mondi results interim 2014 final...source: foex indexes ltd virgin containerboard lower average...

Mondi GroupResults for the six months ended 30 June 2014

7 August 2014

2

Agenda

Highlights

Financial overview

Operational overview

Capital allocation

Outlook

Appendices

3

366 333 377

14.8% 15.3%16.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

H1 2013 H2 2013 H1 2014ROCE %

€ million

HighlightsFinancial Underlying operating profit up 3% on prior

year and 13% sequentially ROCE of 16.0% Well in excess of through-the-cycle hurdle

rate of 13% Strong cash generation of €439 million Interim dividend of 13.23 euro cents per share

up 39%

Operational and strategic Strong cost management Significant capital expenditure projects on

time and within budget Recently completed energy projects

delivering on expectation 155,000 tonne bleached kraft paper

machine in Štĕti successfully started up Graphic Packaging acquisition consolidates

global market leadership position in Industrial Bags

49.4 45.6 51.9

H1 2013 H2 2013 H1 2014

Underlying earnings per share€ cents per share

Underlying operating profit

4

13% hurdle rate12.3%

15.0%

13.6%

15.3%16.0%

2010 2011 2012 2013 H1 2014

Track record of strong returns

Returns consistently above hurdle rate of 13% Achieved in conjunction with growth Continual investment in our high quality, low cost asset base with capital expenditure of

€1.8 billion, 104% of depreciation €1.3 billion in acquisitions

5 year ROCE % history

5

Agenda

Highlights

Financial overview


Capital allocation

Outlook

Appendices

6

Operating financial highlights

€ millionH1

2013H2

2013H1

2014

% changevs

H1 2013

% change vs

H2 2013

Group Revenue 3,342 3,134 3,148 (6%) -

Underlying EBITDA 554 514 553 - 8%

% margin 16.6% 16.4% 17.6%

Underlying operating profit 366 333 377 3% 13%

% margin 11.0% 10.6% 12.0%

Group ROCE 14.8% 15.3% 16.0%

7

Underlying operating profit development

€ million

11

84

H1 2014

377

Fair value gains on

forestry assets and other

Acquisitions and disposals

(3)

Currency effects

0

Fixed costsVariable costs

(5)

PriceVolume

(4)

H1 2013

366

8

148

4839

102

44

150

4535

70

49

162

53

34

85

58

0

20

40

60

80

100

120

140

160

180

Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division

H1 2013 H2 2013 H1 2014

Divisional underlying operating profit Half-year splits

€ million

9

Financial review

€ millionH1

2013H2

2013H1

2014

% changevs

H1 2013

% change vs

H2 2013

Underlying operating profit 366 333 377 3% 13%

Net finance costs (57) (58) (50) 12% 14%

Underlying profit before tax 310 276 328 6% 19%

Tax (56) (42) (62) (11%) (48%)

Non-controlling interests (15) (13) (15) - (15%)

Underlying earnings 239 221 251 5% 14%

Special items (after tax and non-controlling interests) (68) (6) (16)

Reported profit after tax and non-controlling interests 171 215 235 37% 9%

Basic earnings per share (€ cents) 35.3 44.5 48.6 38% 9%

Underlying earnings per share (€ cents) 49.4 45.6 51.9 5% 14%

10

Finance costs

€ millionH1

2013H2

2013H1

2014

% changevs

H1 2013

% change vs

H2 2013

Closing net debt 1,844 1,621 1,751 5% (8%)

Average net debt 1,851 1,740 1,638

Finance costs 52 52 45 13% 13%

Net interest on defined benefit arrangements 5 6 5 - 17%

Net finance costs (excluding special item) 57 58 50 12% 14%

Effective interest rate (before capitalised interest) 5.5% 6.1% 5.5%

Finance costs down on lower average net debt Cash net interest paid of €64 million (H1 2013: €68 million) Net charge on early redemption of €280 million Eurobond treated as a financing special item

(€13 million)

