Mondi Plc · LSE:MNDI
Mondi — H1 2008 Earnings Presentation
49 slides from Mondi's earnings presentation, Jul 30, 2008
Slide 1: Mondi Group Results for the Half Year to 30 June 2008
MONDI GROUP RESULTS FOR THE HALF YEAR TO 30 JUNE 2008 30 July 2008
Slide 2: Agenda
AGENDA 1. Interim highlights 2. Financial overview 3. Operational review 4. Outlook 5. Strategy update 6. Appendices Plantation, South Africa Half-yearly results 2008 Page 2
Slide 3: Interim Highlights
INTERIM HIGHLIGHTS Improvement in operating result despite challenging market conditions EBITDA1 up 8% at €456 million Underlying operating profit 2 up 8% at €263 million Underlying earnings per share up 10% Group ROCE 3 up by 11% to 11.1% Half year dividend of 7.7 euro cents per ordinary share, up
Slide 4: Agenda
AGENDA 1. Interim highlights 2. Financial overview 3. Operational review 4. Outlook 5. Strategy update 6. Appendices Steti, Czech Republic Half-yearly results 2008 Page 4
Slide 5: Financial Highlights
FINANCIAL HIGHLIGHTS € millions, except for per share measures and ROCE H1 2008 H1 2007 % Change Group revenue 3,263 3,052 +7 1 EBITDA 456 421 +8 2 Underlying operating profit 263 243 +8 3 Underlying profit before tax 210 203 +3 4 Underlying earnings per share (€ cents per share) 24.8 22.6 + 10 Inte
Slide 6: Divisional Results
DIVISIONAL RESULTS Group revenue 1 EBITDA 2 Underlying operating profit 3 € millions H1 2008 H1 2007 Change H1 2008 H1 2007 Change H1 2008 H1 2007 Change EUROPE & INTERNATIONAL Bags & Specialities 1,121 994 127 164 132 32 109 80 29 Uncoated Fine Paper 846 837 9 122 100 22 69 48 21 Corrugated Busines
Slide 7: Divisional Returns
DIVISIONAL RETURNS 1 2 3 ROCE (%) EBITDA return(%) Return on Sales (%) H1 2008 H1 2007 H1 2008 H1 2007 H1 2008 H1 2007 EUROPE & INTERNATIONAL 12.0 9.8 13.3 12.6 7.8 7.2 SOUTH AFRICA 10.6 9.9 24.5 22.0 16.4 14.9 MPSA 11.1 18.8 12.1 12.1 16.4 14.9 MERCHANT & NEWSPRINT 15.0 14.1 6.1 9.4 3.4 5.6 MONDI G
Slide 8: Costs and Cost Saving Initiatives
COSTS AND COST SAVING INITIATIVES COST STRUCTURE H1 2008 COST SAVINGS H1 2008 - €58 MILLION Depreciation and 3.9% 3.6% 3.1% amortisation 180 6.4% 160 Other net operating expenses Wood, pulp and 140 6.1% fibre 101 99 120 88 33.2% Other variable € million costs 100 16.8% 80 2.1% 78 81 79 60 Maintenanc
Slide 9: Active Cost Management
ACTIVE COST MANAGEMENT 100 17% 6.5 6.7 6.5 6.4 6.4 90 16% 80 30.0 28.0 27.3 26.5 32.5 70 16% 60 15% 50 15% 40 63.3 65.5 66.3 67.0 30 61.0 14% 20 14% 10 - 13% 2004 2005 2006 2007 H1 2008 Variable costs Fixed costs Depreciation and amortisation Personnel costs as % of revenue SUBSTANTIAL REDUCTION IN
Slide 10: Finance Charges and Net Debt
FINANCE CHARGES AND NET DEBT € millions H1 2008 H1 2007 Change Net debt 1,655 1,335 320 Net debt finance charges and other financial income 52 39 13 Net post retirement finance costs 3 3 - Net finance costs (1) 55 42 13 (1) Finance costs for 2007 are before the special item Net debt up €148 million
Slide 11: Debt Facilities
DEBT FACILITIES € millions Opening facilities as at 1 January 2008 2,678 Repaid/expired (32) New facilities 182 Exchange translation (82) Closing facilities as at 30 June 2008 2,746 Average maturity of 3.8 years €1.1 billion undrawn committed facilities as at 30 June 2008 Main facility is €1.55 bill
Slide 12: Cash Flow
CASH FLOW € millions H1 2008 H1 2007 Change EBITDA 456 421 35 Working capital movements (126) (59) (67) Other operating cash flow adjustments (20) (6) (14) Cash inflows from operations 310 356 (46) Dividends from associates and financial investments - 1 (1) Tax paid (27) (40) 13 Net cash inflow from
Slide 13: Working Capital Management
WORKING CAPITAL MANAGEMENT 1,200 18.0% 17.2% 1,000 17.0% 16.3% 800 15.5% 16.0% € million 600 14.6% 15.0% 400 14.0% 200 13.0% - 12.0% 2005 2006 2007 H1 2008 Working capital % revenue Seasonal uplift E&I Corrugated runs at 11.9% and UFP 10.3% of sales Other business operate with structurally higher le
