26th Feb 2009 07:00
26 February 2009Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND ISIN: ZAE000097051
Mondi plc
(Incorporated in England and Wales)
(Registration number: 6209386)
JSE share code: MNP ISIN: GB00B1CRLC47
LSE share code: MNDI
As part of the dual listed company structure, Mondi Limited and Mondi plc (together 'Mondi Group') notify both the JSE Limited and the London Stock Exchange of matters required to be disclosed under the JSE listings requirements and/or the Disclosure and Transparency and Listing Rules of the United Kingdom Listing Authority.
Full-year results for the year ended
31 December 2008 Financial Summary
€ million, except for % and per share measures 2008 2007 Change %
Group revenue 6,345 6,269 +1 EBITDA 1 814 870 -6 Underlying operating profit 2 441 502 -12 Underlying profit before tax 3 284 405 -30 Reported (loss) / profit before tax7 (103) 382 -127 Basic (loss)/ earnings per share (€ cents) 4 (41.6) 45.4 -192 Underlying earnings per share (€ cents) 4,5 33.9 46.9 -28 Headline earnings per share (€ cents) 4,5 20.3 39.5 -49 Cash inflow from operations 795 957 -17 Net debt 1,690 1,507 +12 Group ROCE 6 9.5% 10.6% -10
Total dividend per share (€ cents) 4 12.7 23.0 -45
Highlights:
Substantial cash inflow from operations of €795 million, despite the adverse economic backdrop.
Demonstrated excellent financial discipline with net debt at €1.7 billion (broadly unchanged since 30 June 2008) and nearly €1.1 billion of undrawn committed facilities as at end of December, despite €324 million spent on major capital projects.
Delivered cost savings of €128 million, representing 2.4% of cost base.
Improved profit trend in South Africa Division.
Achieved very strong control of working capital, resulting in a net working capital inflow of €27 million for the year, following the €97 million inflow in the prior year.
Further rationalised the business in the face of a weakening trading environment, exiting around 600,000 tonnes of high cost production capacity, thereby enhancing the Group's overall cost competitiveness.
The costs of these disposal, restructuring and closure initiatives of €85 million before tax (cash component €56 million) are included in special items, together with an impairment charge on the write-down of both goodwill and tangible assets amounting to €293 million.
Major projects in Poland and Russia are on schedule and within budgeted capital cost.
Despite weaker trading environment achieved ROCE of 9.5%.
Proposed final dividend of 5.0 euro cents per share to give a total dividend of 12.7 euro cents per share.
David Hathorn, Mondi Group Chief Executive, said:
"It is testament to Mondi's low cost production strategy, ingrained cost focusand ability to respond quickly to changing market conditions that a creditableperformance was delivered in a year which ended amid the most difficult tradingconditions in the Group's history."We have responded early and decisively to the challenges posed by the globaleconomic turbulence, proactively rationalising the business through costcutting, asset closures and divestitures, thereby consolidating the Group'sleading cost positions in its chosen markets and enhancing its resilience toadverse market conditions. Similarly, working capital has reduced as apercentage of sales and our capital expenditure programmes have been tailoredto the more challenging trading environment which we now face. We willcontinue to engage in restructuring actions and cost reduction measures whereappropriate and as required by market conditions."Given the level of global economic uncertainty that emerged in the latter partof 2008, the outlook inevitably remains challenging. However Mondi's strongfinancial position, our low cost, high quality asset base and our quick anddecisive response to rapidly changing economic events leave us well positionedto benefit when market conditions improve. As such, the Boards remainconfident in the medium and long-term prospects for the Group."
1 EBITDA is operating profit of subsidiaries and joint ventures before special items, depreciation and amortisation.
2 Underlying operating profit is operating profit of subsidiaries and joint ventures before special items.
3 Underlying profit before tax is reported profit before tax before special items.
4 2007 is pro forma and based on the number of shares admitted following the demerger from Anglo American plc on 2 July 2007.
5 The Group has presented underlying earnings per share to exclude the impact ofspecial items, and headline earnings per share in accordance with circular 8/2007 'Headline Earnings' as issued by the South African Institute of CharteredAccountants.
6 Group return on capital employed (ROCE) is an annualised measure based on underlying operating profit plus share of associates net earnings divided by average trading capital employed before impairments and adjusted for major capital projects not yet commissioned.
7 Reported (loss) / profit before tax is reported profit before tax but after special items of €387 million.
Contact details: Mondi Group David Hathorn +27 (0) 11 994 5418Andrew King +27 (0) 11 994 5415Lisa Attenborough +44 (0)1932 826380 / +44 (0)7872 672669 Financial Dynamics
Richard Mountain +44 (0)20 7269 7121 / +44(0)7802 877 243
Louise Brugman +27 (0)11 214 2415 / +27 (0)83 504 1186
Dial-in audio cast facility will be available via:
Please see below details of our dial-in conference call and audio cast that will be held at 09:00 (UK) and 11:00 (SA).
The conference call dial-in numbers are:
South Africa: 0800 200 648
UK: 0800 917 7042
Europe & Other: 00800 246 78 700
An online audio cast facility will be available via: www.mondigroup.com/ fullyearresults08
Password: FYResults08
The presentation will be available online via the above web site address an hour and a half before the audio cast commences.
Questions can be submitted either via the dial-in conference call or by email via the audio cast.
Should you have any issues on the day with accessing the dial-in conference, please call +27 (0)11 535 3600.
Should you have any issues on the day with accessing the audio cast, please email [email protected] and you will be contacted immediately.
An audio recording of the presentation will be available on Mondi's website from late afternoon on 26 February 2009.
Editors' notes: Mondi is an international paper and packaging group and in 2008 had revenues of€6.3 billion. Its key operations and interests are in western Europe, emergingEurope, Russia and South Africa.
The Group is principally involved in the manufacture of packaging paper and converted packaging products; uncoated fine paper; and speciality products including coating and consumer flexibles.
Mondi is fully integrated across the paper and packaging process, the growing of wood and the manufacture of pulp (including recycled paper) to the conversion of packaging papers into corrugated packaging and industrial bags.
Mondi has production operations across 38 countries and had an average of 33,000 employees in 2008.
RESULTS
As indicated in Mondi's Interim Management Statement in October 2008, the worsening of the global economic environment had an adverse impact on our business. In particular, from October we saw a marked downturn in trading in Europe.
Group sales rose by 1% to €6.35 billion and underlying operating profit was 12%below the prior year, with the slowdown in Europe only partially offset by amuch improved performance from the South Africa Division. Within the Europe &International Division underlying operating profit was down €52 million or13%. We did not see the usual post-summer seasonal pick-up in demand andtrading in the last three months of 2008 was weak, resulting in falling volumesand some price weakness. In response, we proactively took significantmarket-related downtime in a number of our European operations (mainly in sackkraft paper) amounting to 130,000 tonnes in the last quarter (12% of capacity)and 212,000 tonnes for the full year. By the end of the year stock levels werelow across all paper grades, leaving us well placed for the coming year.
By contrast, the South Africa Division was successful in implementing price increases and enjoyed an improved underlying operating performance, with profits up €33 million or 42%.
Merchant and Newsprint saw a significant decline in underlying operating profits (€33 million) as our joint venture, Aylesford Newsprint incurred losses, suffering from both declining selling prices and increases in input costs. Aylesford contributed nearly half of Merchant and Newsprint's profits in the year ending 2007.
A strong working capital performance (net inflow for the year of €27 milliondespite higher revenues) coupled with renewed focus on cost reductions and cashflow optimisation limited the increase in Group borrowings to €183 million,despite capital expenditure of €324 million on the two major expansionarycapital projects in Poland and Russia. Mondi enjoys a strong liquidity positionand as at the end of December the Group had nearly €1.1 billion of undrawncommitted debt facilities (€0.7 billion of which is available under a €1.55billion facility, expiring on 22 June 2012). Cost pressures were evident throughout the year, most significantly chemicalsand energy, although there was some easing of key raw material input coststowards the latter part of the year (notably recovered fibre, energy andchemicals). Similarly, while the weaker South African rand supported marginimprovement in export sales from our South Africa Division, the strength of ourmajor emerging European production currencies negatively impacted on our costbase. The continued strengthening of the Polish zloty in particular had asignificant negative effect on profitability, although this pressure easedtowards the end of the period. In mitigation of ongoing cost pressures and the weaker trading environment,significant additional cost reductions and further productivity improvementswere achieved. Overall, the Group delivered a further €128 million in costsavings, representing approximately 2.4% of the cash cost base. Mondi remainscommitted to targeting annual savings of at least 2% per annum. The 2009target is €180 million (3.3% of 2008 cash costs). We also completed therestructuring and simplification of our European Uncoated Fine Paper (UFP)business, which realised significant cost reductions during the year, withfurther benefits flowing in 2009. Disappointingly, the average return on capital employed, a key measure ofMondi's performance declined to 9.5% (2007: 10.6%), reflecting the moredifficult trading environment in the second-half. As noted elsewhere, actionsare being taken to improve the profitability of the Group which we areconfident, when taken with an improvement in the business cycle, will lead
toimproving returns.
Net finance costs of €159 million were €60 million higher than in 2007 due tohigher borrowings and average interest rates (particularly in emerging markets)and foreign currency charges on the devaluation of emerging market currenciesto which we are exposed. The effective tax rate before special items of 29%was in line with the prior-year rate.
Underlying earnings per share were 33.9 euro cents per share, down 28% compared to 2007.
The Group is proposing to pay a final dividend of 5.0 euro cents per share, giving a total dividend of 12.7 euro cents per share for the year.
DECISIVE RESPONSE TO THE DOWNTURN
Mondi has acted to close or dispose of certain higher cost operations in Europe. The total cost of disposal, closure and restructuring initiatives excluding impairments amounted to €85 million and has been disclosed as a special item. The cash element of this charge is €56 million.
Actions taken:
The previously announced closure of our 140,000 tonne UFP mill in Hungary and European UFP reorganisation were completed.
The decision has been taken to mothball the integrated Stambolijski kraft paper mill in Bulgaria and the Dyn¤s PM5 kraft paper machine in Sweden.
The recycled containerboard mill in Holcombe, UK was closed.
