Group performance review - Mondi

Approximately fifty percent of the South African forestry
acreage is subject to land claims. The continued
acceptance of the Mondi settlement model as the industry
standard by the South African government provides some
predictability for future land claim settlements.
• Foreign currency exposure and exchange rate volatility
The location of some of the Group’s significant operations
in emerging markets results in foreign currency exposure.
Adverse currency movements and high degrees of
volatility may impact on the financial performance and
position of the Group. The most significant emerging
market currency exposures are to the South African rand,
Russian rouble, Czech koruna, Polish zloty and Turkish
lira. The Group’s policy is to hedge balance sheet
exposures against short-term currency volatility.
• Cost and availability of supply of electricity in South
Africa may adversely impact operations
South Africa continues to experience increases in the cost
of electricity well above inflation. In 2010, the price of
electricity increased by in excess of 25% and similar
increases are forecast for the next three years. Electricity
demand is expected to continue to outstrip supply until
new generation capacity is brought on stream, which is
unlikely to be before 2013. Mondi continues to monitor
electricity consumption and has invested in projects to
increase its own generation capacity and reduce its
dependence on the national energy provider.
• Significant capital investments including acquisitions carry
project risk
The business is capital intensive and therefore requires
ongoing capital investment to expand or upgrade existing
facilities and to develop new facilities. Projects that require
significant capital expenditure carry risks including: failure to
complete a project within the required timetable and/or
within budget; failure of a project to perform according to
prescribed operating specifications; and significant,
unforeseen changes in raw material costs or inability to sell
the envisaged volumes or achieve envisaged price levels.
The successful completion of the Group’s two most
significant capital investment programmes in Poland and
Russia has reduced the potential impact of this risk. Larger
capital projects are subject to specific approval by the
Boards and regular monitoring and reporting. Skilled and
experienced teams are assigned to large capital projects
under the oversight of the Group technical director.
• Investments in certain countries may be adversely affected
by political, economic and legal developments in those
countries
The Group operates in a number of countries where the
political, economic and legal systems are less predictable
than in countries with more developed institutional
structures. Significant changes in the political, economic
or legal landscape in such countries may have a material
effect on the Group’s operations in those countries.
The Group has invested in a number of countries thereby
diversifying its exposure to any single jurisdiction.
The Group’s diversified management structure ensures
that business managers are able to closely monitor and
adapt to changes in the environment in which they
operate.
Mondi Group
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