Full directors report - Mondi

Currency movements had a mixed
impact on the Group’s performance
during the period. The weaker eastern
European currencies, notably the
Czech koruna and Polish zloty,
benefited the results of our eastern
European production base in the
second half. Conversely, the significant
strengthening of the South African rand
from the middle of the second quarter
eroded margins on export sales from
the South Africa Division, placing
substantial pressure on the profitability
of this business as the year progressed.
Average return on capital employed,
a key measure of Mondi’s performance,
was 7.6%. While this is a disappointing
outcome in relation to the Group’s
target of 13% across the cycle, it
nevertheless represents a resilient
performance given the backdrop of an
extremely difficult business environment.
Importantly, the Group is confident that
the actions taken over the past year
place the business in a stronger
competitive position than it was when
it entered the downturn, allowing it to
take full advantage of any improvement
in the business cycle.
Net finance costs of E114 million were
E45 million lower than those of 2008,
mainly owing to higher levels of
capitalised interest relating to major
capital projects and lower exchange
losses on foreign currency debt
balances. The effective tax rate before
special items of 32% was higher than
that of the previous year, primarily due
to an increase in non-recognised
assessed losses as a consequence
of the decline in profitability.
Underlying earnings per share were
18.7 euro cents per share, down by
45% compared with 2008.
The Group is proposing to pay a final
dividend of 7.0 euro cents per share,
giving a total dividend of 9.5 euro cents
per share for the year.
Europe &
International Division
E million 2009 2008 %
Segment revenue
– of which inter-
4,099 5,159 (21)
segment revenue 110 155 (29)
EBITDA 515 623 (17)
Underlying operating
profit 251 334 (25)
Uncoated Fine Paper 146 126 16
Corrugated 23 49 (53)
Bags & Specialities 82 159 (48)
Capital expenditure 1
-Major projects 2 300 324 (7)
-Other 167 277 (40)
Net segment assets 3,588 3,659 (2)
Return on capital
employed (%) 9.1 9.6 (5)
1 Capital expenditure is cash payments and
excludes business combinations.
2 Polish and Russian expansion projects which
commenced in the second half of 2007.
Cost savings of
E251 million
Underlying operating profit of
E251 million was down by E83 million
or 25% compared with the previous
period, significantly affected by the
decrease in demand for a number of
the Group’s key products as a
consequence of the general economic
slowdown. Pricing was down across all
major paper grades, while volumes
were negatively affected by the
approximately 173,000 tonnes of
market-related downtime taken in the
year. Encouragingly, market-related
downtime taken in the second half of
2009 was minimal, reflecting a steady
pick-up in order inflows over the
course of the year. Prices in the
downstream converting markets were
more resilient, partially offsetting price
declines in the paper grades.
There was some benefit from lower
input costs, including wood, recovered
paper, chemicals and other variable
costs, while the Division delivered
E205 million in cost savings.
Furthermore, the restructuring actions
the Group has taken in exiting highercost
capacity helped to offset the
revenue pressures while also
contributing to a more balanced
market.
For further information please go to the
Divisional overview on page 4 of this report;
or click on www.mondigroup.com/AR09
Directors’ report
Annual report and accounts 2009 Mondi Group 23