Mondi Group Full year results for the year ended 31 December February

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Mondi Group Full year results for the year ended 31 December February 2017 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 2 Highlights Underlying
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Mondi Group Full year results for the year ended 31 December February 2017 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 2 Highlights Underlying operating profit and ROCE Strong financial performance million 13.6% 15.3% 17.2% 20.5% 20.3% 25.0% 20.0% 15.0% 10.0% Underlying operating profit up 3% Cash generated from operations up 10% ROCE of 20.3% % Capital projects delivering growth ROCE Underlying earnings per share 0.0% 50 million incremental contribution to operating profit in 2016 from completed investments Strong expansionary capital investment pipeline: over 800 million in major projects approved and in progress Euro cents per share CAGR 18.8% Four acquisitions totalling 185 million, expanding our packaging interests Recommended full year dividend of 57 euro cents per share, up 10% on prior year Building on track record of strong growth in profitability 3 A track record of strong growth in profitability 25.0% Since 2010: 20.5% 20.3% ROCE% up 800 bps 17.2% 20.0% EBIT up 114%, CAGR of 13.5% 12.3% 15.0% 13.6% 15.3% 15.0% 10.0% 5.0% EBIT 12 month rolling ROCE% 0.0% 4 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 5 Operating financial highlights million % change Group revenue 6,662 6,819 (2%) 3,350 3,312 3,360 Underlying EBITDA 1,366 1,325 3% % Margin 20.5% 19.4% 19.5% 21.6% 19.5% Underlying operating profit % % Margin 14.7% 14.0% 13.5% 16.0% 13.9% Group ROCE 20.3% 20.5% 20.3% 21.2% 20.5% H H H Underlying operating profit development million (43) (31) 24 (20) (9) Sales volume Sales price Variable costs Fixed costs Currency effects Fair value gain on forestry assets Green energy Acquisitions and other 2016 Volume growth, efficiency gains and lower input costs drive profitability 7 Divisional operating profit development million 957 (30) (14) Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division Financial review million % change Underlying operating profit % Net underlying finance costs (101) (105) 4% (54) (47) (46) Net profit from associates Underlying profit before tax % Tax before special items (166) (161) (3%) (74) (92) (79) Total non-controlling interests (48) (45) (7%) (21) (27) (24) Underlying earnings % Special items (after tax and non-controlling interests) (29) (47) (29) - (11) Reported profit after tax and non-controlling interests % Basic earnings per share (euro cents) % Underlying earnings per share (euro cents) % H H H Interest expense and net debt million % change Net debt 1,383 1,498 8% Average net debt 1,476 1,650 11% Net interest expense (before capitalised interest) % Effective interest rate 6.2% 6.3% Committed facilities 2,497 2,002 Of which undrawn Net cash position Net debt/12-month trailing EBITDA (times) Currency split of net debt 1,383 million 4% 4% 9% 13% 9% 23% 38% Euro Polish zloty Czech koruna US dollar Turkish lira Rand Finance costs down on lower average net debt levels Net debt down 115 million: Reflecting strong cash generation After ongoing capital investment programme, 185 million in acquisitions and growing dividend Investment grade credit ratings unchanged 500 million 1.5% eight-year Eurobond issued in April 2016 Extends maturity profile and ensures ample liquidity 500 million Eurobond maturing in April 2017 to be redeemed from undrawn committed facilities and available cash Other Strong, stable financial position provides flexibility to pursue value creating opportunities 10 Cash flow effects movement in net debt million 1,498 (1,401) , Net debt at 31 Dec 2015 Cash generated from operations Currency effects (including derivatives) Tax and financing costs paid Capex investment Dividends paid to equity holders Acquisitions Other Net debt at 31 Dec 2016 Strong cash generation allows for deleveraging after capital investments, acquisitions and growing dividends 11 Dividends Euro cents per share 60 Dividends declared Mondi s dividend policy aims to offer shareholders long term dividend growth within a target dividend cover range of two to three times underlying earnings on average over the cycle Given the Group s strong financial position and the Boards stated objective to increase distributions to shareholders through the ordinary dividend within the bounds of the cover policy, the Boards have recommended an increase in the final dividend to euro cents per share, giving a full year dividend of 57 euro cents per share, up 10% on prior year Interim dividend Final dividend Dividend cover (times) Compound annual growth rate in dividend over past five years of 19% 12 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 13 Packaging Paper million 