Three sheet feeder plants in the UK and a recycled container board mill in Switzerland were sold. The sale of two further corrugated converting operations in France was also agreed.
A restructuring exercise at the Turkish corrugated business was started.
The Nyborg specialities plant in Denmark and the Zaragoza bag plant in Spain were closed.
A restructuring of the Finnish & UK coating businesses was initiated.
These moves have the effect of adjusting our production capacity in light ofthe changing demand environment, lowering our overall cost base andstreamlining our asset portfolio to focus on those businesses that provide uswith a sustainable competitive advantage in their respective markets. In totalwe will have exited around 600,000 tonnes of high cost capacity, therebylowering our average European cost per tonne for the related products by around5%.This is very much in line with the Group's stated strategic objective offocusing on low cost, high quality assets and achieving cost leadership in
itschosen markets. Furthermore, steps have been taken to significantly reduce capital expenditureoutside of the two major projects. This initiative is supported by the wellinvested nature of our asset base. Capital expenditure approvals will belimited to 40% of depreciation in 2009. The cash flow effects of thisinitiative started to be seen towards the end of the reporting period, with themain benefits expected to be realised in 2009 and 2010.
A special item impairment charge on the write-down of both goodwill and tangible assets amounting to €293 million was taken in the period, reflecting the weaker outlook for several of our business segments in light of the worsening macro-economic environment.
OPERATIONAL REVIEW
Europe & International Division
€ million 2007 change 2008 % Segment revenue 5,159 5,189 -1
- of which inter-segment revenue 155 153
+1 EBITDA 623 670 -7 Underlying operating profit 334 386 -13 Bags & Specialities 159 154 +3 Uncoated Fine Paper 126 99 +27 Corrugated 49 133 -63 Capital expenditure¹ - Major Projects² 324 40 -Other 277 271 +2 Net segment assets 3,659 3,907 -6
Return on capital employed (%) 9.6 11.2
-14
1 Capital expenditure is cash payments and excludes business combinations.
² Polish and Russian expansion projects which commenced in second-half of 2007.
The European business environment continues to be challenging and we remainfocused on driving down costs and rationalising any remaining low quality, highcost assets. As a direct result of the slowdown in European demand, underlyingoperating profit was down 13% versus the prior year. The Division delivered €114 million in cost savings, with the benefits from the various rationalisationand restructuring measures a significant contributor.
Operations
In the Bags & Specialities business underlying operating profits for the yearwere up €5 million, although the second half saw profits down 33% versus thecomparable period. The business benefited from higher average kraft paper andconverted bag prices (up around 6%); however, volumes were soft in the secondhalf as demand, particularly from the building industry, slowed. This declinein demand was exacerbated by an element of destocking as the supply chainadjusted to the weaker economic outlook. In response, the kraft paper businesstook significant market related downtime of around 100,000 tonnes in the fourthquarter (around 40% of available capacity in the quarter) to balanceinventories. Industry statistics suggest the downstream bag demand was downaround 9% in the last quarter versus the comparable period in the prior year. Specialities were impacted by lower volumes and margins and as a result profitswere marginally below the comparable period. The results benefited modestlyfrom the acquisition of Unterland in the second half of 2007. In the Uncoated Fine Paper (UFP) business underlying operating profits were up€27 million or 27%. Whilst average selling prices were slightly up against thecomparable period, volumes were impacted by the weaker trading environment inthe second half and the closure of Hungary (down 4% on the prior year). Around37,000 tonnes of commercial downtime (around 2.5% of available capacity) wastaken in the year. UFP benefited from the restructuring actions announced atthe end of 2007, as well as a better performance from all our mills, notablyour Russian pulp and paper mill in Syktyvkar where the local market continuedto experience good demand. Declining pulp prices in the second-half improvedthe profitability of our Austrian non-integrated paper mill.In the Corrugated business, underlying operating profits were down €84 millionat €49 million as costs increased and selling prices fell back followingsubstantial increases achieved in 2007. Brown kraftliner and testliner priceswere down around 5% year-on-year (on average testliner declined sharply in thesecond half, ending the year over 20% down on the prior year close). Whitetopkraftliner, a key open market product for the Group, was more stable withprices up around 1% year-on-year. The price declines were due to a combinationof slowing demand and, towards the latter part of the year, falling inputcosts. Box prices, having increased in the first half, started to taper off inthe second half. Results were also impacted by market related downtime inrecycled containerboard (around 44,000 tonnes, representing 4% of annualcapacity). The continued strength in eastern European currencies (particularlythe Polish zloty) during the period served to further erode the profitabilityof our eastern European production base. This currency trend started toreverse towards the end of the period, although the positive financial impactwill only be seen in 2009 due to the Group's rolling six-month currency hedgingprogramme.
Our Turkish corrugated packaging subsidiary, Tire Kutsan, acquired in 2007, continues to underperform. This is mainly the result of softer demand coupled with new competitor capacity coming on-stream and the resulting impact on prices in the local market. We have taken steps to restructure the business appropriately, including streamlining the organisation and reducing headcount.
Restructuring2008 saw significant restructuring in response to the economic downturn. Inthe first-half, three sheet feeder plants in the UK were sold for an enterprisevalue of approximately €21 million, the Nyborg specialities plant in Denmarkwas closed and the closure of the Szolnok UFP mill in Hungary was completed. We closed the Holcombe recycled containerboard mill in the UK (capacity 110,000tonnes per annum) and the Zaragoza bag converting plant in Spain (capacity 55million units) in the second half. Towards the end of the year, the sales ofthe 160,000 tonne per annum Niederg¶sgen recycled containerboard mill inSwitzerland and two corrugated converting operations in France were agreed fortotal proceeds of approximately €22 million. Further initiatives include theannounced restructuring of the Turkish corrugated business and therestructuring of the Coatings business in Finland and the UK. The total costof these and other closure, disposal and restructuring activities, excludingimpairments, is approximately €85 million and has been treated as a specialitem in the accounts. After the year-end we sold the St Quentin corrugatedpackaging plant in France and have taken the decision to mothball both the110,000 tonnes per annum Stambolijski pulp and kraft paper mill in Bulgaria andthe PM5 kraft paper machine (capacity 75,000 tonnes per annum) at our mill
inDyn¤s in Sweden. Major ProjectsDespite the challenging business environment, we remain committed to completingthe development of our two major projects in Poland and Russia. We believe therationale behind the development of these projects, to secure our position ascost leader in our chosen markets, is reinforced by current events.The construction of the new 470,000 tonne recycled containerboard machine at Swiecie in Poland is progressing well (total cost of €305 million). We remainon track for completion in the second half of 2009 within the budgeted cost. We anticipate that this machine will have the lowest operating costs of itstype. Similarly, the related €45 million investment in the new box plant andassociated infrastructure on the šwiecie mill site is in progress, withstart-up planned for the end of 2009. The project to modernise our mill in Syktyvkar (total cost of €525 million) isalso making good progress and we remain on track for completion within thebudgeted cost by 2010. The key value drivers of this project are to improveefficiency, lower our cost base in Russia and increase energy production andrevenue by selling surplus energy to the grid. In addition it will providemodest extra capacity (both pulp and paper) for the domestic market. By the end of the period, €364 million had been spent on these two projects outof the total capital commitment of €875 million. The bulk of the remainingexpenditures of €511 million are expected to be incurred in 2009, with someflowing into 2010. South Africa Division€ million 2008 2007 change % Segment revenue 587 591 -1 - of which inter-segment revenue 285 367 -22 EBITDA 152 122 +25 Underlying operating profit 111 78 +42 Uncoated Fine Paper1 75 53 +42 Corrugated 36 25 +44 Capital expenditure 2 44 23 +91 Net segment assets 760 966 -21 Return on capital employed (%) 15.9 9.5 +67 1 Includes pulp and forestry business.
2 Capital expenditure is cash payments and excludes business combinations.
The South Africa Division recorded an increase in underlying operating profitsof €33 million. Profitability increased as the year progressed following aslow start, due partially to the loss of more than three weeks' production atRichards Bay (largely as a result of an extensive maintenance shut). Throughout the period substantial progress was made on the management ofproduct mix to optimise margins as opposed to volumes, evidenced by 86,000tonnes of commercial downtime on UFP production, otherwise destined for lowmargin export markets. Results towards the end of the period benefited fromthese product mix changes as well as selling price increases for both domesticand export sales. The Division also delivered €6 million in cost savings
inthe period. In the domestic market (which represents about 37% of the Division's UFPvolume), price increases during the year of around 20% were achieved. Thedomestic market for UFP continues to grow at around 4% per annum. Sales toAfrica (which represent approximately one-quarter of the Division's UFP volume)became a major focus area, with price increases (quoted in USD) of around 10%realised during the year. The remaining UFP volume, which is destined fornon-African markets, was significantly down, but margins benefited from theweaker rand.
Pulp sales volumes were up by 19%, while price increases (quoted in USD) of 15% year-on-year were achieved.
Almost 80% of the production from our corrugated operations, comprising thewhitetop linerboard machine at Richards Bay, is exported. Sales levels weresimilar to the previous year, as global supply and demand remained in balancethroughout the year. Accordingly, profits were up in the period, with exportsales benefiting from the weaker rand. A significant breakthrough was achieved in the settlement of land claims inSouth Africa, with the signing of a land restitution settlement whereby thefirst of Mondi's forestry land will be transferred to two local communitiesunder a sale and leaseback agreement. Mondi retains ownership of the forests,which ensures security of timber supply to Mondi's operations, while meetingthe needs of the land restitution process in South Africa. It is anticipatedthat this settlement will provide a framework for settling future forestry
landclaims with Mondi.
