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Mondi Capital Markets DayMondi South Africa Division (MSAD)
Ron Traill2 September 2013
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
MSAD overview
Forestry operations
Richards Bay
Merebank
Pulp
White Top Kraft Liner
UFP
Newsprint
l Printing & writing paper production
l Tissue production
l Agriculture packagingl Consumer / industrial
packaging
l Merchantsl Commercial printersl Retailers
l Publishers
Products Applications / customers
Approximately 7,600 employees including contractors
3 million tonnes
0.8 pulp, 0.3 WTKL
0.3 UFP, 0.1 Newsprint
0.2 Pulp
0.3 Pulp
0.3 WTKL
MSNRecovered paper
1
The MSAD business manages upstream forestry operations and manufactures and sells a range of pulp, virgin containerboard, UFP and newsprint products.
(1) Pulp (including pulp produced to consume on site) and paper capacities in million tonnes.
Value chain1
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
MSAD operations
2
l Forestry plantations along the eastern coastal belt and further inland
l Forestry land holdings in Mpumalanga and KwaZulu-Natal
l Approximately 300,000 ha under management (owned or leased land), of which approximately two thirds are commercial softwood and hardwood plantations
l Fast growing plantations; 7 year rotation
l Yield approximately 3 million tonnes of timber per year
l All MSAD forests are FSC® certified
Forestry overview
Forestry operations
Production facilities
MSAD operations
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
0.06 0.18
2008 2012
million tonnes
0.07 0.08
2008 2012
million tonnes
0.30 0.36
2008 2012
million tonnes
0.32 0.26
2008 2012
million tonnes
Strong local market position1
3
(1) Based on Mondi estimates and EMGE. Hardwood pulp market excludes supply to Merebank.
Hardwood pulp White Top Kraftliner UFP Newsprint
Sole domestic supplier
l Significant growth in tissue segment
l Exceptional market growth in 2012 partly attributable to Sappi’s Enstra pulp mill closure
Sole domestic supplier
l Citrus farming has been a significant growth driver
l Sappi to exit market segment in 2013 - Mondi to be sole domestic manufacturer
l Little impact from imports
Number one market position
l Growth has been in line with GDP. Moderate growth expected in the medium term
l Decline in OEM offset by increased retail activity
l Growth in education sector
Number one market position
l Overall circulation flat, driven by free publication
l Drop in ad spend has led to decline in pagination
l Digital media impact significantly offset by increased literacy
l Capacity / demand balanced after Mondi 120kt closure
+31.2%CAGR
+3.6%CAGR
+4.4%CAGR
-4.6%CAGR
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Richards Bay global competitiveness in export grades
4
Global BHKP delivered costs to Shanghai1 Global WTKL delivered costs to Frankfurt2
(1) Source: RISI,Q1, based on Q2 2013 exchange rates. (2) Source: Pöyry White Top Kraft Liner cost competitiveness, report for Mondi, 6 September 2012 (Q2 2012). (3) Best estimate based on EUR/ZAR exchange rates for September 2012 and July 2013.
650
600
550
500
450
400
350
300
250
200
150
100
50
0
€/t
35 mt
1: Richards Bay
1
0
100
200
300
400
500
600
700
0 1,000 2,000 3,000
€/t
1: Richards Bay
Current exchange
rate3
1
1
4 mt
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
648 540 656 645 702 325
25.0%
15.5% 19.0% 18.1% 17.8%20.6%
2008 2009 2010 2011 2012 H1 2013Sales EBITDA %
Focus on performance delivering strong results
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(1) Financial results shown in 2008 to 2012 are for the full financial year. Figures in 2012 restated to consolidate MSN, previously proportionately consolidated.
Sales (€ million) and EBITDA margin (%) 1 Operating profit (€ million) and ROCE (%) 1
Domestic sales development (as % total volume)2012 Sales by destination (%)
118 38 71 63 69 44
16.4%
5.3%8.9% 8.7%
9.6%12.8%
2008 2009 2010 2011 2012 H1 2013Operating profit ROCE %
13%
87%
Emerging markets
Mature markets
42% 59%0%
10%
20%
30%
40%
50%
60%
70%
2009 Jun-13
% sales volume
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Challenges and opportunities
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Challengesl Structural decline in newsprintl Rising labour costs and skills shortagel Electricity availability and escalating costl Land ownership
Opportunitiesl Leverage strong domestic market position and Richards Bay global competitivenessl Further productivity improvements, in particular in forestry operations
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Proactive response to labour cost pressures
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Challenge
MSAD productivity improvements1
l Mill workers wages have increased by 30% over the past 4 years
l Forestry workers wages have doubled over the past 4 years
l Significant improvements in productivity since 2009, supported by:
¡ Sales increase of 8% over the same period¡ Headcount reduction
Response
(1) Based on saleable pulp and paper tonnes produced per employee.
