Mondi Limited (Incorporated in the Republic of South Africa) (Registration number: 1967/013038/06) JSE share code: MND ISIN: ZAE000156550 Mondi plc (Incorporated in England and Wales) (Registration number: 6209386) JSE share code: MNP ISIN: GB00B1CRLC47 LSE share code: MNDI
16 February 2012
As part of the dual listed company structure, Mondi Limited and Mondi plc (together "Mondi Group") notify both the JSE Limited ("JSE") and the London Stock Exchange of matters required to be disclosed under the JSE Listings Requirements and/or the Disclosure Rules and Transparency Rules and/or the Listing Rules of the United Kingdom Listing Authority.
Mondi Group makes an offer to acquire the minority interest in Mondi Swiecie S.A.
Mondi Group has made an all cash public tender offer of PLN69.00
(EUR16.48) per share ("Offer") for 17 million shares representing 34% of the
share capital of Mondi Swiecie S.A. ("Mondi Swiecie") that it does not
already own. Mondi Swiecie is listed on the Warsaw Stock Exchange. The Offer
represents a premium of 15.6% over the last three months average price of
PLN59.71 (EUR14.26) and a premium of 4.1% over the last six months average
price of PLN66.26 (EUR15.82).
Mondi Swiecie is a leading integrated manufacturer of virgin and
recycled container board in Central Eastern Europe (CEE). In 2011 it produced
1,333 thousand tonnes of containerboard at its operations in Swiecie, Poland.
Mondi Swiecie presently employs approximately 1,020 people under its Managing
Director Maciej Kunda. This acquisition would bring into full ownership an
asset of the Mondi Group, further streamlining its corporate structure.
Mondi Swiecie today announced its results for the year ended 31 December 2011. The company generated EBITDA of PLN610m (EUR148m), operating profit of PLN457m (EUR111m) and net earnings of PLN396m (EUR96m). As of 31 December 2011 it had net cash of PLN70m (EUR16m), gross assets of PLN2,729m (EUR612m) and shareholders' equity of PLN1,830m (EUR410m). A translation of the company's announced Consolidated Financial Statements and Report on Business Activities for the year ended 31 December 2011 is set out below. Under the Offer, the implied equity value of the whole of Mondi Swiecie is PLN3.5bn (EUR824m) and represents an EV/EBITDA multiple of approximately 5.5x and a P/E multiple of approximately 8.7x for 2011.
The Offer is expected to be concluded in mid April 2012. Full acceptance of the Offer would result in an aggregate cash consideration payable by the Mondi Group on closing of PLN1.2bn (EUR280m). The Offer is conditional on Mondi Group achieving minimum acceptances of 14% of Mondi Swiecie shares (to bring the Mondi Group's total interest in the company to not less than 80%). After completion of the Offer, Mondi intends to delist Mondi Swiecie from the Warsaw Stock Exchange. The Offer will be funded by Mondi Group's existing cash resources and from existing committed bank facilities available to it.
In accordance with the provisions of the JSE Listings Requirements, the unaudited pro forma financial effects set out below are included for the purpose of illustrating the effects of a full acceptance of the Offer on Mondi Group's underlying earnings, basic earnings from continuing operations, basic earnings from continuing and discontinued operations, headline earnings, net asset value and tangible net asset value per ordinary share, for the half year ended 30 June 2011 as if such transaction had occurred on 1 January 2011 for income statement purposes and 30 June 2011 for statement of financial position purposes. These unaudited pro forma financial effects are the responsibility of the directors and have been prepared in accordance with the guidelines issued by the South African Institute of Chartered Accountants.
These unaudited pro forma financial effects are presented for illustrative purposes only and because of their nature, may not give a fair reflection of Mondi Group's financial position nor the effect on future earnings following the acquisition:
Per Mondi Ordinary Share Reviewed Unaudited
(Euro cents) before after Percentage
Acquisition 3 Acquisition 4 Change
Underlying earnings 1 38.2 41.8 9.4
Basic earnings from continuing 39.0 42.5 9.0
operations
Basic earnings from continuing and discontinued operations 41.6 45.1 8.4 Headline earnings 2 39.4 42.9 8.9 Diluted underlying earnings 1 37.7 41.2 9.3 Diluted earnings from continuing 38.5 42.0 9.1 operations Diluted earnings from continuing and discontinued operations 41.0 44.5 8.5 Diluted headline earnings 2 38.9 42.4 9.0 Net asset value 6.40 5.86 (8.4) Tangible net asset value 5.93 5.39 (9.1) Notes:
1. Underlying earnings per share excludes the impact of special items.
2. The presentation of headline earnings per share is mandated under JSE listings requirements. Headline earnings has been calculated in accordance with Circular 3/2009, "Headline Earnings", as issued by the South African Institute of Chartered Accountants.
3. The Group financial information has been extracted, without adjustment, from the Group's reviewed results for the six months ended 30 June 2011.
4. The adjustments to earnings, on the basis that the acquisition had occurred on 1 January 2011 for income statement purposes and 30 June 2011 for statement of financial position purposes, include the following main items:
- The exclusion of the non-controlling interest charge in respect of Mondi Swiecie
- The estimated finance charges associated with the financing of the consideration
- Assumed taxation rate of 26.25%
Net asset value and tangible net asset value, on the basis that the acquisition had occurred on 1 January 2011 for income statement purposes and 30 June 2011 for statement of financial position purposes, are reduced by the estimated consideration of EUR280 million. /ends Contact: Mondi Group Lora Rossler
Group Corporate Affairs Manager
Tel: +27 (0)31 451 2111 or +27 (0)83 627 0292
E-mail: lora.rossler@mondigroup.co.za
Kerry Crandon
Group Communications Manager
Tel: +27 (0)11 994 5425 or +27 (0)83 389 3738
E-mail: kerry.crandon@mondigroup.com
Andrew King
Group CFO
Tel: +27 (0)11 994 5415 or +27 (0)82 870 8100
E-mail: andrew.king@mondigroup.com
Editors' notes
About Mondi:
Mondi is an international paper and packaging Group, with production operations across 31 countries and revenues of EUR 6.2 billion in 2010. The Group's key operations are located in central Europe, Russia and South Africa and as at the end of 2010, Mondi employed approximately 29,000 people.
Mondi is fully integrated across the paper and packaging process, from the growing of wood and the manufacture of pulp and paper (including recycled paper), to the conversion of packaging papers into corrugated packaging, industrial bags and coatings. The Group is principally involved in the manufacture of packaging paper, converted packaging products and uncoated fine paper (UFP). Mondi has a dual listed company structure, with a primary listing on the JSE Limited for Mondi Limited under the ticker code MND and a premium listing on the London Stock Exchange for Mondi plc, under the ticker code MNDI. The Group has been recognised for its sustainability through its inclusion in the FTSE4Good UK, Europe and Global indices in 2008, 2009 and 2010 and the JSE's Socially Responsible Investment (SRI) Index in 2007, 2008, 2009 and 2010.
Translation of Mondi Swiecie's Consolidated Financial Statements and Report on Business Activities for the year ended 31 December 2011:
Contents
1. Background 4
2. Core Products 5
2.1. Industry 5
2.2. Product types 5
The position of the Group in the sector and compared to the
competition 6
2.4. Structure of sales 8
2.5. Sales markets 8
3. SIGNIFICANT IMPACTS ON THE ACHIEVED RESULTS 9
3.1. Analysis of sales revenues 9
3.2. Analysis of other income statement items 10
3.2.1. Production volume 10
3.2.2. Basic raw materials and services 10
4. Information on other events that took place in 2011 12
4.1. Information on significant agreements 12
4.2. Changes in organisational and capital relationships 12
4.3. Related party transactions 13
4.4. Credits, loan agreements, sureties and guarantees 13
4.5. Utilisation of inflows from issue of securities 14
4.6. Variances from the last published forecast 14
4.7. Management of financial resources and liquidity
assessment 14
4.8. Possibility to implement investment projects 15
4.9. Information that is essential for the evaluation of the
personnel related situation, assets related situation, financial
condition, financial results and changes in the situation as well
as information that is essential for the evaluation of the
possibility of paying liabilities 15
4.10. Factors and untypical events impacting the result 15
4.11. Activities in the Special Economic Zone 15
4.12. Description of the development and operating drivers 16
4.12.1. External drivers 16
4.12.2. Planned development of the Group 16
4.12.3. Achievements in the area of research and development 17
4.12.4. Current and expected financial position of the Group 17
4.12.5. Factors that will impact the Group's results as
expected by the Group 17
4.13. Management and Computerisation 20
4.14. Changes in basic management of the Company and its 20
Group
4.15. Information on proceedings pending before the court,
competent body for arbitration proceedings or public administrative 20
body
4.16. Agreements concluded between the Company and Members of 21
the Management Board of the Company
4.17. Remuneration of Members of the Management and 21
Supervisory Bodies
4.18. Outstanding loans, guarantees and sureties granted to
Members of the Management and Supervisory Bodies of the Company and
their relatives 21
4.19. Shares held by Members of the Management and
Supervisory Bodies 22
4.20. Changes in the shareholding structure 22
4.21. Information on the Controlling System for Employee
Shares Programme 22
4.22. Agreements with the entity authorised to audit
financial statements 22STATEMENT ON COMPLIANCE WITH THE CODE OF BEST PRACTICE OF CORPORATE 5. GOVERNANCE
24
5.1. Code of Corporate Governance Best Practice that
governs the Company and the location where the Code of Best 24
Practice is available to the public
5.2. The extent to which the Company waived the Code of
Best Practice, indication of such Practices and reasons for the 26
waiver.
5.3. Basic characteristics of internal audit and risk
management systems used in the Company in the preparation of 26
financial statements and consolidated financial statements
5.4. Shareholders that directly or indirectly hold
significant parcels of shares, number of shares held by such
entities, their participation in the share capital in %, number of
votes arising out of the participation in the share capital and
their share in % in the total number of votes at the General
Meeting of the Company 28
5.5. Holders of any securities giving special controlling
powers and description of such powers 29
5.6. Any limitations related to exercising the right to
vote, such as limitation to exercise the right to vote by holders
of a certain portion or number of votes, time limitations related
to exercising the right to vote or regulations providing that, with
Company's co-operation, capital rights related to securities are
separated from holding securities 29
5.7. Any limitations related to the transfer of ownership
title to the Company's securities 29
5.8. Rules of appointing and dismissing managing and
supervising persons and their powers, in particular their power to
decide about shares issuance or buying out 29
5.9. Rules of amending the Statute or Articles of 30
Association
5.10. General Meeting rules of procedure and basic powers as
well as Shareholders' rights and way of exercising such rights, in
particular the rules arising out the General Meeting rules of
procedure, if such the rules were adopted, unless information in
this regard arises out of the law 31
5.11. Members of and changes to the composition of the
Company's Management and Supervisory Boards or administration body
made over the last fiscal year, the procedure of operation of the
Company's Management and Supervisory Boards or administration body
and their committees 34
1. BACKGROUND
As of the balance sheet date Mondi Swiecie Group is composed of:
parent company - Mondi Swiecie S.A., and
subsidiary - Swiecie Recykling Sp. z o.o.,
associated company - Polski System Recyklingu - Organizacja Odzysku S.A.
The consolidated financial statements as of 31 December 2011 cover the following companies:
parent company - Mondi Swiecie S.A.,
company valued with the full method - Swiecie Recykling Sp. z o.o.,
company valued with the equity method - Polski System Recyklingu - Organizacja Odzysku S.A.
MondiSwiecie S.A. was established at the beginning of the nineteen nineties. In January 1991, the state-owned entity - Zaklady Celulozy i Papieru w Swieciu - was transformed into a joint-stock company owned entirely by the State Treasury. In April 1997, 15% of the Company's shares were floated on the Warsaw Stock Exchange. In August 1997, a majority stake of shares was sold to a strategic investor, Framondi NV of the Netherlands. The Company was renamed Frantschach Swiecie. In November 2004, the Frantschach Group and Mondi Packaging Europe Group merged to form the Mondi Packaging Group with the common brand and logo. As a result of the merger, the Company changed its name from Frantschach Swiecie S.A. to Mondi Packaging Paper Swiecie S.A. on 20 January 2005. The Frantschach Group was wholly owned by Mondi - one of the leading paper and packaging companies. Mondi was a member of Anglo American plc, the worldwide leader in mining and natural resources industry, till the end of June 2007. On 25 June 2007, the Extraordinary Meeting of Shareholders of Anglo American plc, with the Mondi Group being its member, approved demerger of the Mondi Group from Anglo American plc and decided to list Mondi on the London and Johannesburg Stock Exchanges on 3 July 2007.
On 16 May 2008, the Registration Court registered the rebranded Company's business name - Mondi Swiecie S.A.
SwiecieRecykling commenced its business activities in January 2002 based on the Recovered Paper Purchasing Department of Frantschach Swiecie S.A. Frantschach Swiecie S.A. (now Mondi Swiecie S.A.) took over 100% of shares in the limited liability company (Swiecie Recykling), thus becoming its sole shareholder. Swiecie Recykling is the major domestic supplier of recovered paper, being one of the key raw materials for paper production, for Mondi Swiecie S.A. In December 2004, the Extraordinary General Meeting of Shareholders adopted the resolution regarding rebranding of this subsidiary from Frantschach Swiecie Recykling Sp. z o.o. to Swiecie Recykling Sp. z o.o. The new name was registered in KRS (National Court Register of Companies) on 6 January 2005.
2. CORE Products 2.1. Industry
In line with the strategy implemented by Mondi Swiecie S.A., the Group's activities are focused on manufacturing containerboard. The Group is the Polish leader in its own products and a significant European manufacturer of containerboard.
The Group also manufactures sack paper, whose output in 2012 should be reduced in line with Mondi Group's strategy of grade consolidation. However, the intention is to focus on manufacturing lightweight kraftliners (with a basis weight below 100 gsm) on the fast-growing segment of paper bags and other applications.
The substantial improvement in paper quality was made thanks to the implementation of the capital investment programme, which allows the Group to effectively compete with leading paper producers in Europe and worldwide.
The start-up of ECO7 in September 2009 allowed increasing capacity in 2010 to 1.3 million tonnes and in 2011 to 1.4 million tonnes.
The following trends on the main product markets are identified:
- Sack Paper:
Since the Group focus is on manufacturing containerboard, the output of sack paper decreased by 6.6 thousand tonnes compared to 2010.
- Kraftliner:
It is one of the Group's core products. In 2011, its share in the sales volume was 33%. In 2011, the sales volume of this product decreased, whereas its prices increased.
- Recycled papers:
The popularity of this group of papers on the packaging market is rising systematically (average dynamics of growth over last 15 years was approx. 6.5% annually) and now it comprises approx. 68% of total containerboard consumption.
Major factors supporting the substitution of virgin fibre-based grades (Kraftliner, Semi-chemical Fluting) with recycled papers (Testliners, KraftTop X, WB Fluting) are lower prices for the latter grades and their improved quality. Another important factor is a rising environmental awareness of communities, which has a real impact on consumer preferences and their purchasing-related decisions.
Recycled papers are the dominant product group on the Polish containerboard market.
2.2. Product types
Containerboard papers are sold under the common name "ProVantage" used across the entire Mondi Group:
Containerboard:
ProVantageKraftliner (virgin fibre-based paper with an addition of recycled fibre for outer layers of corrugated board),
ProVantageKraftliner XLite (lightweight, virgin fibre-based paper for outer layers of corrugated board),
ProVantageKraft X (lightweight, virgin fibre-based paper with the addition of recycled fibre for outer layers of corrugated board and for manufacture of paper bags),
ProVantageKraftliner Aqua (virgin fibre-based paper with the addition of recycled fibre for outer layers of corrugated board, with increased moisture resistance, offered as a substitute for paraffin-coated papers),
ProVantageKraftTop X (virgin and recycled fibre-based paper for outer layers of corrugated board),
ProVantageTestliner 3 (recycled fibre-based paper for outer layers of corrugated board),
ProVantageFresco Fluting (paper with increased parameters, made of semi-chemical and OCC pulp for inner layers of corrugated board),
ProVantageFluting WB (recycled fibre-based paper for inner layers of corrugated board),
ProVantageFluting Aqua (paper for inner layers of corrugated board, made of semi-chemical pulp, with increased moisture resistance, recommended as the substitute for paraffin and resin-coated Flutings).
2.3 The position of the Group in the sector and compared to the competition
ECO7 that manufactures lightweight recycled paper, and is the response to the increasing industrial demand for such grades allowed significantly increasing the Group's competitiveness in Central-Eastern Europe.
The Group still offers innovative "Aqua" products (ProVantage Kraftliner Aqua and ProVantage Fluting Aqua) that are primarily designed for the manufacture of fruit board packaging. Their characteristic features are increased moisture and water resistance. In October 2011, a modified product, ProVantage Kraft X, was introduced. It is designed for the production of paper bags. This is a fast-growing, ecological, packaging segment on the European market.
The position of the Group in the sector and compared to the competition in particular groups of products is as follows:
Containerboard: Kraftliner ProVantageKraftliner (virgin fibre-based paper for outer layers of corrugated board) - the Group's core product - Sales in 2011 reached 33% of the total sales volume, i.e. down 2% (442.8 thousand tonnes in 2011 versus 452.8 thousand tonnes in 2010). ProvantageKraft X (lightweight, virgin fibre-based paper with the addition of recycled fibre for outer layers of corrugated board and for the manufacture of paper bags). Thanks to the ecological trend in Europe towards reducing the manufacture and use of plastic bags, there are good prospects for this product's future success. In 2011, its sales volume reached 2.3 thousand tonnes. ProVantageKraftliner XLite - thanks to this paper's exceptionally high strength parameters and very low basis weight, it offers corrugated board manufacturers an additional benefit - more m2 of corrugated board to be made from one tonne of paper. In the audited period, the sales volume of this paper amounted to 24.8 thousand tonnes, i.e. up 24% compared to 2010. ProVantageAqua Kraftliner - an innovative product introduced to the Company's product portfolio in 2005. In 2011, the sales volume of this product amounted to 5.4 thousand tonnes, down 14% compared to the sales level in 2010.
Semi-chemical Fluting
ProVantageFluting Fresco - this paper is designed, among other things, for fruit packaging that needs increased moisture resistance. In the audited period, the sales volume of this product reached 162.4 thousand tonnes, i.e. up 5.4% compared to 2010.
ProVantageAqua Fluting - an innovative product introduced to the Company's product portfolio in 2005. The sales volume of this product in 2011 reached 23.8 thousand tonnes, up 10% compared to 2010.
Recycled fibre-based papers
ProVantageTestliner 2: this grade was not produced in 2011. In 2010, its sales volume reached 4.4 thousand tonnes.
ProVantageTestliner 3: in the audited period, the sales volume increased by 4% (from 178.6 thousand tonnes in 2010 to 185.1 thousand tonnes in 2011).
ProVantageWB Fluting: in the audited period, the sales volume increased by 13% (from 245.8 thousand tonnes in 2010 to 277.6 thousand tonnes in 2011).
ProVantageKraftTop X - very good quality virgin and recycled fibre-based paper for outer layers of corrugated board - the sales volume reached 199.0 thousand tonnes, up 15% (compared to 173.4 thousand tonnes in 2010).
Containerboard products are sold to many foreign manufacturers. Containerboard sold abroad accounted for 67.8% of the sales volume.
On the domestic market, 76.6% of the sold volume of containerboard is recycled
papers. The main domestic competitors are Stora Enso Poland S.A. and foreign
manufacturers, mainly from Germany and Hungary.
Sack paper:
The product is fully made from virgin fibre. The main competitor on the domestic sack market is Stora Enso Poland S.A.
The sales volume in 2011 reached 34.8 thousand tonnes, down 16% compared to 2010. Due to the implementation of Group's strategy and the fact that Mondi Swiecie S.A. focuses on manufacturing containerboard, production of sack paper has ceased since January 2012.
After the periodic paper market stagnation caused by the global economic crisis, paper prices were quite stable, with an upward trend in the first half-year of 2011. Another economic slump and prospects of another recession means paper prices have been dropping since the fourth quarter of 2011.
In line with the Group's strategy, the focus was placed on providing a wide-range Service to our Customers in 2011. We commenced work on the "ONE" Project with the aim of optimising and harmonising all logistics and sales-related processes, which should strengthen our position in the near future. In spite of the growing prices of raw materials (pulpwood logs, recovered paper) and of transport services, the Group's competitiveness remains at quite a high level thanks to the consistent implementation of the long-term sales strategy by the Management Board.
2.4. Structure of sales
In 2011, the structure of product sales of the Mondi Swiecie Group by major groups of products was as follows (in thousand tonnes):
Product group 2011 2010
Sack paper 35 41
Kraftliner 475 479
Semi-chemical fluting 186 176
Recycled paper 662 602
Total 1358 1298
2.5. Sales markets
In 2011, the export share of finished products (by volume) remained at a level similar to that of the previous year:
Year 2011 2010
Export share 67% 66%
In 2011, the sale of paper grades manufactured by the Group was still focused
on European markets (including the Polish market). The sales volume to these
markets in the audited period accounted for 87.5%.
In the audited period, the geographical structure of revenues from the sale of paper by Mondi Swiecie S.A. by main sales markets is as follows:
Country Share in gross revenues
Poland 31.0%
Germany 14.0%
Italy 6.1%
Benelux 5.2%
France 5.1%
Great Britain 5.1%
Sweden 3.6%
Turkey 3.5%
Israel 2.5%
Finland 2.1%
Sales to the above-mentioned markets accounted for 78% of Group's gross revenues from the sale of paper.