Mondi Packaging South Africa (MPSA)
€ million 2008 2007 change % Segment revenue 474 419 +13 - of which inter-segment revenue 27 28 -4 EBITDA 52 53 -2 Underlying operating profit 28 35 -20 Capital expenditure 1 38 47 -19 Net segment assets 301 335 -10 Return on capital employed (%) 8.6 13.8 -38
1 Capital expenditure is cash payments and excludes business combinations.
Underlying operating profit was marginally up (1%) in local currency, includinga full year charge for the amortisation of Lenco intangibles acquired in July2007. The local currency performance was, however, impacted on translationinto euros at the much weaker rand rate, resulting in an underlying operatingprofit decline of €7 million to €28 million. Demand and pricing remainedpositive and corrugated packaging and containerboard volumes were up 4% and 5%respectively versus the comparable period. This performance was helped by gooddemand from the agricultural sector. Price increases were implemented for thedomestic containerboard market with effect from 1 October 2008. However, priceincreases lagged input cost pressures, particularly from recycled fibre. Inanticipation of a softer trading environment in early 2009, the corrugatedmills took market related downtime in the fourth quarter amounting to 7,000tonnes (10% of the capacity in the quarter). The Lenco acquisition (rigidplastics manufacturer) contributed positively to profits and is now performingbetter after a slow start. Progress on the execution of major projects has been good, with the Felixtonrebuild commissioned on time in April 2008 and within budget. This willincrease containerboard production by 45,000 tonnes per annum to 155,000 tonnesper annum. This repositions Felixton to produce lightweight recycledcontainerboard to serve the growing domestic market.
During the period MPSA was refinanced through a R1.0 billion cash injection from Mondi Limited which allowed for the pay down of expensive external debt. The funds were provided by way of loans and equity. As a result of the refinancing, Mondi's shareholding in the business increased from 55% to 70% with effect from 17 December 2008.
Merchant and Newsprint€ million 2008 2007 change % Segment revenue 593 591 0 - of which inter-segment revenue 1 1 0 EBITDA 24 60 -60 Underlying operating profit 7 40 -82 Capital expenditure 1 10 18 -44 Net segment assets 196 248 -21 Return on capital employed (%) 3.3 17.3 -81
1 Capital expenditure is cash payments and excludes business combinations.
Mondi's joint venture operation, Aylesford Newsprint (which accounted for justunder half Merchant and Newsprint's 2007 full-year operating profit), recordedan operating loss for the year as a result of falling selling prices, due tocompetition from imports, and rising energy and recycled fibre input costs. The recent weakening of sterling, together with newsprint capacity closures inEurope and North America, supported UK newsprint price increases of around 20%for 2009, which will see a return to profitability of this business. AtEuropapier margins came under pressure in the second half as trading wasimpacted by the general economic slowdown and adverse currency movements. AtMondi Shanduka Newsprint earnings were down in local currency, with volume andprice increases largely eroded by cost pressures. A significantly weaker randexchange rate exacerbated the earnings decrease on translation into euros.
Corporate and other
Net corporate costs after special items were €1 million higher than thecomparable period in 2007, due mainly to the disposal of non-core businesses atthe end of 2007 which contributed approximately €3 million of profits in
thecomparable period. FINANCIAL REVIEW
Special items (refer to note 6 of the condensed financial statements)
In aggregate, pre-tax special items amounted to a charge of €387 million (€383 million after tax), made up as follows:
An operating special item charge of €358 million, principally comprising:
goodwill impairment costs of €194 million;
asset impairment costs of €99 million;
closure and restructuring costs of €56 million; and
charges related to demerger arrangements put in place for senior executives following the demerger from Anglo American plc in July 2007 of €9 million.
A non-operating special item charge of €29 million was recognised, which mainlycomprises the loss on the sale of the Niederg¶sgen recycled containerboard millin Switzerland, the two corrugated converting operations in France and three UKCorrugated sheet feeder plants.
Finance costs
Net finance charges of €159 million were €60 million higher than 2007 due tohigher borrowings and average interest rates, related particularly to emergingmarket debt, and foreign currency charges. The latter were incurred mainly inthe fourth quarter and amounted to €28 million (2007: €2 million). This waslargely due to significant devaluations of various emerging market currencies(notably Turkey, the Ukraine, Mexico and Russia), resulting in foreign exchangecharges being incurred on non local currency denominated loans made to ourbusinesses in these markets. Excluding these charges, the effective cost ofnet debt was 7.5% for the year. (Approximately 25% of the debt is SouthAfrican rand-denominated with average interest rates of 12.4% for the year). Taxation
The effective tax rate before special items of 29% was similar to the 2007 full-year rate. There is only minor tax relief on special items.
Minority interests
Minority interests for the year were €17 million lower than the comparableperiod, as earnings were down at the significant operations where there arenon-controlling interests, particularly at šwiecie in Poland within the Europe& International Division. Cash flow and borrowingsEBITDA of €814 million in the year was 6%, or €56 million, lower than 2007,reflecting the more difficult trading environment. Cash inflows fromoperations of €795 million were €162 million down on the comparable period,mainly due to the lower EBITDA and lower inflows on working capital thanachieved in the prior year. Cash inflow from working capital of €27 millionwas achieved despite a 1% increase in sales and an already strong performancein the prior year (€97 million). Indeed, since the half-year working capitalinflows amounted to €153 million. Capital expenditure of €369 million (excluding spend on the two major strategicprojects of €324 million) was slightly lower than depreciation of €373 million.We have reviewed our capital expenditure plans with a view to limiting 2009capital expenditure approvals to below 40% of depreciation. The remainingexpenditure on the two major projects is estimated at €511 million, the bulk ofwhich will be spent in 2009 with some flow through to 2010.
Spending on acquisitions completed during the year totalled €89 million (enterprise value). Acquisitions were primarily focused on the strengthening of the product mix and geographic coverage of our Bags & Specialities business.
Balance sheet and returns on invested capital
Trading capital employed at the year-end was €4,367 million, €451 million lowerthan 2007, mainly due to special item impairments of €293 million, foreignexchange movements of €454 million and disposals of €94 million, partiallyoffset by capital expenditure of €816 million including business combinations(€443 million in excess of depreciation).
Return on capital employed declined from 10.6% to 9.5% as a result of reduced profitability. This return is below our target across the cycle of 13%.
Treasury and borrowings
The Group's treasury function operates within clearly defined Board-approvedpolicies and limits, follows controlled reporting procedures and is subject toregular internal and external reviews. Net debt at year-end of €1,690 million was €183 million higher than 2007 (only€35 million up since the end of June 2008) as the rate of capital expenditureincreased on the two key capital projects in Poland and Russia. Gearing as at31 December 2008 was 38.7%, and the net debt to EBITDA ratio was 2.1. Group liquidity is provided through a range of committed debt facilities of €2.8 billion, which are in excess of the Group's short-term needs. Theprincipal debt facilities are a €1.55 billion, 5 year, syndicated revolvingcredit facility, and a R2.0 billion (€152 million) 3 year amortising term loanmaturing in 2010. Despite the unfavourable banking environment in 2008 theGroup secured additional long-term facilities to assist in funding its twomajor investment projects; a €174 million, 11 year amortising facility fromExport Credit Agencies was signed to part fund the investment in Russia; and a€140 million, 9 year facility from the European Investment Bank was arranged tofund the investment in Poland. Additionally, R1 billion (€76 million) of newfacilities were arranged in South Africa with a 3 year maturity. The averagematurity of the committed debt facilities is 3.4 years (versus 3.5 years in2007). Drawn facilities maturing over the next 12 months amount to €371million. We would expect the majority of these facilities to be renewed, butto the extent they are not they will be financed out of existing undrawncommitted facilities (nearly €1.1 billion at year-end).
PRINCIPAL RISKS AND UNCERTAINTIES
It is in the nature of our business that Mondi is exposed to risks anduncertainties which may have an impact on future performance and financialresults, as well as upon our ability to meet certain social and environmentalobjectives. The Group believes that it has effective systems and controls inplace to manage the key risks identified below.
Mondi operates in a highly competitive environment
The markets for paper and packaging products are highly competitive. Similarly,prices of Mondi's key paper grades have experienced substantial fluctuations inthe past. However, Mondi is flexible and responsive to changing market andoperating conditions and the Group's geographic and product diversificationprovides some measure of protection. Uncertain future trading conditions mayhave an impact on the carrying value of goodwill and tangible assets and mayresult in further restructuring activities.
Input costs are subject to significant fluctuations
Materials, energy and consumables used by Mondi include significant amounts ofwood, pulp, recovered paper, packaging papers and chemicals. Increases in thecosts of any of these raw materials, or any difficulties in procuring wood incertain countries, could have an adverse effect on Mondi's business,operational performance or financial condition. However, Mondi's focus onoperational performance, and relatively high level of integration and access toits own fibre in Russia and South Africa, act to mitigate these risks. It isalso anticipated that the recent settlement of land claims in South Africa willprovide a framework for settling future forestry land claims with Mondi.
Significant capital investments including acquisitions carry project risk
Mondi is in the process of completing two significant capital investments toexpand and upgrade existing facilities in Poland and Russia. These projectscarry risks and Mondi has put in place dedicated teams to ensure delivery ofthe projects on time and within budget.
Going Concern
The current economic conditions will impact short-term demand growth for ourproducts, as well as place pressure on both customers and suppliers which mayface liquidity issues, and could have an adverse impact on Mondi's business. Furthermore, the lack of credit availability could impact the Group's abilityto effectively execute its strategy. However, Mondi's geographic spread,product diversity and large customer base mitigate these risks. The proactiveinitiatives by management in rationalising the business through cost-cutting,asset closures and divestitures have consolidated the Group's leading costposition in its chosen markets. Working capital as a percentage of sales hasreduced and capital expenditure programmes have been reduced. The Group meets its funding requirements through two principal loan facilities,being a €1.55 billion, 5 year, syndicated revolving credit facility expiring inJune 2012, and a R2 billion (€152 million) 3 year amortising term loan maturingin May 2010. The availability of these facilities is dependent upon the Groupmeeting certain financing covenants, most significantly an EBITDA to net debtratio of 3.5. At the year end this ratio was 2.1. Mondi had nearly €1.1billion of undrawn committed debt facilities as at 31 December 2008 with anaverage maturity of 4.0 years, which should provide sufficient liquidity forMondi in the medium term.The Group's forecasts and projections, taking account of reasonable possiblechanges in trading performance, show that the Group should be able to operatewithin the level of its current facility and the related covenants.