11

Cash flow effects - movement in net debt

1,751177129

249

6449

106

1,621

Income tax paid

Movement in working

capital

Cash generated by

operations

(545)

Net debt at 31

December 2013

Net debt at 30 June

2014

OtherAcquisitionsDividends paid to equity

holders

Capex investment

Financing costs paid

€ million

1

1 Before movements in working capital.

12

Working capital

1 H1 2014 excludes acquisitions.

Increase in working capital driven by seasonal effects For full year, targeted range of between 10% and 12% of turnover is expected

716 764 871 711 807

12.7%

11.9%

13.0%

11.0%

12.8%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

H1 2012 H2 2012 H1 2013 H2 2013 H1 2014¹

Working capital as a % of revenue

(105)

22

(129)

102

(106)

H1 2012 H2 2012 H1 2013 H2 2013 H1 2014

Working capital cash flowsWorking capital management

12%

10%

€ million € million

13

Capital expenditure

1 Capital expenditure as a % of depreciation & amortisation is calculated using capital expenditure including intangibles.

Increase in capital expenditure on ramp-up of spend on major strategic projects Capital expenditure target revised upwards to €550 million/year for 2014 and 2015

(previously €500 million/year) Further €60 million committed to Kraft and Corrugated Packaging Additional capital expenditure related to US acquisition

164 241 249

89%

138% 143%

H1 2013 H2 2013 H1 2014

Capital expenditure as a % of depreciation & amortisation¹

H1 2013 H2 2013 H1 2014Packaging Paper Fibre PackagingConsumer Packaging Uncoated Fine PaperSouth Africa Division

Capital expenditure Capital expenditure by business segment€ million € million

14

44%

13%9%

12%

4%

18%EuroRussian roubleCzech korunaPolish zlotySouth African randOther

Debt and liquidity

Higher closing net debt versus H2 2013 reflects impact of: Seasonally higher working capital levels Graphic Packaging acquisition

Public credit ratings reaffirmed Standard & Poor’s at BBB- (positive outlook) Moody’s Investor Services at Baa3

€280 million Eurobond redemption subsequent to half-year end

€ millionH1

2013H2

2013H1

2014

Net debt 1,844 1,621 1,751

Committed facilities 2,598 2,487 2,488

Of which undrawn 743 792 745

Gearing (Net debt / Trading capital employed) 40% 36% 38%

Net debt / 12 month trailing EBITDA (times) 1.8 1.5 1.6

Currency split of net debt €1,751 million

15

3.508.25 8.90 9.55 13.23

16.50

17.75 19.1026.45

2.0

2.6 2.5

2.6

-

0.5

1.0

1.5

2.0

2.5

3.0

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 H1 2014

€ cents per share

Interim dividend Final dividend Dividend cover

Continued strong growth in shareholder returns

Interim dividend of 13.23 euro cents per share declared, 39% up on prior year

Dividends declared

16

Agenda

Highlights

Financial overview


Capital allocation

Outlook

Appendices

Packaging Paper | Fibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division

17

148 150 162

20.1%21.9% 22.6%

14.2% 15.7%16.5%

H1 2013¹ H2 2013 H1 2014

ROCE % Underlying operating profit margin %

Packaging Paper

1 Includes €11 million write-down of green energy credits.

Strong performance with ROCE of 22.6%, underlying operating profit up 9%

Pricing mixed Lower average pricing in virgin

containerboard and kraft paper Higher average recycled containerboard

prices Input costs generally lower Benefited from higher green energy prices H1 impacted by maintenance costs at Świecie; shuts at all other mills take place in H2

Packaging Paper | Fibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Afr ica Division

Underlying operating profit, margin and ROCE€ million

18

0.400.600.801.001.201.401.60

2009 2010 2011 2012 2013 2014

Packaging Paper | industry fundamentals

Source: FOEX Indexes Ltd

Virgin containerboard Lower average pricing in kraftliner in

H1 2014 Price increases announced for unbleached

kraftliner and semi-chemical fluting on good demand and low inventory levels

No new industry capacity in short-term. Medium-term capacity expansion from Varkaus conversion