In the audited period, the domestic market share in the revenues from the sale
of paper remained at a similar level and accounted for 31.0% in 2011 versus
30.8% in 2010, whereas the domestic market share by volume decreased by 0.9 %.
This resulted from the increase in the prices of recycled papers such as
Testliner and WB Fluting, which was clearly higher than that applied to other
grades.
3. SIGNIFICANT IMPACTS ON THE ACHIEVED RESULTS
3.1. Analysis of sales revenues
In 2011, the Group's sales revenues totalled PLN 2, 771.1 million, which was 22.4% higher than the figure of PLN 2, 263.7 million posted in 2010. The change resulted from an increase in both product sales revenues and goods and materials sales revenues. In 2011, the revenues from the sale of products advanced by PLN 475.0 million (up 21.1%) when compared to 2010. The primary factors contributing to the increase were the rise in the revenues from the sale of finished products (up PLN 450.3 million), positive difference on exchange rates from the valuation and settlements of receivables (up PLN 24.5 million). Higher revenues from the sale of finished products chiefly resulted from the rise in prices for all the grades of paper manufactured by the Group and, to the lower degree, from the higher sales volume.
The share of paper sales in total sales revenues was 92%.
In 2011, the weighted average price denominated in EUR increased by 13.1% when compared to the last years' level. Due to the weakening of Polish zloty against the euro (by 2.8%), the price denominated in PLN rose by 16.3%. Higher prices in EUR applied to all the Group's papers. The price for recycled grades such as Testliner and WB Fluting increased by 20.6% on average, chiefly because of a sharp rise in recovered paper prices in the reporting period. The prices of the Group's other grades also rose. Prices increased as follows: Kraftliner by 8.6 %, Kraft Top X by 15.0%, and Fresco Fluting by 14.9%. The price of sack paper rose by 17.3%.
In 2011, the paper sales volume climbed by 59.5 thousand tonnes (up 5%) year on year, while the production output rose by 54.5 thousand tonnes (up 4%).
In 2011, the revenues from green (renewable) energy and red energy (co-generated with heat) certificates totalled PLN 137.6 million. These revenues compare with PLN 139.3 million in 2010. The increase of PLN 19.0 million in the revenues from green certificates originated primarily from separating, at the beginning of 2011, the new units generating electric energy from renewable sources. This allowed obtaining an increased number of green certificates from biomass burning in the CFB and BFB boilers. Another important cause was the higher output of pulp, which resulted in a rise in Recovery Boiler steam generation and thus in an increased output of electric power. The revenues from the sale of red certificates in 2011 are decidedly lower (by PLN 20.7 million) compared to the previous year. Sales in 2010 were affected by a one-off event, which was the allocation by the Energy Regulatory Office of certificates in arrears for 2008-2009 for the total amount of PLN 13.5 million. However, since the half-year of 2011 the prices of red certificates have been dropping significantly, which adversely affects the sales value and the valuation of certificates on stock. The increase in the output of finished products and pulp only partially offset the negative impacts of the above-mentioned events on the value of sales of red certificates. The Group's revenues from the sale of goods and materials in 2011 totalled PLN 45.9 million, compared to the revenues of PLN 12.7 million in 2010. One of the major factors was the increase in the revenues from the sale of CO2 emission allowances, which also included the surplus generated in 2008-2010.
In addition to the sale of paper, green and red energy certificates and CO2 excess emission allowances, the Group obtains revenues from lease, sale of electric energy, heat and by-products - primarily resin soap and turpentine.
3.2. Analysis of other income statement items
3.2.1. Production volume
The production volume for main groups of products (in thousand tonnes) was as
follows:
Products 2011 2010
Containerboard 1 333 1 272
Sack paper 35 41
Total 1 368 1 313
The significantly increased production output of containerboard (when compared
to the analogical period of last year) chiefly results from the optimisation of
performance of the new paper machine - PM7 - the output of which in 2011 was
465 thousand tonnes of paper. This figure is higher by 54 thousand tonnes than
the output in 2010.
3.2.2. Basic raw materials and services
Basic raw materials used in production are as follows:
Wood (Pulpwood): In view of the insufficient supply of wood on the domestic market, the Group had to satisfy its needs through the less cost-effective import of raw materials.
In 2011, the Group's wood purchasing volume grew by 8% year on year. The rise is attributable to the rebuilding of raw material stocks. In the reporting period, the purchase prices of pine and birch rose by 18% on average compared to the price level in 2010. The rise in the average price reflects the price increase from specific supply sources. The State Forest Enterprise remained
the key pulpwood supplier.
Recovered paper: In the period under review, recovered paper was acquired through Swiecie Recykling. In the reporting period, the average purchase price of recovered paper increased by 17% compared to 2010.
Coal: In 2011, the average price of coal increased by 24% compared to 2010. The Group continued its supply sources diversification policy through coal import.
Biofuels: Biomass was obtained mostly from sawmill sources (bark, wood strap and chips). The remaining portion of biofuels was generated in the internal woodworking and paper production processes. In the period under review, energy generated by the Group from renewable sources accounted for approx. 83%. This performance gave rise to the additional revenues from the sale of green energy certificates. Transportation of finished products: In 2011, the Group's expenditures incurred for transportation of finished products increased by approx 17.1% compared to the previous year. The rise in transportation costs was primarily the result of the increase in the average transportation rate and to a lower extent of the rise in the sales volume. The average transportation rate denominated in EUR rose by 8.7% compared to 2010. The rise in fuel prices was the major factor contributing to the change in the average transportation rate. The impacts of the above-mentioned factors (as discussed above: the changes of the prices of products and raw materials and hedge) were reflected in the net profit of PLN 395.9 million compared to the profit of PLN 249.3 million generated in 2010. 4. INFORMAtion on other events that took place in 2011
4.1. Information on significant agreements
In the reporting period the following agreements were signed with Panstwowe Gospodarstwo LeSne Lasy Panstwowe (State Forest Enterprise) with its registered office in Warsaw and State Forest Enterprise subsidiaries:
Wood purchase contracts based on the first and second phases of Internet-based negotiations for the second half-year of 2011 with the total value of PLN 38.9 million. As security for State Forest liability the Group signed a bank guarantee facility agreement of up to PLN 18 million, issued by the bank for the benefit of the State Forest Enterprise; Wood purchase contract for the second half-year of 2011 entered into on Internet-based system auctions with the value of PLN 60.4 million. As security for State Forest liability a bank guarantee facility agreement of up to PLN 18 million was entered into and the guarantee facility was issued by the bank for the benefit of the State Forest Enterprise; Wood purchase contract based on the first phase of Internet-based negotiations for the first half-year of 2012 with the value of PLN 46.3 million. As security for State Forest liability a bank guarantee facility agreement of up to PLN 18 million was entered into and the guarantee facility was issued by the bank for the benefit of the State Forest Enterprise;
In addition, the Management Board of Mondi Swiecie S.A. entered into:
- on 11 February 2011, a new three-year Guarantee Facility Agreement that covers the existing nine-year credit from the European Investment Bank dated as of 30 June 2008 for the amount of PLN 521.8 million with the following banks: RBS Bank (Polska) S.A., the Royal Bank of Scotland NV, BRE Bank S.A., Bank Polska Kasa Opieki S.A., and Raiffeisen Bank International AG. After the new Agreement becomes effective (after conditions precedent are fulfilled), the existing, valid three-year Guarantee Facility Agreement as of 30 June 2008 (annexed on 30 October 2009, 30 June 2010 and 30 September 2010) will terminate; - an additional agreement to the Credit Agreement with Mondi Finance plc (previous name Mondi Finance Ltd) as of 29 October 2009 with the credit limit of PLN 200 million, that extends the period of credit's availability till 31 March 2014;
Credit Facility (Overdraft) Agreement with the credit facility of PLN 60 million, available by 1 February 2012, with RBS Bank Polska S.A. with the registered office in Warsaw.
4.2. Changes in organisational and capital relationships
In the reporting period no changes were made.
4.3. Related party transactions
Revenues from sales to Mondi Group companies (in thousand PLN):
MondiPackaging Paper Sales GmbH 1 745 357
MondiPackaging Swiecie Sp. z o.o. 93 039
MondiPackaging Warszawa Sp. z o.o. 75 918
MondiPackaging BZWP Sp. z o.o. 45 113
MondiPackaging Szczecin S.A. 44 097
Mondiplc 39 425
MondiPackaging Dorohusk Sp. z o.o. 31 525
MondiBags Swiecie Sp. z o.o. 29 900
MondiBags Mielec Sp. z o.o. 14 028
MondiWierzbica Sp. Z o.o. 7 167
SlovwoodRuzomberok, a.s. 1 349
MondiAG 468
MondiCoating GmbH 259
MondiPackaging Solec Sp. z o.o 33
MondiCoating Steti A.S. 17
MondiUncoated Fine & Kraft Paper GmbH 15
MondiCorrugated Services GmbH 10
MondiGruenburg GmbH 10
Total 2 127 730
4.4. Credits, loan agreements, sureties and guarantees
Credits and loans
As of the reporting date the Group had the following loan agreements signed:
with European Investment Bank - a nine-year credit facility for financing the costs of construction of a new paper machine, PM7, for the amount of PLN 474.3 million (secured with a three-year guarantee facility for 110% of the credit from the following banks: RBS Bank (Polska) S.A., the Royal Bank of Scotland N.V., Bank Polska Kasa Opieki S.A., Raiffeisen Bank International AG and BRE Bank S.A.). This credit facility was valued at PLN 418.2 million in the balance sheet as of 31 December 2011 (nominal value of PLN 417.4 million, increased with the reserve for interests of PLN 0.8 million). As per the time schedule, the Group paid the first three quarterly instalments in 2011;
Loan from Mondi Finance plc (a Mondi Group plc entity - the major shareholder of Mondi Swiecie S.A.) with the credit limit of PLN 200 million.
Credit Facility (Overdraft) Agreement with RBS Bank (Polska) S.A. with the credit facility of PLN 60 million.
Consumption of credit facilities and loans in thousands PLN
Available Consumed %
Short-term 136 717 77 707 57%
Long-term 541 531 341 531 63%
Total 678 248 419 238 62%
Bonds
In the reporting period the Group did not issue any bonds. As of 31 December 2011, the Group did not carry out any bonds.
Guarantee facilities
Information on contingent liabilities (guarantees and sureties) is presented in the "Consolidated Financial Statements of the Group for 2011" under item 30.
4.5. Utilisation of inflows from issue of securities
In the reporting period the Group did not issue any securities.
4.6. Variances from the last published forecast
No forecasts were published in the reporting period.
4.7. Management of financial resources and liquidity assessment
In 2011, the Group generated surplus cash inflows from operating activities,
which allowed providing the debt service on due dates and locating cash in
short-term deposits. As of 31 December 2011, the available credit facilities
and loans were 62% consumed. The remaining credit reserve of approx. PLN 259
million, increased with the balance of cash and cash equivalents (PLN 489
million) as well as stable sales revenues ensure the Group's unfailing
liquidity.
Main financial indicators:
31.12.2011 31.12.2010
Return on Sales 14% 11%
Return on Equity 28% 21%
Total assets turnover ratio 1.02 0.98
Debt/ total assets ratio 33% 38%
Equity/ total assets ratio 67% 62%
Quick ratio 1.66 0.89
4.8. Possibility to implement investment projects
Over the next 12 months the planned expenditures for non-financial fixed assets, under a cash basis, will amount to PLN 121.7 million and will be financed by the Group's own resources.
Information that is essential for the evaluation of the personnel related situation, assets related situation, financial condition, financial results and changes in the situation as well as information that is essential for the evaluation of the possibility of paying liabilities
The Group's financial results in 2011 reflect the good economic situation on the European paper market throughout most of the year. Throughout the last period, the average paper sales price increased compared to the previous year; however, the characteristic feature for the last quarter of 2011 was a declining trend. In 2011, the prices of basic raw materials, namely wood and recovered paper increased, although the price increase dynamics were significantly weaker than those of the previous years. The prices of transport services grew considerably. The sale of excess CO2 emission allowances strongly contributed to the financial performance of 2011.
In the last period, the assumptions regarding the production area, including further progress in ECO7 performance optimisation, came true fully.
To further optimise manufacturing costs, the Management Board of the Company decided to commence the process with the aim to buy back the shares in the entity that owns the Power Plant assets, which provides services to the Company and is covered by a long-term contract of lease.
4.10. Factors and untypical events impacting the result
In 2011, no untypical events and factors impacting significantly the Group's result occurred.
4.11. Activities in the Special Economic Zone
Due to the execution of the investment project (PM7 machine), Mondi Swiecie S.A. was granted, on 20 December 2007, the permit to run economic activities in the Pomorska Special Economic Zone. Thus, the Company was granted the entitlement to be exempt from income tax for some part of its income. The existing enterprise of Mondi Swiecie S.A., as well as the areas acquired from State Forest Enterprise, were included into the area of the Pomorska Special Economic Zone in pursuance with the Regulation of the Council of Ministers of 2 November 2007 amending the Regulation regarding the Pomorska Special Economic Zone (Journal of Laws 2007 no. 211 item 1545). The above-mentioned permit authorised Mondi Swiecie S.A. to obtain public aid, which comprises the exemption from corporate income tax starting from the following month after the month when conditions of bearing capital expenditures and reaching the specific employment level have been fulfilled. Mondi Swiecie S.A. fulfilled the above-mentioned conditions in July 2009 and was granted the entitlement to be exempt from the tax for the part of its income since August 2009 till the time for which the Pomorska Special Economic Zone was established, which is till 30 November 2017. Thus, the incomes from basic activities, i.e. sale of finished products were exempt. The permit is now being examined by the European Commission for compliance of the public aid granted with the common market under Regulation (EC) No. 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty. The Group expects that this process will end in 2012. In the event of the process prolonging beyond 2012, the total domestic limit for public aid (EUR 37.5 million) that may be granted to the Group with no necessity of obtaining the consent of the European Commission will be exhausted this year. Then, the entitlement of Mondi Swiecie S.A. to be exempt from corporate income tax under the permit as referred above would be suspended till the European Commission procedure is closed. In this situation, the Group would pay monthly advance payments for corporate income tax in the amount that disregards the exemption, starting from the month when the allowed domestic limit was exceeded. Since the Group does not expect that the European Commission procedure will extend beyond 2012, the full amount of corporate income tax as covered by the exemption under the permit to run business activities in the Pomorska Special Economic Zone should be settled within the corporate income tax for 2012. New investment project related expenditures are the basis for calculating the public aid pursuant to the rules specified in s 4 Clause 3 of the Regulation of the Council of Ministers of 5 December 2006 on the Pomorska Special Economic Zone (Journal of Laws 2006, no. 228 item 1667). Based on discounted expenditures incurred by 31 December 2011, Mondi Swiecie S.A. was authorised to receive public aid that is not higher than the amount of PLN 247 853 thousand. The public aid comprising the exemption of the part of income from the corporate income tax may be consumed in the period of time over which Mondi Swiecie S.A. shows the income from the activities covered by exemption, which is that the total income of Mondi Swiecie S.A. less taxed income, not covered by the exemption, is positive. The calculated amount of public aid consumed by 31 December 2011 was PLN 91 802 thousand (this includes discounted amounts of corporate income tax exemption, real property tax exemption and the amounts of refunding the costs of equipment and providing equipment to workplaces). Out of this amount, the discounted value of exemption from corporate income tax was PLN 83 928 thousand (nominal value of exemption was PLN 104 119 thousand).
4.12. Description of the development and operating drivers
4.12.1. External drivers
The influence of external factors that are significant to the Group's operations and development is described under "Position of the Group in the sector and compared
to the Competition".
4.12.2. Planned development of the Group
In 2012, the Group will continue to make progress by concentrating on four strategy pillars which comprise: strive for Operational Excellence, Customer Focus, Innovation and Human Resources Development.
One of the key activities for this year is to end our works on the preparation of the Group's long-term development strategy till 2020, both in the areas of paper production and ensuring the energy sources. At the same time, in consideration of the depressed market, in particular in the fourth quarter of 2011, the Group will undertake initiatives to sustain the present high profitability of its activities through: Maintaining its position on key sales markets, in particular in Poland and EU states, among other things, by implementing initiatives that aim to improve the quality of products sold and service offered (harmonising logistics-sales processes under the ONE Project, extending make-to-stock offer), while keeping the price competitiveness;
Further managing effectively the area of satisfying energy needs, including,
among other things, through implementation of the Call Option of power generating assets from PEP S.A., responding actively to changing legislation;
Improving the management of working assets of the Group and controlling operating costs more strictly;
Searching for further sources of optimisation for the wood, recovered paper, biomass supply system.
The Management Board of the Group also puts a focus on people development and improving employee skills. For this reason, the Group has launched and has been implementing the Talent Management Programme. Also, the School of Leaders and E-learning have been launched. In addition, the Leadership Development Programme is being implemented across the organisation. It is critical for the Group to increase employee safety. Based on the explicit "Zero Tolerance for Unsafe Acts" principle, the work safety and occupational hygiene growth strategy has been developed and is being implemented with the aim to improve working conditions on a continuous basis.
4.12.3. Achievements in the area of research and development
In 2011, the Group implemented the investment programme with the total outlays (capital expenditures) of PLN 39 million. The major capital projects included: the continuation of PM7 optimisation (Capex of PLN 10 million in 2011) and replacement of DCS at the Kraft Pulp Plant (Capex of PLN 3 million).
4.12.4. Current and expected financial position of the Group
As of the reporting date, the Group was in a good financial condition due to its operational efficiency, strong sector position, invariably positive cash flows on operating activities and improving financial liquidity ensured through a gradual reduction of external financing. The Group's investment projects are the basis for maintaining the Group's financial situation safe in the coming years.
4.12.5. Factors that will impact the Group's results as expected by the Group
In the short-term, the financial condition of the Group will be significantly impacted by the trend of paper and basic raw material (wood and recovered paper) prices that will be either maintained or changed, PLN/EUR exchange rate stabilisation and optimisation of PM7 performance.
The Group's business is primarily exposed to the following risks:
- market risks (including foreign currency risk, interest risk), - liquidity risk, - credit risk. Market risk
The Group is exposed to market risks related to prices of paper and basic raw materials and services, as well as foreign currency exchange and interest rates.
Paper price Paper market is highly competitive, partly scattered, with a noticeable significant price fluctuation in the past, whose prices are strongly affected by the change in demand and foreign currency exchange rates. Thanks to its partial production diversification, the Group, depending on market prices, is prepared to offer a wide range of products, from fully recycled grades to products fully made of virgin fibre.
Prices of key raw materials and services
Key raw material prices, i.e. wood and recovered paper, energy and transport services, which are not fully correlated with the changes of paper prices, have a considerable influence on the Group's results and financial condition.
In particular, performance may be impacted by:
Sales Policy of the major wood supplier - the State Forest Enterprise,
Level of waste paper recovery and of exports of recovered paper,
Due to the power-consuming production: the coal and biomass prices, prices of CO2 allowances, legal regulations regarding the support for energy generation from renewable sources and energy co-generated with heat,
Prices for transport services, both road and rail transport.
The Group has been undertaking a number of initiatives that in particular comprise diversification of raw material supply sources. Also, the activities are being taken to optimise energy costs. For this purpose, the Group has undertaken steps the aim of which is to exercise the Voluntary Call Option covering Saturn Management Sp. z o.o. i Wspolnicy to be bought back from PEP S.A. Saturn Management is the owner of the Power Plant that operates to satisfy Mondi Swiecie needs and provides operating services to Mondi Swiecie S.A..
Interest risk
The Group's exposure to the risk of changes in interest rates primarily relates to financial liabilities and short-term cash deposits. As of the balance sheet date, both items compensate significantly, thus reducing the Group's exposure to interest risk. The Group's policy is to manage the interest rate cost using both a mix of fixed and variable rates of interest.
Foreign currency risk
Due to the fact that approximately 67% of finished product sales transactions are performed in foreign currencies (EUR - 59%, USD - 8%), whereas the most of the costs are incurred in the reporting currency, especially in the situation where the exchange rate fluctuation is very high, the Group is exposed to the currency exchange risk and consequently to high variability of expected financial results. The foreign currency transactional exposure comprises mainly transactions denominated in EUR, USD and GBP (to a significantly lower extent). The Group uses the hedging policy comprising the coverage of probable future capital expenditures (for investment projects the value of which exceeds EUR 5 million) and arising balance exposure. The forward contracts that hedge probable future capital expenditures are classified as the cash flow hedge and hedge accounting rules are applicable to them. The hedge accounting rules do not apply to forward contracts hedging the balance exposure. The derivatives used by the Group are valued according to the fair value. The fair value of foreign exchange forward contracts is determined in relation to the current forward rates for the contracts with a similar maturity date. For a hedge of the probable future significant capital expenditures that meets the criteria of hedge accounting, the part of gains or losses on the hedging instrument, which was recognised to be the effective hedge, is directly booked to equity, whereas the part which was recognised to be ineffective is booked to the current period's financial costs or revenues. For cash flow hedge, gains or losses booked to equity are transferred to the value of investments commenced in the same period when the hedged probable capital expenditure is booked to the value of these investments.