As a consequence, the directors believe that the Group is well placed to manage its business risks successfully, despite the current uncertain economic outlook.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
BOARD Paul Hollingworth stepped down from the Boards as chief financial officerduring the fourth quarter. The Boards of Mondi would like to thank Paul forhis significant contribution to the Group and also for his work in helping toestablish Mondi as a separate listed Group following its demerger from AngloAmerican plc. We are pleased that we have an excellent replacement, AndrewKing, who has worked for Mondi for seven years, latterly as Group strategy andbusiness development director. Andrew King joined the Boards as chieffinancial officer on 23 October 2008 and is based in South Africa. DIVIDEND The Boards recognise the importance of dividends to shareholders. Mondiremains well financed, with healthy operating cashflows and a strong balancesheet. However, given the continued uncertain economic outlook and lack ofliquidity in the financial markets, it is proposed to pay a reduced full-yeardividend which remains in line with the targeted dividend cover range of two tothree times. Accordingly, the boards of Mondi Limited and Mondi plc have recommended a finaldividend of 5.0 euro cents per share, payable on 20 May 2009 to shareholders onthe register at 24 April 2009. An equivalent final dividend will be paid inSouth African rand on the same terms. Together with the interim dividend paidin September 2008 of 7.7 euro cents per share, this gives a full-year dividendof 12.7 euro cents per share.
MAINTAINING OUR COMPETITIVE ADVANTAGE
We believe that our strategy remains valid especially in the current economicenvironment. Leading market positions, low cost operations and a robust focuson performance have always been key elements of that strategy and in today'schallenging economic times its benefits will be even more pronounced.
Building on market leadership
At a time of global uncertainty in our industry, we believe it is moreimportant than ever that we continue to strengthen our leading positions inpackaging and UFP, particularly in emerging markets. These markets will not beimmune to recession, as we indicated at the end of last year, but they continueto offer above-average long-term growth potential.
Remaining a low cost producer
We are committed to delivering superior returns, above the average of ourcompetitors, and this commitment is undiminished by the difficult tradingconditions. The value of having much of our production in some of the world'slowest-cost regions is a significant benefit when volumes and selling pricesare under pressure. Our high level of vertical integration in the supply chain, combining low-costupstream assets with low-cost production, gives us good security of supply andgreatly reduces our exposure to volatility in raw material prices.
Sharpening focus on performance
The requirement for continuous productivity improvements and cost reduction isimperative in our business. Our highly-experienced management teams haveimplemented a continuous series of business excellence programmes in recentyears and rigorous asset management is second nature for everyone in ouroperations. This unwavering emphasis on cost control and operationalperformance has never been more important than in the current economic climateand we target further cost reductions of €180 million in 2009.
CURRENT YEAR OUTLOOK
Given the level of global economic uncertainty that emerged in the latter partof 2008, the outlook inevitably remains challenging. However Mondi's strongfinancial position, our low cost, high quality asset base and our quick anddecisive response to rapidly changing economic events leave us well positionedto benefit when market conditions improve. As such, the Boards remainconfident in the medium and long-term prospects for the Group.
Condensed combined and consolidated income statement for the year ended 31 December 2008
2008 2007 Before After special Special special Before Special After items special items special€ million Notes items (note 6) items items (note 6) items Group revenue 4 6,345 - 6,345 6,269 â€" 6,269 Materials, energy and consumables used (3,384) - (3,384) (3,265) â€" (3,265) Variable selling expenses (542) - (542) (558) â€" (558) Gross margin 2,419 - 2,419 2,446 â€" 2,446 Maintenance and other indirect expenses (300) - (300) (289) â€" (289) Personnel costs (926) (41) (967) (906) (17) (923) Other net operating expenses (379) (24) (403) (381) â€" (381) Depreciation, amortisation and impairments (373) (293) (666) (368) (60) (428) Operating profit/(loss) from subsidiaries and joint ventures 4 441 (358) 83 502 (77) 425 Net (loss)/profit on disposals 6 - (27) (27) â€" 83 83 Impairment of assets held for sale 6 - (2) (2) - - - Net income from associates 2 - 2 2 â€" 2 Total profit/(loss) from operations and associates 443 (387) 56 504 6 510 Investment income 15 - 15 44 â€" 44 Interest expense (174) - (174) (143) (29) (172) Net finance costs 7 (159) - (159) (99) (29) (128) Profit/(loss) before tax 284 (387) (103) 405 (23) 382 Taxation (charge)/credit 8 (82) 4 (78) (117) 15 (102) Profit/(loss) from continuing operations 5 202 (383) (181) 288 (8) 280 Attributable to: Minority interests 30 - 30 47 â€" 47 Equity holders 172 (383) (211) 241 (8) 233 Earnings per share (EPS) for (loss)/profit attributable to equity holders Basic EPS (€ cents) 10 (41.6) 45.4 Diluted EPS (€ cents) 10 (41.6) 45.1 Basic underlying EPS (€ cents) 10 33.9 46.9 Diluted underlying EPS (€ cents) 10 33.4 46.7 Basic headline EPS (€ cents) 10 20.3 39.5 Diluted headline EPS (€ cents) 10 20.0 39.3
There were no discontinued operations in either of the years presented.
Condensed combined and consolidated balance sheetas at 31 December 2008 € million Notes 2008 2007 Intangible assets 323 520 Property, plant and equipment 3,611 3,731 Forestry assets 214 224 Investments in associates 5 6 Financial asset investments 19 25 Deferred tax assets 36 32 Retirement benefits surplus - 11 Total non-current assets 4,208 4,549 Inventories 684 760 Trade and other receivables 1,104 1,304 Current tax assets 32 52 Cash and cash equivalents 155 180
Derivative financial instruments 73
17 Total current assets 2,048 2,313 Assets held for sale 5 - Total assets 6,261 6,862 Short-term borrowings (378) (453) Trade and other payables (1,035) (1,150) Current tax liabilities (53) (81) Provisions (25) (14)
Derivative financial instruments (38)
(3) Total current liabilities (1,529) (1,701) Medium and long-term borrowings (1,467)
(1,234)
Retirement benefits obligation (182) (200) Deferred tax liabilities (292) (322) Provisions (39) (50)
Other non-current liabilities (14)
(17)
Derivative financial instruments (39)
(2) Total non-current liabilities (2,033) (1,825)
Liabilities directly associated with assets classified as
held for sale (3) - Total liabilities (3,565) (3,526) Net assets 4 2,696 3,336 Equity Ordinary share capital 11/13 114 114 Share premium 11/13 532 532 Retained earnings and other reserves 11 1,677 2,317 Total attributable to equity holders 2,323 2,963 Minority interest in equity 373 373 Total equity 2,696 3,336
Condensed combined and consolidated cash flow statement for the year ended 31 December 2008
€ million Notes 2008 2007 Cash inflows from operations 15a 795 957 Dividends from associates 2 1 Income tax paid (71) (93)
Net cash inflows generated from operating activities
726 865
Cash flows from investing activities
Acquisition of subsidiaries, net of cash and cash equivalents 14 (49) (193)
Proceeds from disposal of subsidiaries, net of cash and cash
equivalents 17 112
Proceeds from disposal of associates
- 54
Purchases of property, plant and equipment 15f
(693) (406)
Proceeds from the disposal of property, plant and equipment
29 17
Investment in forestry assets
(43) (41)
Purchases of financial asset investments
(2) (2) Purchase of intangible assets (7) (4)
Proceeds from the sale of financial asset investments
1 2
Loan repayments from related parties
1 15 Interest received 28 18 Other investing activities 8 (6) Net cash used in investing activities (710) (434)
Cash flows from financing activities Repayment of short-term borrowings 15c
(214) (945)
Proceeds from medium and long-term borrowings 15c
543 564 Interest paid (169) (139) Dividends paid to minority interests
(20) (47)
Dividends paid to equity holders 9
(118) (38)
Dividends paid to Anglo American plc group companies
- (202)
Increase in Anglo American plc invested capital
- 120 Purchase of treasury shares (15) (33) Other financing activities 1 3
Net cash used in financing activities
8 (717)
Net decrease in cash and cash equivalents
24 (286)
Cash and cash equivalents at start of year1
59 358 Cash movement in the year 15c 24 (286)
Cash acquired through business combinations 15c
3 - Reclassifications 15c (2) (3)
Effects of changes in foreign exchange rates 15c
(9) (10)
Cash and cash equivalents at end of year1 15b
75 59 Note:
1'Cash and cash equivalents' includes overdrafts and cash flows from disposal groups and is reconciled to the balance sheet in note 15b.
Condensed combined and consolidated statement of recognised income and expense for the year ended 31 December 2008
€ million 2008 2007
Fair value losses accreted on cash flow hedges, net of amounts recycled to the combined and consolidated income statement (39)
(3)
Actuarial (losses)/gains on post-retirement benefit schemes (14)
12
Fair value losses on available for sale investments (1)
(1) Exchange gains on demerger - 9
Exchange losses on translation of foreign operations (248)
(71) Other movements - (1)
Total expense recognised directly in equity1 (302)
(55) (Loss)/profit for the year (181) 280
Total recognised income and expense for the year (483)
225 Attributable to: Minority interests 26 56
Equity holders of the parent companies (509)
169 Note: 1 Net of related tax.
Notes to the condensed combined and consolidated financial statements
1 Basis of preparation The condensed financial information included in this preliminary announcementhas been prepared in accordance with the measurement and recognition criteriaof International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board (IASB) and have been prepared inaccordance with IAS34, 'Interim Financial Reporting'. There are no differencesfor the Group in applying IFRS as issued by the IASB and the European Union(EU) and therefore the Group also complies with IFRS as endorsed by the EU.
Dual listed structure
The Group has two separate legal parent entities, Mondi Limited and Mondi plc,which operate under a dual listed company (DLC) structure. The substance ofthe DLC structure is such that Mondi Limited, and its subsidiaries, and Mondiplc, and its subsidiaries, operate together as a single economic entity througha sharing agreement, with neither parent entity assuming a dominant role.Accordingly, Mondi Limited and Mondi plc are reported on a combined andconsolidated basis as a single reporting entity under IFRS.
