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

Transcription

1 Achieving returns in Europe: Industry challenges and Mondi responses RISI Global Outlook Conference, Dubai Peter J Oswald CEO Mondi Europe & International

2 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

3 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

4 Structural issues stifling growth 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 borrowing 1, 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 ? 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 F 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 Monthly data (2010 = 100) GDP development Euro area European Union Central and eastern Europe Industrial production Spain Germany Poland European Union Source: Eurostat, November 2013 Page 3

5 Ongoing structural decline in UCWF Secular decline in Western Europe O Competition from electronic media, e.g. tablets, e-billing, e-archiving m tonnes Total European uncoated woodfree demand 10 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 F 2015F 2017F Eastern Europe Western Europe 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 Page 4

6 Increasing fibre costs squeezing margins 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 to 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? Average delivered conifer pulpwood (softwood) prices Q /m Source: Wood Resources International, Wood Resource Quarterly 2Q/2013 /solid m Pulpwood price development in Austria spruce/fir price ex forest road pine price ex forest road 1. Wood Resources International, Wood Resource Quarterly 2Q/2013 Source: Statistik Austria, Annual average prices Page 5

7 Overcapacity in P&W spreading via conversion 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 nonintegrated) Conversion of uncoated woodfree machines to linerboard production O Metsä Board (Husum) launched fully bleached linerboard production Uncoated woodfree capacity closures needed in Western Europe over the next five years k tonnes Cumulative Capacity Shuts Needed for 92% Operating Rate Cumulative Announced Removals Source: RISI, Global Woodfree Risk of Closure Special Market Analysis Study 2013 European WTKL demand, CAGR -1% k tonnes 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 Source: RISI, Outlook for European White Top Containerboard Market Update 2013 Page 6

8 The Mondi response Focus on emerging markets Consumer exposed packaging largest part of business Investment in green energy Innovation through customer cooperation

9 Focus on emerging markets Mondi focused on markets enjoying growth Group 2012 sales by destination (%) O Geographic exposure: 50% of sales into higher growth emerging markets Emerging markets 50% 50% Mature 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 Net operating assets (Upstream businesses) Emerging markets Mature markets 17% 83% Page 8

10 Consumer exposed packaging largest part of business 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 Group 2012 pro forma revenues (%)¹ UFP Other 21% 12% 19% Industrial packaging 48% Consumer exposed packaging Packaging 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 Page 9

11 Investment in green energy Continuous investment in green energy O 265m in 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 Świecie, Poland Page 10

12 Innovation through customer cooperation 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 Page 11

13 New product highlights FIBROMER Light weight composite material, ideal for automotive and logistics industries PerfoamPack Physically foamed film with 20% less raw material ProVantage Kraftliner Aqua Containerboard grade for packaging applications in humid environments SmartID Bag Unique code on each industrial bag for tracking and identification Stac-Pac Weather-resistant shipping and storage containers made from corrugated board with wooden reinforcements Miprotex Tailor-made barrier to prevent migration of mineral oil Page 12

14 Mondi s journey at a glance

15 Responses in line with Mondi s strategy 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 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 Continuous focus on performance Focus on performance through continuous productivity improvement and cost reduction, delivered through business excellence programmes and rigorous asset management We aim to exceed our hurdle rate of return on capital employed through the cycle of 13% Page 14

16 and contributing to performance Mondi Group EBIT ( million), EBIT margin (%) and ROCE (%) 15.0% 13.6% 14.8% 10.6% 9.5% 7.6% 12.3% 10.8% 9.9% 11.0% 8.0% 7.0% 5.6% 8.2% HY EBIT ROCE % ROCE hurdle rate 13% EBIT in % Key milestones: 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 Page 15

17 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 forwardlooking 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. Page 16