Gains and losses caused by the change in the fair value of the transaction to which hedge accounting does not apply are booked directly to the current period's financial revenues or costs.
The Group discontinues applying hedge accounting principles when the hedging instrument has expired or has been sold, terminated or completed or when the hedge does not meet any longer the conditions allowing applying hedge accounting principles to such an instrument. In this event, total gains or losses on the hedging instrument, which have been booked hitherto on equity are still shown in equity until the forecast transaction is made. If the forecast transaction stops being probable, then total gains or net losses as booked to equity are transferred to the current period's net financial result. Derivatives embedded in other financial instruments or contracts that are not financial instruments are regarded as separate derivatives if the nature of the embedded instrument and related risks do not directly relate to the nature of the basic contract and related risks and if basic contracts are not valued according to the fair value, the changes of which are booked to the income statement.
Liquidity risk
Liquidity risks result from the relation of working assets to short-term liabilities. As of 31 December 2011, the current ratio was 2.17 (compared to 1.45 at the end of 2010). As of 31 December 2011, the value of available credit lines of the Group amounted to PLN 678.2 million, whereas consumption of them was PLN 419.2 million. High competitiveness of the Group and its strong market position ensure that operating liquidity will be kept and bank financing and co-operation with banks will be continued. The Group regularly monitors the future liquidity position - short and medium-term forecasts of inflows and expenditures in specific currencies are prepared, which are the basis for making decisions to use external financing such as credit tranches or overdraft.
Credit risk
The Group enters into hedging transactions and locates its deposits only with recognised, creditworthy financial institutions. As committed in the finance agreements (the three-year guarantee facility for the 9-year EIB credit) Mondi Swiecie S.A. is obliged to carry out such transactions only with financial institutions involved in such financing or with Mondi Finance plc. The credit risk related to the receivables is significantly limited due to the fact that the Group's export sales risk is fully covered by the distribution company - Mondi Packaging Paper Sales GmbH.
Domestic receivables from unrelated entities are covered by insurance and Customers are subject to the creditworthiness review procedure. Contractor receivables are regularly monitored by the financial service.
4.13. Management and Computerisation
In the reporting period, the projects with the aim to improve business processes, reduce operating costs of IT systems and increase their reliability were launched. Testing of the wood logs, chips and biomass laser measurement system for truck's deliveries was commenced. The monitoring system of strategic raw material deliveries was started-up. Work on the wood delivery receipt/ acceptance system with virtualisation of IT environment has begun.
Changes in basic management of the Company and its Group
In the reporting period no such events occurred.
4.15.Information on proceedings pending before the court, competent body for
arbitration proceedings or public administrative body
On 4 February 2011, the Management Board of Mondi Swiecie S.A. adopted the
resolution concerning the Company's exercising the Voluntary Call Option
("Option"), as specified in the General Agreement of 29 April 2002 entered into
by and between the Company and Polish Energy Partners S.A. with its registered
office in Warsaw ("PEP") and Saturn Management Spolka z ograniczona
odpowiedzialnoScia i Wspolnicy, Spolka komandytowa with its registered office
in Warsaw ("SM sp.k.").
As reported by the Management Board in the report as of 4 February 2011, the
Call Option is to be exercised on the condition that the Arbitration Court of
the Polish Chamber of Commerce renders a favourable award for the Company in
the proceedings initiated by the suit brought by the Company against PEP for
having it determined that the offer for sales of 100% shares of Saturn
Management Sp. z o.o. with its registered office in Warsaw and of all rights
and obligations of PEP as a limited partner in SM sp.k., which was submitted by
PEP to the Company in execution of decisions concerning the Voluntary Call
Option as specified in the General Agreement, has not expired and is binding
for PEP on conditions laid down in the Company's suit that is the sales price
is to be fixed on the formula provided in the General Agreement. The suit
regarding this issue was brought by the Management Board on 4 February 2011.
On 27 June 2011 PEP brought the counter-claim statement to the Arbitration
Court of the Polish Chamber of Commerce against the Company. In this suit PEP
requests the Arbitration Court to determine, as a principle, that the price for
exercising the Option by Mondi covers the reimbursement to PEP of lost benefits
from energy in renewable sources and co-generated energy. Moreover, PEP
indicated in the above-mentioned counter-claim the detailed mechanism for
calculating the Option price, which is in compliance with the general rules as
specified in the previous clause.
On 13 February 2012 the Company received a favourable ruling from the
Arbitration Court of the Polish Chamber of Commerce, dated 10 February 2012,
that the offer for sales of 100% shares of Saturn Management Sp. z o.o. with
its registered office in Warsaw and of all rights and obligations of PEP as a
limited partner in SM sp.k., which was submitted by PEP on 29 April 2002 in
execution of the General Agreement, is binding for PEP on conditions laid down
in the Company's suit that is the sales price is to be fixed on the formula
provided in the General Agreement. Consequently, PEP's counter-claim was
dismissed by the court. The court decision is final, however it may be appealed
in the civil court, based on the Civil Procedure Code. The decision fulfils one
of the conditions precedent for realization of the Voluntary Call Option.
4.16. Agreements concluded between the Company and Members of the Management Board of the Company
The Members of the Management Board are entitled to compensation for not taking competitive activities against Mondi Swiecie S.A. for 12 months after terminating the employment relationship, unless Mondi Swiecie S.A. discharges them from this ban before contracts of employment expire.
4.17. Remuneration of Members of the Management and Supervisory Bodies
This information is presented under item 34 of "Consolidated Financial Statements for 2011".
4.18. Outstanding loans, guarantees and sureties granted to Members of the Management and Supervisory Bodies of the Company and their relatives
In the reporting period no such events occurred.
4.19. Shares held by Members of the Management and Supervisory Bodies
As at the balance sheet date, the Members of the Management and Supervisory Bodies held no shares in the Company.
4.20. Changes in the shareholding structure
In current report no. 19/2011 as of 28 September 2011, the Management Board of
Mondi Swiecie S.A. informed that on 27 September 2011 the Management Board was
notified that ING Otwarty Fundusz Emerytalny (ING Open Contributory Pension
Fund, ("Fund")) with
its registered office in Warsaw reduced their stake of shares in the Company
constituting less than 10% of votes at the general meeting of Mondi Swiecie
S.A.. This results from the sales transactions concluded at the Warsaw Stock
Exchange and settled on 22 September 2011.
Before selling the shares, the Fund owned 5,331,750 (five million three hundred
and thirty one thousand seven hundred and fifty) shares of the Company, which
was 10.66% of Mondi Swiecie share capital and the Fund was entitled to
5,331,750 (five million three hundred and thirty one thousand seven hundred and
fifty) votes at the general meeting of the Company, which was 10.66% in the
total number of votes. On 27 September 2011, the Fund owned 4,998,750 (four
million nine hundred and ninety eight thousand seven hundred and fifty) shares
of Mondi Swiecie on its securities account, which is 9.9975% of the share
capital and entitles casting 4,998,750 (four million nine hundred and ninety
eight thousand seven hundred and fifty) votes at the general meeting of
shareholders of the Company, which is 9.9975% in the total number of votes.The Mondi Swiecie Group does not have any information on any contracts concluded in 2011 which in the future may cause that proportions of shares held by the present shareholders will change.
4.21. Information on the Controlling System for Employee Shares Programme
In the reporting period no such events occurred.
4.22. Agreements with the entity authorised to audit financial statements
On 9 June 2011, the Supervisory Board of Mondi Swiecie S.A. appointed an entity authorised to audit and review Mondi Swiecie S.A. and Mondi Swiecie Group's semi-annual and annual financial statements - Deloitte Audyt Sp. z o.o.
On 29 June 2011, the Group concluded an agreement for the review of the shortened consolidated financial statements and shortened financial statements for the first half-year of 2011 with Deloitte Audyt Sp. z o.o. The total outstanding or paid remuneration under this contract for the reviews of the semi-annual financial statements of the Mondi Swiecie Group amounted to PLN 117 thousand. In 2010, these costs amounted to PLN 115 thousand. On 10 November 2011, the Group concluded a contract for the audit of the Company's annual financial statements, consolidated annual financial statements and consolidation package for 2011 with Deloitte Audyt Sp. z o.o. The total outstanding or paid remuneration under this contract for the audits of the annual financial statements and consolidation package of the Mondi Swiecie Group amounted to PLN 363 thousand. In 2010, these costs amounted to PLN 388 thousand. On 10 November 2011, Swiecie Recykling Sp. z o.o. concluded a contract for the audit of the annual financial statements for 2011 with Deloitte Audyt Sp.z o.o. The total outstanding or paid remuneration under this contract for the audit of the annual financial statements of Swiecie Recykling Sp. z o.o. amounted to PLN 42 thousand. In 2010, these costs amounted to PLN 41 thousand.
Furthermore, in 2011 the Group incurred the costs of PLN 109 thousand for Deloitte Group subsidiaries for other services than the audit of financial statements. Such a situation did not take place in 2010.
STATEMENT on complIAnce with THE CODE OF BEST PRACTICE OF CORPORATE GOVERNANCE
5.1 Code of Corporate Governance Best Practice that governs the Company and the location where the Code of Best Practice is available to the public.
In 2011, Mondi Swiecie S.A. complied with the Code of Best Practice for WSE-listed Companies, as laid down in the Attachment to Resolution No. 17/1249/ 2010 of the Warsaw Stock Exchange Supervisory Board dated 19 May 2010, (excluding the rules specified in B), which is available at www.mondigroup.pl, Corporate Governance.
Fulfilment of the recommendations concerning the information policy and maintaining the company website
Mondi Swiecie S.A. operates the Company's website that meets the requirements as specified in the Code of Best Practice and ensures access to important information on the Company and is one of the communication forms with the Company's Shareholders. Mondi Swiecie S.A. publishes its current and periodic reports on the Company's website. Investor Relations at www.mondigroup.pl contain the calendar of the major financial events, periodic financial statements and information on current events in the Company. The Corporate Governance part of the website includes the Declaration on Compliance with the Code of Best Practice, corporate documents as well as documents regarding the General Meetings of the Company. All information and data published on the website is also available in English.
Pursuant to the requirement as laid down in Part II, Best Practice for Management Boards of Listed Companies, point 1 (14), Mondi Swiecie S.A. has published on the Company's website the following information about the content of the Company's internal rule of changing
the company authorised to audit financial statements:
"The Company is subject to the rule of changing the company authorised to audit financial statements that applies to the Mondi Group. According to the rule, such an entity is chosen for all Group's companies from among renowned international auditing companies based on the financial criteria - offered price for auditing the financial statements of the companies".
Fulfilment of the recommendation concerning the remuneration policy and rules of defining the policy
Mondi Swiecie S.A. adheres to the rules of defining the remuneration for the Company's employees that are compliant with the internal remuneration rules.
The remuneration rules for Members of Supervisory and Management Boards of the Company are compliant with the remuneration policy of the Mondi Group (of which the Company is member). The aim of the policy is to recruit and motivate competent directors complying with the best practice and at the same time consider the interests of Shareholders. The major rules of the policy, as defined and used by the Remuneration Committee of the Mondi Group that has non-executive directors of the Mondi Group as its members are as follows:
Remuneration should be on a competitive level for a specific market,
Remuneration structure, in particular the structure of the changeable part of the remuneration should depend on achievements, should take into account the interests of Shareholders and promote achievement of the Mondi Group business strategy.
A considerable part of the remuneration should depend on achievement of short- and long-term objectives,
When defining the remuneration for managerial staff of the Group, Mondi takes into account the salary conditions at various areas of the Mondi Group.
The remuneration of Members of the Management Boards of Mondi Group companies
may be composed of fixed and changeable parts. Members of Management Boards of
Group's companies are entitled to take part in the Bonus Share Plan (BSP).
Under the BSP, the changeable part of the bonus is awarded against achievement
of both individual and corporate targets (leading financial indicators and work
and health indicators). Part of the bonus awarded may be paid immediately in
cash and part is paid in deferred shares of Mondi plc (major company of the
Mondi Group) which vest after three years subject to the executive remaining in
the Group's service. The rules that apply to the changeable part of the
remuneration and shares are determined by the Mondi Group Remuneration
Committee.
The principle is that the employment relationship with Members of Management
Boards is based on the employment contracts with a term of notice of several
months. The severance pays are paid under the rules of the common labour law.
Members of the Company's authorities are appointed in compliance
with the Company's Statute from among the candidates who have the appropriate
professional knowledge and experience that ensure due performance of their
duties. Information on candidates for Members of Mondi Swiecie Supervisory and
Management Boards is published on the Company's website.
Fulfilment of the recommendation concerning a balanced proportion of women and men in management and supervisory functions in companies
The Mondi Swiecie S.A. standpoint is as follows: When ensuring a balanced proportion of women and men in management and supervisory bodies, in accordance with Mondi Leadership Criteria, the Company regards professional and leadership competences as the major criteria of employment and promotion of employees, irrespective of gender. Thus, women have the chances of achieving professional success equal to men. Such actions are compliant with the rules of the Mondi Global Employment Policy. Under the rules, we are committed to:
promote workforce equality and seek to eliminate all forms of unfair discrimination,
recruit and hire the most appropriately skilled individuals, investing in their career development; seek to maintain a regular, two-way flow of information with employees to maximise their identification with and ability to contribute to our business; seek to maintain a balance in our work and family lives.
5.2 The extent to which the Company waived the Code of Best Practice, indication of such Practices and reasons for the waiver
The Management Board states that in 2011 the Code of Best Practice for WSE-listed Companies, as laid down in the Attachment to Resolution No. 17/1249/ 2010 of the Warsaw Stock Exchange Supervisory Board dated 19 May 2010, entitled "Code of Best Practice for WSE-Listed Companies" was complied with, excluding the rules specified below:
Part III "Best Practice for Supervisory Board Members"
Rule 6: Instead of the rule providing that at least two members of the Supervisory Board should meet the criteria of being independent, the Company has adhered for many years to the rule according to which the Company'semployees should have their representation in the Supervisory Board membership. Pursuant to s17 of the Company's Statute, the General Meeting of the Company's Shareholders appoints and dismisses the Supervisory Board Members, with 1/3 of Members from among the persons elected by the Company's employees. The historical background for the Supervisory Board membership of the personnel representatives ensures that people who are not related to a strategic investor that has owned a majority of the Company's shares since the privatisation participate in the adoption of resolutions of the Supervisory Board.
Rule 8: There are no Supervisory Board committees with membership of people who are independent Members of the Supervisory Board as understood in Rule 6.
Part IV "Best Practices of Shareholders"
Rule 1: The Company does not exclude the presence of representatives of media at the General Meetings, but the relevant decision shall be the responsibility of the Chairman of the General Meeting of Shareholders. 5.3 Basic characteristics of internal audit and risk management systems used in the Company to the preparation of financial statements and consolidated financial statements The Management Board of the Company is responsible for the Company's internal audit system and its effectiveness in relation to the preparation of financial statements and periodic reports that are prepared and published pursuant to Regulation of 19 February 2009 regarding current and periodic information to be reported by issuers of securities. The aim of the effective internal audit system in the financial reporting is to ensure that information presented in financial statements and periodic reports is adequate and correct. In the preparation of the Company's and Group's financial statements one of the key audit components comprises the audit of the financial statements by an independent auditor. Such auditor's responsibilities include: audit of semi-annual financial statements as well as preliminary and final audit of the annual consolidated and separate financial statements. The independent auditor is appointed by the Supervisory Board. After the audit, financial statements are sent to the Company's Supervisory Board Members for their evaluation of the Company's and Group's financial statements. Internal audit by the Internal Audit Department is a key component of the risk management in relation to the preparation of financial statements. The annual schedule of internal audits is made based on a risk assessment prepared jointly with the Management Board. In addition to scheduled audits, reviews are conducted that cover the implementation of prior audit recommendations as well as unscheduled audits are carried out if requested by the Management Board. Internal Audit prepares reports that include recommendations whose aim is to make audit mechanism more efficient. Such reports are delivered to the Management Board Members and the Audit Committee. Pursuant to the latest amendments to the Act on certified auditors and their self-government (Journal of Laws No. 77 of 2009, item 649), the Company established the Audit Committee that, in particular, is responsible for: controlling of the financial reporting process; monitoring of the efficiency of internal control system, internal audit system and risk management; supervision of the execution of financial review activities; monitoring of independence of a certified auditor and an entity authorised to audit financial statements. The Audit Committee shall meet once a quarter before the Company's Supervisory Board meetings to discuss, among other things, ended internal audits executed at the Company, audits of the implementation of audit recommendations and those arising out of prior audits and to discuss the findings and recommendations made by third party auditors. In addition to Audit Committee Members, the meetings of this body are attended by delegated Members of the Company's Management Board and the Company's and Mondi Group's Internal Auditors. The Finance Area reporting to the Finance Director is responsible for preparing financial statements, periodic financial reports and current reporting of the Company.
The Company's and Group's financial statements are prepared by middle level management and before being provided to the independent auditor they are checked by the Finance Director.
Financial figures that are the basis for financial statements and periodic reports are taken from the Company's monthly financial and operating reports. Middle and senior level management, jointly with the Finance Area analyse Company's and particular organisational units' financial performance, comparing it to business assumptions, after accounting books for each calendar months are closed. Identified errors are corrected on a current basis in the Company's books in line with the accounting policy. The preparation process of financial statements and periodic reports commences after results of the period ended are approved by the Finance Director. In the Company, business strategies and plans are reviewed on an annual basis. Medium and senior level management is involved in detailed budgeting that covers all Company's areas. The budget and the business plan for the following year are adopted by the Company's Management Board and approved by the Supervisory Board. The Company's Management Board, during the year, analyses financial results comparing them to the budget, based on the Company's accounting policy. The Company's accounting policy with regard to statutory reporting is applied both to budgeting and during preparation of periodic reporting. The Company uses coherent accounting principles when presenting financial data in financial statements, periodic financial reports and other reports delivered to Shareholders.
The Company evaluates on a regular basis the quality of internal audit and risk management systems in relation to the preparation of financial statements. Based on the evaluation made, the Management Board of the Company is of the opinion that as of 31 December 2011 there were no weaknesses that could significantly impact the effectiveness of the internal audit in relation to financial reporting.
5.4 Shareholders that directly or indirectly hold significant parcels of shares, number of shares held by such entities, their participation in the share capital in %, number of votes arising out of the participation in the share capital and their share in % in the total number of votes at the General Meeting of the Company
The period of time between 1 January 2011 and 26 September 2011:
1. FRAMONDI N.V.: 33, 000,000 shares = 33,000,000 votes at the General Meeting of the Company = 66% share in the share capital = 66% share in the total number of votes at the General Meeting of the Company, 2. ING OFE: 5,200,000 shares = 5,200,000 votes at the General Meeting of the Company = 10.4% share in the share capital = 10.4% share in the total number of votes at the General Meeting of the Company, 3. AVIVA OFE AVIVA BZ WBK: 3,655,965 shares = 3,655,965 votes at the General Meeting of the Company = 7.31% share in the share capital = 7.31% share in the total number of votes at the General Meeting of the Company.
The share capital of Mondi Swiecie S.A. amounts to PLN 50,000,000 = 50,000,000 common bearer shares with the nominal value of PLN 1 per share.
The period of time between 27 September 2011 and 31 December 2011:
1. FRAMONDI N.V.: 33, 000,000 shares = 33,000,000 votes at the General Meeting of the Company = 66% share in the share capital = 66% share in the total number of votes at the General Meeting of the Company,
2. ING OFE: 4,998,750 shares = 4,998,750 votes at the General Meeting of the Company = 9.9975% share in the share capital = 9.9975% share in the total number of votes at the General Meeting of the Company,
3. AVIVA OFE AVIVA BZ WBK: 3,655,965 shares = 3,655,965 votes at the General Meeting of the Company = 7.3119% share in the share capital = 7.3119% share in the total number of votes at the General Meeting of the Company.
The share capital of Mondi Swiecie S.A. amounts to PLN 50,000,000 = 50,000,000 common bearer shares with the nominal value of PLN 1 per share.
5.5 Holders of any securities giving special controlling powers and description of such powers
Any Mondi Swiecie S.A. securities are of a privileged type in this respect.
5.6 Any limitations related to exercising the right to vote, such as limitation to exercise the right to vote by holders of a certain portion or number of votes, time limitations related to exercising the right to vote or regulations providing that, with Company's co-operation, capital rights related to securities are separated from holding securities
In the reporting period no such events occurred.
5.7 Any limitations related to the transfer of ownership title to the Company's securities
In the reporting period no such events occurred.
5.8 Rules of appointing and dismissing managing and supervising persons and their powers, in particular their power to decide about shares issuance or buying out
The Supervisory Board shall appoint the President and the other Members of the Management Board.
The President, a Member of the Management Board or the entire Management Board may be dismissed by the Supervisory Board before the end of their term of office.
The Management Board shall be composed of one or more Members. The number of Members shall be determined by the Supervisory Board.
The term of office for Members of the Management Board shall last for three consecutive years. The term of office shall be joint for all Members of the Management Board in the meaning of art. 369 s 3 of the Commercial Companies Code.
An employment contract with the Members of the Management Board of the Company shall be executed on behalf of the Company by a representative of the Supervisory Board delegated from among its Members.
The same course shall apply to other actions related to the employment relation of a Member of the Management Board.