Pre-demerger
During the period up to 2 July 2007 (the 'pre-demerger period'), the Group didnot form a separate legal group. 'The Anglo American plc investment in theGroup' is therefore presented for the pre-demerger period, representing theaggregated share capital, share premium and reserve balances of the Group'sconstituent entities, together with debtor and creditor balances held inrespect of the Anglo American group and deemed to be equity funding in nature. Any interest accruing on such balances is classified as a dividend in specieand recorded separately through reserves, not through the condensed combinedand consolidated income statement. The financial information set out does not constitue the Group's statutoryaccounts for the year ended 31 December 2008, but is derived from thoseaccounts. Statutory accounts for 2008 will be delivered to the Registrar ofCompanies following the Group's annual general meeting on 7 May 2009. Theauditors have reported on those accounts; their reports were unqualified anddid not draw attention to any matters by way of emphasis without qualifyingtheir reports and did not contain statements under s237 (2) or (3) of the UKCompanies Act 1985. Copies of their unqualified auditors' reports areavailable for inspection at the Mondi Limited and Mondi plc registered offices.
2 Accounting policies
The same accounting policies, presentation and measurement principles have been followed in the condensed combined and consolidated financial statements as applied in the Group's audited financial information for the year ended 31 December 2007.
3 Seasonality
The seasonality and cyclicality of the Group's operations do not impact significantly on the condensed combined and consolidated financial statements.
4 Segmental information
Based on the risks and returns of the Mondi Group, the Boards consider the primary reporting format is by business segment and the secondary reporting format is by geographical segment.
Primary reporting format - by business segment
2008 2007 Inter- Inter- Segment segment Group Segment segment Group € million revenue revenue1 revenue revenue revenue1 revenue Europe & International Bags & Specialities 2,138 (22) 2,116 2,005 (19) 1,986 Uncoated Fine Paper 1,565 (174) 1,391 1,666 (177) 1,489 Corrugated 1,555 (58) 1,497 1,616 (55) 1,561 Intra-segment elimination (99) 99 - (98) 98 - Sub-total 5,159 (155) 5,004 5,189 (153) 5,036 South Africa Uncoated Fine Paper 474 (174) 300 491 (267) 224 Corrugated 134 (132) 2 125 (125) - Intra-segment elimination (21) 21 - (25) 25 - Sub-total 587 (285) 302 591 (367) 224
Mondi Packaging South Africa 474 (27) 447 419 (28)
391 Merchant and Newsprint businesses 593 (1) 592 591 (1) 590
Corporate and other businesses - - - 28 -
28 Inter-segment revenue (468) 468 - (549) 549 - Total 6,345 - 6,345 6,269 - 6,269 Segment operating profit/(loss) Segment operating profit before special items2 after special items2 € million 2008 2007 2008 2007 Europe & International Bags & Specialities 159 154 (58) 153 Uncoated Fine Paper 126 99 98 36 Corrugated 49 133 (62) 128 Sub-total 334 386 (22) 317 South Africa Uncoated Fine Paper 75 53 75 48 Corrugated 36 25 36 25 Sub-total 111 78 111 73 Mondi Packaging South Africa 28 35 28 35 Merchant and Newsprint businesses 7 40 7 40 Corporate and other businesses (39) (37) (41) (40) Total 441 502 83 425 Notes:
1 Inter-segment transactions are conducted on an arm's length basis.
2 Segment result is defined as being segment revenue less segment expense; that is operating profit and fair value gains/(losses) that have been recycled to the combined and consolidated income statement on cash flow hedges of operating transactions. There are no material inter-segment transfers or transactions that would affect the segment result.
The segment result before special items, as shown above, is reconciled to'Profit from continuing operations' in the Group's combined and consolidatedincome statement as follows: € million 2008 2007
Operating profit before special items and associates' net income 441 502
Operating special items (see note 6) Subsidiaries and joint ventures: (358) (77) Europe & International (356) (69) South Africa - (5) Corporate and other businesses
(2) (3)
Operating profit after special items and before associates' net income 83 425 Net (loss)/profit on disposal of subsidiaries and associates
(27) 83
Impairment of assets held for sale (2) - Net income from associates 2 2
Total profit from operations and associates
56 510 Net finance costs (159) (128) Profit before tax (103) 382 Taxation charge (78) (102) Group (loss)/profit from continuing operations (181) 280
Primary segment disclosures for segment assets, liabilities and capital expenditure are as follows:
Segment assets1 Segment Net segment Capital liabilities2 assets expenditure3 € million 2008 2007 2008 2007 2008 2007 2008 2007 Europe & International Bags & Specialities 1,632 1,851 (315) (305) 1,317 1,546 185 169 Uncoated Fine Paper 1,589 1,491 (177) (203) 1,412 1,288 284 101 Corrugated 1,171 1,389 (241) (316) 930 1,073 246 261 Intra-segment elimination (76) (45) 76 45 - - - - Sub-total 4,316 4,686 (657) (779) 3,659 3,907 715 531 South Africa Uncoated Fine Paper 720 913 (80) (100) 640 813 40 24 Corrugated 139 165 (19) (12) 120 153 6 2 Intra-segment elimination (2) (4) 2 4 - - - - Sub-total 857 1,074 (97) (108) 760 966 46 26 Mondi Packaging South Africa 371 426 (70) (92) 301 334 44 156 Merchant and Newsprint businesses 283 337 (87) (90) 196 247 11 18 Corporate and other businesses 13 12 (3) (14) 10 (2) - 5 Inter-segment elimination (101) (157) 101 157 - - - - Segments total 5,739 6,378 (813) (926) 4,926 5,452 816 736 Unallocated: Investment in associates 5 6 - - 5 6 Deferred tax assets/ (liabilities) 36 32 (292) (322) (256) (290) Other non-operating assets/ (liabilities)4 307 241 (615) (591) (308) (350) Group trading capital employed 6,087 6,657 (1,720) (1,839) 4,367 4,818 Financial asset investments 19 25 - - 19 25 Net debt5 155 180 (1,845) (1,687) (1,690) (1,507) Group net assets 6,261 6,862 (3,565) (3,526) 2,696 3,336 Notes:1 Segment assets are operating assets and at 31 December 2008 consist ofproperty, plant and equipment of €3,611 million (2007: €3,731 million),intangible assets of €323 million (2007: €520 million), forestry assets of €214million (2007: €224 million), retirement benefits surplus of €nil (2007: €11million), inventories of €684 million (2007: €760 million) and operatingreceivables of €907 million (2007: €1,132 million).2 Segment liabilities are operating liabilities and at 31 December 2008consist of non-interest bearing current liabilities of €619 million (2007: €711 million), provisions of €12 million (2007: €15 million) and provisions forpost-retirement benefits of €182 million (2007: €200 million).
3 Capital expenditure reflects cash payments and accruals in respect of additions to property, plant and equipment and intangible assets of €761 million (2007: €429 million) and includes additions resulting from acquisitions through business combinations of €55 million (2007: €307 million).
4 Other non-operating assets consist of derivative assets of €73 million(2007: €17 million), current income tax receivables of €32 million (2007: €52million), other non-operating receivables of €197 million (2007: €173 million)and assets held for sale of €5 million (2007: €nil million). Othernon-operating liabilities consist of derivative liabilities of €77 million(2007: €5 million), non-operating provisions of €52 million (2007: €49million), current income tax liabilities of €53 million (2007: €81 million),other non-operating liabilities of €430 million (2007: €456 million) andliabilities directly associated with assets held for sale of €3 million (2007:€nil million).
5 Overdrafts of €80 million (2007: €121 million) are included in borrowings.
Primary segment disclosures for depreciation, amortisation and impairments areas follows: Depreciation and amortisation Impairments € million 2008 2007 2008 2007 Europe & International Bags & Specialities 113 106 190 - Uncoated Fine Paper 94 104 1 57 Corrugated 82 75 102 - Sub-total 289 285 293 57 South Africa Uncoated Fine Paper 34 34 - 4 Corrugated 7 10 - - Sub-total 41 44 - 4 Mondi Packaging South Africa 25 18 - -
Merchant and Newsprint businesses 17 20
- -
Corporate and other businesses 1 2
- - Total 373 368 293 61
Secondary reporting format - by geographical segment
The Group's geographical analysis of revenue, allocated based on the country in which the customer is located, is presented as follows.
Revenue € million 2008 2007
Subsidiaries and joint ventures
South Africa 616 618 Rest of Africa 251 213 Western Europe 2,932 3,162 Eastern Europe 1,326 1,148 Russia 430 421 North America 183 194 South America 31 29 Asia and Australia 576 484 Total 6,345 6,269 Additional disclosure of secondary segmental information of revenue by originis presented as follows: Revenue € million 2008 2007
Subsidiaries and joint ventures
South Africa 1,015 995 Rest of Africa 15 12 Western Europe 2,772 2,840 Eastern Europe 1,691 1,615 Russia 569 546 North America 120 121 Asia and Australia 163 140 Total 6,345 6,269 The Group's geographical analysis of segment assets, liabilities and capitalexpenditure, allocated based on where assets and liabilities are located, ispresented as follows: Segment assets Segment Net segment Capital liabilities assets expenditure € million 2008 2007 2008 2007 2008 2007 2008 2007 Subsidiaries and joint ventures South Africa 1,195 1,444 (152) (139) 1,043 1,305 92 186 Rest of Africa 11 19 (1) (5) 10 14 1 1 Western Europe 1,993 2,376 (392) (546) 1,601 1,830 96 208 Eastern Europe 1,700 1,855 (190) (144) 1,510 1,711 357 263 Russia 618 446 (33) (27) 585 419 263 65 North America 86 112 (11) (20) 75 92 2 3 Asia and Australia 136 126 (34) (45) 102 81 5 10 Total 5,739 6,378 (813) (926) 4,926 5,452 816 736 5 (Loss)/profit from continuing operations € million 2008 2007
(Loss)/profit for the year has been arrived at after charging/
(crediting):
Depreciation of property, plant and equipment
364 363
Amortisation of intangible assets
9 5
Rentals under operating leases
71 31
Research and development expenditure
10 9
Restructuring/closure costs (excluding special items)
7 28
Operating special items(see note 6)
358 77
Net foreign currency (gains)/losses
(7) 4
Green energy sales and disposal of emissions credits
(53) (42)
Fair value gains on forestry assets (46) (32) Felling costs 43 51
(Profit)/loss on disposal of property, plant and equipment
(6) 1 6 Special items € million 2008 2007 Operating special items Asset impairments
Bags & Specialities (Europe & International)
(70) -
Uncoated Fine Paper (Europe & International)
(1) (57)
Uncoated Fine Paper (South Africa)
- (4)
Corrugated (Europe & International)
(28) - Total asset impairments (99) (61)
Restructuring and closure costs Bags & Specialities (Europe & International)
(8) -
Uncoated Fine Paper (Europe & International)
(15) -
Corrugated (Europe & International) (1) - Total restructuring and closure costs (24) - Goodwill impairments
Bags & Specialities (Europe & International)
(120) -
Corrugated (Europe & International)
(74) - Total goodwill impairments (194) -
Mondi Packaging South Africa negative goodwill
- 1 Demerger arrangements (9) (9)
Personnel costs relating to restructuring Bags & Specialities (Europe & International)
(18) -
Uncoated Fine Paper (Europe & International)
(8) -
Corrugated (Europe & International)
(6) -
Accelerated charge on Anglo American plc share-based award schemes
- (8) Total operating special items (358) (77) (Loss)/profit on disposals Disposal of Niedergosgen (16) -
Disposal of Mondi Packaging Emball SAS
(8) - Disposal of UK Sheetfeeders (3) -
Disposal of partial interest in Mondi Packaging Paper Swiecie S.A.