17.8% 12.0% 21.7% 23.7% 25.5% 22.4% 14.9% 16.7% 18.1% 17.6% ROCE Underlying operating profit margin Volumes indexed to Underlying operating profit, margin and ROCE Production volumes VCB RCB Kraft paper Market pulp Underlying operating profit down 8% on prior year Lower average selling prices Lower green energy prices Partly offset by Like-for-like sales volume growth Benefits of completed capital investments - Lower energy costs - Improved productivity Strong cost control through ongoing cost savings initiatives Lower average raw material and energy costs Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 14 Packaging Paper industry fundamentals Selling prices /tonne VCB White-top kraftliner Virgin containerboard (VCB) Solid European demand growth around % Supply side increases from Ramp up of newly installed capacity in Europe Increased imports due to weak emerging market currencies Limited new supply into 2017 Average 2016 European benchmark selling prices Kraftliner brown down 5% White-top kraftliner down 2% Price increase of 20/tonne for unbleached kraftliner implemented across Europe in August 2016 good demand and strong order position Recent price movements in Europe Price increase of 50/tonne on unbleached grades from March /tonne announced on all remaining grades effective beginning Q In Russia, price increases for white-top kraftliner implemented beginning 2017 Source: FOEX Indexes Ltd Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 15 Packaging Paper industry fundamentals /tonne Price indexed to Selling prices RCB¹ Selling prices Sack kraft paper - Europe² Recycled containerboard (RCB) Growth in European demand estimated at 2-2.5% Average 2016 European benchmark selling prices down 3% Net industry capacity expansions in 2017 of around 850 ktpa (±3%), expected to be matched by demand growth Price increase of 40/tonne from February 2017 Further 40/tonne announced from March 2017 Sack kraft paper Average European selling prices down 5-6% year-on-year Price increases of 3-4% implemented beginning 2017 Strong demand improvement, particularly in export markets Supply disruptions Speciality kraft paper Good demand growth 1 Source: FOEX Indexes Ltd 2 Source: Mondi Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 16 Fibre Packaging million 13.9% Underlying operating profit, margin and ROCE 11.8% 13.4% 13.9% 13.5% 5.9% 5.1% 5.5% 5.9% 6.4% ROCE Underlying operating profit margin Corrugated Packaging Good volume growth, mainly in Czech Republic and Germany Turkey impacted by political turbulence Russian embargo impacts Polish exports of fresh fruit and vegetables Benefited from acquisitions in Russia and Poland Reduced input costs, productivity gains achieved Volumes indexed to Production volumes Corrugated packaging Industrial bags Negative currency impacts from the weaker Turkish lira and Polish zloty Capital investments contribute to improved performance Industrial Bags Good market growth in Europe and Middle East Challenging market conditions in the US and CIS Benefits from cost savings and restructuring and rationalisation activities Negative currency impacts due to weaker Mexican peso Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 17 Consumer Packaging million 9.0% 4.8% Underlying operating profit, margin and ROCE 8.7% 5.6% 10.4% 10.7% 10.5% 7.0% 7.4% 7.7% ¹ ROCE Underlying operating profit margin Underlying operating profit up 12% on prior year Strong volume growth in higher value-added segments Improved margins, well positioned for further growth Supported by Integration of 2015 acquisitions and realisation of synergies Debottlenecking of plants and site specialisation - Optimise production - Cost savings and waste reduction Acquisitions of Kalenobel (Turkey) and Uralplastic (Russia) in H2 2016, and Excelsior Technologies (UK) in February 2017 Increase exposure to high-growth, high value-added segments Enhance product offering Restructuring of US release liner business, including planned closure of one site 1 Excludes 14 million one-off costs relating to Nordenia acquisition Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 18 Uncoated Fine Paper million 16.7% Underlying operating profit, margin and ROCE 16.0% 16.1% 13.1% 12.3% 11.9% 25.6% 17.2% 36.0% 21.2% ROCE Underlying operating profit margin Exceptional performance ROCE of 36% 25% increase in underlying operating profit Despite lower average European prices in the second half Domestic price increases in CIS markets and strong focus on productivity and efficiency Production volumes Uncoated fine paper Volumes indexed to Sales volumes up 1% despite declining market Good cost control Lower wood and energy costs Commercial excellence initiatives offset inflationary cost pressures Lower euro pulp costs (down 11%) benefit Neusiedler (Austria) operations Negative translation effects from weaker rouble Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 