Nedbank Capital 2010 Investment Conference 22 September 2010
Agenda Mondi at a glance Group strategy Segment review Summary Presenter David Hathorn Chief Executive Officer Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 2
Mondi at a glance UFP Bags & Coatings Corrugated South Africa MPSA Newsprint 2009 Sales (1) 1.4B 1.8B 1.0B 0.5B 0.5B 0.5B 9% 9% 24% 8% 32% 18% 2009 EBIT % 10.8% 4.5% 2.3% 6.7% 7.2% 2.1% Products Positions in relevant markets (2009) No. 1 in Office Paper and UFP in emerging Europe (2) No. 2 in Office Paper and UFP in Europe (2) No. 1 in Kraft Paper in Europe (2) No. 1 in Bag Europe South Africa Europe/SA Converting in Europe (3) No. 1 in Commercial release liner in Europe No. 1 Containerboard in emerging Europe; No. 2 Virgin containerboard in Europe (2) No. 1 Corrugated Packaging in emerging Europe (2) No. 1 in Office Paper and UFP in SA (4) No. 2 in Kraftliner in SA (4) No. 1 Corrugated Packaging in SA (3) No. 1 in Newsprint in No. 3 in Rigid South Africa (2) Plastics in SA No. 1 in Cartonboard in SA 30,000 people employed, with production facilities in 31 countries (2009) (1) Segment revenues, including inter-segment revenues. EBIT % is before special items. (2) Based on production capacity. (3) Based on sales. (4) Based Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 3 on capacity. Sources: RISI, Pöyry Forest Industry Consulting, Freedonia, BMI Foodpack, PAMSA, Mondi
First-half financial highlights Earnings significantly up versus a difficult first-half 2009 EBITDA 1 up 31% at 405 million Underlying operating profit 2 up 61% at 222 million Underlying EPS 3 up 145% at 20.3 euro cents Group ROCE 4 of 9.5% Cash inflow from operations of 269 million Strong EBITDA growth 141 million investment in working capital in line with increased trading levels Interim dividend of 3.5 euro cents per ordinary share Successful launch of inaugural 500 million bond 1 EBITDA is operating profit of subsidiaries and joint ventures before special items, depreciation and amortisation. 2 Underlying operating profit is operating profit of subsidiaries and joint ventures before special items. 3 The Group has presented underlying earnings per share to exclude the impact of special items. 4 Group return on capital employed (ROCE) is an annualised measure based on trailing 12 month underlying operating profit plus share of associates net earnings divided by 12 month trailing average trading capital em ployed adjusted for major capital projects not yet commissioned. Strong recovery in profitability Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 4
First-half operational highlights 2010 reflecting further improvement in European trading with strong order inflows Sustained improvement in order inflows, volumes and prices across all key paper grades Strong production performance Corrugated restructuring successfully completed Ongoing cost savings of 75 million, or 2.9% of cost base continuing to exceed targets New Polish machine performing well and Russian project approaching final integration Improving results trend from South Africa Division Continued robust focus on performance Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 5
Strong liquidity position Millions H1 2009 H2 2009 H1 2010 Net debt 1,661 1,517 1,632 Committed facilities 2,838 2,541 2,948 of which undrawn 1,073 990 1,358 Gearing (Net debt / Trading capital employed) 38% 35% 37% Net debt / 12 month trailing EBITDA (times) 2.5 2.4 2.2 Long term corporate credit ratings of Baa3 from Moody s investor service and BB+ from Standard & Poor s, both with stable outlook Following the successful launch of inaugural 500 million 7-year bond, the average maturity of committed facilities is 3.1 years (2.2 years at 31 December 2009) 83 million maturing over next 12 months Adequate debt facilities available Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 6
Agenda Mondi at a glance Group strategy Segment review Summary Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 7
