long-term success is
attracting, retaining, recruiting and developing a skilled and committed
workforce. Access to the right skills, particularly management and technical
skills, is critical to support the performance and growth of our business.
Operations in remote locations or highly competitive markets make attracting
and retaining skilled employees challenging. Losing skills or failing to
attract new talent to our business has the potential to undermine our ability
to drive performance and deliver on our strategic objectives.
Our culture and values play a key role in empowering and inspiring our people.
These are highlighted by various Inspire Programmes and collaboration
initiatives throughout our operations. We have a zero tolerance policy towards
discrimination and we provide equal opportunities for all employees. To attract
skills and talent we are investing in employer branding. We are engaged in fair
and transparent recruitment practices and have diversity and inclusion, labour
and human rights policies in place. We ensure competitive compensation levels
through benchmarking and continue to support and invest in group-wide as well
as local training programmes. We have implemented measures to monitor and
manage succession planning, staff turnover, internal placements and training.
We perform 360 degree feedback at a management level and regularly conduct
performance and development reviews at a local level. We carry out a group-wide
employee survey approximately every two years. Through a confidential reporting
hotline, Speakout, employees can raise concerns about conduct that may be
contrary to our values.
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, underpin 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. Failure to successfully manage relationships with our
stakeholders could disrupt our operations and adversely impact the Group's
reputation. These requirements include laws relating to the environment,
exports, price controls, taxation, competition compliance, data protection,
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. Areas of weaker governance also present
the challenge of addressing potential human rights issues in our operations and
supply chain. The introduction of human rights legislation, such as the UK
Modern Slavery Act 2015, 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.
We operate a comprehensive training and compliance programme, supported by
self-certification and reporting, with personal sanction for failure to comply
with Group policies. We engage with our stakeholders through formal and
informal processes such as our SEAT assessment and Community Engagement Plans.
We perform sustainable development risk assessments for our suppliers and have
updated the Code of Conduct for Suppliers. Our legal and governance compliance
is supported by a centralised legal compliance team and is subject to regular
internal audit review. We have a confidential reporting hotline, Speakout,
enabling employees, customers, suppliers, managers and other stakeholders to
raise concerns about misconduct.
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 a plant shutdown and an
inability to meet customer requirements. Cybercrime 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 the Board and we operate
an extensive training and awareness programme for all our users. The IT
infrastructure is regularly tested and verified and where possible, we have
redundancies in place. Our system landscape is based on well-proven products.
We conduct regular threat assessments and utilise external providers to
evaluate and review our security policies and procedures and we have cybercrime
insurance in place.
Going concern
The directors have reviewed the Group's budget, considered the assumptions
contained in the budget, and reviewed and assessed the significant risks which
may impact the Group's performance in the near term. This includes 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 condensed consolidated financial statements.
The Group's net debt at 31 December 2019 was EUR2,207 million (2018: EUR2,220
million) representing a gearing level of 33.5% (2018: 36.7%). The Group´s net
debt to 12-month trailing underlying EBITDA at 31 December 2019 was 1.3 times,
well within the key financial covenant requirement of 3.5 times.
At 31 December 2019, the Group had EUR660 million of undrawn, committed debt
facilities. The Group's debt facilities have maturity dates of between less
than 1 year and 7 years, with a weighted average maturity of 3.2 years. In
February 2020, the Group entered into an additional debt facility with a
maturity of 18 months, increasing the undrawn, committed debt facilities
available to the Group by EUR250 million.
Based on our evaluation the Board considered it appropriate to prepare the
condensed consolidated financial statements on the going concern basis.
Enquiries
Investors/analysts:
Clara Valera +44 193 282 6357
Mondi Group Head of Strategy and Investor Relations
Media:
Kerry Cooper +44 193 282 6323
Mondi Group Head of External Communication
Richard Mountain (FTI consulting) +44 790 968 4466
Conference call dial-in and webcast details
Please see below details of our dial-in conference call and webcast that will
be held at 09:00 (UK) and 11:00 (SA) today.
The conference call dial-in numbers are:
UK 0800 3767 922
South Africa 0800 014 553
Other +44 2071 928 000
Conference ID 1049766
The webcast will be available via www.mondigroup.com/FYResults19.
The presentation will be available to download from the above website 30
minutes 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 +44 2071 928 000.
For queries regarding access to the webcast, please e-mail
group.communication@mondigroup.com and you will be contacted immediately.
A video recording of the presentation will be available on Mondi's website
during the afternoon of 27 February 2020.
Directors' responsibility statement
The Group annual financial statements have been audited in accordance with the
applicable requirements of the Companies Act 2006.
The responsibility statement has been prepared in connection with the Group's
Integrated report and financial statements 2019, extracts of which are included
within this announcement.
The directors confirm that to the best of their knowledge:
* the condensed consolidated financial statements have been prepared in
accordance with the recognition and measurement principles of International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU)
and are derived from the audited consolidated financial statements of the
Group, prepared in accordance with IFRS (they do not contain sufficient
information to comply with IFRS);
* the Group's 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 it faces;
* the Integrated report and financial statements 2019, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Group'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 2019.
The Group's condensed consolidated financial statements, and related notes,
including this responsibility statement, were approved by the Board and
authorised for issue on 26 February 2020 and were signed on their behalf by:
David
Williams
Andrew King
Chair
Director
Audited financial information
The condensed consolidated financial statements and notes 1 to 19 for the year
ended 31 December 2019 are derived from the Group annual financial statements
which have been audited by PricewaterhouseCoopers LLP. The unmodified audit
report is available for inspection at the Group's registered office.