19 Uncoated Fine Paper industry fundamentals /tonne Pulp and A4 B-copy prices A4 B-copy Pulp (BHKP) Demand European market contraction of 3-4% in 2016 Average rate of decline from is 1-2%, in line with expected long-term trend CIS region stable Supply Increased imports due to US import tariffs offset benefits of capacity rationalisation in 2015 Prices 2016 average benchmark pricing in Europe in line with prior year, but down 2% in second half Q price increase in Europe of 5-7% announced on the back of improving demand Higher average selling prices in Russia in 2016 Q increasing imports due to stronger rouble Source: FOEX Indexes Ltd Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 20 South Africa Division million Underlying operating profit, margin and ROCE 16.0% 21.9% 30.1% 27.8% 24.7% 24.7% 9.6% 14.9% 18.8% 9.8% ROCE Underlying operating profit margin ROCE of 27.8%, with underlying operating profit down 9% on prior year Benefited from Higher average domestic selling prices Positive currency effects from the weaker rand Higher fair value gain on forestry assets ( 24 million) Offset by sharply lower average pulp export prices Volumes indexed to Production volumes Uncoated fine paper White-top kraftliner Market pulp Good cost control Focus on improving productivity, driving efficiencies and reducing waste Offsetting - Inflationary pressure on labour and electricity costs - Higher wood costs, mainly due to forestry revaluation - Currency impacts on imported materials Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 21 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 22 Creating sustainable value 23 How we are delivering on our strategy some examples Driving performance to optimise quality, productivity and efficiency Investing in our highquality, low-cost assets to keep us competitive Partnering with our customers to develop innovative solutions Growing responsibly and inspiring our people for long-term success Good progress in optimising recently commissioned projects, debottlenecking and site specialisation Production records on 19 of our pulp and paper machines Continue to invest in upgrading quality processes and improving our quality culture Investments in asset management and maintenance processes 4 acquisitions expand Consumer and Corrugated Packaging footprint Świecie mill expansion nearing completion Upgraded woodyard at Richards Bay operation Strong capital investment pipeline New products launched and incremental improvements to existing portfolio Expanded marketing of new products into US markets Mondi4Me initiative in UFP to improve customer experience No fatalities or lifealtering injuries in 2016 Talent development programmes and investment in training for first time leaders Focus on improving communication, recognition and collaboration Implemented Growing Responsibly model, defining our sustainability commitments to Our free cash flow priorities Maintain our strong and stable financial position and investment grade credit metrics Free cash flow priorities Grow through selective capital investment opportunities Support payment of dividends to our shareholders As appropriate Evaluate growth opportunities through M&A and/or increased shareholder distributions A strong financial position provides flexibility to pursue growth options 25 Cash flow priorities our progress over the last five years billion Maintain our strong and stable financial position and investment grade credit metrics Grow through selective capital investment opportunities cumulative free cash flow Support payment of dividends to our shareholders Evaluate growth opportunities through M&A and/or increased shareholder distributions (2.3) 4.2 (0.9) (1.6) (0.6) Cash flow generated Invested in asset base Distributed to shareholders Spent on acquisitions Change in net debt 26 Consistent, clear strategic focus Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 1,760m 1,006m 1,270m 851m 731m Net segment assets 31% 30% 18% 23% 23% 15% 13% 10% 8% Capex 910m 435m 360m 373m 243m Capex as a % of depreciation 172% 136% 118% 81% 115% ± 400 million ± 300 million ± 900 million Acquisitions Świecie minorities and power plant (2012) Kraft paper of Graphic Packaging in the US (2014) 2 Duropack plants (2012) Industrial bags business of Graphic Packaging in the US (2014) Intercell (2014) SIMET S.A. (2016) Lebedyan (2016) Nordenia (2012) Kutno (2014) Ascania (2015) KSP (2015) Kalenobel (2016) Uralplastic (2016) 27 million million 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Growth options Organic capital investments Capital expenditure million 159% 164% 124% 113% 86% Capex as a % of depreciation, amortisation and impairments Completed major capital investments already contributing meaningfully Delivered incremental operating profit of around 150 million over past three years, including 50 million in 2016 Incremental operating