Three key pillars to our strategy Leading market positions Build on leading positions in packaging and Uncoated Fine Paper (UFP), particularly in emerging markets High quality, low cost asset base Maintain position as lowest-cost producer in our markets: Selectively investing in production capacity in lower-cost regions Exploiting benefits of upstream integration (including forestry) Focus on performance Focus on continuous productivity improvement and cost reduction, delivered through business excellence programmes and rigorous asset management Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 8
Focus on Packaging and UFP in emerging markets 1 Leading market positions Revenue by destination Revenue by origin Net operating assets High exposure to good growth geographies Emerging markets Mature markets Emerging markets Mature markets Emerging markets Mature markets Virgin-based production Revenue by product (1) Mondi 2010 half-year data Emerging markets Mature markets Competitive cost base and superior revenue growth Corrugated products Uncoated fine paper Kraft paper & bags Specialities Other Merchanting Newsprint Pulp Timber & Woodchips Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 9
Emerging market asset base leads to low cost positions across the group s main grades Leading market positions + High quality, low cost asset base low cost asset base Percentage of Mondi's capacity in overall cost curve at Feb 2010 Grade 1 st Quartile 2 nd Quartile 3 rd Quartile 4 th Quartile Unbleached Sack Paper 24% 4% 53% 19% NSSC Fluting 100% - - - Unbleached Kraftliner 34% 66% - - White Top Kraftliner 100% - - - 1 BHKP (Pulp) 2-100% - - Recycled fluting 77% 15% - 8% UFP (Universal cut-size) 33% 33% 12% 22% 3 1 Note: Delivered to Frankfurt 2 Note: Delivered to Rotterdam 3 Note: High margin specialty mill Source: Pöyry High quality, low cost, well invested asset base Source: Pöyry Forest Industry Consulting Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 10
Integrated value chain Leading market positions + High quality, low cost asset base low cost asset base Millions of tonnes 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) Pulp 0.4 0.7 2.7 3.1 0.3 (0.4) Production Consumption Net long/(short) position E&I SAD Other Millions of tonnes 1.2 1 0.8 0.6 0.4 0.2 0 Virgin Containerboard 0.3 0.2 0.3 0.9 0.7 Production Consumption Net long position SAD MPSA Upstream production cost advantages Millions of tonnes 1.2 1 0.8 0.6 0.4 0.2 1.0 Kraft Paper 0.5 0.4 Millions of tonnes Recycled Containerboard 1.6 1.4 1.2 0.4 0.2 1.0 0.6 0.8 0.6 1.1 0.4 0.2 0.1 0.5 0 Production Consumption Net long position 0.0 Production Consumption Net long position E&I MPSA Source: Mondi 2009 adjusted for market-related downtime and restructuring impacts. Exploiting benefits of upstream integration Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 11
Superior access to low cost wood Leading market positions + High quality, low cost asset base low cost asset base Upstream production cost advantages Superior access to wood Average Hardwood and Softwood costs ( /m 3, Q4 2009) Russian wood regenerates naturally; South African wood is farmed, maturing in ±8 years Russian and South African costs are largely under our own control Therefore, future wood costs largely depend on efficiency of our own operations Sustainable supply of low cost wood Source: Pöyry Forest Industry Consulting Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 12
million Profitability improvements Leading market positions + High quality, low cost asset base + Focus on performance Comprehensive business excellence programmes 275 250 225 200 175 150 125 100 75 50 25 0 Cost savings, and % of comparative cash cost base Cost savings - 75 million 3.1% 2.4% 5.4% 2.9% 167 128 251 Other Maintenance Personnel Energy Material inputs 2007 2008 2009 H1 2010 Track record of successful focus on cost base 31% of savings address fixed costs Fixed costs excluding depreciation down to 24% of revenue (2009: 26%, 2008: 25%) 75 16% 5% 10% Cost structure H1 2010 5% 6% Wood, pulp and fibre 16% 34% 8% Energy Other variable costs Variable selling expenses Maintenance Personnel costs Other net operating expenses Depreciation and amortisation Source: Mondi Cost savings partially offset current input cost pressures Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 13
