Industry challenges and Mondi responses · Well invested asset base in regions enjoying low...

Achieving returns in Europe: Industry challenges and Mondi responses

RISI Global Outlook Conference, Dubai Peter J Oswald CEO Mondi Europe & International

Content overview

● Industry challenges in Europe O Structural issues stifling growth

O Ongoing structural decline in UCWF

O Increasing fibre costs squeezing margins

O Overcapacity in P&W spreading via conversion

● The Mondi response O Focus on emerging markets

O Consumer exposed packaging largest part of business

O Investment in green energy

O Innovation through customer cooperation

● Mondi’s journey at a glance O Responses in line with Mondi’s strategy and contributing to performance

Page 1 RISI Global Outlook Conference, Dubai, December 2013 Achieving returns in Europe: Industry challenges and Mondi responses

Industry challenges in Europe ● Structural issues stifling growth

● Ongoing structural decline in UCWF

● Increasing fibre costs squeezing margins

● Overcapacity in P&W spreading via conversion

50

60

70

80

90

100

110

120

130

2000 2002 2004 2006 2008 2010 2012 2014

Spain Germany Poland European Union

Structural issues stifling growth

Page 3

● We are not only dealing with a cyclical downturn but with structural issues like:

O low innovation, too few start-ups, entitlement vs. mass flourishing (Edmund Phelps)

O almost no population growth

O deteriorating quality of education

O high public debt, high external borrowing1, pension liabilities (c. 400% of GDP), banking system remains unstable

● These structural issues are aggravated by a continuing economic crisis

● Differences between North & South Europe (GDP, consumption, unemployment, bank lending, interest rates)

● Will Central & Eastern Europe (CEE) become a growth driver like in 2002-07?

Source: International Monetary Fund, World Economic Outlook Database, October 2013

Central and eastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, Latvia, Lithuania, FYR Macedonia, Montenegro, Poland, Romania, Serbia, Turkey

Source: Eurostat, November 2013

RISI Global Outlook Conference, Dubai, December 2013

Monthly data (2010 = 100)

Industrial production

-6

-4

-2

0

2

4

6

8

2000 2002 2004 2006 2008 2010 2012 2014F

Euro area European Union Central and eastern Europe

GDP development


1. IMF Global Financial Stability Report, High external borrowing: 200% in Germany, 264% in France, 607% in UK vs.151% in US

in % to PY

0

2

4

6

8

10

12

14

2005 2007 2009 2011 2013F 2015F 2017F

Eastern Europe Western Europe

Ongoing structural decline in UCWF

Page 4

● Secular decline in Western Europe

O Competition from electronic media, e.g. tablets, e-billing, e-archiving

● Moderate growth in Eastern Europe

O Catch-up in UCWF paper usage compensates for substitution from electronic media

O Growing computer and printer usage and increased speed and quality of printers

O Lower usage electronic media Source: RISI, Global Woodfree Risk of Closure Special Market Analysis Study 2013

Western Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom

Eastern Europe: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Armenia, Azerbaijan, Belarus, Georgia, Moldova, Russia, Ukraine, Albania, Bosnia, Bulgaria, Croatia, Cyprus, Macedonia, Malta, Montenegro, Romania, Serbia, Turkey

m tonnes


Total European uncoated woodfree demand


20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

spruce/fir price ex forest road pine price ex forest road

25 25 27 28 29 29 30 31 35

43 44 45 48 56

0

10

20

30

40

50

60

Increasing fibre costs squeezing margins

Page 5

Source: Wood Resources International, Wood Resource Quarterly – 2Q/2013


● There are large differences in pulpwood costs between regions. The main causes of these differences are stumpage and harvesting costs

● Average annual harvests in the “Central West” European region (AT, DE, IT and CH) fell 15% from the five year period 2003-07 to 2008-121

● Consequently “Central West” region became a larger net importer of logs in the past five years which resulted in upward price pressure, e.g. Austrian paper industry imports 37% of pulpwood

● Growth in subsidised biomass-power plants leads to wood shortage

● How will the European renewable energy policy develop in the future?

€ /m3

Average delivered conifer pulpwood (softwood) prices Q2 2013

€ /solid m3

Pulpwood price development in Austria

Source: Statistik Austria, Annual average prices


1. Wood Resources International, Wood Resource Quarterly – 2Q/2013

Overcapacity in P&W spreading via conversion

Page 6

● UCWF industry rationalisation needed

O In a declining market, new capacity announced at Alizay (300ktpa, Double A) restart and Koryazhma (150kpta, Ilim)

O Industry needs capacity closures to remain balanced, especially in Western Europe (approximately 40% capacity non-integrated)

● Conversion of uncoated woodfree machines to linerboard production

O Metsä Board (Husum) launched fully bleached linerboard production

O Stora Enso (Varkaus) announced it is considering conversion of UWF machine

O Given flat WTKL demand (due to competition from WTTL), the additional capacity will put pressure on margins


1300

1400

1500

2007 2008 2009 2010 2011 2012 2013

European WTKL demand, 2007-2013 CAGR -1%

k tonnes

Source: RISI, Outlook for European White Top Containerboard Market Update 2013

0

500

1000

1500

2000

2013 2014 2015 2016 2017 2018 Cumulative Capacity Shuts Needed for 92% Operating Rate Cumulative Announced Removals

Uncoated woodfree capacity closures needed in Western Europe over the next five years

Source: RISI, Global Woodfree Risk of Closure Special Market Analysis Study 2013

k tonnes


The Mondi response ● Focus on emerging markets

● Consumer exposed packaging largest part of business

● Investment in green energy

● Innovation through customer cooperation

Focus on emerging markets

Page 8

Mature markets

50%

Emerging markets

50%

Group 2012 sales by destination (%)