The Management Board of the Company, presided over by the President, shall manage the Company and represent it before third parties.
In the case where the Management Board is composed of one person, the President
of the Board and in the case where the Management Board is composed of several
Members, two Members of the Management Board acting jointly or a Member of the
Management Board acting jointly with a holder of a proxy ("prokurent") shall be
entitled to make declarations of will on behalf of the Company relating to its
rights and obligation.
All matters related to the management of the Company and not restricted to the
capacity of the General Meeting or the Supervisory Board shall be left to the
Management Board, provided that any action in respect of any of the following
activities at the Company and its subsidiaries shall require the prior approval
of the Supervisory Board:
adoption of an annual operating budget and budget of expenditures for and divestiture of material assets,
incurring an expenditure which is outside the annual budget approved by the Supervisory Board,
any individual sale or purchase of a material asset which exceeds the equivalent of EUR 500,000, also if planned in the annual budget,
any undertaking of any obligations or borrowings which exceeds the equivalent of EUR 250,000, or encumbrance of assets of the Company of the value exceeding the equivalent of EUR 250,000, outside the annual budget, significant agreements (including agreements with related entities as referred to in the law on information to be provided on a current and periodical basis by issuers of securities), which is:
- agreements that do not exceed one year's duration and the value of which exceeds the equivalent of EUR 500,000,
- agreements that exceed one year's duration and the value of which exceeds the equivalent of EUR 250,000 per year,
acquisition and disposal of real estate, perpetual usufruct or participation in real estate.
The Company's Statute (s35 (3)) provides that the Management Board of the Company shall be entitled to pay to the Shareholder an advance with respect to a dividend expected as of the end of a fiscal year if the Company possesses means sufficient for payment. Payment of such advance requires approval of the Supervisory Board.
The General Meeting of the Company shall be entitled to decide to issue or buy out shares.
The Management Board Regulations specifies in detail the rules of procedure for the Management Board. The Management Board Regulations are adopted by the Management Board and approved by the Supervisory Board.
5.9 Rules of amending the Statute or Articles of Association
In relation to the amendment of the statute, the Statute of Mondi Swiecie S.A. does not include any provisions different than those of the Commercial Companies Code.
The General Meeting of the Company shall be entitled to amend the Statute. It is required to have a majority of three-fourths of votes to amend the Statute. The Statute amendment shall be entered into the KRS (National Court Register of Companies).
The General Meeting of the Company may authorise the Supervisory Board to establish the unified text of the amended Statute or to make other amendments of an editorial type as specified in the General Meeting resolution.
5.10 General Meeting rules of procedure and basic powers as well as Shareholders' rights and way of exercising such rights, in particular the rules arising out the General Meeting rules of procedure, if such the rules were adopted, unless information in this regard arises out of the law The General Meeting rules of procedure and Meeting's basic powers as well as Shareholders' rights and the way of exercising such rights are governed by the following legal provisions:
1. Act as of 15 September 2000 Commercial Companies Code (Journal of Laws 00.94.1037 as later amended),
2. Statute of Mondi Swiecie S.A.,
3. Rules of Procedure of General Meetings of Mondi Swiecie S.A. (available at www.mondigroup.pl; Corporate documents_ General Meetings Rules of Procedure), and
4. Best Practice of Corporate Governance as approved by the Company (available at www.mondigroup.pl; Corporate Governance_Best Practices).
The General Meeting may adopt resolutions irrespective of the number of Shareholders present and the number of represented shares. Each share shall entitle one vote at the General Meeting.
Resolutions of the General Meeting shall be adopted by an absolute majority of votes, unless the provisions of the law or the Statute provide otherwise.
For the case as stipulated in art. 397 of the Commercial Companies Code, the resolution on dissolution of the Company shall require the majority of 3/4 votes cast.
The resolution not to consider an issue placed on the agenda may be adopted only if there are important reasons for adopting such a resolution. A relevant motion should be accompanied by a detailed justification. An item placed on the agenda may be removed from the agenda or may not be considered upon a motion of the Shareholders only if the resolution of the General Meeting of Shareholders is adopted after prior approval by all the present Shareholders who submitted the motion and if 75% of votes were cast in favour of adopting the resolution.
The voting shall be open. A secret ballot shall be ordered with respect to elections or motions on the dismissal of the members of the authorities or liquidators of the Company, as well as with respect to motions to hold the persons mentioned above responsible or in personal matters. Also, a secret ballot shall be ordered at the request of only one present person entitled to vote.
The powers of the General Meeting shall include:
examination and approval of the report of the Management Board
of the Company and of the financial statements for the preceding fiscal year,
adopting a resolution regarding the profit distribution or loss coverage,
discharging the bodies of the Company from performance of duties by them,
changes of the scope of business activity of the Company,
amending the Statute of the Company,
increasing or decreasing the share capital,
merger of the Company and transformation of the Company,
dissolution and liquidation of the Company,
issuance of bonds,
sale or lease of the enterprise of the Company, or its organised part and establishment of limited rights in property thereof,
utilisation of the supplementary (share) and reserve capital,
any decisions regarding claims for compensation of damages inflicted in the course of the Company's formation or during the exercise of the executive or supervisory duties.
Apart from the matters stipulated above, a resolution of the General Meeting
shall be required in matters determined in the Commercial Companies Code unless
such matters, within the scope permitted by the Commercial Companies Code, are
delegated by this Statute to the competences of the Supervisory Board.
Since the convocation of the Meeting, the Company shall publish information
specified in Article 402³ of the Commercial Companies Code on the Company's
website through which website Shareholders may communicate with the Company,
including they may notify the Company of granting or withdrawing electronically
the power of attorney to participate in the Meeting. The Company shall publish
on this website, in particular, the form that enables a person authorised to
exercise the right to vote and a list of documents the scanned copies of which
shall be attached to the notification of granting the power of attorney
electronically and the lack of which makes the notification of granting or
withdrawing the power of attorney ineffective towards the Company.
The Company shall undertake required actions for identification of
a Shareholder and the person authorised in order to verify the validity of the power of attorney granted electronically. Such actions shall be proportional to the purpose. The General Meeting (hereinafter referred to as "the Meeting") shall be opened by the Chairman of the Supervisory Board, his Deputy and if they both are absent by the President of the Management Board or a person appointed by the President and then, the Chairman of the Meeting shall be elected from among the parties entitled to vote. The Chairman of the General Meeting shall ensure an efficient conduct of the Meeting and observance of the rights and interests of all Shareholders. The Chairman should counteract, in particular, the abuse of rights by the participants of the Meeting and should guarantee that the rights of minority Shareholders are respected. The Chairman should not, without a sound reason, resign from his function or put off the signing of the minutes of the Meeting without well-grounded reasons.
The Chairman, after signing the attendance record, shall state the proper convocation of the Meeting and its empowerment to adopt resolutions.
If needed, a Scrutiny Commission may be elected from among the parties entitled to participate in the Meeting, whose duties shall include counting votes, taking care of the proper conduct of voting and establishing its results.
Voting on matters of routine/procedure may be carried out only on the issues related to the conduct of the Meeting. The voting procedure cannot apply to resolutions which may have impact on the exercising of rights by the Shareholders.
A resolution not to consider the issue placed on the agenda may be adopted if it is supported by a relevant motion accompanied by a detailed justification and only if there are important and related reasons for not adopting the resolution, excluding the issues placed on the agenda at the request of the Shareholders. The item placed on the agenda may be removed from the agenda or may not be considered upon a motion of the Shareholders only if the resolution of the General Meeting of Shareholders is adopted after prior approval by all the present Shareholders who submitted such motion and if 75% of votes were cast in favour of adopting the resolution. The Chairman shall lead the debate of the Meeting, present draft resolutions to the Meeting, undertake decisions in the procedural and technical matters, take care of the effective conduct of the Meeting in accordance with the determined agenda and provisions of law, permit participants to take the floor, receive motions and draft resolutions and submit them for discussion, order voting, announce its results and state adoption of resolutions.
Short breaks in the session, which do not defer the session, ordered by the Chairman of the Meeting in justified cases, cannot be aimed at hindering the exercising of rights by the shareholders.
The Chairman shall permit participants to take the floor in the sequence they submit their motions to speak.
The Chairman shall be entitled to permit the invited experts and advisors to take the floor.
Answers provided by the Management Board or other persons invited to the General Meeting to the questions posted by the General Meeting should take into account the fact that the reporting obligations are performed by a public company in a manner which arises out of the Law applicable to public companies, and certain information cannot be provided otherwise.
In discussing any point under the agenda, each Shareholder shall have the right to a 5- minute speech and a 3- minute reply.
Motions as to modifications of the content of draft resolutions shall be submitted to the Chairman in writing and shall be signed by a submitting party.
Following the end of the discussion, the Chairman, taking into consideration the discussion and the results of voting on particular motions, shall determine the final content of the draft resolution being formulated in such a manner so as each entitled party who objects to the merits of a matter can appeal against it, and he/she shall submit the draft to voting.
A party objecting to a resolution must have an opportunity to concisely present the reasons for the objection.
At the request of a participant in the General Meeting, his/her written statement is recorded in the minutes.
The Scrutiny Commission shall count the votes cast on adopting the resolution. A written statement of the Commission regarding the number of votes shall be delivered to the Chairman who shall announce the result of voting.
The resolutions shall be deemed adopted if they have been adopted, respectively, in an open or secret ballot and by an appropriate majority of votes as required by the provisions of the Commercial Companies Code and of the Statute.
The Supervisory Board Members shall be elected, subject to s 17 (2) of the Company's Statute, from among candidates proposed by Shareholders who participate in the Meeting. The candidature for Supervisory Board Members should be proposed and justified in detail so as a conscious election is possible. The approval of being a candidate to the Supervisory Board and approval for processing and publication of personal particulars by the Company within the required scope in relation to being a candidate and member of the public company Supervisory Board shall be attached to the application. When candidates to the Supervisory Board Members are proposed, it should be taken into account that at least one Supervisory Board Member should be qualified in accounting and financial review and should meet the conditions of independence as specified in art. 56 (3) (1,3 and 5) of the Act of 7 May 2009 on certified auditors and their self-government, entities authorised to audit financial statements and public supervision (Journal of Laws no. 77, item 649).
The election of Supervisory Board Members in one joint voting shall be allowable only if there are not more candidates than the number of seats/posts in the Supervisory Board and if no Shareholder participating in the Meeting objects to the voting.
In the case where the Supervisory Board is elected by voting in separate groups:
- at the Meeting, for the purpose of electing Supervisory Board Members, at maximum as many groups of shareholders can be established as there are posts in the Supervisory Board to be filled,
the minimum number of shares which is required to establish a group is defined as the number of shares represented in the Meeting divided by the number of posts in the Supervisory Board to be filled,
the group of Shareholders shall be entitled to elect as many Supervisory Board Members as the number of shares represented by the group's members is higher than the calculated minimum number of shares required to establish the group,
the groups of Shareholders can become one group to elect jointly,
the Shareholder can be a member of one group only,
Shareholders being members of the group established for the purpose of electing a Supervisory Board Member provide the Chairman with their written declarations about their membership in this group,
the majority of votes in the group determines the election of the Supervisory Board member within this group,
for each of the groups a separate attendance list shall be drawn up; a scrutiny commission shall be elected and a Chairman shall be appointed to preside over the election,
the resolution regarding the election of the Supervisory Board Member or Members by the group shall be included in the Minutes by a notary public.
In formal matters the Chairman permits to take the floor outside the sequence of submitting a motion to speak.
If the Meeting is attended by parties who have no command of Polish, then the Meeting shall be interpreted by a sworn translator.
Having discussed the issues on the agenda, the Chairman shall declare the Meeting closed.
5.11 Members of and changes to the composition of the Company's Management and Supervisory Boards or administration body made over the last fiscal year, the procedure of operation of the Company's Management and Supervisory Boards or administration body and their committees The Supervisory Board of Mondi Swiecie S.A. of VIII term of office (appointed pursuant to the resolution of the Ordinary General Meeting of Shareholders on 16 April 2010) in the period of time from 1 January 2011 to 31 December 2011 was composed of:
Peter Oswald - Chairman of the Supervisory Board,
Peter Machacek - Deputy Chairman of the Supervisory Board,
Jaroslaw Kurznik - Secretary of the Supervisory Board, elected by the employees of the Company,
Ryszard Gackowski - Member of the Supervisory Board, elected by the employees of the Company,
Franz Hiesinger - Member of the Supervisory Board,
Karol Mergler - Member of the Supervisory Board, elected by the employees of the Company,
Klaus Peller - Member of the Supervisory Board,
Ladimir Enore Pellizzaro - Member of the Supervisory Board,
Walter Seyser - Member of the Supervisory Board.
The Supervisory Board supervises on a continuous basis all areas of the Company's business and performs activities as specified in the following legal provisions:
1. Act of 15 September 2000 Commercial Companies Code (Journal of Laws 00.94.1037 with later amendments),
2. Statute of Mondi Swiecie S.A. (available at the Company's website),
3. Regulations of the Supervisory Board of Mondi Swiecie S.A.(available at the Company's website), and
4. Declaration of Mondi Swiecie S.A. on Compliance with Best Practice of Corporate Governance, excluding the rules specified under B.
A detailed description of the Supervisory Board procedure of operation is available at the Company's website.
Pursuant to the Act of 7 May 2009 on certified auditors and their self-government, entities authorised to audit financial statements and public supervision (Journal of Laws no. 77, item 649) on 20 November 2009 the Extraordinary General Meeting of Shareholders appointed Mr Walter Seyser a new, independent Member of the Supervisory Board who is qualified as specified in the Act (art. 56 (3) (1,3 and 5)) and a three-Member Audit Committee of the Supervisory Board was established (composed of: Messrs W. Seyser - the Chairman, F. Hiesinger, K. Mergler). The Audit Committee Chairman and Members are appointed by the Supervisory Board from among the Board Members.
The Audit Committee meetings are held before sessions of the Company's Supervisory Board.
The Audit Committee responsibilities shall, in particular, include monitoring of:
a) the financial reporting process;
b) the efficiency of internal control system, internal audit system and risk management;
c) the execution of financial review activities;
d) independence of a certified auditor and an entity authorised to audit financial statements as well as recommending to the Supervisory Board the entity authorised to audit financial statements to perform financial review activities for the Company.
Pursuant to the amended Supervisory Board Regulations, the
Supervisory Board may establish committees from among Board Members to deal with matters to be specified by the Supervisory Board.
The Management Board of the Company shall be obliged to co-operate with the Audit Committee and other committees established by the Supervisory Board and shall enable such committees to execute their responsibilities.
Minutes of meetings of committees shall be taken. The provisions of s12 of the Supervisory Board Regulations shall apply to the Minutes.
The Supervisory Board shall consist of at least 6 members. The
term
of office of the Members of the Supervisory Board shall be three years. The term of office of all the Supervisory Board Members shall be joint in the understanding of article 369 s3 and in connection with art.386 s 2 of the Code of Commercial Companies.
The Members of the Supervisory Board are appointed and dismissed by the General Meeting, provided that one third of the Members is appointed from among persons elected by the employees employed in the enterprise of the Company. Resignation, death or other material reason resulting in a decrease in the number of the Members of the Supervisory Board appointed by the employees shall give rise to a supplementary election. The election shall be called by the remaining Member(s) of the Supervisory Board elected by the employees. However, up to the time of appointment of the Members of the Board elected by the employees, the resolutions of the Supervisory Board shall be valid.
The detailed course of the election of the Members of the Supervisory Board by the employees shall be determined by the election by-laws adopted by the representatives of employees in the Supervisory Board.
The Supervisory Board shall elect the Chairman of the Supervisory Board, one or more Deputy Chairmen and the Secretary of the Board from among its Members.
The meetings of the Supervisory Board shall be called and led by the Chairman of the Supervisory Board. The Chairman of the Supervisory Board of the previous term of office shall call and open the first meeting of the newly appointed Board and shall preside such meeting until a new Chairman is elected.
The Supervisory Board may dismiss the Chairman, Deputy Chairman and the Secretary of the Supervisory Board.
The Supervisory Board shall hold the meetings at the registered office of the Company or in any other place indicated in the notification as frequently as it is needed for the performance of its duties. The Chairman of the Supervisory Board shall be obliged to call a meeting on a written request of the Management Board or any one Member of the Supervisory Board.
The meeting should be called within 14 days from the day of submitting the request and be held within 14 days from the calling thereof.
The resolutions of the Supervisory Board shall be valid if all Members of the Supervisory Board have been invited to the meeting and at least half of them are present. The resolutions of the Board shall be adopted by a simple majority of votes cast, provided that at least half of the Members of the Supervisory Board are present at the meeting. If the vote remains undecided, the vote of the Chairman of the Supervisory Board shall prevail.
The Supervisory Board shall adopt its Regulations where the procedure of its operation is specified in detail.
The Supervisory Board may adopt resolutions through voting in writing upon the order of the Chairman of the Supervisory Board, excluding the matters stipulated in s 21 (2) (8 and 9) of the Statute as well as the matters in which voting is conducted by a secret ballot. The Supervisory Board may hold meetings and adopt resolutions by telephone or by other means of communication in a way that guarantees communication of all the present Members of the Supervisory Board. The resolutions adopted in the course of s 20 (4) and (5) shall be valid if all Members of the Supervisory Board have been informed about the contents of the draft resolution. Such resolutions shall be recorded in the minutes in accordance to Article 376 of the Commercial Companies Code.
The Members of the Supervisory Board may participate in adopting resolutions by delivering a vote in writing through another Member of the Board.
The Supervisory Board in particular:
approves the Regulations of the Management Board of the Company,
determines the principles of remuneration of the Members of the Management Board,
appoints and dismisses Members of the Management Board or the entire Management Board in a secret ballot,
suspends the Member or the entire Management Board in the performance of duties in secret ballot due to material reasons,
delegates the Member or Members of the Supervisory Board for the temporary performance of duties of the Member of the Management Board in case the Member or the entire Management Board is suspended, dismissed or unable to perform its duties due to other reasons,
permits establishing branches abroad at the request of the Management Board,
permits the acquisition and subscribing for shares in companies or joining other companies,
examines the Management Board report on business activities of the Company, financial statements and Management Board proposals regarding profit distribution or loss coverage,
submits to the General Meeting a written report on results of the examination as referred to in 8,
approves the acquisition and disposal of real estate, perpetual usufruct or share in real estate,
elects an auditor auditing the financial statements of the Company,
considers and provides opinions on issues to be covered by the General Meeting's resolutions.
The Members of the Supervisory Board shall exercise their rights and perform duties in person.
Remuneration of Supervisory Board Members shall be fixed by the General Meeting.
Remuneration of Supervisory Board Members delegated to temporarily act as a Member of the Management Board shall be fixed by the Supervisory Board resolution.
The Management Board of Mondi Swiecie S.A. in the period of time from 1 January 2011 to 31 December 2011 was composed of:
Maciej Kunda (President and Chief Executive Officer),
Boguslaw Bielecki (Member of the Management Board and Chief Financial Officer),
Florian Stockert (Member of the Management Board and Sales Director),
Tomasz Katewicz (Member of the Management Board and Production Director),
Jan Zukowski (Member of the Management Board and Investment & Development Director).
The rules of procedure for the Management Board are governed by:
1. Act of 15 September 2000 Commercial Companies Code (Journal of Laws 00.94.1037 with later amendments),
2. Statute of Mondi Swiecie S.A. (available at the Company's website),
3. Regulations of the Management Board of Mondi Swiecie S.A. (available at the Company's website), and
4. Declaration of Mondi Swiecie S.A. on Compliance with Best Practice of Corporate Governance, excluding the rules specified under B.
A detailed description of the Management Board procedure of operation is available at the Company's website.
The Management Board shall be composed of one or more Members. The number of Members shall be determined by the Supervisory Board.
The term of office for Members of the Management Board shall last for three consecutive years. The term of office shall be joint for all members of the Management Board in the meaning of art. 369 s 3 of the Commercial Companies Code.
The Supervisory Board shall appoint the President and the other Members of the Management Board.
The President, the Member of the Management Board or the entire Management Board may be dismissed by the Supervisory Board before the end of their term of office.
The Management Board of the Company, presided over by the President, shall manage
the Company and represent it before third parties.
All matters related to the management of the Company and not restricted to the capacity of the General Meeting or the Supervisory Board shall be left to the Management Board, provided that any action in respect of any of the following activities at the Company and its subsidiaries shall require the prior approval of the Supervisory Board:
adoption of an annual operating budget and budget of expenditures for and divestiture of material assets,
incurring an expenditure which is outside the annual budget approved by the Supervisory Board,
any individual sale or purchase of a material asset which exceeds the equivalent of EUR 500,000 also if planned in the annual budget,
any undertaking of any obligations or borrowings which exceeds the equivalent of EUR 250,000, or encumbrance of assets of the Company of the value exceeding the equivalent of EUR 250,000, outside the annual budget, significant agreements (including agreements with related entities as referred to in the law on information to be provided on the current and periodical basis by issuers of securities), which is:
- agreements that do not exceed one year's duration and the value of which exceeds the equivalent of EUR 500,000,
- agreements that exceed one year's duration and the value of which exceeds the equivalent of EUR 250,000 per year,
acquisition and disposal of real estate, perpetual usufruct or a participation in real estate.
The Management Board Regulations specifies in detail the rules of procedure for
the Management Board. The Management Board Regulations shall be adopted by the
Management Board and approved by the Supervisory Board.