Millions Strong working capital management Leading market positions + High quality, low cost asset base + Focus on performance Comprehensive business excellence programmes 1,200 1,100 1,000 900 800 700 600 500 400 Working capital management 20% 18% 15.5% 14.6% 12.9% 16% 14% 11.9% 10.7% 12% 10.0% 10% 8% 6% 4% 2% 0% 2007 H1 2008 2008 H1 2009 2009 H1 2010 Working capital % revenue 2010 increased trading and price increases driving working capital growth As a percentage of revenue, working capital remains within target range 260 million inflow from working capital over past 24 months Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 14
Rigorous asset management Leading market positions + High quality, low cost asset base + Focus on performance Comprehensive Business Excellence programmes Rigorous asset allocation management 5 Closures and Divestitures 1 6 4 4 2007 2008 2009 2010 to date Closure/moth -balled 5 7 Divestiture + sale of European paper merchant, Europapier 5 ~1,080,000 tonnes annual capacity of high cost paper removed over the past 3 years Europe & International ~840,000 tonnes South Africa ~240,000 tonnes 16% reduction of Group capacity 21 converting sites rationalised since 2008 ~355,000 tonnes downtime taken in 2009 Cut back to low cost, high quality, well invested asset base 1) European production sites Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 15
Corrugated restructuring complete European Recycled Fluting Supply Delivered costs to Frankfurt Corrugated Business EU footprint 500 450 EUR/t Before: After: (CEE focus) 400 350 300 250 200 150 New Mondi PM7 Weighted av. cost Post restructuring and CEE Light Weighted av. cost Pre restructuring and investment in CEE Light 100 0 1,000 2,000 3,000 - Cumulative 4,000 capacity, 5,000 1 000 6,000 t/a - 7,000 8,000 9,000 10,000 RCB mill VCB mill Box plant sheet / speciality plant Closure/sale of 12 corrugated plants and 4 mills between 2008 and 2010 Average cost position improved from third to first quartile Well positioned in central and south eastern Europe Leading positions in high growth markets of Poland and Turkey Competitive paper asset base serving converting network Long ~650,000 tonnes = Virgin; ~500,000 tonnes = Recycled Improved cost position, refined geographic footprint Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 16
millions Major mills modernisation programme Leading market positions + High quality, low cost asset base + Focus on performance Comprehensive business excellence programmes Rigorous asset allocation management Expansionary capital spend 2004 to 2009 400 300 200 100 0 64% 7% 27 114 H1 2007 29% 13 256 H2 2007 135 189 182 194 H1 2008 H2 2008 South Africa Emerging Europe, incl Russia Rest of world (mainly Western Europe) Recent conservative investment 179 121 92 116 106 93 H1 2009 H2 2009 Capital expenditure, excl. major projects Major projects Depreciation as % of CAPEX, excl. major projects (RHS) H1 2010 200% 100% 0% Coming to the end of 10 year asset modernisation programme Almost 3 billion spent on expansionary projects Most large operations now well invested Approximately 120 million still to spend on major projects Followed acquisitions in emerging Europe and underpins long term emerging market strategy Investment in low-cost, high-growth markets Major upside potential in cyclical upturn 305m expansionary project at Swiecie completed in 2009 545m expansion project in Russia due to complete in H2 2010 Net cash flow benefit as capital spend declines Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 17
/ tonne Świecie s new machine performing well 285 million capital cost ~ 20 million below budget Start-up Q3 2009 ahead of schedule More than 400,000 tonnes production expected for 2010 full year >84% of full design capacity well ahead of business plan ~197,000 tonnes produced in first-half Maintenance shut in second-half 400 350 300 New Mondi average RCB cost curve 1 Manufacturing costs 2010/Q1 Current performance indicates strong 250 likelihood of achieving lowest cost position 200 150 New Mondi PM7 Input cost pressures from high regional recovered paper prices 100 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Cumulative capacity in kilo-tonnes per annum Competitive asset with integrated converting network 1 Source: Pöyry Forest Industry Consulting Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 18
