CFO’s review: Maintaining a firm financial footing

Cash flow

Mondi is strongly cash generative with EBITDA of €1,068 million, reflecting an increase of 15% compared to the prior year. We generated €1,036 million of cash from operations (2012: €849 million) after taking into account a net increase in working capital of €27 million. Working capital as a percentage of revenue was 11%, in line with our target of 10-12% of turnover, and represents a reduction on the prior year comparable figure of 11.9% (adjusted for acquisitions).

graph [Movement in net debt (€ million)]

Our strong cash flow generation was applied to fund capital expenditure of €405 million, the payment of finance charges of €124 million, and the payment of dividends to holders of non-controlling interests of €60 million and to shareholders of €138 million. The net cash flow generated of €174 million was applied to reduce net debt.

    2013 2012
Capital employed € million 4,467 4,745
ROCE % 15.3% 13.6%
Shareholders’ funds € million 2,591 2,572
Return on shareholders’ funds % 17.8% 13.0%
Net debt € million 1,621 1,872
Gearing (Net debt/Capital employed) % 36.3% 39.5%
Net debt/EBITDA times 1.5 2.0
Working capital € million 711 764
Working capital as percentage of revenue % 11.0% 11.9%

Net debt at 31 December 2013 of €1,621 million decreased by €251 million from 31 December 2012 as a consequence of our strong cash flow generation and currency effects. The weakening of a number of the emerging market currencies in which our debt is denominated resulted in a net currency gain of €59 million being recorded.

Gearing reduced to 36.3% at the end of 2013, down from 39.5% at the end of 2012. The net debt to 12 month trailing EBITDA ratio was 1.5 times, well within our key financial covenant requirement of 3.5 times.

Mondi’s public credit ratings, first issued in March 2010, were again reaffirmed during the year at BBB- (Standard and Poor’s) and Baa3 (Moody’s Investors Service).

We actively manage our liquidity risk by ensuring we maintain diversified sources of funding and debt maturities. The weighted average maturity of our Eurobonds and committed debt facilities was 3.7 years at 31 December 2013. At the end of the year €792 million of our €2.5 billion of committed debt facilities remained undrawn.

Net finance costs

Finance charges of €115 million were €5 million higher than the previous year, with higher average net debt as a consequence of the acquisitions made at the end of 2012 offset by a lower effective interest rate.


Our strategy is to achieve a sustainable and competitive tax rate reflecting the current tax composition of the Group, whilst acting in a transparent and professional manner.

Mondi’s underlying effective tax rate of 17% is below that of the prior year, and reflects a favourable underlying profit mix, the continued benefits arising from the utilisation of certain tax incentives available to us, most notably in Poland, and further tax incentives received during the year related to our recovery boiler investment project in Slovakia.

Non-controlling interests

Our non-controlling interest charge of €28 million is €7 million lower than the previous year, primarily due to the impact of the acquisition of the remaining minority interest in Mondi Świecie during the first half of 2012.

Special items

Special items are those items of financial performance that the Group believes should be separately disclosed to assist in the understanding of the underlying financial performance achieved by the Group and its businesses. These items are considered to be material either in nature or in amount.

The net special item charge of €87 million before tax, the cash component of which amounted to €20 million, included the following:

  • closure of Consumer Packaging’s Lindlar operation in Germany (€13 million);
  • closure of the Newsprint machine in Merebank, South Africa and related restructuring activities (€18 million);
  • impairment of Uncoated Fine Paper’s Neusiedler mill in Austria and related restructuring costs (€51 million);
  • write-down of unutilised assets in Uncoated Fine Paper’s Syktyvkar mill in Russia (€9 million);
  • gain from the sale of land in the South Africa Division (€7 million); and
  • further restructuring and impairment costs in the Industrial Bags segment of Fibre Packaging in France and Mexico (€3 million).

Further detail is provided in note 5 of the financial statements.

After taking special items into consideration, earnings of €386 million (79.8 euro cents per share) were 59% higher than the previous year (€242 million, 50.1 euro cents per share).

Shareholder returns

Our ROCE, based on underlying earnings and average capital employed, of 15.3% exceeds our through-the cycle hurdle rate of 13%, despite the dilutive effect of the acquisitions made in 2012.

The Boards’ aim is to offer shareholders long-term dividend growth within a targeted dividend cover range of two to three times over the business cycle. Given our strong financial position and the Boards’ stated objective to increase distributions to shareholders through the ordinary dividend, the directors have recommended a final dividend of 26.45 euro cents per share, bringing the total dividend to 36 euro cents per share, an increase of 29%.

Andrew King
Chief financial officer

This strategic report

was approved by the Boards on 27 February 2014 and is signed on their behalf by:

David Hathorn
Chief executive officer

Andrew King
Chief financial officer