Condensed consolidated income statement
for the year ended 31 December 2019
2019 2018
EUR million Notes Underlying Special Total Underlying Special Total
items items
(Note 4) (Note 4)
Group revenue 3 7,268 - 7,268 7,481 - 7,481
Materials, energy and consumables (3,449) - (3,449) (3,526) - (3,526)
used
Variable selling expenses (549) - (549) (534) - (534)
Gross margin 3,270 - 3,270 3,421 - 3,421
Maintenance and other indirect (363) - (363) (346) - (346)
expenses
Personnel costs (1,072) 40 (1,032) (1,039) (15) (1,054)
Other net operating expenses (177) (1) (178) (272) (30) (302)
EBITDA 1,658 39 1,697 1,764 (45) 1,719
Depreciation, amortisation and (435) (41) (476) (446) (81) (527)
impairments
Operating profit 3 1,223 (2) 1,221 1,318 (126) 1,192
Net profit from equity accounted - - - 1 - 1
investees
Net finance costs 6 (104) (14) (118) (88) - (88)
Profit before tax 1,119 (16) 1,103 1,231 (126) 1,105
Tax (charge)/credit 7 (257) - (257) (273) 34 (239)
Profit for the year 862 (16) 846 958 (92) 866
Attributable to:
Non-controlling interests 33 1 34 42 - 42
Shareholders 829 (17) 812 916 (92) 824
Earnings per share (EPS) attributable
to shareholders
(euro cents)
Basic EPS 8 167.6 170.1
Diluted EPS 8 167.6 170.0
Basic underlying EPS 8 171.1 189.1
Diluted underlying EPS 8 171.1 189.0
Condensed consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2018
EUR million Before Tax Net of Before Tax Net of
tax credit tax tax charge tax
amount amount amount amount
Profit for the year 846 866
Items that may subsequently be
reclassified to the condensed
consolidated income statement
Fair value (losses)/gains arising from (4) - (4) 1 - 1
cash flow hedges
Exchange differences on translation of 143 - 143 (219) - (219)
foreign operations
Items that will not subsequently be
reclassified to the condensed
consolidated income statement
Remeasurements of retirement benefits (21) 3 (18) (12) (1) (13)
plans
Other comprehensive income/(expense) for 118 3 121 (230) (1) (231)
the year
Other comprehensive income/(expense)
attributable to:
Non-controlling interests (9) - (9) (12) - (12)
Shareholders 127 3 130 (218) (1) (219)
Total comprehensive income attributable
to:
Non-controlling interests 25 30
Shareholders 942 605
Total comprehensive income for the year 967 635
Condensed consolidated statement of financial position
as at 31 December 2019
EUR million Notes 2019 2018
Property, plant and equipment 4,800 4,340
Goodwill 948 942
Intangible assets 81 91
Forestry assets 10 411 340
Other non-current assets 111 85
Total non-current assets 6,351 5,798
Inventories 984 968
Trade and other receivables 1,111 1,190
Cash and cash equivalents 14b 74 52
Other current assets 20 34
Total current assets 2,189 2,244
Total assets 8,540 8,042
Short-term borrowings 12 (780) (268)
Trade and other payables (1,143) (1,186)
Other current liabilities (157) (214)
Total current liabilities (2,080) (1,668)
Medium and long-term borrowings 12 (1,496) (2,002)
Net retirement benefits liability 13 (225) (234)
Deferred tax liabilities (301) (253)
Other non-current liabilities (53) (60)
Total non-current liabilities (2,075) (2,549)
Total liabilities (4,155) (4,217)
Net assets 4,385 3,825
Equity
Share capital and stated capital 97 542
Retained earnings and other reserves 3,918 2,943
Total attributable to shareholders 4,015 3,485
Non-controlling interests in equity 370 340
Total equity 4,385 3,825
The Group's condensed consolidated financial statements, and related notes 1 to
19, were approved by the Board and authorised for issue on 26 February 2020 and
were signed on its behalf by:
David Williams Andrew King
Chair Director
Condensed consolidated statement of changes in equity
for the year ended 31 December 2019
EUR million Equity Non-controlling Total
attributable interests equity
to
shareholders
At 1 January 2018 3,683 324 4,007
Total comprehensive income for the year 605 30 635
Dividends (793) (18) (811)
Purchases of treasury shares (15) - (15)
Other 5 4 9
At 31 December 2018 3,485 340 3,825
Total comprehensive income for the year 942 25 967
Dividends (396) (3) (399)
Purchases of treasury shares (12) - (12)
Issue of ordinary shares, net of expenses (see note 11) (6) - (6)
Other 2 8 10
At 31 December 2019 4,015 370 4,385
Equity attributable to shareholders
EUR million 2019 2018
Share capital and stated capital1 97 542
Treasury shares (25) (26)
Retained earnings 3,963 3,589
Cumulative translation adjustment reserve (680) (820)
Post-retirement benefits reserve (52) (75)
Share-based payment reserve 20 22
Cash flow hedge reserve (4) -
Merger reserve1 667 259
Other sundry reserves 29 (6)
Total 4,015 3,485
Note:
1 The movement in the share capital and stated capital and merger reserve is
driven by the Simplification of the corporate structure. Further detail is
provided in notes 2 and 11
Condensed consolidated statement of cash flows
for the year ended 31 December 2019
EUR million Notes 2019 2018
Cash flows from operating activities
Cash generated from operations 14a 1,635 1,654
Dividends received from other investments 1 1
Income tax paid (248) (248)
Net cash generated from operating activities 1,388 1,407
Cash flows from investing activities
Investment in property, plant and equipment (757) (709)
Investment in intangible assets (12) (10)
Investment in forestry assets 10 (48) (53)
Investment in equity accounted investees (5) (7)
Acquisition of businesses, net of cash and cash equivalents (2) (402)
Proceeds from the disposal of businesses, net of cash and 20 3
cash equivalents
Other investing activities 10 21
Net cash used in investing activities (794) (1,157)
Cash flows from financing activities
Proceeds from medium and long-term borrowings 14c - 165
Repayment of medium and long-term borrowings 14c (48) -
Proceeds from Eurobonds 14c - 600
Net (repayment)/proceeds from short-term borrowings (20) 9
Repayment of lease liabilities (23) (25)
Interest paid (96) (73)
Transaction costs relating to the issue of share capital 11 (6) -
Dividends paid to shareholders 9 (396) (793)
Dividends paid to non-controlling interests 9 (3) (18)
Purchases of treasury shares (12) (15)
Financing special item 4 (14) -
Net cash inflow/(outflow) from derivatives 3 (25)
Other financing activities 5 (8)
Net cash used in financing activities (610) (183)
Net (decrease)/increase in cash and cash equivalents (16) 67
Cash and cash equivalents at beginning of year 8 (66)
Cash movement in the year 14c (16) 67
Effects of changes in foreign exchange rates 14c 1 7
Cash and cash equivalents at end of year 14b (7) 8
Notes to the condensed consolidated financial statements
for the year ended 31 December 2019
1 Basis of preparation
These condensed consolidated financial statements as at and for the year ended
31 December 2019 comprise Mondi plc and its subsidiaries (referred to as the
'Group'), and the Group's share of the results and net assets of its associates
and joint ventures.