In the case where the Management Board is composed of one person, the President
of the Board and in the case where the Management Board is composed of several
Members, two Members of the Management Board acting jointly or the Member
of the Management Board acting jointly with a holder of a proxy ("prokurent")
shall be entitled to make declarations of will on behalf of the Company
relating to its rights and obligation.
An employment contract with the Members of the Management Board of the Company shall be executed on behalf of the Company by a representative of the Supervisory Board delegated from among its Members.
The same course shall apply to other actions related to the employment relation of the Member of the Management Board.
The Management Board of the Group:
President: Maciej Kunda ......................................... Members: Jan Zukowski
..........................................
Florian Stockert
.........................................
Tomasz Katewicz
.........................................
Boguslaw Bielecki
.........................................
Swiecie, 13 February 2012.
Consolidated financial statements
for the year 2011
TABLE OF CONTENTS
Consolidated statement of comprehensive income for the period from 1 January 3
2011 to 31 December 2011Consolidated statement of financial position as at 31 December 2011
5
Statement of changes in consolidated equity for the period from 1 January 2011 to 31 December 2011 6
Consolidated statement of cash flows for the period from 1 January 2011
7 to 31 December 2011
Explanatory notes to the consolidated financial statements prepared as at
31.12.2011
1 General information 92 Accounting principles applied by the Group
11
3 Revenues from operating activities
21
4 Operating costs 22
5 Employment costs 22
6 Other operating revenues 23
7 Other operating costs 23
8 Financial revenues 23
9 Financial expenses 23
10 Income tax 24
11 Dividends 25
12 Profit per share 2513 Operating lease agreements
26
14 Intangible assets 27
15 Tangible assets 27
16 Emission rights 2817 Investments in associates valued with equity method assets
28
18 Other financial assets 29
19 Deferred tax assets 30
20 Inventory 31
21 Other financial assets 31
22 Bank credits and loans 35
23 Financial instruments 36
24 Deferred tax provision 42
25 Liabilities 4326 Remuneration in the Group's capital instruments
43
27 Provisions 43
28 Equity 4429 Explanatory note to the consolidated statement of cash flows
45
30 Contingent liabilities
46
31 Events after the balance sheet date
46
32 Financial information comparability
46
33 Transactions with related parties
47
34 Management board and supervisory board remuneration
48
35 Remuneration of an auditor or entity authorised to audit financial
48
statements paid or due for the fiscal year
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY
2011 TO 31 DECEMBER 2011
Note 2011 2010
PLN'000 PLN'000
Continued activities
Revenues from sales
Revenues from sales of products 2 725 784 2 251 013
Revenues from sales of goods and materials 45 938 12 661
3 2 771 722 2 263 674
Cost of products, goods and materials sold 4 (1 923 422) (1 595 811)
Gross profit on sales 848 300 667 863
Other operating revenues 6 2 626 1 078
Cost of sales and distribution (249 026) (222 242)
General and administrative costs (142 514) (113 653)
Other operating costs 7 (2 043) (2 322)
Profit on operating activity 457 343 330 724
Financial expenses 8 (51 105) (69 264)
Financial revenues 9 13 629 2 194
Share in profit of associated entity 101 36
Gross profit 419 968 263 690
Income tax 10 (23 974) (14 373)
Net profit from continued activities 395 994 249 317
Discontinued activities - -
Net profit for the financial year 395 994 249 317
Attributable to:
controlling shareholders
395 994 249 317
minority shareholders - -
Net profit (loss) 7.92 4.99
per share
From continued activities
Ordinary profit 12 7.92 4.99
Diluted profit 12 7.92 4.99From continued and discontinued activities
Ordinary profit 12 - -
Diluted profit 12 - -
2011 2010
PLN'000 PLN'000Profit (loss) on revaluation of fixed assets -
-
Profit (loss) on revaluation of assets available-for-sale -
-
Profit (loss) on cash flows hedging -
-
Exchange differences from converting financial statements -
- of foreign entities
Actuarial profits/(losses) on specific employee benefit -
- programs
Tax on amounts charged directly to capitals -
-
Net profit charged directly to capitals -
-
ReclassificationsReclassification to profit or loss from sales of assets -
- available-for-sale
Reclassification to profit or loss from cash flow hedge -
-
Reclassification to opening balance of items hedged on cash -
- flow
Tax on items reclassified from capitals -
-
Net profit (loss) 395 994 249 317Total - profits and losses recognised 395 994 249
317
Attributable to:
controlling shareholders 395 994 249 317
minority shareholders - -
395 994 249 317
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011
Balance as Balance as
Note at at
31.12.2011 31.12.2010
PLN'000 PLN'000
ASSETS
Fixed assets (long-term)
Tangible assets 15 1 588 783 1 708 439
Intangible assets 14 2 334 2 904
Investments in associated entities valued with 1 126 1 025
equity method 17
Financial assets available for sale 175 175
Other financial assets 18 168 495
Deferred tax assets 19 18 492 15 348
1 611 078 1 728 386
Current assets (short-term)
Inventory 20 265 679 227 596Trade receivables and other receivables 21 360 346 339 003
Foreign currency forward contracts 21 2 130 1 410
Cash and cash equivalents 21 489 333 23 303
Income tax 25 -
1 117 513 591 312Long-term assets held for sale valued at fair -
-
value
1 117 513 591 312
TOTAL ASSETS 2 728 591 2 319 698
LIABILITIES AND EQUITY
Equity
Share capital 28 333 734 333 734
Supplementary capital 1 098 820 848 648
Realised net profit 395 994 249 317
Retained earnings 1 217 2 072
Revaluation reserve capital - -
1 829 765 1 433 771Equity attributable to equity holders of the
parent
1 829 765 1 433 771
Minority shareholders' interest
Long-term liabilities
Interest bearing bank credits and loans 341 530 416 366
Provisions 27 3 991 4 064
Deferred tax provision 24 38 450 57 041
384 450 477 471
Short-term liabilities
Trade liabilities and other liabilities 418 514 291 904
Current portion of interest bearing bank 22 77 707 100 553
credits and loans
Foreign currency forward contracts 1 365 199
Income tax 3 780 3 828
Short-term provisions 27 13 010 11 972
514 376 408 456Liabilities directly related to fixed assets -
-
classified as held for sale
TOTAL LIABILITIES 898 826 885 927
TOTAL LIABILITIES AND EQUITY 2 728 591 2 319 698
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY FOR THE PERIOD FROM 1 JANUARY 2011 TO 31 DECEMBER 2011
Balance as Balance as
at at
31.12.2011 31.12.2010
PLN'000 PLN'000
Opening balance of equity 1 433 771 1 184 453Changes in adopted accounting principles -
-
Opening balance of equity after adjustments to 1 433 771 1 184 453 comparable data
1. Opening balance of share capital, including: 333 734 333 734
- authorised share capital 50 000 50
000
- hyperinflation adjustment 283 734 283
734
1.1. Changes in share capital -
-
1.2. Closing balance of share capital 333 734 333
734
2. Realised net profit 395 994 249 3173. Retained earnings opening balance 251 389 72
248
3.1. Changes in retained earnings (250 172) (70 177)
a) increases (due to) - -
- profit distribution - -
b) decreases (due to) 250 172 70 177
- profit distribution - -- contributions to the supplementary capital 250 172 70
177
3.2. Retained earnings closing balance 1 217 2
072
4. Opening balance of supplementary capital 848 648 778
471
4.1. Changes in supplementary capital 250 172 70
177
a) increases (due to) 250 172 70 177
- profit distribution 250 172 70 177
b) decreases (due to) - -
- dividends - -
4.2. Closing balance of supplementary capital 1 098 820 848 6485. Opening balance of revaluation reserve -
-
5.1. Changes in revaluation reserve -
-
a) increases (due to) - -
- hedging revaluation - -
b) decreases (due to) - -
- hedging revaluation - -5.2. Closing balance of revaluation reserve -
-
Closing balance of equity 1 829 765 1 433 771
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM 1 JANUARY 2011 TO 31
DECEMBER 2011
2011 2010
PLN'000 PLN'000CASH FLOWS FROM OPERATING ACTIVITIES
GROSS PROFIT 419 968 263 690
Share in net profits (losses) of subsidiaries valued (101) (36)
with equity methodAmortisation and depreciation 153 118 157
360
Exchange gains (losses) (529) (2 666)Interest and profit sharing (dividend) 24 019 53
665
Profit (loss) on investment activities 21 616 6
838
Change in provisions 964 7 648
Change in inventory (38 083) (53 158)
Change in receivables (66 722) (133 657)
Change in short-term liabilities excluding credits 132 514 50 955
and loans
Other adjustments 436 (2 609)CASH FLOWS FROM OPERATING ACTIVITIES 647 200 348
030
Interest paid (1) -
Income tax paid 11 (204)NET CASH FLOWS FROM OPERATING ACTIVITIES 647 210 347
826
CASH FLOWS FROM INVESTMENT ACTIVITIES
Inflows 23 156 27 475Disposal of intangible and tangible fixed assets 554 2
612
From financial assets, including: 105
140
In related parties 105 140
dividend and profit sharing 105 140
sales of financial assets - -
In other entities - -
sales of financial assets - -
interest - -Other inflows from investment activities 22 497 24
722
Outflows 82 429 139 351Purchase of intangible assets and tangible fixed assets 38 991 109 427
For financial assets, including: -
-
In related parties - -
In other entities - -
purchase of financial assets - -Advance payments for fixed assets in construction -
-
Other outflows from investment activities 43 438 29
924
NET CASH FLOWS FROM INVESTMENT ACTIVITIES (59 273) (111
877)
2011 2010
PLN'000 PLN'000CASH FLOWS FROM FINANCIAL ACTIVITIES
Inflows 29 743 634
Credits and loans 29 738 613Other inflows from financial activities 5
20
Outflows 151 659 244 519Dividend and other payments to shareholders -
-
Repayment of credits and loans 126 471 188
870
Payment of liabilities arising from financial leases -
-
Loans granted 100 -
Interest 17 532 29 362Other outflows from financial activities 7 556 26
286
NET CASH FLOWS FROM FINANCIAL ACTIVITIES (121 916) (243 885)
TOTAL NET CASH FLOWS 466 021 (7 936)
BALANCE CHANGE IN CASH 466 031 (7 070)Change in cash due to exchange differences 10
865
CASH OPENING BALANCE 23 313 30 383
CLOSING BALANCE OF CASH 489 333 23 313
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED AS AT 31 DECEMBER 2011
1. GENERAL INFORMATION The Group parent company's name has been Mondi Swiecie Spolka Akcyjna since the court decided to register on 16 May 2008 a new name of the Company. The Extraordinary General Meeting of Shareholders of the Company adopted a resolution regarding rebranding of the Company from Mondi Packaging Paper Swiecie Spolka Akcyjna to Mondi Swiecie Spolka Akcyjna on 21 March 2008. The registered office of the parent company is Swiecie, ul. Bydgoska 1. The Company was established on the basis of the notarised deed, Repertory A no. 1887/90 dd. 17 December 1990, in the Individual Notary Public Office No. 18 in Warsaw run by a notary public, Pawel Blaszczak as a result of the transformation of the state owned company "Zaklady Celulozy i Papieru" with its registered office in Swiecie into a sole shareholder company of the State Treasury.
Presently, the Company is registered in the National Court Register of Companies (KRS) in the District Court in Bydgoszcz, 13th Economic Division under KRS No. 25742,
Pursuant to the Polish Statistical Classification of Economic Activities the Company is classified under no. 17.12 - manufacture of paper and board, whereas according to the Warsaw Stock Exchange the Company is presented in the wood
industry sector.
The structure of the Mondi Swiecie Group
As at the balance sheet date the Mondi Swiecie Group comprises:
Parent company - Mondi Swiecie S.A., and
Subsidiary - Swiecie Recykling Sp. z o.o.,
Associated company - Polski System Recyklingu - Organizacja Odzysku S.A.
The consolidated financial statements prepared as at 31 December 2011 cover the following entities:
Parent company - Mondi Swiecie S.A.
Company valued with the full method:
- Swiecie Recykling Sp. z o.o.,
Companies valued with the equity method:
- Polski System Recyklingu - Organizacja Odzysku S.A.
The financial statements of the subsidiary are prepared for the same reporting period as the financial statements of the parent company and using the same rules of accounting.
All balances and transactions between the Group companies have been fully eliminated.
The consolidated financial statements have been prepared in PLN. PLN is a functional and presentation currency for the Group.
Duration of the Group's business
The duration of activities for each company of the Group is indefinite.
The balance sheet date and the period of time covered by the financial statements
Financial statements consist of:
- the data of the year from 1 January to 31 December 2011, - the comparative data of the year from 1 January to 31 December 2010.
Information concerning management board and supervisory board of the parent entity as at 31 December 2011.
Management Board President of the Board: Maciej Kunda Members of the Board: Boguslaw Bielecki Tomasz Katewicz Florian Stockert Jan Zukowski
Supervisory Board Chairman of the Supervisory Board:Peter Oswald
Members of the Supervisory Board: Peter Machacek
Ryszard Gackowski
Karol Mergler
Franz J. Hiesinger
Jaroslaw Kurznik
Klaus Peller
Ladimir Enore Pellizzaro
Walter Seyser
Shareholders' structure of the parent company
Framondi N.V. (S.A. located in Amsterdam, Fort Willemweg 1, 6219 PC Maastricht) - 33 000 000 shares, 66.00% in share capital,
ING OFE - 4 998 750 shares, 10.00% in share capital,
Aviva OFE Aviva BZ WBK - 3 655 965 shares, 7.31% in share capital,
others - 8 345 285 shares, 16.69%.
The final owner of the whole Mondi Group is Mondi plc.
Statements Pursuant to s 92 subsection 1 paragraphs 5 and 6 of the Regulation of the Minister of Finance dated as at 19 February 2009 regarding information to be published by issuers of securities on a current and periodic basis and conditions for information required by law of a non-member state to be recognised as equivalent, the Management Board of Mondi Swiecie S.A. declares as follows:
true and fair view of reported financial statements
The Management Board of Mondi Swiecie S.A. composed of the following Members:
Maciej Kunda - President of the Management Board,
Boguslaw Bielecki - Member of Management Board, Financial Director,
Tomasz Katewicz - Member of the Management Board, Production Director,
Florian Stockert - Member of the Management Board, Sales Director,
Jan Zukowski - Member of the Management Board, Investment and Development Director
declares that the consolidated financial statements for the year 2011 and comparative data have been prepared in accordance with the accounting rules in force and reflect in a true, reliable and clear manner the financial position and assets-related condition of the Group and the Group's financial result. The statements present the Group's real development, achievements and the review of the Company's situation including the description of key risks and hazards.
the appointment of the entity entitled to audit the financial statements
Pursuant to the Statute of Mondi Swiecie S.A., the Management Board of the Company entrusted the Supervisory Board with the appointment of the authorised entity to audit the financial statements. The Supervisory Board, by virtue of the Resolution of 9 June 2011, at a request of the Management Board, appointed an entity authorised to audit the separate financial statements and the consolidated financial statements for the year 2011 and to review the separate financial statements and the consolidated financial statements for the first half-year 2011. Deloitte Audyt Sp. z o.o., 00-549 Warszawa, ul. Jana Pawla II 19 was appointed. The Management Board of Mondi Swiecie S.A. declares that Deloitte Audyt Sp. z o.o., the entity authorised to audit the financial statements that will audit the separate financial statements and the consolidated financial statements for 2011 was appointed in compliance with the legal provisions in force. Further, this company and expert auditors who are involved in auditing the financial statements fulfil the conditions for issuing an impartial and independent opinion on the audit, in pursuance with relevant national law.
Modification of comparative data
In the reporting period, no changes were made to the presentation of financial statements.
2. ACCOUNTING PRINCIPLES APPLIED BY THE GROUP
Accounting principles
The consolidated financial statements were prepared in compliance with the International Financial Reporting Standards (IFRS) in the form approved by the European Union.
The International Financial Reporting Standards in the form approved by the European Union do not differ significantly from the regulations adopted by the International Accounting Standards Board, excluding the standards, amendments to standards and interpretations specified below, which have not been adopted for application yet as per 13 February 2012:
IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2015),
IFRS 10 "Consolidated Financial Statements" (effective for annual periods beginning on or after 1 January 2013),
IFRS 11 "Joint Arrangements" (effective for annual periods beginning on or after 1 January 2013),
IFRS 12 "Disclosures of Involvement with Other Entities" (effective for annual periods beginning on or after 1 January 2013)
IFRS 13 "Fair Value Measurement" (effective for annual periods beginning on or after 1 January 2013),
IAS 27 (revised in 2011) "Separate Financial Statements" (effective for annual periods beginning on or after 1 January 2013),
IAS 28 (revised in 2011) "Investments in Associates and Joint Ventures" (effective for annual periods beginning on or after 1 January 2013),
Amendments to IFRS 1 "First-time Adoption of IFRS" - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on or after 1 July 2011),
Amendments to IFRS 9 "Financial Instruments" and IFRS 7 "Financial Instruments: Disclosures" - Mandatory Effective Date and Transition Disclosures,
Amendments to IAS 1 "Presentation of financial statements" -Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012),
Amendments to IAS 12 "Income Taxes" - Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012),
Amendments to IAS 19 "Employee Benefits" - Improvements to the Accounting for Post-employment Benefits (effective for annual periods beginning on or after 1 January 2013),
IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine" (effective for annual periods beginning on or after 1 January 2013).
As estimated by the Company, the above-mentioned standards, interpretations and amendments to standards would not have any significant impacts on the financial statements if they were used by the entity as at the balance-sheet date. Hedge accounting for financial assets and liabilities the rules of which have not been approved for use by the European Union is still beyond the regulations adopted by the European Union. As estimated by the Company, the application of hedge accounting for financial assets or liabilities according to IAS 39 "Financial Instruments: Recognition and Measurement" would not have any significant impacts of the financial statements if they were adopted for use as at the balance-sheet date.
When preparing these financial statements the Company did not apply the following standards, amendments to standards and interpretations, which had been published and approved for use in the European Union, but which have not become effective yet:
Amendments to IFRS 7 "Financial Instruments: Disclosures" - Transfers of Financial Assets, adopted by the EU on 22 November 2011 (effective for annual periods beginning on or after 1 July 2011).
The Company decided not to apply these standards, amendments to standards and interpretations earlier. As estimated by the entity, the above-mentioned standards, amendments to standards and interpretations would not have any significant impacts on the financial statements if they were used by the entity as at the balance-sheet date. When preparing these financial statements the Company applied the following amendments to the existing standards published by the International Accounting Standards Committee and approved by the European Union which became effective in 2011: Amendments to IAS 24 "Related Party Disclosures" - Simplifying the disclosure requirements for government-related entities and clarifying the definition of a related party, adopted by the EU on 19 July 2010 (effective for annual periods beginning on or after 1 January 2011),
Amendments to IAS 32 "Financial Instruments: Presentation" - Accounting for rights issues, adopted by the EU on 23 December 2009 (effective for annual periods beginning on or after 1 February 2010),
Amendments to IFRS 1 "First-time Adoption of IFRS"- Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, adopted by the EU on 30 June 2010 (effective for annual periods beginning on or after 1 July 2010),
Amendments to various standards and interpretations "Improvements to IFRSs (2010)" resulting from the annual improvement project of IFRS published on 6 May 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording,adopted by the EU on 18 February 2011 (amendments are to be applied for annual periods beginning on or after 1 July 2010 or 1 January 2011 depending on standard/ interpretation), Amendments to IFRIC 14 "IAS 19 - The Limit on a defined benefit Asset, Minimum Funding Requirements and their Interaction" - Prepayments of a Minimum Funding Requirement, adopted by the EU on 19 July 2010(effective for annual periods beginning on or after 1 January 2011), IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments", adopted by the EU on 23 July 2010 (effective for annual periods beginning on or after 1 July 2010).
Main accounting principles used by the Group are presented below.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the parent company and financial statements of its controlled companies (or subsidiaries) as at the balance sheet date.
An entity is controlled when the parent company has a possibility of impacting financial and operating policies of the controlled entity to benefit from its business. As at the date of acquisition assets and liabilities of the acquired unit are valued according to their fair value. In case the acquisition price exceeds the fair value of identifiable net assets acquired, such an excess of price is shown as the goodwill. In case the acquisition price is lower than the fair value of identifiable net assets of the acquired company, such a difference is shown as a profit in the profit and loss account for the period of time when acquisition was finalised. Financial results of acquired or sold companies in the year under review are shown in the consolidated financial statements from/ until their acquisition or sale respectively. Investments in associates
An associate is an entity over which the Company has significant influence. The Company participates in the financial and operating policy decisions of the associate but does not control those policies. Associates that compose the Group are Polski System Recyklingu - Organizacja Odzysku S.A. Financial participation in associates is valued with equity method, except for the situation where investment is classified as for sale.
Reporting periods of associates and the Group are identical and all entities use the same accounting principles.
Investments in associates are presented in note no. 17.
Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of carried values (purchase price) and fair value less sale costs. Non-current assets are classified as held for sale if it is expected that such sale will be completed within one year after the date of classification change.
Shares in associates classified as held for sale, pursuant to IFRS 5, are not recognised in the consolidated financial statements according to equity method.