- 57
Disposal of Bischof + Klein GmbH
- 19 Sale of other businesses - 7 Net (loss)/profit on disposal (27) 83
Asset impairment of assets held for sale
(2) - Financing cost - (29) Total non-operating special items (29) 54 Total special items before tax and minority interests (387) (23) Taxation 4 15 Total special items attributable to equity holders (383) (8) Year ended 31 December 2008 Operating special items The sharp decline in demand experienced in a number of markets, together withthe recognition that we are entering a prolonged global economic slowdown hasresulted in management taking a number of actions. Bags & SpecialitiesSignificant market related down time has been taken due to overcapacity createdby a significant slowdown in demand. Various restructuring initiatives havebeen implemented in response to the lower demand environment. As a result theGroup has incurred restructuring and closure costs of €26 million, and assetimpairment costs of €70 million. Management has also impaired goodwill by €120million. Uncoated Fine Paper
Management has closed and restructured operations resulting in costs of €23 million, and asset impairment costs of €1 million.
Corrugated
Given the continued difficult trading conditions in the Corrugated Packagingsector Mondi responded by closing, or restructuring, certain high costoperations. This has resulted in restructuring and closure costs of €7 millionand asset impairment costs of €28 million. The business has suffered fromprice erosion due to a combination of overcapacity and slowing demand, and hasimpaired goodwill of €74 million.
Demerger arrangements
Equity settled demerger arrangements for senior management have also resultedin additional share based payments of €9 million. It is expected that a furtherand final €5 million will be incurred by the Group in respect of seniormanagement demerger arrangements over the period ending 3 July 2009.
Non-operating special items
The Group disposed of 100% of its interest in Niedergosgen on 31 December 2008for a consideration of approximately €19 million at a loss on disposal of €16million. The Group also disposed of its interest in Mondi Packaging Emball SASfor a consideration of approximately €4 million at a loss of €8 million on 1December 2008 and UK Sheetfeeders for a consideration of approximately €21million at a loss of €3 million on 12 May 2008. The Group impaired the €2million assets of Ile de France that is reflected as held for sale on thebalance sheet. 7 Net finance costs Net finance costs and related foreign exchange gains/(losses) are presentedbelow: € million 2008 2007 Investment income Interest income
Bank deposits, loan receivables and other
22 22
Available for sale investments
- 1 Past due receivables 1 1 Total interest income 23 24
Expected return on defined benefit arrangements
20 22 Foreign currency losses (28) (2) Impairment of financial assets (excluding trade receivables) (1) - Other financial income 1 - Total investment income 15 44 Financing costs Interest expense Interest on bank overdrafts and loans
(169) (119)
Interest on obligations under finance leases
(1) (1)
Interest on defined benefit arrangements (28) (28) Total interest expense (198) (148) Other
Net gains on held for trading interest rate swaps
- 2
Net losses arising on derivatives in a designated fair value hedge
accounting relationship - (1) Total other - 1 Less: interest capitalised 24 4 Total financing costs prior to special items (174) (143)
Special items financing cost (see note 6)
- (29) Total financing costs after special items (174) (172) Net finance costs (159) (128) The weighted average interest rate applicable to interest on general borrowingscapitalised for the year ended 31 December 2008 is 13.0% (2007: 8.4%) mainlyrelated to loans in Russia and Poland.8 Taxation charge
Analysis of charge for the year from continuing operations
€ million 2008 2007
UK corporation tax at 28.5% (2007: 30%)
(5) (1) Overseas taxation 66 89
Current tax (excluding tax on special items)
61 88
Deferred tax in respect of the current period (excluding tax on special
items) 30 29
Deferred tax in respect of prior period over provision
(9) -
Total tax charge before special items
82 117 Current tax on special items (2) (1) Deferred tax on special items (2) (14)
Total tax credit on special items
(4) (15) Total tax charge 78 102 The Group's effective rate of taxation before special items for the year ended31 December 2008, which includes taxation on net income from associates, is
29%(2007: 29%). 9 DividendsDividend payments An interim dividend for the year ended 31 December 2008 of 88.68113 rand cents/ 7.7 euro cents per share was paid on 16 September 2008 to all Mondi Limitedand Mondi plc ordinary shareholders on the relevant registers on 29 August2008.A proposed final dividend for the year ended 31 December 2008 of 5.0 euro centsper share will be paid on 20 May 2009 to all Mondi Limited and Mondi plcordinary shareholders on the relevant registers on 24 April 2009. The finaldividend is subject to the approval of the shareholders of Mondi Limited andMondi plc at the respective annual general meetings scheduled for 7 May 2009.Dividend timetable
The proposed final dividend for the year ended 31 December 2008 will be paid in accordance with the following timetable:
Mondi Mondi plc Limited
Last date to trade shares cum-dividend
JSE Limited 17 April 17 April 2009 2009 London Stock Exchange Not 21 April applicable 2009
Shares commence trading ex-dividend
JSE Limited 20 April 20 April 2009 2009 London Stock Exchange Not 22 April applicable 2009 Record date JSE Limited 24 April 24 April 2009 2009 London Stock Exchange Not 24 April applicable 2009
Last date for Dividend Reinvestment Plan (DRIP) 5 May 2009 5 May 2009 elections by Central Securities Depository
Participants
Last date for DRIP elections to UK Registrar and 6 May 2009 6 May 2009 South African Transfer Secretaries by shareholders
of Mondi Limited and Mondi plc
Payment Date South African Register 20 May 20 May 2009 2009 UK Register Not 20 May applicable 2009
Depositary Interest Holders (dematerialised DIs) 26 May Not 2009 applicable Holders within the Equiniti Corporate Nominee 28 May Not
2009 applicable Currency conversion date ZAR/euro 26 26 February FebruaryEuro/sterling 2009 2009 Not 11 May applicable 2009
DRIP purchase settlement dates 27 May 26 May
2009 2009*
*27 May 2009 for Mondi plc South African branch register shareholders.
Share certificates on the South African registers of Mondi Limited and Mondiplc may not be dematerialised or rematerialised between 20 April 2009 and 24April 2009, both dates inclusive, nor may transfers between the UK and SouthAfrican registers of Mondi plc take place between 15 April 2009 and 24 April2009, both dates inclusive. In the event South African National Elections are confirmed for 22 April 2009,a public holiday may be declared and the above dividend timetable would beimpacted. In such instance, Mondi would likely bring the Mondi Limited andMondi plc South African branch register cum-dividend dates forward by one dayto 16 April 2009, with the respective ex-dividend dates being changed to 17April 2009. The record and payment dates would remain as stated above.
10 Earnings per share
For 2007, the Group was not a stand-alone entity prior to the demerger date on2 July 2007. The number of ordinary shares issued on admission wasretrospectively applied to the comparative period, so that a meaningfulcomparison can be made. € cents per share 2008 2007
(Loss)/profit for the financial year attributable to equity-holders
Basic EPS (41.6) 45.4 Diluted EPS (41.6)3 45.1
Underlying earnings for the financial year1
Basic EPS 33.9 46.9 Diluted EPS 33.4 46.7
Headline earnings for the financial year2
Basic EPS 20.3 39.5 Diluted EPS 20.0 39.3 Notes:
1 The Boards believe that underlying EPS provides a useful additional non-GAAP measure of the Group's underlying performance. Underlying EPS excludes the impact of special items.
2 The presentation of Headline EPS is mandated under the JSE Listings Requirements. Headline earnings has been calculated in accordance with Circular8/2007, 'Headline Earnings', as issued by the South African Institute of Chartered Accountants. Please see the reconciliation presented below.
3 Diluted EPS is consistent with Basic EPS as the impact of potential ordinary shares is anti-dilutive.
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 € million 2008 2007
(Loss)/profit for the financial year attributable to equity
holders (211) 233 Special items: operating 358 77 Net loss/(profit) on disposals
27 (83)
Impairment of assets held for sale
2 -
Special items: financing costs
- 29 Related tax (4) (15) Underlying earnings 172 241 (Profit)/loss on disposal of tangible fixed assets
(6) 1
Special items: financing costs
- (29)
Special items: demerger arrangements
(9) (9)
Special items: accelerated charges on exiting Anglo American plc
share and option schemes - (8) Special items: Restructuring and closure cost (56) - Related tax 2 7 Headline earnings 103 203 Number of shares million 2008 2007
Basic number of ordinary shares outstanding1 507
513
Effect of dilutive potential ordinary shares2 8
4
Diluted number of ordinary shares outstanding 515
517 Notes:
1 The basic number of ordinary shares outstanding represents the weighted average number in issue for Mondi Limited and Mondi plc for the year, as adjusted for the weighted average number of treasury shares held during the year.
2 Diluted EPS is calculated by adjusting the weighted average number of ordinary shares in issue, net of treasury shares, on the assumption of conversion of all potentially dilutive ordinary shares.