On 9 May 2019 the Group's shareholders approved the Simplification of the
corporate structure from a dual listed company (DLC) structure into a single
holding company structure under Mondi plc. With effect from 26 July 2019, Mondi
plc became the holder of all the Mondi Limited ordinary shares while, by other
related actions, the DLC arrangements were terminated. Prior to the
Simplification, Mondi Limited and Mondi plc operated under a DLC structure as a
single economic entity, and as such, together with their respective
subsidiaries, were reported on a combined and consolidated basis as a single
reporting entity. Post Simplification, the Group is reported on a consolidated
basis. Further detail is provided in note 11.
The Group's condensed 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
consolidated financial statements of the Group, prepared in accordance with
IFRS and IFRS Interpretations Committee (IFRS IC) interpretations, as adopted
by the European Union (EU), and the Financial Pronouncements as issued by the
Financial Reporting Standards Council. The Group complies with Article 4 of the
EU IAS Regulation and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. The Group's condensed consolidated financial
statements do not contain sufficient information to comply with IFRS.
The condensed 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 2019 or 2018 but is derived
from those accounts. Statutory accounts for 2018 have been delivered to the
Registrar of Companies, and those for 2019 will be delivered in due course. The
auditor has reported on those accounts; its report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying its report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006. Copies of the
unqualified auditor's report on the Integrated report and financial statements
2019 are available for inspection at the registered office of Mondi plc.
These condensed consolidated financial statements have been prepared on the
historical cost basis of accounting, as modified by forestry assets and
financial assets and financial liabilities held at fair value through profit
and loss.
2 Accounting policies
The same accounting policies and alternative performance measures (APMs),
methods of computation and presentation have been followed in the preparation
of the condensed consolidated financial statements for the year ended
31 December 2019 as were applied in the preparation of the Group's annual
financial statements for the year ended 31 December 2018, except as set out
below:
* A number of further amendments to IFRS became effective for the financial
period beginning on 1 January 2019, but the Group did not have to change
its accounting policies or make material retrospective adjustments as a
result of adopting these new amendments.
Following its annual review of estimated useful economic lives as required
under IAS 16, 'Property, plant and equipment', the Group has revised the
estimated useful economic lives for items of plant and equipment to a range
from three years to 25 years (previously: from three years to 20 years)
effective from 1 January 2019. In accordance with IAS 8, 'Accounting Policies,
Changes in Accounting Estimates and Errors', the effect of the change in
accounting estimate has been recognised prospectively in the condensed
consolidated income statement.
Simplification accounting (note 11)
With the effect of the Simplification, Mondi Limited became a wholly owned
subsidiary of Mondi plc and subsequently the stated capital of Mondi Limited is
eliminated in the condensed consolidated statement of changes in equity. The
difference between the nominal value of new shares issued by Mondi plc (EUR23
million) and the stated capital of Mondi Limited recorded within the Group
equity immediately prior to the Simplification (EUR431 million) is recognised in
the merger reserve within equity.
The Simplification was accounted for outside the scope of IFRS 3, and
consequently, the carrying values of the assets and liabilities of Mondi
Limited were not adjusted to fair value, but continue to be reported under the
same measurement principles as applied prior to the transaction.
Transaction costs incurred to effect the Simplification are charged as a
financing special item in the condensed consolidated income statement, except
for costs incremental and directly attributable to the issuance of new shares
of Mondi plc, which are debited directly to retained earnings within equity in
accordance with IAS 32.
The Simplification accounting is identified as a critical accounting judgement
in terms of IAS 1 due to the exceptional nature of the underlying transaction
and the limited guidance available in IFRS, in particular the judgement applied
by management that the transaction does not represent a business combination
and so assets and liabilities of the Mondi Limited group were not remeasured to
their fair value as at the transaction date. Instead the assets and
liabilities continued to be held at their previous carrying amounts.
Alternative Performance Measures
The Group presents certain measures of financial performance, position or cash
flows in the condensed consolidated financial statements that are not defined
or specified according to IFRS. These measures, referred to as APMs, are
defined at the end of this document and where relevant reconciled to IFRS in
the notes to the condensed consolidated financial statements, and are prepared
on a consistent basis for all periods presented.
3 Operating segments
The Group reorganised its business units to strengthen value chain integration
and improve customer focus effective from 7 October 2019. The Group's four
business units (previously three business units) are as follows:
* Corrugated Packaging, comprising the operations of containerboard and
corrugated solutions;
* Flexible Packaging, comprising kraft paper, paper bags and consumer
flexibles operations;
* Engineered Materials, comprising personal care components, extrusion
solutions and release liner operations; and
* Uncoated Fine Paper, which remains unchanged.
Prior year figures have been restated to reflect the new organisational
structure. The reorganisation has no impact on the overall Group result.