Revenue recognition
Revenues from sales of products, goods and services are included in the fair value of receivables or outstanding payments and they represent liabilities under normal business operations, less discounts, VAT and other sales taxes.
Revenues from sales of products and goods are shown after all conditions below have been fulfilled:
Significant risk and benefits from products and goods' property rights are transferred from the Group to a purchaser;
Managerial functions are ceded by the Group to the extent related to the property right and effective control over products and goods sold;
It is possible to reliably valuate the revenues amount;
There is a likelihood that the Company is granted economic benefits related to the transaction;
It is possible to reliably valuate incurred or expected costs of transaction.
Interest income is accrued on a time basis, in relation to the amount due, according to the effective interest rate method.
Dividend income is recognised when the shareholders' rights to receive payment have been established.
Subsidies Governmental subsidies are recognised as revenue if it is reasonably certain that such subsidy will be received and all subsidy related conditions will be fulfilled. If a subsidy concerns a specific cost item, then it is recognised as revenue that is commensurate / proportional to costs the subsidy is intended to offset. If a subsidy relates to the asset item, then the subsidy fair value is recognised on the account of future periods' revenues and then it is gradually written off, by way of equal annual write-offs, to the statement of comprehensive income for the estimated service life of a related asset item. Foreign currencies Transactions made in a currency other than the Polish zloty (PLN) are valued at the average National Bank of Poland exchange rate as at the last business day prior to the date of transaction. Payments to and from foreign currency bank accounts are recorded using purchasing or selling exchange rates used by the bank where the transaction is made. As at the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are converted using the average National Bank of Poland exchange rate as per the same day.
In order to hedge its exposure to certain foreign exchange risks, the Group enters into foreign currency forward contracts. See below for details of the Group's accounting policies in respect of such derivative financial instruments.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs that do not meet the above-mentioned criteria are recognised in profit or loss in the period in which they are incurred.
Retirement benefit costs
Retirement benefit costs provision is recorded equal to the valuation being carried out using actuarial method. The basis for the provision calculation is the Company's collective employment agreement. Unregulated issues are solved based on the Polish Labour Code.
Division into long and short-term provisions is made according to the proportion established using statistic methods used by an actuarial.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable (CIT) is based on the taxable profit for the year established in accordance to corporate income tax law. The taxable profit is calculated based on a gross result that is next adjusted by non-taxable revenues, expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates that are valid in a specific tax year. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax provision is generally recognised for all positive taxable temporary differences and deferred tax assets are recognised with regard to all negative taxable temporary differences in such an amount that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Value of deferred tax assets is verified as at each balance sheet day and is reduced appropriately if future tax profits sufficient to realise a portion or all of a given deferred tax asset cease to be expected.
Deferred tax is calculated using the tax rates that are expected to be in force in the period where the constituent of assets will be completed or the provision will be consumed, disregarding tax exemptions the application of which is not certain.
Deferred tax is recognised in the statement of comprehensive income, except when it relates to deferred tax provision from hedged deals that are charged or credited directly to equity. Assets and deferred tax provisions are separately presented in the statement of financial position and are not offset.
Presentation of the corporate income tax exemption due to running economic activities in Special Economic Zone
Due to the execution of the investment project (PM7 machine), Mondi Swiecie S.A. was granted, on 20 December 2007, a permit to run economic activities in the Pomorska Special Economic Zone. Thus, the Company was granted the entitlement to be exempt from income tax for some part of its income. The existing enterprise of Mondi Swiecie S.A., as well as the areas acquired from State Forest Enterprise were included into the area of the Pomorska Special Economic Zone in pursuance with the Regulation of the Council of Ministers of 2 November 2007 amending the Regulation regarding the Pomorska Special Economic Zone (Journal of Laws 2007 no. 211 item 1545). The above-mentioned permit authorised Mondi Swiecie S.A. to obtain public aid, which comprises the exemption from corporate income tax starting from the following month after the month when conditions of bearing capital expenditures and reaching the specific employment level have been fulfilled. Mondi Swiecie S.A. fulfilled the above-mentioned conditions in July 2009 and was granted the entitlement to be exempt from the tax for the part of its income since August 2009 till the time for which the Pomorska Special Economic Zone was established, which is till 30 November 2017. Thus, the incomes from basic activities, i.e. sale of finished products were exempt. The permit is now being examined by the European Commission for compliance of the public aid granted with the common market under Regulation (EC) No. 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty. The Group expects that this process will end in 2012. In the event the process prolongs beyond 2012, the total domestic limit for public aid (EUR 37.5 million) that may be granted to the Group with no necessity of obtaining the consent of the European Commission will be exhausted this year. Then, the entitlement of Mondi Swiecie S.A. to be exempt from corporate income tax under the permit as referred above, would be suspended till the European Commission procedure is closed. In this situation, the Group would pay monthly advance payments for corporate income tax in the amount that disregards the exemption, starting from the month when the allowed domestic limit was exceeded. Since the Group does not expect that the European Commission procedure will extend beyond 2012, the full amount of corporate income tax as covered by the exemption under the permit to run business activities in the Pomorska Special Economic Zone should be settled within the corporate income tax for 2012. New investment project related expenditures are the basis for calculating the public aid pursuant to the rules specified in s 4 Clause 3 of the Regulation of the Council of Ministers of 5 December 2006 on the Pomorska Special Economic Zone (Journal of Laws 2006, no. 228 item 1667). Based on discounted expenditures incurred until 31 December 2011, Mondi Swiecie S.A. was authorised to receive public aid that is not higher than PLN 247 853 thousand. The public aid comprising the exemption of the part of income from the corporate income tax may be consumed in the period of time over which Mondi Swiecie S.A. shows the income from the activities covered by the exemption, which is that the total income of Mondi Swiecie S.A. less taxed income, not covered by the exemption, is positive. The calculated amount of public aid consumed till 31 December 2011 was PLN 91 802 thousand (this includes discounted amounts of corporate income tax exemption, real property tax exemption and the amounts of refunding the costs of equipment and providing equipment to workplaces). Out of this amount, the discounted value of exemption from corporate income tax was PLN 83 928 thousand (nominal value of exemption was PLN 104 119 thousand).
Tangible assets
Fixed assets used for production, delivery of goods and services as well as for administrative purposes are shown in the statement of financial position according to their purchasing prices or manufacturing costs, less depreciation deduction in future periods and deduction due to a permanent loss of value.
Depreciation of fixed assets is presented in the statement of comprehensive income.
Fixed assets under construction are measured in the statement of financial position at manufactured costs less impairment write-offs. The manufactured cost is increased by fees and for a specific group of assets - borrowing cost capitalised according to principles described in the accounting principles. Depreciation of these fixed assets starts in the month following their commissioning.
Depreciation is calculated for all fixed assets, excluding land and fixed assets under construction, using the straight-line method over the estimated duration of their economic usefulness.
For particular groups of fixed assets, the following operation life periods were used:
Buildings and structures - from 20 to 60 years Machines and technical equipment - from 5 to 20 years Means of transport - from 4 to 6 years Other fixed assets - from 3 to 10 years
Depreciation rates are established based on assets and intangible assets' estimated economic useful life. The Company verifies, on an annual basis, the economic useful life periods based on current estimations.
All incomes or losses resulting from sale/liquidation or discontinued use of fixed assets are determined as the difference between revenues from the sale of fixed assets and the net value of those fixed assets, and are shown in the statement of comprehensive income in the period, when a specific item of fixed assets was removed from the statement of financial position. Intangible assets
Intangible assets were measured at the purchase cost, or the cost of manufacture if they were manufactured by the Company.
Intangible assets are amortised on a straight-line basis over their estimated useful lives.
Licences
Licences are measured in the statement of financial position at the purchase cost less depreciation on a straight-line basis over their estimated useful lives.
Impairment of assets At each balance sheet date, the Group reviews the net amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment write-off. If the item of fixed assets does not generate cash flows that to a great extent are independent from flows generated by other assets, the analysis is made for a group of assets generating cash flows to which the item of assets belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the value of money in time and the risks specific to the asset. If the recoverable amount of an asset (or group of assets) is estimated to be less than its assets net book value, the value is reduced to its recoverable amount. An impairment loss is recognised immediately in cost of the period when it occurred, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the net value of asset (or group of assets) is increased to the revised estimate of its recoverable amount, but so that the increased net value does not exceed the net value that would have been determined if no impairment loss had been recognised for the asset in prior years. A reversal of an impairment loss is recognised in revenues, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation reserve. Inventory
Inventories of finished goods, semi-products are measured at actual cost of manufacture, not higher than their net sale prices. Manufacturing costs comprise direct materials and direct labour costs and those overheads that correspond to the level of such costs under normal use of production capacities.
The Group adopts a principle of accounting of underutilisation costs of departments manufacturing finished and semi-finished goods. Underutilisation cost affects the financial result of the period and is not taken into consideration in finished and semi-finished goods inventories valuation. In the case of semi-finished and finished products, the period of underutilisation of production capacities is a shutdown of a manufacturing department due to a lack of raw material, lack of orders or other events for longer than 30 calendar days, irrespective of the cause. If such situations occur, shutdown costs are calculated as the product of hours of shutdown and unit machine-hour cost of a shutdown department. In the months of annual maintenance shutdown, finished and semi-finished products are valued at the manufacturing cost of the previous month.
The net sale price corresponds to the estimated sale prices minus all necessary costs to complete the production and necessary costs to effect a sale.
Stocks of materials and goods are shown according to the purchasing prices that are not higher than the net sale price.
Certificates of green energy origin as goods are valued according to the fair value, which shall mean the market price at the property market less costs
of sales. Financial instruments
Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Trade receivables and other receivables
Trade receivables as of the date of origin are measured at the current expected amount due, and are recognised in later periods according to the depreciated cost fixed using the effective interest rate. Default interest is accounted in the amount resulting from agreements and is covered by a 100% write off.
Also, prepaid expenses - mainly insurances costs are presented as trade receivables.
Trade receivables, excluding insured receivables and inter-company receivables, are adjusted by write offs in the amount of 2% of receivables.
Further,
Overdue receivables > 1 month: 10% of the value less VAT,
Overdue receivables > 3 months: 50% of the value less VAT,
Overdue receivables > 4 months: 100% of the value less VAT.
Additionally, not overdue receivables falling due more than 90 days are discounted.
Bad receivables are charged to cost when their irrecoverability is stated.
Receivables denominated in the foreign currencies are revaluated using the average exchange rate of the National Bank of Poland as at the balance sheet day.
Investments in securities
All investments are initially measured at the purchased value equal to fair value of amounts paid less transaction costs. All standard transactions like purchase and sale of financial assets are booked as at the purchase or sale day.
After the initial measurement, the investments are classified as held for trading, available for sale and measured at the fair value as at balance sheet date.
If securities were classified as held for trading, gains and losses resulting from the change of fair values are presented in the statement of comprehensive income for a given period. In the case of available for sale assets, gains and losses resulted from the change of their fair value affect directly the equity till the sale of the assets or impairment identification. Then the accumulated gains or losses, that previously affected the equity, are moved to the statement of comprehensive income for the given period. Bank borrowings
Interest-bearing bank loans (also overdrafts) are accounted at the amount of received withdrawn less the direct costs incurred in connection with the borrowing of funds.
Financial costs, including provisions paid at a moment of repayment or credit write-off and direct costs of incurring the credit, are shown in the statement of comprehensive income using the nominal interest rate method and they increase the book value of a financial instrument with respect to payments made in the current period. Non-current liabilities in books are valuated at nominal value, i.e. including default interest or valorisation of the payables - at the value regulated in the agreement.
Trade liabilities and other liabilities
Liabilities denominated in foreign currencies are valuated at the average rate of exchange applicable set by the National Bank of Poland as at the balance sheet day.
Financial risk management Business and financial activities of the Group are exposed to a number of financial risks. If these risks were not managed, they could adversely impact current and future results of the Group. The Group distinguishes the following kinds of financial risks: market risk (interest rate risk and foreign currency risk), credit risk, liquidity risk and capital risk. The principles and procedures used by the Group are presented in "the financial risk management policy" approved by the Management Board, in compliance with the policy that is binding in the entire Mondi plc Group. Based on powers of attorney granted by the Management Board, chosen specialists from the Group contract hedge transactions. The risk identification, evaluation and hedging in the Group is strictly supervised by the Group Finance Director and Treasury Director of Mondi plc Group. The main purpose of derivatives used by the Group is to hedge against financial risks arising from the Company's business operations. The Group's instruments include foreign currency forward contracts (in case of foreign currency risk hedging).
The main risks arising from the Group's operations are:
Market risk The Group's activities are primarily exposed to interest rate risk and foreign currency risk. Both risks are actively monitored on a continuous basis and may be hedged by hedging (currency forward contracts and interest rate swaps). Although cash flows of the Group are exposed to a risk for changes in prices of key raw materials and finished products, such changes reflect rather economical risk than financial. Therefore, the Group is of the opinion that it is not significantly exposed to another price risk as specified in IFRS 7. a)Foreign currency risk
Due to the fact that approximately 67% of sales transactions are performed in foreign currency, while the most of the costs are borne in the reporting currency, the Group is exposed to the currency exchange risk. The foreign currency transactional exposure comprises mainly denominated transactions in EUR, USD and GBP.
The Group may separately hedge future probable sales transactions and future probable significant capital expenditures as well as resulting balance exposure.
The forward contracts that hedge probable future sales transactions and probable future significant capital expenditures are classified as the cash flow hedging and hedging accounting rules are used for them. In accordance with the Mondi Group Policy, in 2011 the Company did not hedge probable sales (excluding CO2) transactions.
The hedge accounting rules are not used for forward contracts hedging the balance exposure.
b)Interest rate risk The Group's exposure to the interest rate risk is primarily related to financial liabilities on interest. According to Group's policy, interest costs may be managed through the use of fixed and variable interest rates as well as interest rate hedging using instruments that replace variable rates with fixed ones (interest rate swaps). However, as decided by the Management Board of the Group, all available credit facilities as at the balance sheet date were based on variable interest rate (WIBOR). Furthermore, in the reporting period the Group did not use any interest rate hedging instruments. Credit risk
The Group contracts hedging and located deposits only in recognised, creditworthy financial institutions. The list of such entities is up-dated on an annual basis by the Director of the Treasury of the Mondi plc Group.
Credit risk related to receivables is significantly limited thanks to the fact that the only trade receivables from exports include receivables from Mondi Packaging Paper Sales GmbH - a distributor being a member of the Mondi plc Group.
In turn, domestic receivables related to paper sales (excluding receivables in relation to Polish entities of Mondi plc Group) are hedged. Customers that are not members of Mondi plc Group are subject to the credit rating verification procedure using reports from business intelligence agencies. Each limit has a maximum credit limit and open receivables are monitored on a current basis
in the Group. Liquidity risk
The Group's objective is to maintain flexibility of funding through the use of bank credits and bank overdrafts. The Group's policy is to reduce liquidity risk through maintaining the floating assets provision which constitutes minimum 5% of annual turn-over of the Group. The floating assets provision comprises cash and cash equivalents, financial investments that can be liquidated within 7 days and not used credit facilities.
The derivatives used by the Group are valued according to the fair value. The fair value of currency forward contracts is determined in relation to the current forward rates for the contracts with a similar effective date. The value of contracts for changing interest rates is determined in relation to the fair value of similar instruments. In the case of cash flow hedge for the future probable sales contracts or future probable significant capital expenditures that fulfil the criteria of hedging accounting, a portion of the profit or loss on the hedging instrument which is found to be an effective hedging is shown directly in the equity. The portion that is found to be an ineffective hedge is shown in financial costs or revenues of the current period. In the case of cash flow hedge for future probable sales transactions hedging, profits or losses shown in the equity are transferred to the profit and loss statement in the same period of time when the hedged probable future sales contract impacts the financial result. In the case of cash flow hedge for future probable significant capital expenditures, profits or losses from the valuation are initially shown in the equity. When the transaction is settled they will be referred to the statement of financial position thus adjusting the investment project commenced or the initial value of fixed assets.
Profits and losses resulting from changes in the fair values of the transactions, for which the hedge accounting is not used, are directly shown in financial incomes or costs of the current period.
The Group discontinues to use the hedge accounting rules when the hedging instrument expired or was sold, completed or realised or when hedge does not fulfill the conditions that allow using the hedging accounting rules for such an instrument. In such a case, the total profit or loss on the hedging instrument, which has been shown in the equity to date, is still shown in the equity until the expected transaction is performed. If such a transaction is unlikely to occur, then the total net profit or loss as shown in the equity is transferred to the financial result of the current period. Derivatives embedded in other financial instruments or contracts that are not financial instruments are considered to be separate derivatives if the nature of the embedded instrument and instrument related risks are not directly related to the nature of the basic contract and contract resulting risks. If the basic contracts are not valuated according to the fair value, the changes to them are reflected in the statement of comprehensive income. - Capital risk
The Group manages the capital to ensure that the Group's companies will be able to continue their business with maximising profitability for shareholders thanks to optimisation of the debt to equity ratio. The Group's capital structure includes debt that comprises credits, cash and cash equivalents and capital for parent company shareholders, including issued shares, reserve capitals and retained profit. Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and when it is probable that due to fulfilment of such an obligation the Group will be required to outflow the funds representing economical benefits and if the amount of obligation may be reliably valued.
The value of the provisions is determined based on the estimations, excluding the provisions for the retirement benefits to which the actuarial method is applied.
Emission rights
Granted emission rights are shown off balance.
The Group creates provisions for pollution cost, when the amount of possessed emission allowances does not cover the actual pollution emission. The provision is calculated based on the current market price plus expected penalty fee and is presented in the statement of comprehensive income.
Sale of excessive emission allowances is recognised in the financial period, when the sale of the emission allowances was performed.
Net profit per share
The net profit per share for each period is calculated by dividing the net profit for a specific period of time by the average weighted number of shares in the reporting period.
The diluted profit per one share is calculated by dividing the net profit for a specific period for Shareholders by the average weighted number of shares in a specific period.
In the reporting period and in 2010 no factors occurred that would result in profit dilution.
Conditional liabilities and receivables
Conditional liabilities mean the obligation to provide performance/ benefits the occurrence of which depends on defined events. Conditional liabilities are not shown in the statement of financial position; however, information on the conditional liability is disclosed unless the likelihood of outflow of means representing economic benefits is minor. Conditional receivables are not shown in the statement of financial position; however, information on the conditional receivables is disclosed if inflow of means representing economic benefits is probable to occur. Management Board estimation Preparing the financial statements in accordance to IFRS requires some assumptions and estimates to be made. They impact the amounts shown in the financial statements and in the notes to the financial statements. Assumptions and estimations are based on the best knowledge of the Management Board of present and future events and actions; however, the actual results may differ from the forecasted performance. The areas where the Management Board made estimations are provisions. The assumptions used for estimation are described in the accounting policy and relevant notes.
3. REVENUES FROM OPERATING ACTIVITIES
Revenues from sales are as follows:
Continued activities 2011 2010
PLN' 000 PLN' 000
Revenues from sales of products 2 725 784 2 251 013
Revenues from sales of goods and materials 45 938 12 661
2 771 722 2 263 674
Discontinued activities - -Other revenues from operating activities 2 626 1 078
Total 2 774 348 2 264 752
Revenues from sales of products - by type
2011 2010
PLN' 000 PLN' 000
Products, including: 2 570 938 2 092 006
Paper 2 556 955 2 080 952
Others 13 983 11 054
Services 154 846 159 007Net revenues from sales of products 2 725 784 2 251 013
Revenues from sales of products - by territorial structure
2011 2010
PLN' 000 PLN' 000
Domestic 948 873 813 816
Export 1 776 911 1 437 197Net revenues from sales of products 2 725 784 2 251 013
Revenues from sales of goods and materials - by territorial structure
2011 2010
PLN' 000 PLN' 000
Domestic 4 652 2 248
Export 41 286 10 413Net revenues from sales of goods and materials 45 938 12 661
Due to the fact that the Group's activity, as far as types of goods and products and geography sectors are concerned, is uniform; financial data concerning business segments are not presented in the consolidated statements.