11 Reconciliation of movement in combined and consolidated equity Share capital Combined share Total Mondi Mondi Mondi capital equity Limited Limited plc and
attributable
2008/€ share share share share Retained Other to equity million capital premium capital premium earnings reserves1 holders
At 1 January 11 532 103 646 2,154 163 2,963 Final dividend - 2007 - - - - (80) - (80) Interim dividend - 2008 - - - - (38) - (38) Retained loss - - - - (211) - (211) Issue of shares under employee share schemes - - - - 7 (7) - Purchase of treasury shares2 - - - - (15) - (15) Share options exercised - Anglo American share scheme - - - - (3) - (3) Disposal of business - - - - (1) - (1) Minority share dilution - - - - (4) - (4) Other - - - - - (288) (288) At 31 December 11 532 103 646 1,809 (132) 2,323 Notes:
1 Other reserves are further analysed below.
2 The treasury shares purchased represents the cost of shares in Mondi plc andMondi Limited purchased in the market and held by the Mondi Employee ShareTrust and the Mondi Incentive Schemes Trust respectively to satisfy optionsunder the Group's share options schemes. The number of ordinary shares held bythe Mondi Employee Share Trust and the Mondi Incentive Schemes Trust at 31December 2008 was 7,943,115 and 115,000 shares respectively (2007: 5,820,232and nil respectively) at an average price of ₤3.95 and R47.51 per sharerespectively (2007: ₤4.08 and Rnil per share respectively). Share capital Combined share Total Anglo Mondi Mondi Mondi capital equity investment Limited Limited plc and attributable2007/€ in Mondi share share share share Retained Other to equity million Group capital premium capital premium earnings reserves1 holders At 1 January - as restated 1,899 â€" â€" â€" 1,899 1,100 (33) 2,966 Anglo American plc contribution 120 â€" â€" â€" 120 â€" â€" 120 Dividend in specie2 32 â€" â€" â€" 32 (32) â€" â€" Dividends paid to Anglo American plc â€" â€" â€" â€" â€" (202) â€" (202) Retained profit pre-demerger â€" â€" â€" â€" â€" 164 â€" 164 Termination of Anglo American plc equity interest (2,051) 3 540 â€" (1,508) (832) 2,411 71 Dividend in specie to Anglo American plc shareholders â€" â€" â€" 2,938 2,938 â€" (2,938) â€" Share issue expenses â€" â€" â€" â€" â€" (74) â€" (74) Share capital reduction â€" â€" â€" (2,864) (2,864) 2,864 â€" â€" Dividend in specie to Mondi plc shareholders â€" â€" â€" â€" â€" (794) 794 â€" Issue of special converting shares â€" 8 (8) 29 29 (29)
â€" â€" Interim dividend â€" â€" â€" â€" â€" (38) â€" (38) Purchase of treasury shares3 â€" â€" â€" â€" â€" (33) â€" (33) Post-demerger retained profit â€" â€" â€" â€" â€" 68 - 68 Share-based payments transfer â€" â€" â€" â€" â€" (8) - (8) Other â€" â€" â€" â€" â€" â€" (71) (71) At 31 December â€" 11 532 103 646 2,154 163 2,963 Notes:
1 Other reserves are further analysed below.
2 The dividend in specie represents interest accrued to Anglo American plcduring the period ended 3 July 2007 on a loan instrument classified as equityunder IAS 32, 'Financial Instruments: Presentation'. On demerger from AngloAmerican plc, the Group's obligation under this loan instrument ceased.3 The treasury shares purchased represents the cost of shares in Mondi plc andMondi Limited purchased in the market and held by the Mondi Employee ShareTrust and the Mondi Incentive Schemes Trust respectively to satisfy optionsunder the Group's share options schemes. The number of ordinary shares held bythe Mondi Employee Share Trust and the Mondi Incentive Schemes Trust at 31December 2007 was 5,820,232 and nil shares respectively at an average price of₤4.08 and Rnil per share respectively. Other reserves Post Cumulative Cash retirement Share-based translation Available flow benefit 2008/€ payment adjustment for sale hedge obligation Merger Other million reserve reserve reserve reserve reserve reserve reserves Total At 1 January 13 (88) â€" 4 (22) 259 (3) 163 Mondi share schemes' charge 18 - - - - - - 18 Issue of shares under employee share schemes (7) - - - - - - (7) Actuarial and surplus restriction movements - - - - (14) - - (14) Fair value losses accreted - - (1) (25) - - - (26) Fair value gains recycled to the income statement - - - (14) - - - (14) Call option issued - - - - - - (4) (4) Currency translation adjustment - (248) - - - - - (248) At 31 December 24 (336) (1) (35) (36) 259 (7) (132) Other reserves Post Cumulative Cash retirement Share-based translation Available flow benefit 2007/€ payment adjustment for sale hedge obligation Merger Other million reserve reserve reserve reserve reserve reserve reserves Total At 1 January 12 (17) 1 7 (34) â€" (2) (33) Termination of Anglo American plc equity interest â€" 9 â€" â€" â€" 2,403 (1) 2,411 Dividend in specie to Anglo American plc shareholders â€" â€" â€" â€" â€" (2,938) â€" (2,938) Dividend in specie to Mondi plc shareholders â€" â€" â€" â€" â€" 794 â€" 794 Purchase of Anglo American plc shares (19) â€" â€" â€" â€" â€" â€" (19) Anglo American plc share schemes' charge 10 â€" â€" â€" â€" â€" â€" 10 Exiting Anglo American plc share schemes (3) - - - - - - (3) Mondi share schemes' charge 13 â€" â€" â€" â€" â€" â€" 13 Actuarial and surplus restriction movements â€" â€" â€" â€" 12 â€" â€" 12 Fair value gains/ (losses) accreted â€" â€" (1) (20) â€" â€" â€" (21) Fair value (gains)/ losses recycled to the income statement â€" â€" â€" 17 â€" â€" â€" 17 Currency translation adjustment â€" (80) â€" â€" â€" â€" â€" (80) At 31 December 13 (88) â€" 4 (22) 259 (3) 163 12 Asset values per share Asset values per share are disclosed in accordance with the JSE ListingsRequirements. Net asset value per share is defined as net assets divided bythe combined number of shares in issue as at 31 December 2008, less treasuryshares held. Tangible net asset value per share is defined as the net assetsless intangible assets divided by the combined number of shares in issue as at31 December 2008, less treasury shares held. 2008 2007 Net asset value per share (€) 5.34 6.56 Tangible net asset value per share (€) 4.70 5.54 13 Share capital and share premium Authorised Number of shares R million
Mondi Limited R0.20 ordinary shares 250,000,000
50 Authorised Number of shares € million
Mondi plc €0.20 ordinary shares 3,177,608,605
636 There has been no change to the authorised share capital of either MondiLimited or Mondi plc since listing on the respective stock exchanges on 3 July2007. Number of Called up, allotted and fully2008 shares paid/€ million Share Share capital premium Total
Mondi Limited R0.20 ordinary shares 146,896,322 3
issued on the JSE 532 535
Mondi plc1 €0.20 ordinary shares 367,240,805 74
issued on the LSE â€" 74 Total ordinary shares in issue 514,137,127 77 532 609 Mondi Limited R0.20 special 367,240,805 8 - 8converting shares2
Mondi plc €0.20 special converting 146,896,322 29
29shares â€"
Total special converting shares 514,137,127 37 -
37 Total shares 1,028,274,254 114 532 646 Number of Called up, allotted and fully2007 shares paid/€ million Share Share capital premium Total
Mondi Limited R0.20 ordinary shares 146,896,322 3
issued on the JSE 532 535
Mondi plc1 €0.20 ordinary shares 367,240,805 74
issued on the LSE â€" 74 Total ordinary shares in issue 514,137,127 77 532 609 Mondi Limited R0.20 special 367,240,805 8 - 8converting shares2
Mondi plc €0.20 special converting 146,896,322 29
29shares 2 â€"
Total special converting shares 514,137,127 37 -
37 Total shares 1,028,274,254 114 532 646 Notes:1 Mondi plc also issued 50,000 5% cumulative £1 preference shares in 2007.The Group classifies these preference shares as a liability, and not as equityinstruments, since they contractually obligate the Group to make cumulativedividend payments to the holders. The dividend payments are treated as afinance cost rather than distributions. 2 The special converting shares are held on trust and do not carry dividendrights. The special converting shares provide a mechanism for equality oftreatment on termination for both Mondi Limited and Mondi plc ordinary equityholders. 14 Business combinations
Principal acquisitions made during the year to 31 December 2008, accounted for under the acquisition method, were:
Name of entity Nature of entity Date of Percentageacquired acquired acquisition acquired Dunapack Bag converting April 2008 100.0 Rochester Coating April 2008 100.0 Loparex Group Coating and Kraft paper April 2008 100.0
Details of the aggregate net assets acquired, as adjusted from book to fair value, and the attributable goodwill are presented as follows:
€ million Book value Revaluation Fair value Net assets acquired: Intangible assets 1 8 9 Property, plant and equipment 59 (32) 27 Financial asset investments 5 - 5 Deferred tax assets 1 2 3 Inventories 22 (1) 21 Trade and other receivables 44 2 46 Cash and cash equivalents 3 - 3 Short-term borrowings (3) - (3) Other current liabilities (44) - (44) Long-term borrowings (37) - (37) Deferred tax liabilities (3) (1) (4) Contingent liabilities 2 - 2 Retirement benefits obligation - - - Equity minority interest 5 - 5 Net assets acquired 55 (22) 33 Goodwill arising on acquisition 19 Total cost of acquisition 52 Cash acquired net of overdrafts (3) Net cash paid 49
The values used in accounting for the identifiable assets and liabilities of these acquisitions are provisional in nature at the balance sheet date. If necessary, adjustments will be made to these carrying values, and to the related goodwill, within 12 months of the acquisition date.