Year ended 31 December 2019
EUR million, unless Corrugated Flexible Engineered Uncoated Corporate Intersegment Total
otherwise stated Packaging Packaging Materials Fine elimination
Paper
Segment revenue 2,014 2,708 979 1,758 - (191) 7,268
Internal revenue (30) (71) (45) (45) - 191 -
External revenue 1,984 2,637 934 1,713 - - 7,268
Underlying EBITDA 583 543 122 444 (34) - 1,658
Depreciation and (118) (142) (28) (118) (1) - (407)
impairments
Amortisation (6) (12) (8) (2) - - (28)
Underlying operating 459 389 86 324 (35) - 1,223
profit/(loss)
Special items - (4) - 2 (14) - (16)
Operating segment assets 2,407 3,094 723 2,082 7 (117) 8,196
Operating segment net 2,166 2,603 612 1,758 (7) - 7,132
assets
Trailing 12-month average 1,846 2,485 622 1,290 (81) - 6,162
capital employed
Additions to non-current 275 256 37 310 - - 878
non-financial assets
Capital expenditure cash 257 248 32 220 - - 757
payments
Underlying EBITDA margin 28.9 20.1 12.5 25.3 - - 22.8
(%)
Return on capital employed 24.9 15.7 13.8 25.1 - - 19.8
(%)
Average number of 6.7 10.4 2.4 6.3 0.1 - 25.9
employees (thousands)1
Year ended 31 December 2018 (restated)
EUR million, unless Corrugated Flexible Engineered Uncoated Corporate Intersegment Total
otherwise stated Packaging Packaging Materials Fine elimination
Paper
Segment revenue 2,115 2,708 984 1,877 - (203) 7,481
Internal revenue (41) (69) (45) (48) - 203 -
External revenue 2,074 2,639 939 1,829 - - 7,481
Underlying EBITDA 707 461 112 516 (32) - 1,764
Depreciation and (116) (146) (30) (119) (1) - (412)
impairments
Amortisation (9) (14) (9) (2) - - (34)
Underlying operating 582 301 73 395 (33) - 1,318
profit/(loss)
Special items - (102) (3) (21) - - (126)
Operating segment assets 2,277 2,944 789 1,852 4 (132) 7,734
Operating segment net 2,001 2,442 672 1,494 (9) - 6,600
assets
Trailing 12-month average 1,679 2,112 640 1,240 (88) - 5,583
capital employed
Additions to non-current 535 396 35 280 - - 1,246
non-financial assets
Capital expenditure cash 157 360 31 161 - - 709
payments
Underlying EBITDA margin 33.4 17.0 11.4 27.5 - - 23.6
(%)
Return on capital employed 34.7 14.3 11.4 31.9 - - 23.6
(%)
Average number of 6.5 10.6 2.4 6.5 0.1 - 26.1
employees (thousands)1
Note:
1Presented on a full time employee equivalent basis
External revenue by location of production and by location of customer
External revenue External revenue
by location of by location of
production customer
EUR million 2019 2018 2019 2018
Africa
South Africa 539 609 402 459
Rest of Africa 50 43 289 264
Africa total 589 652 691 723
Western Europe
Austria 1,097 1,106 150 160
Germany 856 887 939 985
United Kingdom 43 64 205 233
Rest of western Europe 720 623 1,437 1,470
Western Europe total 2,716 2,680 2,731 2,848
Emerging Europe
Czech Republic 536 483 184 183
Poland 1,059 1,161 599 636
Rest of emerging Europe 891 952 829 867
Emerging Europe total 2,486 2,596 1,612 1,686
Russia 889 944 707 694
North America 490 525 757 731
South America - - 112 100
Asia and Australia 98 84 658 699
Group total 7,268 7,481 7,268 7,481
Reconciliation of operating segment assets
2019 2018
EUR million Segment Segment Segment Segment
assets net assets assets net assets
Group total 8,196 7,132 7,734 6,600
Unallocated
Investment in equity accounted investees 14 14 9 9
Deferred tax assets/(liabilities) 49 (252) 49 (204)
Other non-operating assets/(liabilities) 204 (302) 189 (360)
Group capital employed 8,463 6,592 7,981 6,045
Financial instruments/(net debt) 77 (2,207) 61 (2,220)
Total assets/equity 8,540 4,385 8,042 3,825
4 Special items
EUR million 2019 2018
Operating special items
Impairment of assets (42) (83)
Reversal of impairment of assets 1 2
Restructuring and closure costs:
Personnel costs (1) (15)
Other restructuring and closure costs 4 (30)
Third party contribution relating to the Group's Austrian health 41 -
insurance fund (see note 13)
Provision relating to the 2012 Nordenia acquisition (5) -
Total operating special items (2) (126)
Financing special item
Simplification of corporate structure (see note 11) (14) -
Total special items before tax (16) (126)
Tax credit (see note 7) - 34
Total special items (16) (92)
Attributable to:
Non-controlling interests 1 -
Shareholders (17) (92)
The special items during the year comprised:
* Flexible Packaging
- Announced closure of two consumer flexibles plants in the UK. Restructuring
and closure costs of EUR1 million and related impairment of assets of EUR3 million
were recognised. Additional restructuring costs will be incurred in 2020 with
total costs expected to exceed EUR10 million.
- Release of restructuring and closure provisions of EUR5 million, partly offset
by additional restructuring costs of EUR1 million, and reversal of impairment of
assets of EUR1 million were recognised. All credits/(charges) related to special
items from prior years.
- Additional provision of EUR5 million relating to the 2012 Nordenia acquisition
was recognised. The provision relates to a special item from prior years.
* Uncoated Fine Paper
- Impairment of the Neusiedler operation in Austria. Impairment of assets of EUR
39 million was recognised.
- On 13 December 2018 a change in the Austrian Social Security Law was enacted.
Effective 1 January 2020, the law states that the plan liabilities of the
Group's Austrian health insurance fund are assumed by the Republic of Austria.
The effect of the change in law is classified as a third party taking on the
obligation for future contributions which is a one-off non-cash benefit to the
Group of EUR41 million. Further detail is provided in note 13.
* Corporate
- To effect the Simplification of the corporate structure from a DLC structure
into a single holding company structure under Mondi plc, the Group incurred
one-off transaction costs of EUR20 million, of which EUR14 million were charged as
a financing special item to the condensed consolidated income statement and EUR6
million were attributed to equity in accordance with IAS 32. Further detail is
provided in note 11.