Emerging markets

83%

Mature markets 17%

Net operating assets (Upstream businesses)

● Mondi focused on markets enjoying growth

O Geographic exposure: 50% of sales into higher growth emerging markets

●Well invested asset base in regions enjoying low operating cost structures

O 83% of upstream pulp and paper asset base in low-cost emerging markets

RISI Global Outlook Conference, Dubai, December 2013 Achieving returns in Europe: Industry challenges and Mondi responses

Consumer exposed packaging largest part of business

Page 9

● Growing the packaging side of our business - typically higher structural growth rates

● Bias is on consumer exposed packaging

business, but industrial packaging stays in the focus as well

● UFP remains integral part of our overall

portfolio as we have strong positions in the markets in which we now operate

1.“Consumer exposed packaging” includes containerboard, corrugated packaging, coatings and consumer packaging external revenues. “Industrial packaging” includes kraft paper and industrial bags external revenues. “Others” includes pulp, newsprint, energy, other external revenues. Includes Nordenia for the full year 2012.


48%

19%

21%

12% Consumer exposed packaging

UFP

Other

Industrial packaging

Packaging

Group 2012 pro forma revenues (%)¹


Investment in green energy

Page 10 RISI Global Outlook Conference, Dubai, December 2013

Świecie, Poland

● Continuous investment in green energy O €265m in 2011-2015

− Frantschach (AT) – recovery boiler − Richards Bay (ZA) – turbine − Stambolijski (BG) – turbine − Ružomberok (SK) – recovery boiler − Dynäs (SE) – turbine rebuild − Syktyvkar (RU) – bark boiler

O €166m investment in Świecie mill (PL) for recovery boiler – completion in early 2016

● Impact since 2004 includes

O 58% fuel consumption of pulp and paper mills from renewable sources

O 16.4% reduction in energy intensity by end of 2012

O Absolute CO₂e reduction of 1.02 million tonnes


Innovation through customer cooperation

Page 11

● Dedicated resources to driving innovation O €12 million on R&D in 2012

O Over 130 employees focused on innovation

O 6 business competence centres

● Close cooperation with customers,

universities and research partners

● >100 process and product development projects underway


Korneuburg, Austria

New product highlights


FIBROMER®

Light weight composite material, ideal for automotive and logistics industries

SmartID Bag Unique code on each industrial bag for tracking and identification

Miprotex Tailor-made barrier to prevent migration of mineral oil

PerfoamPack Physically foamed film with 20% less raw material

ProVantage Kraftliner Aqua Containerboard grade for packaging applications in humid environments

Stac-Pac® Weather-resistant shipping and storage containers made from corrugated board with wooden reinforcements

Mondi’s journey at a glance

Responses in line with Mondi’s strategy…


We aim to exceed our hurdle rate of return on capital employed through the cycle of 13%

Achieve leading market positions

Maintain and/or develop leading market positions in our core packaging and uncoated fine paper markets, with specific focus on higher-growth emerging markets

Maintain a high-quality,

low-cost asset base

Maintain our low-cost, high-quality asset base by selectively investing in production capacity enjoying sustainable cost advantages

Continuous focus on

performance

Focus on performance through continuous productivity improvement and cost reduction, delivered through business excellence programmes and rigorous asset management

Grow through customer focused

development

Develop markets and products aligned to our customer needs by developing products according to their requirements, increasing our exposure to more value added, innovative, technologically advanced products and by following our customers into high growth emerging consumer markets

… and contributing to performance

Page 15

Mondi demerger & listing

Corrugated packaging restructured & repositioned

Świecie RCB machine commissioned

Syktyvkar modernisation completed

Europapier sold Hadera (25.1%)

sold

Mpact demerged

Świecie minorities acquired

Nordenia acquired Duropack plants

acquired Aylesford sold

Key milestones:


574 366 502 441 294 458 622

10.6% 9.5%

7.6%

12.3%

15.0% 13.6%

14.8%

8.0% 7.0%

5.6%

8.2%

10.8% 9.9%

11.0%

2007 2008 2009 2010 2011 2012 HY1 2013

EBIT ROCE % ROCE hurdle rate 13% EBIT in %

Mondi Group EBIT (€ million), EBIT margin (%) and ROCE (%)

Mondi: Forward-looking statements disclaimer This document includes forward-looking statements. All statements other than statements of historical facts included herein, including, without limitation, those regarding Mondi’s financial position, business strategy, market growth and developments, expectations of growth and profitability and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as “believe”, “expects”, “may”, “will”, “could”, “should”, “shall”, “risk”, “intends”, “estimates”, “aims”, “plans”, “predicts”, “continues”, “assumes”, “positioned” or “anticipates” or the negative thereof, other variations thereon or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mondi, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements and other statements contained in this document regarding matters that are not historical facts involve predictions and are based on numerous assumptions regarding Mondi’s present and future business strategies and the environment in which Mondi will operate in the future. These forward-looking statements speak only as of the date on which they are made. No assurance can be given that such future results will be achieved; various factors could cause actual future results, performance or events to differ materially from those described in these statements. Such factors include in particular but without any limitation: (1) operating factors, such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development plans and targets, changes in the degree of protection created by Mondi’s patents and other intellectual property rights and the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for Mondi’s products and raw materials and the pricing pressures thereto, financial condition of the customers, suppliers and the competitors of Mondi and potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in Mondi’s principal geographical markets or fluctuations of exchange rates and interest rates. Mondi expressly disclaims a) any warranty or liability as to accuracy or completeness of the information provided herein; and b) any obligation or undertaking to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect any change in Mondi’s expectations or any events that occur or circumstances that arise after the date of making any forward-looking statements, unless required to do so by applicable law or any regulatory body applicable to Mondi, including the JSE Limited and the LSE.


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