Recycled containerboard Average benchmark prices up 10% on H1

2013 but down 8% from levels at year endGood demand and low inventory levels Price increase announced in Europe with

effect from August 2014 ±3% net increase in industry capacity in

2014507090

110130150170190

2007 2008 2009 2010 2011 2012 2013 2014

€/tonne

Average


Selling prices

White-top Kraftliner RCB

Price indexed to 2009

Kraftliner – RCB

VCB

Price differential

19

0.40.50.60.70.80.91.01.11.21.31.4

2009 2010 2011 2012 2013 2014Sack kraft

Packaging Paper | industry fundamentals

Source: Mondi

Sack Kraft paper Average prices down 4% on the second

half of 2013, in line with expectations Strong pick up in demand in Europe in H1,

supported by mild winter Selling price increases being implemented

for unbleached sack kraft paper No new industry capacity

Speciality Kraft Demand for speciality grades remains solid Increased industry capacity capping pricing

in the short-term



Selling prices

20

48 45 53

12.0%10.8%

11.6%

4.8% 4.7%5.3%

H1 2013 H2 2013 H1 2014


Fibre Packaging

Corrugated Packaging Price and margin increases achieved Benefited from volume growth in central

Europe Negative forex impact

Industrial Bags Strong volume growth driven by building

sector Lower average selling prices from pass

through of paper input cost reductions

Coatings Sustained weakness in industrial sectors

partly offset by growth in high value-add products

Benefited from lower input costs and fixed cost reduction


€ million

Underlying operating profit, margin and ROCE

21

39 35 34

7.8%

9.1%

8.5%

6.7%6.1% 6.2%

H1 2013 H2 2013 H1 2014


Consumer PackagingGood growth in emerging markets with

market share gains Production capacity recently acquired in

growing CEE region In mature markets business impacted by

volume declines Phase out of lower value-added mature

products Move into higher value-added segments

impacted by weak trading conditions Structural growth drivers remain in place

and steps are being implemented to address current challenges, including Investment in sales infrastructure Increased focus on innovation Further plant optimisation and

specialisation


€ million


22

102 70 85

17.4%16.2% 15.8%

13.8%

10.8%12.6%

H1 2013 H2 2013 H1 2014


Uncoated Fine Paper Lower sales volumes following Neusiedler

restructuring in 2013 Lower average selling prices in H1 2014 in

Europe Price increases in Russia with further

increases announced for H2 in certain grades, in response to rouble weakness

Strong cost control and operational improvements

All annual maintenance shuts planned for in H2


Underlying operating profit, margin and ROCE€ million

23

0.80

1.00

1.20

1.40

1.60

1.80

2009 2010 2011 2012 2013 2014A4 B-copy Pulp (BHKP)

Uncoated Fine Paper | industry fundamentals

Source: FOEX Indexes Ltd

Demand H1 saw modest growth in Europe on

cyclical recovery with Russia stable Structural decline in mature markets still

expected

Supply Net European capacity expansion in

2013/2014 estimated at around 300 ktpa In medium term, capacity expected to exit

the market Machine conversion announced

(280 ktpa) Further closures anticipated



Pulp and A4 B-copy prices

24

44 49 58

12.8%

16.0%

20.5%

13.5%

16.4%

20.4%

H1 2013 H2 2013 H1 2014


South Africa Division Strong performance, with ROCE of 20.5% Pricing Higher average domestic selling prices

across all grades Lower average export pulp price White-top containerboard export prices

stable Sales volumes impacted by Richards Bay

maintenance shut brought forward to JuneGains from weaker rand €10 million higher fair value gain on

forestry assets

Packaging Paper | Fibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division


