28 May, 2018
Mondi Group: Trading update 16 May 2018
trading update provides an overview of our financial
performance and financial position since the year ended 31
December 2017, based on management information up to 31
March 2018 and estimated results for April 2018. These
results have not been audited or reviewed by Mondi's
results for the half-year ending 30 June 2018 will be
published on 3 August 2018.
as discussed in this update, there have been no significant
events or transactions impacting either the financial
performance or financial position of the Group since 31
December 2017 up to the date of this statement.
operating profit for the first quarter of 2018 of €295
million was 15% above the comparable prior year period (€256
million - restated1) and 6% up on the fourth
quarter of 2017 (€279 million - restated1).
Higher average selling prices and profit improvement
initiatives across the Group more than offset higher
operating costs, the impact of maintenance shuts and
negative currency effects.
sales volumes were stable on the comparable prior year
period, with growth in Packaging Paper offset by lower
volumes in Uncoated Fine Paper due to the extended
maintenance shut at Richards Bay (South Africa). Selling
prices for the Group's key paper grades were, on average,
above both the comparable prior year period and the previous
quarter as the upward pricing momentum witnessed during 2017
were generally higher than the comparable prior year period
and the previous quarter. Among key input costs, wood,
energy and chemical costs were higher than the comparable
prior year period. The notable exception was paper for
recycling costs, where average benchmark European prices
were down 15% compared to the first quarter of 2017, and 16%
lower sequentially, as the Chinese import ban continued to
impact global trade. Cash fixed costs were higher, largely
as a result of the impact of maintenance shuts.
movements had a net negative impact on operating profit
versus the comparable prior year period, driven mainly by a
weaker US dollar and Russian rouble relative to the euro,
and a net negative impact when compared to the fourth
quarter of 2017 mainly as a result of a stronger South
previously disclosed, a prolonged maintenance shut at our
Richards Bay mill took place during the first quarter. The
estimated impact on operating profit of maintenance shuts
completed during the period was around €35 million (2017:
€10 million). Based on prevailing market prices, we estimate
that the impact of maintenance shuts on operating profit for
2018 will be around €115 million (2017: €95 million),
slightly above our previous estimate, of which around half
will be incurred in the first half of the year (H1 2017:
Packaging Paper, containerboard markets remain robust
with good demand and limited industry capacity additions
continuing to support pricing. Average selling prices were
up significantly on the prior year period and more modestly
up sequentially, on the back of implemented price increases
through the course of 2017 and in the first quarter of 2018.
Volumes were up on the comparable prior year period due to
the timing of maintenance shuts and the ramp-up of
production from expansionary projects completed in 2017.
sack kraft paper market remains tight, supported by good
demand and constrained supply growth. Sales volumes for sack
kraft paper were up compared to the first quarter of 2017,
while selling prices were higher both compared to the
comparable prior year period and sequentially following
price increases implemented in all markets from the
beginning of the year.
April 2018, we signed an agreement to sell our flat sack
kraft paper mill in Pine Bluff, Arkansas (USA), with 130,000
tonnes annual production capacity, to Twin Rivers Paper
Company LLC. The transaction remains subject to customary
closing conditions and is expected to complete in the second
quarter of 2018.
good progress in implementing price increases to compensate
for the significantly higher packaging paper input costs. As
previously reported, in Industrial Bags, annual contracts
for 2018 were finalised during the first quarter, with price
increases implemented that largely reflect the full impact
on the cost base of the paper price increases that took
effect from the beginning of the year. Industrial Bags also
benefited from good volume growth, particularly in emerging
Europe and the Middle East. In Corrugated Packaging, good
progress has been made in recovering the paper price
increases, with efforts in this regard ongoing, while
volumes were flat on a very strong comparable prior year
period and pricing discipline.
April 2018, we signed an agreement to acquire an industrial
bags plant near Cairo, Egypt,
a total consideration of EGP510 million (€24 million) on a
debt and cash free-basis.
Together with the previously announced agreement to acquire
a control position in another plant near Cairo, this further
expands our production network in the fast growing Middle
East region. We anticipate completion of these acquisitions
towards the end of the second quarter.
benefited from the ongoing initiatives to improve the
product mix and the programme launched in the second half of
2017 to restructure the cost base, although near term
performance continues to be held back by declining volumes
in personal care components and the generally challenging
trading conditions. In continuing to drive performance by
aligning capacity to current market requirements, we
initiated a consultation process in April 2018 regarding a
plan to cease production at our consumer goods packaging
plant in Scunthorpe (UK) by the end of the year, while
continuing to serve our customers from our other plants.
to perform strongly, although the first quarter was impacted
by ongoing cost pressures, the extended maintenance shut at
our Richards Bay mill and a lower forestry fair value gain,
which more than offset the benefit of higher average selling
prices during the quarter. As a result of continued cost
pressures, price increases were implemented on our range of
uncoated fine papers from the end of March 2018. While
difficult to estimate, should the strength in the South
African rand and current timber export pricing levels
prevail, we would expect a lower forestry fair value gain in
2018 than recorded in the previous year.
are making good progress on our previously announced major
capital investment projects at our Steti (Czech Republic),
Ruzomberok (Slovakia) and Syktyvkar (Russia) mills and the
smaller expansionary projects at a number of our packaging
operations. Technical challenges remain in the ramp-up of
our rebuilt paper and inline coating machine at Steti.
flow and financing activities
cash generation from operating activities more than offset
the cash outflows related to our capital expenditure
programme and financing activities, resulting in a positive
cash flow during the quarter and lower net debt at the end
of the quarter compared to restated1 net debt as
of 31 December 2017.
charges were lower than the comparable prior year period,
primarily due to the redemption of the 5.75% €500 million
Eurobond on maturity in April 2017.
April 2018, we issued a 1.625% €600 million Eurobond with an
8-year term under our Euro Medium Term Note Programme,
thereby extending the Group's maturity profile and ensuring
upgraded the Group's credit rating to BBB+ (stable outlook)
from BBB, while we retained our Baa1 (stable outlook) credit
rating by Moody's Investors Service.
outlook for the business remains positive. We continue to
experience a strong pricing environment in a number of our
key product segments, supported by good demand growth,
although we do continue to see inflationary cost pressures
across the Group and currencies are currently a headwind.
With our robust business model, clear customer focus and
culture of driving performance, we remain confident of
sustaining our track record of delivering value accretive
Mondi Group Trading Update
Source: Mondi Group