Slide 14: Capital Expenditure
CAPITAL EXPENDITURE Mondi well invested Extensive programme of mill modernisation since 2001/02 On completion of the Syktyvkar capex programme (mid 2010), all our major mills would have seen substantial investment Post completion of the Polish and Russian projects, capex will reduce substantially Go
Slide 15: Capital Invested and Financing
CAPITAL INVESTED AND FINANCING 30 June 31 Dec 31 Dec € millions 2008 2007 2006 Trading capital employed 4,922 4,818 4,737 Group ROCE (1) 11.1% 10.6% 8.1% Shareholders funds 2,885 2,963 2,966 Return on shareholders funds (post tax) (2) 8.6% 8.1% 4.8% Net debt 1,655 1,507 1,479 Gearing (Net debt/Equit
Slide 16: Agenda
AGENDA 1. Interim highlights 2. Financial overview 3. Operational review 4. Outlook 5. Strategy update 6. Appendices Ruzomberok, Slovakia Half-yearly results 2008 Page 16
Slide 17: Europe & International
EUROPE & INTERNATIONAL € millions H1 2008 H1 2007 Change Segment revenue 2,742 2,544 198 Underlying operating profit 215 182 33 Bags & Specialities 109 80 29 Uncoated Fine Paper 69 48 21 Corrugated Business 37 54 (17) Production and volumes Restructuring: Further productivity records Closure of Szol
Slide 18: Mondi corrugated integration levels
Mondi corrugated integration levels 750 Circa 26 mtpa market 700 Kraftliner 175 g Testliner 2 growing at: 650 White top Kraftliner 600 Western Europe 1.8% 1 550 Eastern Europe 8.2% 1 €/tonne 500 Russia 8-10% 2 450 Containerboard capacity 400 utilisation: 350 Currently above 90% 300 Confirmed new cap
Slide 19: Kraft paper fundamentals
Kraft paper fundamentals Total European market size 3.1 Unbleached sack kraft mtpa Export sales mainly denominated in euros No major new capacity announcements 2001 2002 2003 2004 2005 2006 2007 2008 Production Net Market Products Volume Exposure Kraft paper ~ 0.9Mt ~ 0.2Mt Bags 3.8B Bags
Slide 20: Uncoated Fine Paper fundamentals
Uncoated Fine Paper fundamentals Eastern Europe and Russia continue to 1200 UFP grow 1100 Circa 10 million tonne market, growing at: Western Europe flat 1000 Eastern Europe 5% 1 Russia ~9% cut size 2 €/tonne 900 European capacity closures in 2008 to date of 140ktpa – current capacity 800 utilisation
Slide 21: Uncoated Fine Paper markets
Uncoated Fine Paper markets Sales distribution Russian cut size market continues to grow at ~9% p.a. Russian market is the largest single market for Mondi Pricing benefits due to logistic advantages over imports Export sales now mainly euro denominated Russia and Ukraine Emerging Europe Western Euro
Slide 22: South Africa Division
SOUTH AFRICA DIVISION € millions H1 2008 H1 2007 Change Segment revenue 274 295 (21) Underlying operating profit 45 44 1 Uncoated Fine Paper 30 32 (2) Corrugated 15 12 3 Pricing UFP up 5% on average year on year and announced 15% further price increases locally Containerboard benefitting from weaker
Slide 23: Market dynamics
Market dynamics Product mix to improve margins not volumes Domestic volumes up 13% Africa price increases of 5% in US dollar terms Local price increase announced for August of approximately 15% Improved sales mix to higher priced geographies Pulp 11% Export Woodchips 30% 9% Domestic 38% Other 4% UFP
Slide 24: Divisional Performance (Cont)
DIVISIONAL PERFORMANCE (Cont) Mondi Packaging South Africa Merchant and Newsprint € millions H1 2008 H1 2007 Change € millions H1 2008 H1 2007 Change Segment revenue 223 173 50 Segment revenue 293 286 7 Underlying operating profit 14 15 (1) Underlying operating profit 10 16 (6) Result up 15.7% in lo
Slide 25: Major growth projects
Major growth projects Both projects on time and within Syktyvkar mill expansion - €525m budgeted capital cost All main equipment orders placed and work commenced Swiecie box plant (€45m) postponed pending agreement on subsidies Swiecie containerboard mill - €305m Targeted completion dates: Swiecie –