During the year to 31 December 2008 adjustments totalling €7 million have beenmade to the provisional values estimated of net assets of Tire Kutsan acquiredin the year to 31 December 2007. The goodwill which arose on the acquisition of Dunapack represents the valueharnessed of further expanding into the emerging markets of Hungary and Ukraineand consolidating the Group's position in Bag Converting in the CEE region. Furthermore it represents significant potential for synergies andrationalisation in Hungary. The goodwill which arose in Rochester representsthe value associated with strengthening the Group's market position in Coatingsand the realisation of substantial synergies. No goodwill was recognised onacquisition of the Loparex Group. 15 Consolidated cash flow analysis (a) Reconciliation of profit before tax to cash inflows from operations € million 2008 2007 (Loss)/profit before tax (103) 382
Depreciation and amortisation
373 368 Share option expense 9 6 Non-cash effect of special items of subsidiaries and joint ventures 368 23 Net finance costs 159 99 Net income from associates (2) (2) Decrease in provisions and post-employment benefits
(21) (14)
Decrease/(increase) in inventories
26 (69)
Decrease/(increase) in operating receivables
106 25
(Decrease)/increase in operating payables
(105) 141
Fair value gains on forestry assets (46) (32) Cost of felling 43 51
(Profit)/loss on disposal of fixed assets
(6) 1
Purchase of Anglo American plc shares
- (19) Other adjustments (6) (3) Cash inflows from operations 795 957 (b) Cash and cash equivalents € million 2008 2007 Cash and cash equivalents per balance sheet
155 180
Bank overdrafts included in short-term borrowings (80) (121) Net cash and cash equivalents per cash flow statement 75 59 (c) Movement in net debt
The Group's net debt position, excluding disposal groups is as follows:
Debt due Cash and Debt due after cash within one one Total net equivalents1 year2 year debt Balance at 1 January 2007 358 (1,181) (656) (1,479) Cash flow (286) 945 (564) 95 Business combinations3 - (38) (122) (160) Disposal of businesses - 1 - 1 Reclassifications (3) (82) 85 - Currency movements (10) 23 23 36 Closing balance at 31 December 59 (332) (1,234) (1,507)2007 Cash flow 24 214 (543) (305) Business combinations3 3 (3) (37) (37) Disposal of businesses - 5 20 25 Reclassifications (2) (215) 215 (2) Currency movements (9) 33 112 136 Closing balance at 31 December 75 (298) (1,467) (1,690)2008 Notes:
1 The Group operates in certain countries (principally South Africa) where theexistence of exchange controls may restrict the use of certain cash balances.These restrictions are not expected to have any material effect on the Group'sability to meet its ongoing obligations.
2 Excludes overdrafts, which are included as cash and cash equivalents. At 31 December 2008, short-term borrowings on the combined and consolidated balance sheet of €378 million (2007: €453 million) include €80 million of overdrafts (2007: €121 million).
3 See note 14.
(d) Reconciliation of cash inflows from operations to EBITDA for theyears ended 31 December € million 2008 2007 Cash inflows from operations 795 957 Share option expense (9) (6)
Fair value gains on forestry assets
46 32 Cost of felling (43) (51)
Decrease in provisions and post employment benefits
21 14
(Decrease)/increase in inventories
(26) 69
(Decrease)/increase in operating receivables
(106) (25)
Decrease/(increase) in operating payables
105 (141)
Purchase of Anglo American plc shares
- 19
Profit/(loss) on disposal of assets
6 (1)
Add back cash effect of operating special items of subsidiaries and
joint ventures 19 - Other adjustments 6 3 EBITDA1 814 870 Note:
1 EBITDA is operating profit before special items plus depreciation and amortisation in subsidiaries and joint ventures.
(e) EBITDA by business segment € million 2008 2007 Europe & International Bags & Specialities 271 260 Uncoated Fine Paper 221 202 Corrugated 131 208 Sub-total 623 670 South Africa Uncoated Fine Paper 109 87 Corrugated 43 35 Sub-total 152 122 Mondi Packaging South Africa 52 53
Merchant and Newsprint businesses 24
60
Corporate and other businesses (37)
(35) EBITDA 814 870
EBITDA is stated before special items and is reconciled to 'Total profit from operations and associates' as follows:
€ million 2008 2007
Total profit from operations and associates
56 510
Special items (excluding associates)
358 77
Net loss/(profit) on disposals (excluding associates)
27 (83)
Impairment of assets held for sale
2 -
Depreciation and amortisation: subsidiaries and joint ventures
373 368
Share of associates' net income
(2) (2) EBITDA 814 870 (f) Capital expenditure cash payments1 € million 2008 2007 By business segment Europe & International Bags & Specialities 136 102 Uncoated Fine Paper 266 98 Corrugated 199 111 Sub-total 601 311 South Africa Uncoated Fine Paper 37 21 Corrugated 7 2 Sub-total 44 23 Mondi Packaging South Africa 38 47
Merchant and Newsprint businesses 10
18
Corporate and other businesses -
7 Total 693 406 Note:
1 Excludes business combinations and purchase of intangible assets.
16 Capital commitments € million 20081 2007
Contracted for but not provided 405
74
Approved, not yet contracted for 219
824 Note:
1 The significant shift relates to the development of the new lightweight recycled containerboard machine and new box plant at the Swiecie mill in Poland, and the modernisation and expansion of the Syktyvkar mill in Russia.
17 Contingent liabilities and contingent assets Disclosable contingent liabilities comprise aggregate amounts at 31 December2008 of €17 million (2007: €16 million) in respect of loans and guaranteesgiven to banks and other third parties. Acquired contingent liabilities of €2million (2007: €5 million) have been recorded on the Group's combined andconsolidated balance sheet.
There are a number of legal or potential claims against the Group. Provision is made for all liabilities that are expected to materialise.
There were no significant disclosable contingent assets at 31 December 2008 or 31 December 2007.
18 Related party transactions The Group has a related party relationship with its associates and jointventures and, up to the date of demerger, with certain Anglo American plc groupcompanies. Transactions between Mondi Limited, Mondi plc and their respectivesubsidiaries, which are related parties, have been eliminated on consolidationand are not disclosed in this note. The Group and its subsidiaries, in the ordinary course of business, enter intovarious sale, purchase and service transactions with joint ventures andassociates and others in which the Group has a material interest. Thesetransactions are under terms that are no less favourable than those arrangedwith third parties. These transactions, in total, are not considered to besignificant. Anglo American plc Joint € million group Ventures Associates 2008 Sales to related parties - 11 -
Purchases from related parties - (1)
(32) Loans to related parties - 10 -
Receivables due from related parties - 7
1 2007 Sales to related parties - 8 8
Purchases from related parties - (2)
(1) Net finance costs (22) - -
Dividends paid to related parties (202) -
- Dividends in specie (32) - - Loans to related parties - 13 -
Receivables due from related parties - 5
- Cyril Ramaphosa, joint chairman of Mondi, has a 32.7% (2007:39.96%) stake inShanduka Group (Pty) Limited, an entity that has controlling interests inShanduka Advisors (Pty) Limited, Shanduka Resources (Pty) Limited, ShandukaPackaging (Pty) Limited and Shanduka Newsprint (Pty) Limited and participatinginterests in Mondi Shanduka Newsprint (Pty) Limited, Kangra Coal (Pty) Limited,Rennies Distribution Services (Pty) Limited and Mondi Packaging South Africa(Pty) Limited. Fees of €340,000 (2007: €379,000) and €392,000 (2007: €681,000)were paid to Shanduka Advisors (Pty) Limited and Shanduka Resources (Pty)Limited respectively for management services provided to the Group during theyear ended 31 December 2008. Shanduka Packaging (Pty) Limited and ShandukaNewsprint (Pty) Limited have also provided a shareholder's loan to the Group. The balance outstanding at 31 December 2008 was €12.9 million (2007: €16.8million) and €7.1 million (2007: €9.2 million), respectively. In the normalcourse of business, and on an arm's length basis, the Group purchased suppliesfrom Kangra Coal (Pty) Limited totalling €12 million (2007: €9 million) andmade use of transport and warehousing services provided by Rennies DistributionServices (Pty) Limited totalling €9 million (2007: €13 million) during theperiod. €1 million (2007: €1 million) remains outstanding on these purchasesat 31 December 2008. Production statistics Year Ended Year Ended 31 December 31 December 2008 2007 Europe & International Containerboard Tonnes 1,926,829 1,849,702 Kraft paper Tonnes 814,187 891,385 Corrugated board and boxes Mm² 2,104 2,088 Bag converting m units 3,536 3,642 Coating and release liners Mm² 2,667 2,971 Uncoated fine paper Tonnes 1,452,058 1,517,792 Newsprint Tonnes 192,921 192,329 Total hardwood pulp Tonnes 1,012,470 1,182,476 Total softwood pulp Tonnes 1,620,155 1,748,294 External hardwood pulp Tonnes 126,479 76,244 External softwood pulp Tonnes 200,676 213,218 South Africa Containerboard Tonnes 251,944 251,661 Uncoated fine paper Tonnes 416,509 469,782 Bone dry Wood chips tonnes 780,932 690,447 Total hardwood pulp Tonnes 595,449 630,210 Total softwood pulp Tonnes 106,390 98,613 External hardwood pulp Tonnes 139,235 86,802
Mondi Packaging South Africa
Packaging papers Tonnes 388,199 368,574 Corrugated board and boxes Mm² 381 367 Total hardwood pulp Tonnes 82,554 65,829 Total softwood pulp Tonnes 43,090 64,274 Newsprint Joint Ventures (attributable share) Newsprint Tonnes 331,929 314,847 Aylesford Tonnes 200,540 185,990 Shanduka Tonnes 131,389 128,857 Total softwood pulp Shanduka Tonnes 86,464 86,469 Exchange rates Year Ended Year Ended 31 December 31 December 2008 2007
Closing rates against the euro
South African rand 13.07 10.03 Pounds sterling 0.95 0.73 Polish zloty 4.15 3.59 Russian rouble 41.28 35.99 Slovakian koruna 30.13 33.58 US dollar 1.39 1.47 Czech koruna 26.87 26.63
Average rates for the period against the
euro South African rand 12.06 9.66 Pounds sterling 0.80 0.68 Polish zloty 3.52 3.78 Russian rouble 36.45 35.02 Slovakian koruna 31.28 33.77 US dollar 1.47 1.37 Czech koruna 24.97 27.76
vendorRelated Shares:
Mondi