€ million

25

Agenda

Highlights

Financial overview


Capital allocation

Outlook

Appendices

26

Graphic Packaging Acquisition Transaction completed on 30 June 2014 Acquired 100% of bags and kraft paper business from Graphic Packaging International Inc.

for US$105 million (€76 million) US$437 million revenue (unaudited pro forma) in 12 months ended 31 March 2014 Production base comprises an integrated kraft paper mill located in Pine Bluff, Arkansas with production capacity of

135,000 tonnes per annum 9 bags plants across the US, producing 872 million bags and consuming 174,000 tonnes

of kraft paper in 2013Operational and procurement synergies expected from integration with Group’s existing

network of 36 bag plants and 5 kraft paper mills, including 4 bags plants in North America Limited contribution to underlying operating profit in 2014


Acquis i t ion consol idates g lobal market leadership posi t ion in Industr ia l Bags

27

40%

16%11%

26%

7%Packaging Paper

Fibre Packaging

Consumer Packaging

Uncoated Fine Paper

South Africa Division

€1.1 billion over 2014 and 2015

Capital expenditure allocation

PackagingPaper

FibrePackaging

ConsumerPackaging

UncoatedFine Paper

SouthAfrica

DivisionCapex allocation over 2014/2015 Depreciation

Capital spend by segment

Focus on growth in packaging UFP spend primarily around cost optimisation and pulp production

28

Strong cash flow generation through the cycle

€3.1 b i l l i on cash genera ted f rom opera t ions over las t 5 years

354

516

648

549

715

312

H2 2009 2010 2011 2012 2013 H1 2014

€ million

5 year cash generated by operations¹

1 Net cash generated before capital expenditure, shareholder distributions, acquisitions and disposals.

29

…with a balance between re-investment for growth and shareholder distributions

3.1

0.6

1.8

1.3

Distributed to shareholders

Invested in asset base

Cash generated from operations

Change in net debtReceived from disposals and adjustments

0.5

Spent on acquisitions

5 year cumulative Cash Flow

1 Excludes dividend in specie of €205 million.

1

(0.1)

€ billion

30

Delivering against free cash flow priorities

Free Cash Flow

priorities

Maintain investment grade credit metrics• Net debt/EBITDA is 1.6 times• Investment grade credit ratings reaffirmed

Support dividendsInterim dividend of 13.23 euro cents per share, up 39% on prior year

M&A and/or increased shareholder distributions • €76 million Graphic Packaging bags and kraft paper acquisition in

US consolidates global market leadership position in Industrial Bags

• Continue to assess opportunities that are value enhancing to the Group

As appropriate

Selective capital investment opportunities• €1.1 billion capex programme in 2014/2015• All strategic capital investment projects on time and within

budget

31

Agenda

Highlights

Financial overview


Capital allocation

Outlook

Appendices

32

OutlookIn the near term, anticipated price increases in some of the Group’s packaging paper grades should provide positive momentum. As in prior years, the second half of the year will be impacted by the planned annual mill maintenance shuts.

Market fundamentals remain sound, which, coupled with a continued economic recovery, should prove positive for further growth in the packaging businesses.

Overall, management remains confident that Mondi will continue to deliver an industry leading performance.

33

Agenda

Highlights

Financial overview


Capital allocation

Outlook

Appendices

34

Our strategic pillars

Achieve leading market positions

Maintain our high-quality,

low-cost asset base

Grow through customer focused

development

Continuous focus on performance

We develop and maintain leading positions in our core packaging and uncoated fine paper markets. This brings us cost benefits and allows us to better serve our customers. Our focus on higher-growth emerging markets contributes to our sustained profitability.

We constantly invest in improving our operations, focusing on those assets which enjoy inherent cost advantages. This ensures we maintain a high-quality, low-cost asset base that keeps us competitive, and gives us sustainable cost advantages. Through our high levels of vertical integration we can create synergies along the entire value chain.