5 Write-down of inventories to net realisable value
EUR million 2019 2018
Write-down of inventories to net realisable value (37) (21)
Aggregate reversal of previous write-downs of inventories 21 13
6 Net finance costs
Net finance costs are presented below:
EUR million 2019 2018
Investment income
Investment income 8 8
Net foreign currency losses
Net foreign currency losses (3) (4)
Finance costs
Interest expense
Interest on bank overdrafts and loans (90) (77)
Interest on lease liabilities (13) (14)
Net interest expense on net retirement benefits liability (9) (8)
Total interest expense (112) (99)
Less: Interest capitalised 3 7
Total finance costs (109) (92)
Net finance costs before special item (104) (88)
Financing special item
Simplification of corporate structure (see notes 4 and 11) (14) -
Net finance costs after special item (118) (88)
Net interest expense, as defined at the end of this document, for the year was
EUR95 million (2018: EUR83 million). The effective interest rate was 4.2% (2018
4.2%) based on trailing 12-month average net debt of EUR2,243 million (2018: EUR
1,979 million).
The weighted average interest rate applicable to capitalised interest on
general borrowings for the year ended 31 December 2019 was 4.9% (2018: 4.1%)
and was related to investments in the Czech Republic (2018: the Czech Republic
and South Africa).
7 Taxation
The Group's effective rate of tax before special items for the year ended
31 December 2019 was 23% (2018: 22%).
EUR million 2019 2018
UK corporation tax at 19% (2018: 19%) 1 1
Overseas tax1 218 265
Current tax in respect of prior years (1) -
Current tax 218 266
Deferred tax in respect of the current year 47 15
Deferred tax in respect of prior years (8) (8)
Tax charge before special items 257 273
Current tax on special items (1) (2)
Deferred tax on special items 1 (32)
Tax credit on special items (see note 4) - (34)
Tax charge for the year 257 239
Note:
1 Includes the SA corporation tax at a statutory rate of 28% reported
separately prior to the Simplification of the corporate structure
8 Earnings per share (EPS)
EPS attributable to
shareholders
(euro cents) 2019 2018
Basic EPS 167.6 170.1
Diluted EPS 167.6 170.0
Basic underlying EPS 171.1 189.1
Diluted underlying EPS 171.1 189.0
Basic headline EPS 172.5 184.8
Diluted headline EPS 172.5 184.7
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 2019 2018
Profit for the year attributable to shareholders 812 824
Special items attributable to shareholders (see note 4) 17 126
Related tax (see note 4) - (34)
Underlying earnings for the year 829 916
Special items not excluded from headline earnings 25 (45)
Gain on disposal of property, plant and equipment (2) (1)
Net (gain)/loss on disposal of businesses and equity accounted (9) 3
investees
Impairments not included in special items 2 2
Related tax (9) 20
Headline earnings for the year 836 895
Weighted average
number of shares
million 2019 2018
Basic number of ordinary shares outstanding 484.6 484.4
Effect of dilutive potential ordinary shares - 0.2
Diluted number of ordinary shares outstanding 484.6 484.6
9 Dividends
An interim ordinary dividend for the year ended 31 December 2019 of 27.28 euro
cents per ordinary share was paid on Friday 20 September 2019 to those
shareholders on the register of Mondi plc on Friday 16 August 2019.
A proposed final ordinary dividend for the year ended 31 December 2019 of 55.72
euro cents per ordinary share will be paid on Thursday 14 May 2020 to those
shareholders on the register of Mondi plc on Friday 3 April 2020.
The final ordinary dividend proposed has been recommended by the Board and is
subject to the approval of the shareholders at the Annual General Meeting
scheduled for 7 May 2020.
euro cents per share 2019 2018
Final ordinary dividend paid (in respect of prior year) 54.55 42.90
Special dividend paid (in respect of prior year) - 100.00
Interim ordinary dividend paid 27.28 21.45
Final ordinary dividend proposed for the year ended 31 December 55.72 54.55
EUR million 2019 2018
Final ordinary dividend paid (in respect of prior year) 264 207
Special dividend paid (in respect of prior year) - 484
Interim ordinary dividend paid 132 102
Total ordinary and special dividends paid 396 793
Final ordinary dividend proposed for the year ended 31 December 270 264
Declared by Group companies to non-controlling interests 3 18
Dividends proposed and paid to the shareholders of Mondi Limited and Mondi plc
prior to the effective date of the Simplification of the corporate structure
(see note 11) are presented on a combined basis.
Dividend timetable
The proposed final ordinary dividend for the year ended 31 December 2019 of
55.72 euro cents per share will be paid in accordance with the following
timetable:
Last date to trade shares cum-dividend
JSE Limited Tuesday 31 March
2020
London Stock Exchange Wednesday 1 April
2020
Shares commence trading ex-dividend
JSE Limited Wednesday 1 April
2020
London Stock Exchange Thursday 2 April
2020
Record date Friday 3 April 2020
Last date for receipt of Dividend Reinvestment Plan (DRIP) Thursday 9 April
elections by Central Securities Depository Participants 2020
Last date for DRIP elections to UK Registrar and South African
Transfer Secretaries
South African Register Tuesday 14 April
2020
UK Register Tuesday 21 April
2020
Payment Date Thursday 14 May 2020
DRIP purchase settlement dates (subject to market conditions and
the purchase of shares in the open market)
UK Register Monday 18 May 2020
South African Register Wednesday 20 May
2020
Currency conversion date
ZAR/euro Thursday 27 February
2020
Euro/sterling Tuesday 28 April
2020
Share certificates on Mondi plc's South African register may not be
dematerialised or rematerialised between Wednesday 1 April 2020 and Friday 3
April 2020, both dates inclusive, nor may transfers between the UK and South
African registers of Mondi plc take place between Tuesday 24 March 2020 and
Friday 3 April 2020, both dates inclusive.
Information relating to the dividend tax to be withheld from 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
Thursday 27 February 2020.
10 Forestry assets
EUR million 2019 2018
At 1 January 340 325
Capitalised expenditure 46 46
Acquisition of assets 2 7
Acquired through business combinations - 14
Fair value gains 71 43
Felling costs (64) (60)
Currency movements 16 (35)
At 31 December 411 340
Mature 251 197
Immature 160 143
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 determined using market approach.