Slide 26: Syktyvkar Mill Modernisation
SYKTYVKAR MILL MODERNISATION UNIVERSAL BUSINESS PAPER COST CURVE 1,200 €/tonne 1,000 800 600 Syktyvkar PM14 400 200 0 1,000 2,000 3,000 4,000 Cumulative capacity (1 000 t/a) SYKTYVKAR CURRENTLY EARNING CIRCA 20% ROCE Half-yearly results 2008 Page 26
Slide 27: Syktyvkar Mill Modernisation
SYKTYVKAR MILL MODERNISATION Wood/pulp production Sales growth Wood yard 33% capacity increase 55ktpa UFP production (circa 5% of and 10% efficiency improvement. Russian demand) Additional 180ktpa pulp – 150ktpa 65ktpa Containerboard (circa 3% of integrated and 30ktpa external sales Russian demand)
Slide 28: Mondi's cost positioning in European recycled supply
Mondi’s cost positioning in European recycled supply 400 Brown field Cost of 350 expansion gives: highest 25% of 300 ~€70m capital cost capacity €/ tonne 250 Mondi weighted benefit average without Mondi weighted new PM 200 average with ~€30-€40/tonne new PM operating cost 150 Mondi new PM benefit 10
Slide 29: Restructuring Activity
RESTRUCTURING ACTIVITY Closures and divestitures Hungary mill now closed (production ceased 20 March) Nyborg plant in Denmark closed 10 Sold 3 UK sheet feeder plants E&I UFP reorganisation 5 completed, benefits 10 11 10 5 higher than expected 5 7 3 South Africa Division 4 2 3 restructuring completed
Slide 30: Senior Management
SENIOR MANAGEMENT Paul Hollingworth will leave the Group at the end of 2008 Paul will be replaced by Andrew King, current head of strategy and business development: Been with Mondi for 7 years in business development and strategy Acted as CFO for Mondi as a division of Anglo American 2005/06 Instrum
Slide 31: Agenda
AGENDA 1. Interim highlights 2. Financial overview 3. Operational review 4. Outlook 5. Strategy update 6. Appendices Richards Bay, South Africa Half-yearly results 2008 Page 31
Slide 32: Trading Outlook
TRADING OUTLOOK “In the second half, South Africa should see a further improvement as actions to enhance profitability continue to take effect. This should help to offset a softening trading environment in Europe. Overall Mondi expects to make progress for the year as a whole.” Half-yearly results 2
Slide 33: Agenda
AGENDA 1. Interim highlights 2. Financial overview 3. Operational review 4. Outlook 5. Strategy update 6. Appendices Half-yearly results 2008 Page 33
Slide 34: Key Value Drivers Along the Value Chain
KEY VALUE DRIVERS ALONG THE VALUE CHAIN Value Chain Step Products Key Value Drivers Forestry/ Low production costs Pulp Wood Primary Access to low cost raw materials (ideally Production Pulp located close to low cost forestry resources) Cost efficiency Paper (e.g. integration with pulp p
Slide 35: Emerging Market Focus
EMERGING MARKET FOCUS Revenue by destination Virgin based production 18% 51% 49% 82% Emerging markets Mature markets Operating assets Operating profit by origin 20% 35% 65% 80% Half-yearly results 2008 Page 35
Slide 36: Strategic Summary
STRATEGIC SUMMARY Mondi’s strategy Leading market Build on leading positions in packaging and Uncoated Fine positions Paper (UFP), particularly in emerging markets Maintain position as lowest-cost producer in our markets: High quality, low Selectively investing in production capacity in lower-cost
Slide 37: In Conclusion
IN CONCLUSION Delivered good result under current market conditions Strong balance sheet with significant committed debt headroom Strategically well placed Half-yearly results 2008 Page 37
Slide 38: Appendices
APPENDICES
Slide 39: Mondi at a Glance
MONDI AT A GLANCE Bags & Newsprint and Corrugated Specialities UCF South Africa MPSA merchant €0.8B €1.1B €0.8B €0.3B €0.2B €0.3B Sales H1 2008 (1) EBIT % 4.5% 9.7% 8.2% 16.4% 6.4% 3.3% Products Europe South Africa Europe/SA Positions No. 2 Kraftliner(2) No. 1 Kraft Paper(2) No. 1 Office No.