We help our customers succeed by working closely with them and listening to them. We develop smarter, more cost-effective processes and work to find inventive, innovative, advanced solutions that meet their needs. We follow our customers into high-growth emerging markets, where together we can offer cutting edge products that deliver exceptional value.

We are passionate about performance, making things work efficiently, effectively and profitably. Through our business excellence programmes and rigorous asset management, we are continually improving productivity and finding new ways to reduce costs.

Our hurd le ra te o f re tu rn th rough- the-cyc le i s 13%

35

Mondi Consumer Packaging

Mondi Industrial BagsGPK Industrial BagsGPK Sack Kraft Paper

Graphic Packaging Acquisition

Mondi Coatings


36

Capital expenditure - Major project timeline

Project start-up

Total Capex

€m

2014 2015

H1 H2 H1 H2

Štĕti bleached kraft (155,000 tonnes) 70

Syktyvkar pulp dryer (100,000 tonnes) 30

Ružomberok recovery boiler 128

Świecie recovery boiler, turbine and biomass boiler 166

Expec ted cap i ta l expend i tu re o f €550 mi l l i on /year in 2014 and 2015

37

0

500

1,000

1,500

2,000

H1 2013 H2 2013 H1 2014

Pulp Paper Wood Paper for recycling Energy Chemicals Plastics Other variable costs

Input costs

€ million

Variable costs

38

22.4%

23.8%

21.9%

20.5%

21.0%

21.5%

22.0%

22.5%

23.0%

23.5%

24.0%

0

100

200

300

400

500

600

700

800

900

1,000

H1 2013 H2 2013 H1 2014Maintenance and other indirect expenses Personnel costsOther net operating expenses Depreciation and amortisationFixed costs excl. depreciation as a % of turnover

Fixed costs

€ million

Fixed costs composition

39

0.40.3

0.1

Production Consumption Net position

Millionsof tonnes

1.6 1.8

(0.2)

0.4 0.1

0.3

Production Consumption Net long/(short)position

Millionsof tonnes

Integrated value chain H1 2014

0.50.3 0.2

Production Consumption Net long position

Millionsof tonnes

0.7

0.1

0.6

0.10.1

Production Consumption Net long position

Millionsof tonnes

MSADE&I

MSADE&I

E&I

E&I

Kraft PaperPulp

Virgin Containerboard Recycled Containerboard

40

Non-controlling interests

Non-controlling interests

€ millionH1

2013H2

2013H1

2014

% change vs

H1 2013

% change vs

H2 2013

Profit attributable to non-controlling interests 15 13 15 - (15%)

• Ružomberok 15 12 12 20% -

• Other - 1 3

% of underlying earnings 5.9% 5.6% 5.6%

41

Taxation

Taxation

€ millionH1

2013H2

2013H1

2014

% change vs

H1 2013

% change vs

H2 2013

Underlying tax charge 56 42 62 (11%) (48%)

Effective tax rate 18% 15% 19%

Higher tax rate reflecting Shift in underlying profit mix Reduction in the benefits from investment related incentives

42

Special items

Operating special items – €3 million charge Fibre packaging (€7 million charge) Restructuring activities in Coatings business (Belgium)

Consumer Packaging (€4 million gain) Release of unutilised provision for transaction costs (Nordenia acquisition)

Financing special item – €13 million charge Net charge on early redemption of €280 million Eurobond

43

Cash flow

€ millionH1

2013H2

2013H1

2014

% changevs

H1 2013

% change vs

H2 2013Underlying EBITDA 554 514 553 - 8%Working capital movements (129) 102 (106)Other operating cash flow items 6 (11) (8)Cash generated from operations 431 605 439 2% (27%)Dividends from financial investments and associates - 1 -Taxes paid (75) (51) (49) 35% 4%Net cash inflow from operating activities 356 555 390 10% (30%)Capital expenditure, excl. intangible assets (164) (241) (249) (52%) (3%)Investment in forestry assets (20) (21) (18)Acquisitions - - (77)Financing costs (68) (56) (64) 6% (14%)Dividends paid (142) (56) (140)Other investing and financing activities 18 13 15Net decrease/(increase) in net debt (20) 194 (143)