100 107 122 136 162
Mid 2009 Mid 2010 Mid 2011 Mid 2012 Mid 2013
Productivity index, Mid 2009 =100 (tonne/employee)
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Targeted investment will protect against further energy price escalation and supply shortages, and increase electricity self-sufficiency
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Challenge
Security of supply
l Recent generation shortages were primarily caused by delayed investment in new generation capacity
l Construction delays for new power plant
l Desired reserve margins under pressure and limited maintenance has led to real risk of outages
Cost impactl To fund the investment programme Eskom (power supplier) has effectively doubled rates over the past 3 years
l 8% increases established for forthcoming 3 year period
Response
New 45MW steam turbine at Richards Bay
l €38 million investment in turbine, boiler refurbishment and system upgrades
l Maximizing synergy between process steam requirements and boiler capacity utilisation
l Increases Richards Bay’s electricity self-sufficiency from 93% to 135%
l Increases MSAD’s overall electricity self-sufficiency from 64% to 91%
l Project completion in H2 2013
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Land ownership
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Challenge
l People historically dispossessed of their land under apartheid
l Democratic government initiated land claims process to allow for restitution of land to the dispossessed
l Approximately 50% of Mondi forests initially under claim (150,000 ha) through 101 claims
Response
l Mondi proactively initiated a process with government to resolve claimson a sale and leaseback model
l To date Mondi settled 19 claims successfully (36,000 ha representing26% of total)
l Additionally sale of assets and refutal of claims leaves 59 remaining,104,000 ha
l Current model has proved successful and will be applied in theresolution of outstanding land claims
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Potential for further operational efficiency improvement
10
Richards Bay and Merebankl Increase mill capacity to 800ktpa with minimal capexl Develop capability of linerboard manufacturel Merebank now correct size, focus on enhancing productivity, cost reduction and leveraging domestic
market position
Forestsl Optimise forest footprint (acquisitions and disposals)l Achieve targeted automation, mechanisation and modernisationl Optimise forest yields through clonal development
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Modernisation of forestry operations
11
First class forestry operations
l Rapid escalation of labour costs over past yearl Mondi embarked on program to modernise outsourced forestry
operations 5 years agol Initial focus on high risk manual felling operationsl Focus now on silviculture operations to eradicate poor
ergonomic tasksl By end 2013:
¡ Harvesting mechanisation of gum and pine targeted to be greater than 93%
¡ Silviculture operations are currently being mechanised and modernised
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Clonal development
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1990: benchmark
2000: generation
Current:commercial
17%
30%
l Invested in developing extensive breeding research l Development cycle decreased by 28% since 2008l Growth increased by 30% since 1990
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
Summary
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Achieve leading market positions
Maintain a high-quality, low-cost
asset base
Continuous focus on performance
Grow through customer focused
development
Group strategic framework MSAD value drivers
l Strong local market position offering growth opportunities
l Global competitiveness in export grades
l Well invested assets with no significant capex needs
l First class forestry operations
l Continuous focus on cost, productivity and efficiency
Packaging Paper | F ibre Packaging | Consumer Packaging | Uncoated Fine Paper | South Africa Division
FORWARD - LOOKING STATEMENTS
It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations of market growth and developments; expectations of growth and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, “may” or similar expressions, are forward-looking statements. Since these statements are based on current knowledge, plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. 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 Group’s patents and other intellectual property rights, 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 the Group’s products and raw materials and the pricing pressures thereto, financial condition of the customers, suppliers and the competitors of the Group, potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group’s principal geographical markets or fluctuations of exchange rates and interest rates.
Mondi does not
a) assume any warranty or liability as to accuracy or completeness of the information provided hereinb) undertake to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of making any forward-looking statements.
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