4. OPERATING COSTS
Profit on operating activities resulted excluding following costs:
2011 2010
PLN'000 PLN'000
Depreciation
153 084 157 324Consumption of materials and energy 1 534 581 1 252 142
External services 446 215 374 943
Taxes and charges 27 184 25 793
Excise 326 988
Payroll 76 176 69 885Social security and other benefits 16 052 14 689
Other costs by type 75 045 48 343
Goods and materials sold 4 712 3 206Exchange rates gains/losses net (1 637) (1 823)
2 331 412 1 944 502Change in the balance of products (16 450) (12 796)
Manufacturing cost of products for internal purposes - -
Selling and distribution costs (249 026) (222 242)
General and administrative costs (142 514) (113 653)
Manufacturing cost of products sold 1 923 422 1 595 811
Other operating costs (2 043) (2 322)
5.EMPLOYMENT COSTS
Below information presents average employment (including management):
2011 2010
Number of Number of
employees employees
Production employment 697 703Administration and general employment 326
319
Management 5 4
Supervisory 3 3
Total employment 1 023 1 022
2011 2010
PLN'000 PLN'000The Group's employment costs are
following:
Payroll 76 176 69 885Social security and other benefits 12 288 11
303
Other employees benefits 3 764 3 385
Total 92 228 84 573
6. OTHER OPERATING REVENUES
2011 2010
PLN'000 PLN'000Profit from liquidation of non-financial fixed assets 219 172
Compensation 67 340
Other 2 340 566
Total 2 626 1 078
7. OTHER OPERATING COSTS
2011 2010
PLN'000 PLN'000Loss due to disposal of non-financial fixed assets 1 026 2 207
Donations 296 115
Other 721 -
Total 2 043 2 322
8. FINANCIAL REVENUES
2011 2010
PLN'000 PLN'000Revenue from interest on bank loans 9 391 501
Revenue from other interest 227 337
Dividends 105 140Valuation of forward currency contracts - 1 211
Positive differences on exchange 3 805 -
Other 101 5
Total 13 629 2 194
9. FINANCIAL EXPENSES
2011 2010
PLN'000 PLN'000Interest costs - credits and loans 28 886 57
016
Other 192 254Total of external costs of financing the activity 29 078 57
270
Valuation of forward currency contracts (765)
-
Costs on transactions of derivatives 21 581 2
410
Other - 10 967Recalculation of last year's valuation of derivative
instruments 1 211 (1 383)
Total 51 105 69 264
10. INCOME TAX
2011 2010
PLN'000 PLN'000Income tax for the current year: 45 230 29 152
Corporate income tax for current year 45 123 29 189
Corporate income tax for last year 98 (37)
Tax on dividends 9 15
Deferred tax: (21 256) (14 794)
Total 23 974 14 373
Changes in assets and reserves due to deferred tax are presented in notes no. 19 and 24.
Corporate income tax was calculated by the rate of 19%.
Income tax calculation in the statement of comprehensive income in correspondence with the financial result:
2011 2010
PLN'000 PLN'000
Gross profit (loss) 419 968 263 690
Differences between gross profit (loss) and the taxable (182426) (109 874)
income
Prepayments and accruals 11 480 10 315
Receivables write-offs 324 (108)Depreciation of fixed assets under tax allowance 524
524
Costs that are not income costs applicable to prior years 5 010 5 205
Assets revaluation 5 489 2 880Valuation of financial instruments 446 (2
594)
Difference between balance-sheet amortization and tax 79 004 80 136
amortization
Valuation of property rights - certificates of origin of 17 521 (25 963)
green energy
Provisions for discounts (2 197) 10 541
Other fixed differences 6 275 5 185Other temporary differences (619) 2
229
Income exempt from corporate income tax due to (305 683) (198
336)
running business activities in Special Economic Zone
Income tax base 237 542 153 704Income tax calculated by the rate 19% 45 132 29
204
Increases, allowances, deductions and decreases of income (9) (15) tax
Income tax declared to the tax authorities 45 123 29
189
Corporate income tax for last year 98
(37)
Tax on dividends 9 15Change in the status of assets and deferred tax provision (21 256) (14 794)
Income tax shown in the profit and loss account 45 230 14
373
The table below shows the calculation of effective interest rate for corporate
income tax:
2011 2010
PLN'000 PLN'000
Gross profit (loss) 419 968 263 690Corporate income tax calculated in 2010 and 2009 respectively 79 794 50 101 according to interest rate of 19% in Poland
Tax from fixed difference 2 153 1
956
- Costs that are not income costs applicable to prior years 952 990
- Dividends received (26) (27)
- National Disabled Persons Rehabilitation Fund contribution 161 146
- Representation 22 121
- Consumption 67 47- Depreciation write-offs for cars 29
21
- Subsidies received (2) 170
- Donations 50 15- Provision for environmental fees (259)
259
- Other 1 159 219
Tax on dividends 9 15Corporate income tax for last year 98
(20)
Corporate income tax 82 054 52 057
Effective tax rate 19.54% 19.74%Tax exemption due to running business activities in Special (58 080) (37 684) Economic Zone
Corporate income tax after taking into account the exempted 23 974 14 373
income
Effective tax rate including the exempted tax 5.71% 5.45%
11. DIVIDENDS
The Parent company's net profit for 2010 amounting to PLN 249 317 thousand was wholly distributed to the supplementary capital.
The decision on distribution of net profit for 2011 will be taken by the General Meeting of the Shareholders during the meeting held after the date of preparation of these financial statements.
12. PROFIT PER SHARE
The calculation of the profit per share and of the diluted profit per share was based on the following information:
Profits
2011 2010
PLN'000 PLN'000
Profit calculated as the base of value per share 395 994 249 317
Profit per share 7.92 4.99
Number of shares issued
2011 2010
pieces in pieces in
thousand thousandWeighted average number of shares to calculate
the value 50 000 50 000
of profit per share
In the reporting period there were no financial instruments the Group that would result in profit dilution.
13. OPERATING LEASE AGREEMENTS
The Group as a leaseholder
2011 2010
PLN'000 PLN'000
Operating leasing charges presented at the current profit 75 023 60 690
and loss account
The operating leasing is a lease of electric power and heat (steam) generating fixed assets, including electric energy from renewable sources to Saturn Management ("SM"). The signed contracts will remain in force till the year 2022.
The General Agreement signed with Polish Energy Partners (PEP - 100% SM shareholder) provides that in the event specified conditions occur, each Party shall be entitled to use the option to purchase or sell all rights and obligations of PEP, being SM limited partner and to purchase 100% shares in Saturn Management Sp. z o.o.
In current report no. 3/2011 as of 4 February 2011, the Management Board of the
Group notified about the intention of exercising the Voluntary Call Option
toward Saturn Management provided that the Arbitration Court of the Polish
Chamber of Commerce in Warsaw renders a favourable award for the Company in the
proceedings initiated by the suit brought by the Company against PEP
(information about the dispute is provided in Note no 31 of these financial
statements and Note no. 4.15 to the Report on Business Activities of the Group
for the year 2011).
As at the balance sheet date the current Group's operating leasing liabilities
with the use of the discount rate of 4.99% and the EUR exchange rate of 4.4168
EUR/ PLN amounted to (by date of payment):
2011 2010
PLN'000 PLN'000Leasing fees due to operating leasing
up to one year 79 642 68 993
from 2-5 years 312 579 306 657
above 5 years 93 067 93 695
Total 485 288 469 345
14. INTANGIBLE ASSETS
Intangible assets
PLN'000
GROSS VALUE
As at 31 December 2010 20 302
Increases 816
Decreases due to liquidation 250
As at 31 December 2011 20 868
DEPRECIATION
As at 31 December 2010 17 398
Depreciation for the year 2011 1 386
Decreases due to liquidation 250
As at 31 December 2011 18 534
NET VALUE
As at 31 December 2010 2 904
As at 31 December 2011 2 334
Patents, licenses and trademarks are depreciated by their useful life which is approximately from 3 to 4 years.
* "Fixed assets under construction" include also advance payments for fixed assets under construction.
As at the date of implementation of the IFRS standards the Group decided to use IFRS 1 points 16-19 to valuation of fixed assets. The fixed assets are valued at the fair-value and it is settled as the cost value from this moment. The revaluation of fair-value was performed as at 1 January 2004.
In 2011, the net value of fixed assets was reviewed and no prerequisites were found for executing the value loss test.
As at the balance sheet date, the Group did not hold any liabilities to acquire
fixed assets.
15. TANGIBLE ASSETS
Machinery,
Land, Fixed assets equipment
buildings and under and other Total
structures construction* fixed
assets
PLN'000 PLN'000 PLN'000 PLN'000
OPENING BALANCE OR
VALUATION
As at 31 December 2010 716 088 34 578 1 732 228 2 482 894
Increases due to
settlements of fixed assets 3 210 33 818 37 347 74 375
under construction
Decreases 959 41 549 5 073 47 581
As at 31 December 2011 718 339 26 847 1 764 502 2 509 688
DEPRECIATION
As at 31 December 2010 82 204 - 692 251 774 455
Depreciation for the year 22 429 - 129 236 151 665
2011
Decreases due to 892 - 4 323 5 215
liquidation and sales
As at 31 December 2011 103 741 - 817 164 920 905
NET VALUE
As at 31 December 2010 633 884 34 578 1 039 977 1 708 439
As at 31 December 2011 614 598 26 847 947 338 1 588 783
16. EMISSION RIGHTS
Pursuant to Article 57 item 2 and 3 of the Law of 22 December 2004 on
greenhouse gas and other substance emissions trading and pursuant to the
Regulation of the Council of Ministers of 1 July 2008 on adoption of the Carbon
Dioxide National Allocation Plan for 2008-2012 for the European Union Emission
Trading Scheme in the period of time from 1 January 2008 till 31 December 2012
Mondi Swiecie S.A. received emission allowances that is equivalent to CO2
emissions amount of 318 335 tonnes per year.
In January 2011, the additional allocation of allowances of 604 608 tonnes for
2009-2010 (additional CO2 emission allowance of 83 213 for 2009 and 83 213 for
2010 from the national reserve - due to modernisations and changes to the
plants completed in 2007-2008 and of 89 662 for 2009 and 348 520 for 2010 due
to paper machine erection - PM7) were booked on the Mondi Swiecie account.CO2 emission allowances, the use, and surplus of allowances for the last two years are presented in the table below:
Year Average annual number of Estimated use of Surplus (+)/
emission allowances emission allowances Deficiency (-)
2010 750 068 365 582 384 486
2011 750 068 365 618 384 450
The 2011 annual report will be reviewed in the first quarter 2012.
17. INVESTMENTS IN ASSOCIATES VALUED WITH EQUITY METHOD
Associated entities
Name of the % of % at The value Consolidation
associated company Location ownership voting of shares/ method
stocks
% % PLN'000
Polski System
Recyklingu - Warsaw 24.88 24.88 1 126 Equity method
Organizacja Odzysku
S.A.
Name of the related Equity Net profit Liabilities Assets Revenue
company (loss) from sales
PLN'000 PLN'000 PLN'000 PLN'000 PLN'000
Polski System
Recyklingu - 4 527 524 1 410 5 937 9 108
Organizacja Odzysku
S.A.
18. OTHER FINANCIAL ASSETS
Balance as at 31.12.2011 Balance as at 31.12.2010
PLN'000 PLN'000
Other financial assets 168 495
168 495
19. DEFERRED TAX ASSETS
Write-offs Write-offs Write-offs Prepay- Provisions Valuation of Write-downs
to update to update to update for Other forward of Total
the shares' receivables interests ments and discounts provisions financial inventory
value accruals instru-ments
Balance as
at 108 121 26 6 481 998 391 263 2 316 10 704
1.01.2010
Increase - - 5 1 904 2 002 473 - 535 4 919
Decrease - 12 - - - - 263 - 275
Balance as
at 108 109 31 8 385 3 000 864 - 2 851 15 348
31.12.2010,
including:
Shown in
the result - (12) 5 1 904 2 002 473 (263) 535 4 644
for the
period
Shown in - - - - - - - - -
the equity
Balance as
at 108 109 31 8 385 3 000 864 - 2 851 15 348
1.01.2011
Increase - 70 - 2 181 - 285 - 1 035 3 571
Decrease - - 10 - 417 - - - 427
Balance as
at 108 179 21 10 566 2 583 1 149 - 3 886 18 492
31.12.2011,
including:
Shown in
the result - 70 (10) 2 181 (417) 285 - 1 035 3 144
for the
period
Shown in
the equity - - - - - - - - -
The Group did not identify any interim differences that should be included in
deferred tax assets.
20. INVENTORY
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Materials 117 369 79 030
Semi-products and production in 24 616 16 491
progress
Finished goods 95 474 86 334
by production costs 95 474 86 334
Certificates of ecological energy* 28 220 45 741
Total 265 679 227 596
*Certificates of origin of green energy were valuated according to fair value. The fair value shall mean the market price for such assets at the right to assets market reduced by costs of transaction.
Costs of materials consumption as recognized in the statement of comprehensive income in the reporting period amounted to PLN 1 429 882 thousand.
Costs of consumption were increased by inventory write-offs amounting to PLN 3
516 thousand.
21. OTHER FINANCIAL ASSETS
Short-term receivables
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
1. Receivables from related parties 255 278 263 978
a) trade receivables, due less than 12 months 255 278 263 978
b) other - -
2. Receivables from other entities 105 068 75 025
a) trade receivables, due less than 12 months 59 434 37 856
b) due to taxes, subsidies, customs duties, 45 597 37
121
social security charges and other obligations
c) other 37 48
Short-term trade receivables and other 360 346 339 003
receivables
Income tax 25 -
Net short-term receivables, total 360 371 339 003
Receivables write-offs 1 052 724
Gross short-term receivables, total 361 423 339 727
Average period of due dates for trade customers was 45 days. The Group calculated the penalty interest after the due dates.
The Management Board assumes that the net receivables book value is close to the fair-value of receivables.
Changes in receivables write-offs
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000Receivables write-offs opening balance 724 1 146
Increase 658 388
Creation of write-offs 658 388
Decrease 330 810
Closing write-offs 260 384Use of write-offs (connecting 70 426
receivables and write-off)
Receivables write-offs closing balance 1 052 724Foreign currency forward contracts
Although all forward contracts have been bought by the Group to hedge against foreign exchange risk, the Group does not apply hedge accounting, required by IAS 39, to all transactions. Hedge accounting principles do not apply to fair value hedge (non-hedge) for assets and liabilities denominated in foreign currency. Hedge accounting principles are applied to some transactions qualified as hedging transactions according to IAS 39. These transactions are used by the Group to hedge cash flow arising from confirmed planned sales transactions
in
foreign currency.
Details of marketable contracts are presented below ("cash flow hedge" and
"non- hedge"):
Balance as at Balance at
31.12.2011 31.12.2010
PLN'000 PLN'000
Forward contracts (positive 2 130 1 410
valuation)
Forward contracts (negative (1 365) (199)
valuation)
Total 765 1 211
The fair-value of foreign currency derivatives owned by the Group amounts approximately to PLN 1 211 thousand /2010: PLN 765 thousand/ as at 31 December 2011. The value has been estimated based on the marketable value of similar financial instruments valued as at the balance sheet date.
As at 31 December 2011, the Group did not hold any open currency forward contracts to hedge future sales transactions or future significant capital expenditures.
The table below presents fair values and settlement dates as well as
information on amounts used as a basis for calculation of future payments and
realisation price of forward contracts hedging the change of balance sheet
measurement of assets and liabilities denominated in foreign currencies (non-
hedge).
Contract Contract
value in Forward fairNr Contract foreign Bid/ Date of Date of exchange rate value in
currency currency Offer beginning completion for contract
PLN
1 EUR 5 000 000 Bid 2011-11-17 2012-01-25 4,4555 142
2 EUR 5 000 000 Bid 2011-11-23 2012-01-25 4,4978 354
3 EUR 6 000 000 Bid 2011-12-07 2012-01-25 4,4886 369
4 EUR 1 800 000 Bid 2011-12-14 2012-01-25 4,5835 281
5 USD 250 000 Bid 2011-12-14 2012-01-25 3,5212 24
6 EUR 3 000 000 Bid 2011-12-14 2012-02-24 4,5948 460
7 USD 2 000 000 Bid 2011-12-14 2012-02-24 3,5376 157
8 EUR 1 200 000 Bid 2011-12-19 2012-02-24 4,5187 92
9 EUR 3 000 000 Bid 2011-12-19 2012-02-24 4,5152 220
10 USD 1 000 000 Bid 2011-12-19 2012-02-24 3,4664 31
Total 2 130
Contract Contract
value in Forward fairNr Contract foreign Bid/ Date of Date of exchange rate value in
currency currency Offer beginning completion for contract
PLN
1 USD 1 500 000 Bid 2011-11-23 2012-01-25 3,3548 -104
2 EUR 1 500 000 Bid 2011-12-07 2012-01-25 3,3545 -106
3 USD 650 000 Bid 2011-12-21 2012-01-25 3,4042 -13
4 EUR 800 000 Bid 2011-12-27 2012-01-25 4,4219 -4
5 USD 1 000 000 Bid 2011-12-27 2012-01-25 3,3826 -42
6 EUR 4 484 200 Offer 2011-12-14 2012-01-25 4,5792 -680
7 EUR 13 125 000 Offer 2011-12-21 2012-01-25 4,4587 -416
Total -1 365
The following risks are related to currency forward contracts: interest rate
risk, exchange rate risk and risk of insolvency of the other party to a
transaction. However, credit risk is limited due to the fact that the other
party to the transaction is usually a first class bank. In addition, in order
to minimize risk concentration, the transaction portfolio is diversified.
Result on "cash flow hedge"
"cash flow hedge"
2011 2010Valuation of transactions shown in opening balance of equity: *
- currency sales transactions ("Bid") --
- currency purchase transactions ("Offer") --
Profit on purchase transactions ("Offer") adjusting the value -
-
of investment began in the balance sheet
Profit (loss) on sales transactions ("Bid") / ("Offer")increasing(decreasing) revenues from sales in the income 379
110 statement
Valuation of transactions in the closing balance of equity:
- currency sales transactions ("Bid") --
- currency purchase transactions ("Offer") - -
Fair values of open hedges are valued at the balance sheet date based on their valuations from banks with that such hedge was contracted.
As per the reporting date, there are no planned hedges to which hedge accounting was earlier applied; however they are not expected to be realised.
Cash, cash equivalents and bank deposits
Cash at bank, cash and cash equivalents comprise of cash on current bank accounts and bank deposits with their maturity of up to 3 months. A book value of such assets is equal to their fair value.
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Cash in hand and at bank 50 5 839
Other short-term financial 489 283 17 464
assets
Total 489 333 23 303
The balance of short-term deposits as at 31 December 2011 comprised deposits at
Mondi Finance plc for the total amount of PLN 488 940 thousand with the
maturity dates from 3 January to 26 January 2012. The balance of deposits was
increased with the interests charged for December 2011 of PLN 323 thousand. The
average interest rate for the opened short-term deposits was 5.52%.
Financial assets available for sale
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Shares at non-public 175 175
companies
Total 175 175
Credit risk
Main financial assets held by Mondi Swiecie Group: cash on bank accounts, short-term deposit, trade receivables and other receivables, representing the maximum credit risk of the Group due to financial assets.
Amounts presented in the statement of financial position are net amounts decreased by revaluation write-offs, estimated by the Company's management based on past experience and assessment of current economic conditions.
Credit risk related to liquid financial assets and derivative instruments is limited due to the fact that the other party to the transaction is represented by banks of high credit rating assigned by international rating agencies. Credit risk related to receivables is limited due to the fact that a distribution company of Mondi group is the major customer dealing with export sales. Further, domestic receivables from customers that are not members of Mondi are insured. The value of trade receivables insured amounted to PLN 24.5 million as per 31 December 2011. In the opinion of the Management Board of the Group, the maximum amount exposed to the credit risk as per 31 December 2011 amounts to PLN 3.5 million and applies to trade receivables in relation to non-related entities that are not covered by the receivables insurance. Security
In accordance with current report no. 4/2011 as of 11 February 2011, the Company signed a new Three-Year Guarantee Facility Agreement that covers the nine-year credit from the European Investment Bank.
At the time the afore-said Facility Agreement became effective, the existing Three-Year Guarantee Facility Agreement as of 30 June 2008 (annexed on 30 October 2009, 30 June 2010 and 30 September 2010) was terminated. As a consequence of the above changes, the security of the bank guarantee comprising the corporate guarantee that was issued by Mondi Group plc, a major shareholder of the Company, for the benefit of financing banks expired. The Corporate Guarantee Agreement entered into and between the Company and Mondi plc was
terminated accordingly. Overdue financial assets
As per the reporting date, the Group owned neither overdue financial assets nor items for which the loss of value has been recognised.
22. BANK CREDITS AND LOANS
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000Debt under the cash pooling agreement to - 19
302
related companies
Overdrafts 990 -
Long-term bank credits 418 247 472 617
Loans - 25 000
Total 419 237 516 919
Maturity:Payable on demand or less than 1 year 77 707 100
553
More than 12 months - up to 2 years 75 896 75
360
Between 3 - 5 years 227 686 227 017
More than 5 years 37 948 113 989Minus: due amounts in 12 months
77 707 100 553
(presented at short-term payables)
Amounts due more than 12 months 341 530 416
366
Bank credits and loans by currency:
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Debt under the cash pooling - 19 302agreement to related companies
Overdrafts 990 -
Bank credits 418 247 472 617
Loans - 25 000
419 237 516 919
As at the balance sheet date, the Company owned neither credits nor loans denominated in foreign currencies.
Weighted average interest on bank credits and loans of Mondi Swiecie Group:
Balance as at Balance as at
31.12.2011 31.12.2010
% %Overdrafts, bank credits and 5.48 8.31
loans
Valuation of the balance value of credits and loans drawn by Mondi Swiecie Group
The interest on current account credits is classified as floating rate. The value of flows related to such credits may change depending on interest rates. The remaining credits are launched based on fixed interest tranches for a specific drawing period.
As of 31 December 2011, the Group valued the credit from the European Investment Bank at the nominal value (increased by the reserve for interests) to be PLN 418 247 thousand (including charged interests of PLN 822 thousand).
As of 31 December 2011, the Group had unused credit facilities of PLN 259 million.
In the reporting period, no events took place that resulted in the Group's non-performance of loan liabilities. Furthermore, no violations took place in the period till the date of the financial statements approval.
% + Balance as Balance as
BANK Currency bank's at31.12.2011 at31.12.2010 Due dates
margin
The
Debt under the cash agreement
pooling agreement to PLN WIBID - 19 098 was
associated companies terminated
in 2011.