11 Share capital and stated capital
Since its formation in 2007, the Group had been an integrated corporate group
established under a DLC structure with dual holding companies, Mondi Limited
and Mondi plc. The substance of the DLC structure was such that Mondi Limited,
Mondi plc and their respective subsidiaries operated together as a single
economic entity through a sharing agreement, with neither parent entity
assuming a dominant role. Accordingly, Mondi Limited and Mondi plc were
reported on a combined and consolidated basis as a single reporting entity.
On 9 May 2019 the Group's shareholders approved the Simplification of the
corporate structure from a DLC structure into a single holding company
structure under Mondi plc by way of a South African scheme of arrangement (the
'Scheme') proposed by the Mondi Limited board between Mondi Limited and the
Mondi Limited ordinary shareholders. On 11 July 2019 the Scheme became
unconditional and, with effect from 26 July 2019, Mondi plc became the holder
of all the Mondi Limited ordinary shares while, by other related actions, the
DLC arrangements were terminated. Pursuant to the Scheme, Mondi Limited
shareholders received one new Mondi plc ordinary share in exchange for each
Mondi Limited ordinary share held.
As a result of the Simplification, each Mondi plc shareholder has the same
voting and capital interests in the Group as each Mondi plc ordinary
shareholder and Mondi Limited ordinary shareholder had under the DLC structure.
The Simplification did not result in any changes to the management, operations,
locations, activities or staffing levels of the Group, nor, save for one-off
expenses to effect the Simplification as disclosed below, did it have any
significant impact on the reported profits or net assets of the Group.
Depending on the nature of costs incurred, the Group recognised related
transaction costs of EUR6 million as a deduction from equity in accordance with
IAS 32 and EUR14 million as a financing special item charge, as described in note
4, to effect the Simplification of the corporate structure.
12 Borrowings
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 % 2019 2018
Financing facilities
Syndicated Revolving Credit July 2021 EURIBOR/LIBOR + 750 750
Facility margin
EUR500 million Eurobond September 2020 3.375% 500 500
EUR500 million Eurobond April 2024 1.500% 500 500
EUR600 million Eurobond April 2026 1.625% 600 600
European Investment Bank Facility June 2025 EURIBOR + margin 52 62
Export Credit Agency Facility June 2020 EURIBOR + margin 2 15
Other Various Various 72 60
Total committed facilities 2,476 2,487
Drawn (1,816) (1,871)
Total committed facilities 660 616
available
The EUR500 million Eurobond maturing in 2020 contains a coupon step-up clause
whereby the coupon will be increased by 1.25% per annum if the Group 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 (Baa1, outlook stable) and
Standard & Poor's (BBB+, outlook stable).
2019 2018
EUR million Current Non-current Total Current Non-current Total
Secured
Bank loans and overdrafts - - - 2 - 2
Lease liabilities 25 193 218 22 162 184
Total secured 25 193 218 24 162 186
Unsecured
Bonds 500 1,094 1,594 - 1,592 1,592
Bank loans and overdrafts 250 204 454 237 245 482
Other loans 5 5 10 7 3 10
Total unsecured 755 1,303 2,058 244 1,840 2,084
Total borrowings 780 1,496 2,276 268 2,002 2,270
Committed facilities drawn 1,816 1,871
Uncommitted facilities 460 399
drawn
13 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 2019. Due to changes in assumptions and exchange rate
movements, the net retirement benefits liability decreased by EUR9 million and
the net retirement benefits asset increased by EUR11 million. The assets backing
the defined benefit scheme liabilities reflect their market values as at
31 December 2019. Net remeasurement losses arising from changes in assumptions
and return on plan assets amounting to EUR18 million have been recognised in the
condensed consolidated statement of comprehensive income.
Developments in 2019
On 13 December 2018 a change in the Austrian Social Security Law was enacted.
Effective 1 January 2020, the law states that the plan liabilities of the
Group's Austrian health insurance fund are assumed by the Republic of Austria.
The law permitted the Group to establish an independent trust to which it could
contribute the health insurance fund plan assets for the benefit of the plan
participants. Following further assessment and clarification of the law, and
necessary implementation steps, the Group elected to use this option in 2019
and applied the accounting policy as described below.
The accounting treatment and presentation in the condensed consolidated
statement of financial position is considered a critical accounting judgement,
in particular whether the change in law is accounted for as a reimbursement
right or a third party contribution.
The impact of the change in law is presented at year end 31 December 2019 with
analogy to paragraphs 92-94 of IAS 19 (Revised) due to a third party taking on
the obligation for future contributions. As there is no requirement under the
law for the Group to make continued contributions to fund the current deficit
and the current deficit will be funded by another party (the Austrian State and
an independent trust), none of that deficit is attributable to the Group at
year end. In respect of the future service costs, there is no obligation for
the Group to fund these costs. When, subsequent to 31 December 2019, the future
service costs are recognised for this health insurance fund, those costs will
be covered by the contributions of another party (the Austrian State and an
independent trust) at that point in time and are not an obligation of the
Group.
The effect of the change in law is classified as a third party taking on the
obligation for future contributions which is a once-off non-cash benefit to the
Group recognised as a special item reducing total personnel costs by EUR41
million in 2019. The third party contribution by the Austrian state and the
contribution of the plan assets to an independent trust is classified as a
special item and presented in the condensed consolidated income statement. An
adjustment to the plan liability for the amount to be assumed by the Austrian
state is reflected in the condensed consolidated statement of financial
position, with a corresponding adjustment to the plan assets for the transfer
of assets to an independent trust. The effect of the law change and
establishment of an independent trust is presented on a 'net' basis in the
condensed consolidated statement of financial position (a net nil position) at
year end 2019.