profit of around 30 million expected in 2017 Strong pipeline of projects 300 ktpa kraft top white machine at Ružomberok mill in Slovakia: 310 million Replacement of recovery boiler and 90 ktpa machine glazed speciality kraft paper machine at Štěti: 470 million Capital expenditure expected to be in the range of million in million in Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 29 Outlook Our outlook for the business is positive. We have implemented or announced price increases in containerboard, sack kraft and uncoated fine paper grades, supported by good demand. We expect some inflationary cost pressures across the Group and a lower forestry fair value gain. Furthermore, we anticipate a more challenging trading environment in certain uncoated fine paper markets following price erosion in Europe over the course of 2016, combined with emerging market currency volatility. However, we expect to continue to benefit from contributions from our recently completed capital projects and acquisitions, together with steady organic growth in our downstream converting businesses. Our consistent and focused strategy, robust business model and firm focus on operational excellence all continue to contribute to our performance. We remain confident of continuing to deliver industry-leading returns. 30 Q&A 31 Agenda Highlights Financial overview Operational review Delivering on our strategy Outlook Appendices 32 Mondi at a glance Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 2016 Revenue 1 2,056 28% 30% 1,929m 1,562m 1,246m 594m 10% 8% 23% 17% 26% 8% 21% 29% ROCE 22.4% 13.5% 10.5% 36.0% 27.8% Products 1 Segment revenues, before elimination of inter-segment revenues 33 Strong global presence Sales by location of customer 6,662 million Sales by location of production 6,662 million 39% 11% 21% 9% 6% 14% Emerging Markets Mature Markets Emerging Europe Russia South Africa Other Western Europe North America 37% 1% 9% 9% 32% 12% Emerging Markets Mature Markets Emerging Europe Russia South Africa Other Western Europe North America Product mix Operating net segment assets by geography 5,618 million 18% 10% 23% 49% Packaging Consumer related packaging Industrial packaging Uncoated fine paper Other 3% 30% 6% Emerging Europe 13% 12% 36% Emerging Markets Mature Markets Russia South Africa Other Western Europe North America 34 Divisional operating profit contribution EBIT contribution by segment¹ % 161m 40% 11 2 milli on 14% 147m 36% 361m 21% 212m 212 million 391m 14 8 milli on 26% 264m 11% 108m 12% 120m 96 milli on 102 million 12% 121m 12% 123m Packaging Paper Fibre Packaging Consumer Packaging Uncoated Fine Paper South Africa Division 1 Excludes Corporate costs of 35 million (2015: 35 million) 35 Responding to global market trends Key market drivers Demographics and economic development Digitalisation and interconnectedness Modern consumers Focus on sustainability Increased demand for packaged goods in emerging markets Time-constrained consumers Consumers requiring smaller portion sizes and convenience features Increasing demand for e-commerce solutions Multichannel brand communication requires more functionality of packaging Complex, longer supply chains: increased protection for goods in transit and extended shelf-life Increased need for transparency in how we do business Need for packaging to convey brand values and promote product Requirement for sophisticated printing and haptic properties to enhance customer experience Changing retail landscape and cost pressures: shelf-ready packaging, point of sale displays Desire for light-weighting and right-size packaging Fibre-based packaging that is recyclable, degradable and/or made from renewable sources Demand for flexible packaging driven by reduced material use; lower energy consumption and barriers to prevent food waste and enhance shelf-life Our response Investments Our acquisitions and capital investment projects are centred on expanding our product range and geographic reach, reducing our environmental impact and providing innovative solutions to our customers Product Innovation Continue to develop a portfolio of fibrebased and flexible packaging solutions, optimised for reduced portions and convenience e-commerce brand appeal and customer experience multi-barrier solutions that extend shelf-life light-weighting without sacrificing strength properties environmental responsibility 36 Building on a track record of success Weighted average selling prices Virgin containerboard Kraft paper Uncoated fine paper 20.5% 20.3% 17.2% 15.0% 15.3% 12.3% 13.6% 14.0% 14.7% 10.8% 8.2% 9.9% 10.8% 12.0% EBIT 12 month rolling ROCE% Operating margin % 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1 Source:Mondi 37 Continuing to strengthen our cost leadership position by investing in our low-cost, high-quality asset base Cost per tonne p
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