44

Statement of financial position€ million H1 2013 H2 2013 H1 2014Intangible assets 684 675 670Property, plant and equipment 3,446 3,428 3,505Forestry assets 257 233 233Other non-current assets 41 38 37Total non-current assets 4,428 4,374 4,445Inventories 767 746 834Trade and other receivables 1,112 954 1,058Other current assets 111 166 71Total current assets 1,990 1,866 1,963Total assets 6,418 6,240 6,408Short-term borrowings (265) (181) (458)Trade and other payables (1,008) (989) (1,028)Other current liabilities (148) (126) (142)Total current liabilities (1,421) (1,296) (1,628)Medium and long-term borrowings (1,664) (1,571) (1,343)Net retirement benefits liability (225) (211) (226)Deferred tax liabilities (291) (264) (254)Other non-current liabilities (53) (52) (52)Total non-current liabilities (2,233) (2,098) (1,875)Total liabilities (3,654) (3,394) (3,503)Net assets 2,764 2,846 2,905Share capital and stated capital 542 542 542Retained earnings and other reserves 1,963 2,049 2,103Total attributable to shareholders 2,505 2,591 2,645Non-controlling interests in equity 259 255 260Total equity 2,764 2,846 2,905

45

Production volumes

H1 2013

H2 2013

H12014

% changevs

H1 2013

% change vs

H2 2013Europe & InternationalContainerboard Tonnes 1,077,702 1,061,012 1,075,226 - 1%

Kraft paper Tonnes 515,822 495,063 531,040 3% 7%

Total softwood pulp Tonnes 1,014,483 993,476 1,025,692 1% 3%

Corrugated board and boxes M m2 678 666 672 (1%) 1%

Industrial bags M units 2,017 1,980 2,115 5% 7%

Coatings and release liners M m2 1,718 1,630 1,692 (2%) 4%

Consumer packaging Tonnes 146,763 136,398 141,467 (4%) 4%

Uncoated fine paper Tonnes 708,880 672,261 684,678 (3%) 2%

Newsprint Tonnes 103,620 103,608 104,574 1% 1%

Total hardwood pulp Tonnes 547,819 539,796 567,432 4% 5%

South AfricaContainerboard Tonnes 132,077 122,637 124,157 (6%) 1%

Uncoated fine paper Tonnes 131,741 127,010 126,907 (4%) -

Total hardwood pulp Tonnes 326,981 318,630 311,914 (5%) (2%)

Total softwood pulp Tonnes 102,987 63,114 75,675 (27%) 20%

Newsprint Tonnes 87,088 58,410 58,859 (32%) 1%

46

Exchange rates

€ millionH1

2013H2

2013H1

2014

% changevs

H1 2013

% change vs

H2 2013Closing rates against the euroSouth African rand 13.07 14.57 14.46 (11%) 1%Czech koruna 25.95 27.43 27.45 (6%) -Polish zloty 4.34 4.15 4.16 4% -Pounds sterling 0.86 0.83 0.80 7% 4%Russian rouble 42.84 45.32 46.38 (8%) (2%)Turkish lira 2.52 2.96 2.90 (15%) 2%US dollar 1.31 1.38 1.37 (5%) 1%

Average rates for the period against the euroSouth African rand 12.10 13.54 14.67 (21%) (8%)Czech koruna 25.70 26.28 27.44 (7%) (4%)Polish zloty 4.18 4.22 4.18 - 1%Pounds sterling 0.85 0.85 0.82 4% 4%Russian rouble 40.73 43.88 48.01 (18%) (9%)Turkish lira 2.38 2.68 2.97 (25%) (11%)US dollar 1.31 1.34 1.37 (5%) (2%)

mondi results interim 2014 final...source: foex indexes ltd virgin containerboard lower average...

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