14 Consolidated cash flow analysis
(a) Reconciliation of profit before tax to cash generated from operations
EUR million 2019 2018
Profit before tax 1,103 1,105
Depreciation and amortisation 433 444
Impairment of property, plant and equipment (not included in 2 2
special items)
Share-based payments 11 11
Net cash flow effect of current and prior year special items (6) 97
Net finance costs 104 88
Net profit from equity accounted investees - (1)
Decrease in provisions and net retirement benefits (23) (7)
Increase in inventories (1) (112)
Decrease/(increase) in operating receivables 91 (84)
(Decrease)/increase in operating payables (55) 79
Fair value gains on forestry assets (71) (43)
Felling costs 64 60
Profit on disposal of property, plant and equipment (2) (1)
Net (profit)/loss from disposal of businesses and equity accounted (9) 3
investees
Other adjustments (6) 13
Cash generated from operations 1,635 1,654
(b) Cash and cash equivalents
EUR million 2019 2018
Cash and cash equivalents per condensed consolidated statement of 74 52
financial position
Bank overdrafts included in short-term borrowings (81) (44)
Cash and cash equivalents per condensed consolidated statement of (7) 8
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 Current Debt due Debt due Debt-related Total
cash financial within after derivative net
equivalents asset one one financial debt
investments year year instruments
At 1 January 2018 (66) 1 (187) (1,280) - (1,532)
Cash flow 67 - 16 (765) - (682)
Additions to lease liabilities - - (5) (19) - (24)
Disposal of lease liabilities - - 2 4 - 6
Acquired through business - - (31) (1) - (32)
combinations
Movement in unamortised loan - - - (2) - (2)
costs
Net movement in derivative - - - - (2) (2)
financial instruments
Reclassification - - (39) 42 - 3
Currency movements 7 - 20 19 (1) 45
At 31 December 2018 8 1 (224) (2,002) (3) (2,220)
Cash flow (16) - 43 48 - 75
Additions to lease liabilities - - (10) (48) - (58)
Disposal of lease liabilities - - 2 9 - 11
Disposal of businesses - - 1 - - 1
Movement in unamortised loan - - - (2) - (2)
costs
Net movement in derivative - - - - (3) (3)
financial instruments
Reclassification - - (517) 517 - -
Currency movements 1 - 6 (18) - (11)
At 31 December 2019 (7) 1 (699) (1,496) (6) (2,207)
(d) Cash flow generation
EUR million 2019 2018
Net cash generated from operating activities 1,388 1,407
Investing activities (50) (42)
Net cash used in investing activities (794) (1,157)
Investment in property, plant and equipment 757 709
Investment in equity accounted investees 5 7
Proceeds from the disposal of businesses, net of cash and cash (20) (3)
equivalents
Acquisition of businesses, net of cash and cash equivalents 2 402
Financing activities (123) (139)
Interest paid (96) (73)
Dividends paid to non-controlling interests (3) (18)
Purchases of treasury shares (12) (15)
Transaction costs relating to the issue of share capital (6) -
Financing special item (14) -
Net cash inflow/(outflow) from derivatives 3 (25)
Other financing activities 5 (8)
Cash flow generation 1,215 1,226
15 Capital commitments
EUR million 2019 2018
Contracted for but not provided 442 434
Approved, not yet contracted for 1,214 1,606
Total capital commitments 1,656 2,040
These capital commitments relate to the following categories of non-current
non-financial assets:
EUR million 2019 2018
Intangible assets 47 40
Property, plant and equipment 1,609 2,000
Total capital commitments 1,656 2,040
The expected maturity of these capital commitments is:
EUR million 2019 2018
Within one year 744 842
One to two years 487 663
Two to five years 425 535
Total capital commitments 1,656 2,040
Capital commitments are based on capital projects approved by the end of the
financial year and the budget approved by the Board. 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.
16 Contingent liabilities
Contingent liabilities comprise aggregate amounts as at 31 December 2019 of EUR3
million (2018: EUR6 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 consolidated statement of financial position for
either year presented.
The Group is subject to certain legal proceedings, claims, complaints and
investigations arising out of the ordinary course of business. Legal
proceedings may include, but are not limited to, alleged breach of contract and
alleged breach of environmental, competition, securities and health and safety
laws. The Group may not be fully, or partly, insured in respect of such risks.
The Group cannot predict the outcome of individual legal actions or claims or
complaints or investigations. The Group may settle litigation or regulatory
proceedings prior to a final judgment or determination of liability. The Group
may do so to avoid the cost, management efforts or negative business,
regulatory or reputational consequences of continuing to contest liability,
even when it considers it has valid defences to liability. The Group considers
that no material loss to the Group is expected to result from these legal
proceedings, claims, complaints and investigations. Provision is made for all
liabilities that are expected to materialise through legal and tax claims
against the Group.
17 Fair value measurement
Assets and liabilities that are measured at fair value, or where the fair value
of financial instruments has been disclosed in the notes to the condensed
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 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.
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 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 fair values of the Group's commodity price derivatives are calculated
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 carrying values of financial instruments at
amortised cost as presented in the condensed consolidated financial statements
approximate their fair values.
Carrying amount Fair value
EUR million 2019 2018 2019 2018
Financial liabilities
Borrowings 2,276 2,270 2,343 2,287
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 plc and its subsidiaries, which are related parties,
and transactions between its subsidiaries have been eliminated on
consolidation. There have been no significant changes to related parties as
disclosed in note 29 of the Group's annual financial statements for the year
ended 31 December 2018.
19 Events occurring after 31 December 2019
In addition to the final ordinary dividend proposed for 2019 (see note 9),
there have been the following material reportable events since 31 December
2019:
- The Group has concluded the consultation with employee representatives
relating to the closure of two consumer flexibles plants in the UK.
Restructuring and closure costs and related impairment of assets of EUR4 million
were recognised as a special item in 2019. Total restructuring and closure
costs are expected to exceed EUR10 million.
- In February 2020, the Group entered into a EUR250 million debt facility
maturing in August 2021.
Production statistics
2019 2018
Containerboard '000 2,524 2,530
tonnes
Kraft paper '000 1,162 1,118
tonnes
Uncoated fine paper '000 1,526 1,649
tonnes
Newsprint '000 201 207
tonnes
Pulp '000 4,387 4,330
tonnes
Internal consumption '000 3,883 3,844
tonnes
Market pulp '000 504 486
tonnes
Corrugated solutions million m 1,653 1,635
²
Paper bags million 5,228 5,255
units
Consumer flexibles million m 2,457 2,711
²
Engineered materials million m 5,506 5,797
²
Exchange rates
Average Closing
versus euro 2019 2018 2019 2018
South African rand 16.18 15.62 15.78 16.46
Czech koruna 25.67 25.65 25.41 25.72
Polish zloty 4.30 4.26 4.26 4.30
Pound sterling 0.88 0.88 0.85 0.89
Russian rouble 72.45 74.04 69.96 79.72
Turkish lira 6.36 5.71 6.68 6.06
US dollar 1.12 1.18 1.12 1.15
Alternative Performance Measures
The Group presents certain measures of financial performance, position or cash
flows in the condensed consolidated financial statements that are not defined
or specified according to IFRS. These measures, referred to as APMs, are
prepared on a consistent basis for all periods presented in this report.