Overdraft facility in
RBS Bank (Polska) S.A.
BANK PEKAO S.A. PLN WIBOR 990 - 2010-09-30
RAIFFEISEN BANK POLSKA
S.A.
Mondi Finance plc PLN WIBOR - 25 000 2011-11-01
European Investment PLN WIBOR 418 247 472 617 2017-06-30
Bank
Total 419 237 516 715
23. FINANCIAL INSTRUMENTS
Evaluation of exchange risk and interest rates
For risk assessment purposes, the analysis of impacts of interest rates and changes in exchange rates of foreign currencies on the statement of comprehensive income and equity (revaluation reserve) was presented. The analysis covers financial components of the Group's balance sheet (table below).
Comments on methodology and assumptions
The Group owns assets and liabilities nominated in foreign currencies.
The present significant variability of exchange rates as well as market
expectations and forecasts indicate that fluctuations of +/- 10% in PLN
exchange rate to foreign currencies and a change of interest rate by +/-50 pb
is possible.
Balance Interest rate risk Exchange risk
sheet
value
+/-50 pb SP PLN/EUR +10% (PLN -10% (PLN weakening)
strengthening)
Profit/ Profit/Profit/ Changes in Profit/ Changes in
(Loss) (Loss)
(Loss) equity (Loss) equity
Financial assets Cash and cash equivalents 489 333 2 447 (2 447) (3) - 3 - Trade receivables and other receivables 360 346 - - (22 844) - 22 844 - Derivatives classified for valuation in 2 130 - - 13 877 - 4 569 - the fair value by the profit and loss account Derivatives to remain in hedging - - - - - - - Financial assets available for sale 516 - - - - - - Other financial assets 168 1 (1) - - - - Impact on financial assets before taxation - 2 448 (2 448) (8 970) - 27 416 - Tax (19%) - (465) 465 1 704 - (5 209) - Impact on financial assets after taxation - 1 983 (1 983) (7 266) - 22 207 - Financial liabilities Credits and loans (419 237) (2 096) 2 096 - - - - Trade liabilities and other liabilities (418 514) - - 16 420 - (16 420) - Derivatives classified for valuation (1 365) - - (7 527) - (10 920) - in the fair value by the profit and loss account Derivatives to remain in hedging - - - - - - - Impact on financial liabilities before taxation - (2 096) 2 096 8 893 - (27 340) - Tax (19%) - 398 (398) (1 689) - 5 195 - Impact on financial liabilities after taxation - (1 698) 1 698
7 204 - (22 145) - Total - 285 (285) (62) - 62 - Interest rate risk As at 31 December 2011 the Group's net profit would increase by PLN 285 thousand if interest rates in PLN and EUR were higher by 50 base points, assuming that all other parameters remained unchanged. This is due to the fact that loans significantly exceed financial assets (cash and cash equivalents) owned. Loans are nominated primarily in PLN, so the impact of Polish interest rates is a determining factor. Exchange rate risk As at 31 December 2011 the Group's net profit would be lower by PLN 62 thousand if PLN strengthened by 10% in relation to foreign currencies (mainly EUR) and other factors remained unchanged. Such a minor influence (when compared to the Group's overall business) is related to our consistent hedging policy - losses caused by lower valuation of receivables would be compensated by valuation of forward transactions and liabilities nominated in foreign currencies and being a component of the balance sheet.
Management of foreign currency risk
The Group performs defined transactions nominated in foreign currencies
(approx. 65% of total revenues from sales are in EUR and USD). For this reason,
there is a risk of fluctuations in exchange rates for the above-mentioned
currencies. The management of foreign currency risk is effected according to
the Mondi Group Rules, using foreign currency forward contracts.
The balance value of the Group's forward contracts as well credits and deposits
denominated in foreign currencies as per the balance sheet date is as follows:
Liabilities Assets
Balance as Balance as Balance as Balance as
at at at at
31.12.2011 31.12.2010 31.12.2011 31.12.2010
PLN'000 PLN'000 PLN'000 PLN'000
Forward transaction 1 206 154 1 917 1 046
EUR Loans and deposits - - 5 2
Total 1 206 154 1 922 1 048
Forward transactions - - - -
GBP Loans and deposits - - 10 -
Total - - 10 -
Forward transactions 159 45 213 364
USD Loans and deposits - - 14 -
Total 159 45 227 364
Liquidity of foreign currency instruments
The table below shows the volumes of all transactions in foreign currencies
owned by the Group in maturity dates. The figures are shown in currencies of
forward contracts. These are total amounts (excluding "bid/ offer" of the
contract).
Forward below 1 1-3 3-6 6 months - 1
contracts month months months year
In thou. EUR 37 709 7 200 - -
In thou. USD 3 400 3 000 - -
In thou. GBP - - - -
Balance foreign currency exposure
The tables below show the levels of receivables and liabilities as of the balance sheet date structured by their maturity dates. The statement covers only the values nominated in EUR and USD and GBP, because only these have an actual impact on the Group's risk.
Receivables in foreign below 1 1-3 3-6 6 months - 1
currencies month months months year
In thou. EUR 29 969 15 980 - -
In thou. USD 4 242 3 144 - -
In thou. GBP 47 - - -
Liabilities in foreign below 1 1-3 3-6 6 months - 1
currencies month months months year
In thou. EUR 29 962 3 856 158 178
In thou. USD 1 948 - - -
In thou. GBP 2 - - -
In thou. CHF 9 - - -
In thou. SEK 2 - - -
Financial instruments by categories (balance values)
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Financial assets valued at the fair values 2 130 1 410
through financial results:
For trade, of which: 2 130 1 410
- positive value of derivatives to which hedge 2 130 1 410
accounting was not applied- other financial assets valued at fair value - -
Positive value of derivatives to which hedge --
accounting is applied
Financial assets available for sale (shares 516516
and stocks not listed at the stock exchange)
Financial investments maintained until 168 495
maturity
Receivables 360 371 339 003
Cash and cash equivalents 489 333 23 303
Financial liabilities valued at fair value 1 365 199
through financial result
For trade, of which: 1 365 199
- negative value of derivatives to which hedge 1 365 199
accounting was not appliedNegative value of derivatives to which hedge -
-
accounting is applied
Financial liabilities (credit and loans) 419 237 516 919
The presented values of financial instruments do not differ or differ insignificantly from their fair values. Therefore, the values presented above may be deemed to be equal to fair values.
Revenues, costs, profits and losses as presented in the statement of comprehensive income by categories of financial instruments
Balance as Balance as
at at
31.12.2011 31.12.2010
PLN'000 PLN'000Financial assets valued at fair value through financial -
- result
Financial assets available for sale -
-
Financial investment maintained until maturity -
-
Receivables 1 700 (418)
- Receivables write-offs 368 (54)
- Currency valuation 1 332 (364)
Positive value of 720 392
derivativesFinancial liabilities valued at depreciated cost (647)
(988)
Negative value of derivatives (1 165) 2 202
Total 608 1 188
FINANCIAL DERIVATIVES - HEDGING
As at 31 December 2010, the Group did not hold any foreign currency forward contracts to hedge future sales transactions ("Bid") and future significant capital expenditures ("Offer"), for which the Company would apply the hedge accounting (cash flow hedge).
24. DEFERRED TAX PROVISION
Differences
in fixed Valuation
assets Valuation of
Valuation value of property associated
Investment Unpaid of acc. to rights - companies
tax interests forward IFRS certificates using the
on financial and tax of origin of equity
credit liabilities instruments value green energy method Other TotalBalance as at 1.01.2010 1 262 88 - 61
951 3 758 133 - 67 192
Increase - 5 230 - 4 933 6 - 5 174
Decrease 100 - - 15 225 - - - 15 325Balance as at 31.12.2010,
including: 1 162 93 230 46 726 8 691 139 - 57 041
Shown in the result for the
period (100) 5 230 (15 225) 4 933 6 - (10 151)
Shown in the equity - - - - - - -Balance as at 1.01.2011 1 262 88 230 46
726 8 691 139 - 57 041
Increase
- 5 - - - 19 401 420
Decrease
100 - 85 15 011 3 328 - - 18 532Balance as at 31.12.2011,
including: 1 162 93 145 31 715 5 363 158 401 38 929
Shown in the result for the
period (100) 5 (85) (15 011) (3 328) 19 401 (18 112)
Shown in the equity - - - - - - -
The Group has not identified any temporary differences that should be included in the deferred tax provision.
25. LIABILITIES
The balance of trade liabilities and other liabilities is primarily composed
of: investment liabilities, trade liabilities and other current liabilities as
well as accruals for trade discounts and commissions, social security and
ecological energy deliveries. The average rotation period of trade liabilities
is 87 days.
In the Management Board's opinion the book value of financial liabilities is
similar to its fair-value.
Balance as Balance as
at at
31.12.2011 31.12.2010
PLN'000 PLN'000
Trade liabilities with payment term of up to 12 311 020 186 732
months
Accruals 63 691 56 413
Investment liabilities 29 968 34 405Taxes, subsidies, customs duties, social and health
insurance and other benefits excluding corporate 10 359 10 859
income tax
Remuneration liabilities 3 991 3 391
Other 85 104Trade liabilities and other liabilities 418 514 291
904
26. REMUNERATION IN THE GROUP'S CAPITAL INSTRUMENTS
Other capital instrument payment programmes
In 2007, following the demerger, the Mondi Group established the new bonus
programme (Mondi Bonus Share Plan- BSP and Mondi Long Term Incentive Plan -
MLTIP) for selected Mondi Group employees, including Mondi Swiecie S.A.
Management Board Members. Under such programmes, employees are granted bonus -
shares. The bonus amount depends on performance by the Group and individual
objectives (BS). In addition, for ensuring a continuous Group growth additional
shares are given, that may be cashed after specified conditions, in particular
those related to the EPS growth over next 3 years after their receipt are
fulfilled (MLTIP).
In connection to the above-mentioned programmes, the amount of PLN 691 thousand
was charged to Mondi Swiecie S.A. in 2011. In case the right to shares expires
or is lost by individual members of the programme, Mondi Swiecie S.A. will be
entitled to have the costs incurred reimbursed partially or wholly. Once the
right to have shares available is received, the relevant income will be
separately shown for each Member of the Management Board.
27. PROVISIONS
Personal Restructurisation Total
provisions provision
PLN'000 PLN'000 PLN'000
Balance as at 31 15 900 136 16 036
December 2010
Increases 965 - 965
Decreases - -
Balance as at 31 16 865 136 17 001
December 2011
Provisions less than 1 12 874 136 13 010
year
Provisions over 1 year 3 991 - 3 991
Personal provisions
Personal provisions comprise disability and retirement allowances of PLN 4 512 thousand and provisions for salaries and bonuses of PLN 10 827 thousand, as well as provisions for equivalent payment for not taken vacation of PLN 1 526 thousand.
Provision for disability and retirement allowances was calculated by the actuary based on the Company's Collective Labour Agreement for the Group's employees and in matters not regulated by the Agreement, the Labour Code applies.
Assumptions regarding death and illness rates were based on the Central Statistical Office publications (death data PTTZ 2010, Statistical yearbook and other publications on status and changes to employment in the economy). The following assumptions were made: the future increase in salaries and wages of 3.0%, average inflation rate of 2.5%, and the discount rate for future liabilities of 5.75%. 28. EQUITY
The equity is established in accordance with the law, adequate acts and the statute. The equity consists of: share capital, supplementary capital, revaluation reserve and undistributed profits.
Share capital
The authorised share capital is presented in the amount of statute settlements and court registration in face value.
SHARE CAPITAL 1 share value = PLN 1
Value of Right to
Series/ Type Type series/ Capital the
issuance of of Type of No. of issue coverage Registration dividend
of shares shares prefe- limitations shares based on method date (after
rences nominal the
value date)
Transformation
A from state After the
bearer 50 000 000 50 000 000 entity 8.04.1997 year 1997
Total no.
of shares 50 000 000
SHARE
CAPITAL 50 000 000
All shares issued by the parent company are ordinary shares with no preference as to the participation in profit distribution.
Pursuant to clause 25 of IAS 29 "Financial reporting in hyperinflationary
economies", equity components (except for undivided profit from previous years
and surplus due to asset revaluation) were restated based on general price
index starting from the equity contribution date, while the economy was
hyperinflationary. The revaluation was made as per the day when the Company
started to use the International Financial Reporting Standards, i.e. 1 January
2004.
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Share capital:
- authorised share 50 000 50 000
capital
- hyperinflation 283 734 283 734
adjustment
Total 333 734 333 734
Supplementary capital
The supplementary capital is cumulated from distribution of profits in
accordance with regulations.
Balance as at Balance as at
31.12.2011 31.12.2010
PLN'000 PLN'000
Established by law 16 667 16 667
Established by the statute, over the 1 082 153 831 981
law (minimum) value
1 098 820 848 648
29. EXPLANATORY NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
2011 2010
PLN'000 PLN'000
Balance sheet amortisation 153 118 157 360
Amortisation not planned - -
Amortisation 153 118 157 360Balance sheet's change of short-term liabilities 105 920 58
547
Elimination of the change of the balance of investments 5 053 62 504 liabilities
Change in income tax liabilities 149
164
Change of the balance of credits and loans 22 846 (67
564)
Valuation of forward contracts as at balance sheet date (1 165) 2 202
Unrealised differences on exchange related to investment 749 2 497 activities
Interest charged on credit activated for fixed assets under
construction - -
Interest charged on long-term credits
Change of the balance of short-term provisions (1 038) (7395)
Change of the balance of short-term liabilities 132 514 50
955
Balance sheet's change of receivables (21 343) (104 368)
Compensation of receivables due to income tax (45 302) (29
112)
Change in receivables related to financial activities (89) (178)
Change in receivables related to investment activities 12
1
Change of the balance of receivables (66 722) (133 657)
Change of the balance of short-term provisions 1 037 7
396
Change of the balance of long-term provisions (73)
252
Change of the balance of provisions 964 7
648
Differences on exchange related to investment activities (529) (1 801)
Valuation of cash - 549Non-realised exchange rate gains on credits and loans - (1
414)
Exchange rate gains/losses/ (529) (2 666)Dividends and shares in profits 105
140
Credits interest 23 964 20
Interest on loans granted 5 53Interest on investment activities 37 53
452
Other interest (92) -Interest and shares in profits 24 019 53
665
Profit on sales of fixed assets (178)
415
Profit on sales of investments 20 978 5
255
Net value of liquidated intangible and tangible assets 816 1 168
Profit/loss/ on investment activity 21 616 6
838
Valuation of forward contracts as at balance sheet date 436 (2 609)
Commission on overdraft credit -
-
Other adjustments 436 (2 609)
Information on inflows and outflows of investment activities
2011 2010
PLN'000 PLN'000Exchange rates gains - hedging 22 460 24
670
Interest 37 52
Other investment inflows 22 497 24 722Outflows for fixed assets purchase 33 719 46
227
Change of the balance of investment liabilities 5 053 62
504
Interest - -Realised differences on exchange related to investment 219
696 activities
Outflows on intangible and tangible fixed assets 38 991 109
427
Exchange rates losses - hedging 43 438 29
924
Other investment outflows 43 438 29 924
Information on the structure of a change in cash
2011 2010
PLN'000 PLN'000
Balance sheet's change in cash 483 474 1 725
Change in other short-term financial assets (17 443) (8
907)
Change in overdraft liabilities 112
Change in cash 466 031 (7 070)
Information on cash structure
2011 2010
PLN'000 PLN'000
Cash 70 5 839
Other short-term financial assets 489 263 17 464
Overdraft credit liabilities - 10
Cash at the end of the period 489 333 23 313
30. CONTINGENT LIABILITIES
Contingent liabilities as at 31 December 2011 accounted for PLN 17 780 thousand. A guarantee facility was granted as a security for liabilities of Saturn Management z ograniczona odpowiedzialnoScia i Wspolnicy, Spolka Komandytowa for the benefit of BRE Bank S.A. and Bank Polska Kasa Opieki S.A.
31. POST BALANCE SHEET EVENTS
On 13 February 2012 the Company received a favourable ruling from the Arbitration Court of the Polish Chamber of Commerce, dated 10 February 2012, that the offer for sales of 100% shares of Saturn Management Sp. z o.o. with its registered office in Warsaw and of all rights and obligations of PEP as a limited partner in SM sp.k., which was submitted by PEP on 29 April 2002 in execution of the General Agreement, is binding for PEP on conditions laid down in the Company's suit that is the sales price is to be fixed on the formula provided in the General Agreement. Consequently, PEP's counter-claim was dismissed by the court. The court decision is final, however it may be appealed in the civil court, based on the Civil Procedure Code. The decision fulfils one of the conditions for realization of the Voluntary Call Option of 100% shares of Saturn Management Sp. z o.o. with its registered office in Warsaw and of all rights and obligations of PEP as a limited partner in SM sp.k., on which the Management Board informed in its current report issued 4 February 2011.
32. FINANCIAL INFORMATION COMPARABILITY
The Group did not make any changes to the presentation of figures.
33. TRANSACTIONS WITH RELATED PARTIES
The structure of the Capital Group is presented in General Information.
Transactions concluded between the parent company and its subsidiary were eliminated at the moment of consolidation and are not presented in this note. Transactions concluded between the Group and associates are shown below.
Revenues Costs Liabilities to Receivables from
related parties related parties
2011 2010 2011 2010 2011 2010 2011 2010
PLN'000
Associated entities
Polski System
Recyklingu - - - 16 16 - - - -
Organizacja Odzysku
S.A.
Transactions with related companies in the Mondi Group(in PLN thousand)
Revenues Costs Liabilities Receivables
Mondi Packaging Paper Sales GmbH 1 745 357 - -223 908
Mondi Corrugated Swiecie Sp. z o.o. 93 039 106 056 -
10 231
Mondi Warszawa Sp. z o.o. 75 918 - - 6 167
Mondi BZWP Sp. z o.o. 45 113 - - 4 094Mondi Packaging Szczecin S.A. 44 097 - -
4 907
Mondi plc 39 425 3 574 - -
Mondi Dorohusk Sp. z o.o. 31 525 - - 2 636Mondi Bags Swiecie Sp. z o.o. 29 900 - -
4 555
Mondi Bags Mielec Sp. z o.o. 14 028 - -
29
Mondi Wierzbica Sp. z o. o. 7 167 - -
537
Slovwood Ruzomberok, a.s. 1 349 - -
-
Mondi AG 468 83 337 78 573 180
Mondi Coating GmbH 259 - - 47Mondi Packaging Solec Sp. z o. o 33 - -
10
Mondi Coating Steti A.S. 17 30 - -Mondi Uncoated Fine & Kraft Paper GmbH 15 4 325 946
-
Mondi Corrugated Services GmbH 10 8 094 -
-
Mondi Gruenburg GmbH 10 - - -
Total 2 127 730 205 416 79 519 257 301
The above amounts do not include exchange differences.
Transactions with related parties are based on market value prices less quantity bonuses.
34. MANAGEMENT BOARD AND SUPERVISORY BOARD REMUNERATION
Remuneration Bonuses Remuneration Benefits,
paid or due depending gained from income Total
Management Employment for the on subsidiaries from remuneration
Board period employment realisation and other in 2011
position of expected associated sources
duties companies
Maciej 01.01-31.12.11 983 339 - - 1 322
Kunda
Jan 01.01-31.12.11 743 202 - - 945
Zukowski
Florian 01.01-31.12.10 545 193 - - 738
Stockert
Tomasz 01.01-31.12.11 743 209 - - 952
Katewicz
Boguslaw 01.01-31.12.11 480 60 - - 540
Bielecki
The table presents the remuneration paid in 2011 for months from January to December and bonuses for the year 2009 paid in 2011.
Remuneration Bonuses
paid or due depending Remuneration Total
Supervisory Employment for the on from remuneration
Board period employment realisation employment in 2010
position of expected contracts
duties
Karol 01.01-31.12.11 49 30 115 194
Mergler
Ryszard 01.01-31.12.11 49 7 105 161
Gackowski
Jaroslaw 01.01-31.12.11 49 7 87 143
Kurznik
No remuneration is paid to other Supervisory Board Members.
The table presents the remuneration paid in 2011 for months from January to December and bonuses for the year 2010 paid in 2011.
Management Board Transactions
In the reporting period, no loans or credits were granted or other transactions entered into with the Management Board Members (and other managerial staff).
35. REMUNERATION OF AN AUDITOR OR ENTITY AUTHORISED TO AUDIT FINANCIAL STATEMENTS PAID OR DUE FOR THE FISCAL YEAR
2011 2010
PLN'000 PLN'000Audit of financial statements 521 544
Tax consulting - -
Other services - -
Total 521 544
The consolidated financial statements consist of:
1.Statement of comprehensive income, page 3-4
2.Statement of financial position, page 5
3.Statement of changes in equity, page 6
4.Statement of cash flows, page 7-8
5. Explanatory notes to the financial statements, page 9-48
The consolidated financial statements were accepted by the Company's Management Board on 13 February 2012. President of the Board Maciej Kunda
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Member of the Board Jan Zukowski
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Member of the Board Florian Stockert
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Member of the Board Tomasz Katewicz
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Member of the Board Boguslaw Bielecki
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The person who has been assigned to keep the accounts.
Teresa Czurylo
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Swiecie, 13 February 2012 END