Slide 40: New Organisational Structure
NEW ORGANISATIONAL STRUCTURE Europe & South Africa International Corrugated Bags & Specialties Uncoated Fine Paper Merebank Virgin containerboard Kraft paper Uncoated Fine Paper Richards Bay Recycled Bag converting Forests containerboard and corrugated packaging Coating & release Consumer flexibles
Slide 41: Benefiting from Integrated Value Chain
BENEFITING FROM INTEGRATED VALUE CHAIN Forestry Pulp Paper Mondi’s own 8.0mm3 5.9Mt 3.8Mt Kraftliner: 1.0Mt availability Testliner: 1.5Mt Mondi’s own 3.9Mt 1.8Mt(1) 15.6mm3 demand Self 51% 97% 183%(1) sufficiency (1) Refers to Mondi’s demand and self-sufficiency of packaging paper (including E&I and
Slide 42: Production Volumes
PRODUCTION VOLUMES H1 2008 H1 2007 % Change Europe and International Division Containerboard tonnes 965,319 916,815 +5 Corrugated board and boxes m m² 1,143 985 + 16 Kraft paper tonnes 461,754 444,625 +4 Bag converting m units 1,902 1,910 +0 Coating and release liners m m² 1,414 1,549 -9 Uncoated fi
Slide 43: Export Dependency
EXPORT DEPENDENCY Overview of Export dependence European Paper Business 2007 (Imports, Exports and Net Trade in % of Production) Exports in % of Production Imports in % of Production 31,8 Net Exports in % of Production 30,5 26,8 25,4 22,2 22,7 22,9 22,9 20,5 20,5 20,2 19,4 17,3 11,5 7,3 8,2 6,7 5,2
Slide 44: Abridged Income Statement
1 ABRIDGED INCOME STATEMENT € millions H1 2008 H1 2007 Change Group revenue 3,263 3,052 211 Materials, energy and consumables used (1,729) (1,577) (152) Variable selling expenses (281) (280) (1) Gross margin 1,253 1,195 58 Maintenance and other indirect expenses (143) (130) (13) Personnel costs (470
Slide 45: Special Items
SPECIAL ITEMS Operating Net profit on disposals € millions H1 2008 H1 2007 € millions H1 2008 H1 2007 Total cost 36 8 (Loss)/profit (3) 84 UFP restructuring – Disposals: closure of Szolnok €26m 2008: UK sheet feeder plants Nyborg closure costs €5m 2007: Included part sale of Swiecie, Retention arran
Slide 46: Taxation and Dividends
TAXATION AND DIVIDENDS Taxation Dividends € millions H1 2008 H1 2007 Change Half year dividend of 7.7 euro cents per share, up 5% on comparator Underlying tax charge (61) (61) - Tax on special items - 1 (1) Interim payout is approximately one Total tax charge (61) (60) (1) third of 2007 full year di
Slide 47: Currency Equivalents
CURRENCY EQUIVALENTS Currency comparator - millions GBP Rand US dollar H1 2008 H1 2007 % Change H1 2008 H1 2007 % Change H1 2008 H1 2007 % Change Group revenue 2,545 2,045 + 24 38,275 29,055 + 32 4,992 4,059 + 23 1 EBITDA 356 282 + 26 5,349 4,008 + 33 698 560 + 25 2 Underlying operating profit 205 1
Slide 48: Exchange Rates
EXCHANGE RATES Six months ended 30 June Change 2008 2007 Closing rates against the euro South African rand 12.34 9.53 -29.5% Pounds sterling 0.79 0.67 -18.5% Polish zloty 3.35 3.77 11.1% Russian rouble 36.95 34.83 -6.1% Slovakian koruna 30.20 33.61 10.1% US dollar 1.58 1.35 -17.0% Czech koruna 23.89
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