The most significant APMs are:
Special items (note 4)
Those financial items which the Group considers should be separately disclosed
on the face of the condensed consolidated income statement to assist in
understanding the underlying financial performance achieved by the Group. Such
items are generally material by nature and exceed EUR10 million 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. 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 quantitative
reporting threshold.
Underlying EBITDA (condensed consolidated income statement)
Operating profit before special items, depreciation, amortisation and
impairments not recorded as special items. Underlying EBITDA provides a measure
of the cash generating ability of the business that is comparable from year to
year.
Underlying EBITDA margin (note 3)
Underlying EBITDA expressed as a percentage of revenue provides a measure of
the cash-generating ability relative to revenue.
Underlying operating profit (condensed consolidated income statement)
Operating profit before special items. Underlying operating profit provides a
measure of operating performance that is comparable from year to year.
Underlying operating profit margin
Underlying operating profit expressed as a percentage of revenue provides a
measure of the profitability of the operations relative to revenue.
Underlying profit before tax (condensed consolidated income statement)
Profit before tax and special items. Underlying profit before tax provides a
measure of the Group's profitability before tax that is comparable from year to
year.
Underlying earnings (and per share measure) (note 8)
Net profit after tax attributable to shareholders, before special items.
Underlying earnings (and the related per share measure based on the basic,
weighted average number of ordinary shares outstanding), provides a measure of
the Group's earnings that is comparable from year to year.
Headline earnings (and per share measure) (note 8)
The presentation of headline earnings (and the related per share measure based
on the basic, weighted average number of ordinary shares outstanding) is
mandated under the Listings Requirements of the JSE Limited and is calculated
in accordance with Circular 1/2019, 'Headline Earnings', as issued by the South
African Institute of Chartered Accountants.
Return on capital employed (ROCE) (note 3)
Trailing 12-month underlying operating profit, including share of equity
accounted investees' net profit/(loss), divided by trailing 12-month average
capital employed. ROCE provides a measure of the efficient and effective use of
capital in the business.
Capital employed (and related trailing 12-month average capital employed) (note
3)
Capital employed comprises equity, non-controlling interests in equity and net
debt providing a measure of the level of invested capital in the business.
Trailing 12-month average capital employed is the average capital employed over
the last 12 months adjusted for spend on major capital expenditure projects
which are not yet in production.
Net debt (note 14c)
A measure comprising short, medium, and long-term interest-bearing borrowings
and the fair value of debt-related derivatives less cash and cash equivalents,
net of overdrafts, and current financial asset investments. Net debt provides a
measure of the Group's net indebtedness or overall leverage.
Operating segment assets and operating segment net assets (note 3)
Operating segment assets and operating segment net assets comprise total assets
(excluding financial instruments) and capital employed respectively but
excludes investment in equity accounted investees, deferred tax assets and
liabilities and other non-operating assets and liabilities, and provide a
measure of the operating assets in the business.
Working capital as a percentage of revenue
Working capital, defined as the sum of trade and other receivables and
inventories less trade and other payables, expressed as a percentage of
annualised Group revenue. A measure of the Group's effective use of working
capital relative to revenue.
Net interest expense (note 6)
Net interest expense comprises interest expense on bank overdrafts, loans and
lease liabilities net of investment income providing an absolute measure of the
cost of borrowings.
Effective interest rate (note 6)
Annualised net interest expense expressed as a percentage of trailing average
net debt over the period provides a measure of the cost of borrowings.
Effective tax rate (note 7)
Underlying tax charge expressed as a percentage of underlying profit before
tax. A measure of the Group's tax charge relative to its profit before tax
expressed on an underlying basis.
Net debt to 12-month trailing underlying EBITDA
Net debt divided by trailing 12-month underlying EBITDA. A measure of the
Group's net indebtedness relative to its cash-generating ability.
Gearing
Net debt expressed as a percentage of capital employed provides a measure of
the financial leverage of the Group.
Ordinary dividend cover
Basic underlying EPS divided by total ordinary dividend per share paid and
proposed provides a measure of the Group's earnings relative to its deployment
towards ordinary dividend payments.
Cash flow generation (note 14d)
A measurement of the Group's cash generation before considering deployment of
cash towards investment in property, plant and equipment ('capex' or 'capital
expenditure'), acquisitions and disposals of businesses, investment in equity
accounted investees and payment of dividends to shareholders. Cash flow
generation is a measure of the Group's ability to generate cash through the
cycle before considering deployment of such cash.
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
Mondi is a global leader in packaging and paper, delighting its customers and
consumers with innovative packaging and paper solutions that are sustainable by
design. Our business is fully integrated across the packaging and paper value
chain - from managing forests and producing pulp, paper and plastic films, to
developing and manufacturing effective industrial and consumer packaging
solutions. Sustainability is embedded in everything we do. In 2019, Mondi had
revenues of EUR7.27 billion and underlying EBITDA of EUR1.66 billion.
Mondi has a premium listing on the London Stock Exchange (MNDI), and a
secondary listing on the JSE Limited (MNP). Mondi is a FTSE 100 constituent,
and has been included in the FTSE4Good Index Series since 2008 and the FTSE/JSE
Responsible Investment Index Series since 2007.
Sponsor in South Africa: UBS South Africa Proprietary Limited.
END
(END) Dow Jones Newswires
February 27, 2020 02:00 ET (07:00 GMT)
Mondi (LSE:MNDI)
Historical Stock Chart
From Apr 2024 to May 2024
Mondi (LSE:MNDI)
Historical Stock Chart
From May 2023 to May 2024