The Group’s underlying operating profit in the third quarter 2010 was above that of each of the first two quarters of the year and well in excess of that achieved in the comparable period of the prior year.
Turnover for the third quarter was marginally higher than that of the second quarter. The upward momentum in selling prices continued. Order books remain strong, although sales volumes in the quarter were reduced due to maintenance shuts at various facilities and the extended shut at Syktyvkar as part of the integration of the modernisation project. Increasing raw material costs, less pronounced than in the first half of the year, were offset by ongoing cost optimisation activities. This led to a quarter on quarter improvement in the Group’s underlying operating profit.
The final phase of the modernisation of the Syktyvkar mill in Russia was successfully completed during September, following the commissioning of the recovery boiler and rebuilt containerboard machine. Construction of the project commenced in April 2008 and was completed on schedule. Total costs are expected to be within the revised €545 million budget. The estimated impact on underlying operating profit of the shut during the quarter was €15 million. The focus is now on bringing the mill up to full production during 2011.
The sale of the central European paper merchant, Europapier, to the Heinzel Group for a consideration of €60 million on a cash and debt free basis, will be concluded in early November with all regulatory approvals having been secured. The funds will be utilised to reduce Mondi’s net debt.
In August, agreement was reached with Hadera Paper Limited to sell down the Group’s 50.1% interest in Mondi Hadera Paper Limited for a consideration of €10 million, with the Group retaining a 25% minority interest. The deal is conditional upon regulatory approval.
Operating cash flows for the third quarter reflected the improved operating profit and enabled the Group to reduce its net debt position to €1,536 million at 30 September 2010 from €1,632 million as at 30 June 2010. Working capital as a percentage of turnover, at 10%, remained within forecast parameters.
The financial position of the Group at 30 September 2010 remained robust with net assets moderately up on the back of exchange impacts on translation into euro. The average maturity of Group committed debt is 3.9 years and unutilised committed borrowing facilities are approximately €1.4 billion.
Following the completion of funding of our major capital projects in 2011, the Group will enter a period of increased free cash flow generation. While focused growth clearly remains an option, the Group will allocate increasing free cash flow to debt reduction and to improving cash returns to our shareholders.
Except as discussed in this interim management statement, there have been no other significant events or transactions impacting either the financial performance or financial position of Mondi since 30 June 2010 up to the date of this statement.