Syktyvkar mill modernisation Project returns Wood / Pulp production ~30% woodyard capacity increase, ~10% efficiency gain ~170,000 tonnes pulp production = Already commissioned Sales growth ~50,000 tonnes Uncoated Fine Paper (~5% of domestic market) ~63,000 tonnes Virgin Containerboard (~3% of domestic market) ~30,000 tonnes market pulp New recovery boiler ~100% increased heat supply ~571 Mwh additional energy sales Reduced environmental footprint Modular project implementation Already benefiting from increased UFP capacity Extended shut for integration in the second-half, with around 20 million adverse trading impact Timing and estimated capital cost (~ 545 million) on track Further enhancing Mondi s low cost position Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 19
Agenda Mondi at a glance Group strategy Segment review Summary Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 20
millions millions Segment financial performance 4,000 Segment Revenues 300 8.1% Segment underlying profits 9.0% 3,500 250 7.3% 8.0% 3,000 2,500 200 5.7% 5.3% 5.9% 7.0% 6.0% 2,000 150 5.0% 1,500 100 4.0% 1,000 500 50 3.0% 2.0% H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 Uncoated Fine Paper Bags & Coatings Corrugated South Africa division MPSA Newsprint Mondi Group (50) H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 Uncoated Fine Paper Bags & Coatings Corrugated South Africa division MPSA Newsprint Corporate & Other Mondi Group % of revenue (RHS) 1.0% 0.0% Strong H1 2010 performance from Europe & International Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 21
/tonne /tonne Uncoated Fine Paper Commodity cycle and returns 1,100 1,050 A4 B-copy 1,000 950 900 850 800 750 700 650 600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H1 H2 H1 H2 H1 900 880 860 Improving returns despite declining prices 2010 2009 2008 2007 2006 25.0% 19.7% 20.0% 840 820 13.8% 15.2% 15.0% 800 780 760 9.4% 6.0% 8.0% 8.4% 12.1% 10.5% 10.0% 740 5.0% 720 700 2006 2006 2007 2007 2008 2008 2009 2009 2010 H1 H2 H1 H2 H1 H2 H1 H2 H1 0.0% 6 month ROCE% (annualised) (RHS) A4 B-copy Strong management actions plus recent price recovery 1 (1) Source: PIX FOEX Indexes Ltd Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 22
Bags and Coatings Commodity cycle and returns Unbleached sack Kraft ( /tonne) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 800.0 16.0% 15.3% 14.0% 750.0 12.0% 10.0% 8.0% 10.0% 9.9% 11.9% 10.9% 7.0% 6.7% 8.3% 10.2% 700.0 650.0 6.0% 600.0 4.0% 2.0% 550.0 0.0% 2006 2006 2007 2007 2008 2008 2009 2009 2010 H1 H2 H1 H2 H1 H2 H1 H2 H1 500.0 Source : Mondi - Nominal prices 6 month 2006 ROCE% (annualised) 2007 (RHS) 2008 Unbleached 2009 sack Kraft ( /tonne) 2010 Bags prices - indexed Increasing paper returns bag prices lagging Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 23
/tonne /tonne Corrugated Commodity cycle and returns 600 550 500 Kraftliner RB Fluting-OCC differential 450 400 350 300 250 200 150 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H1 H2 H1 H2 H1 600 2010 2009 2008 2007 2006 18.0% 550 17.1% 16.0% 500 450 400 350 300 250 200 150 100 12.9% 11.1% 11.9% 8.3% 7.5% 6.5% 2.6% 0.4% 2006 2006 2007 2007 2008 2008 2009 2009 2010 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% H1 H2 H1 H2 H1 H2 H1 H2 H1 6 month ROCE% (annualised) (RHS) Kraftliner RB Fluting-OCC differential 1 1 Significant restructuring delivering improving returns in upturn () Source: PIX FOEX Indexes Ltd Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 24
Agenda Mondi at a glance Group strategy Segment review Summary Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 25
Summary Mondi has been following a consistent strategy for more than a decade: To build on leading positions in packaging and Uncoated Fine Paper (UFP), particularly in emerging markets To maintain position as lowest-cost producer in our markets: Selectively investing in production capacity in lower-cost regions Exploiting benefits of upstream integration (including forestry) To focus on continuous productivity improvement and cost reduction, delivered through business excellence programmes and rigorous asset management Positioning the business to benefit from the current positive trading environment Well positioned with low-cost, high-quality, well-invested core Mondi Nedbank Capital 2010 Investment Conference 22 September 2010 Page 26