Reviewing our business performance

Europe & International – Packaging Paper

Europe & International: Packaging Paper [organisational structure]
Key performance indicators Year ended
31 December 2013
Year ended
31 December 2012
Financial performance   
Segment revenue€ million2,0001,896
EBITDA€ million394321
Underlying operating profit%298227
Underlying operating profit margin%14.9%12.0%
Capital expenditure€ million13989
Net segment assets€ million1,4841,466
ROCE%21.9%17.9%
Production information   
Containerboard’000 tonnes2,1392,079
Kraft paper’000 tonnes1,011981
Softwood pulp   
Internal consumption’000 tonnes1,8601,826
External’000 tonnes148153
Energy consumptionmillion GJ55.3853.11
Water inputmillion m³137.47126.04
Sustainability information   
Number of employeeshundreds48 49
TRCR Per 200,000 hours worked 0.900.94
Total scope 1 and 2 GHG emissionsmillion tonnes CO2e1.441.38
Certified wood input%50% 51%

Financial performance

Packaging Paper benefited from positive trading conditions in all key paper grades and a strong operating performance, resulting in an underlying operating profit of €298 million, an increase of 31%, and ROCE of 21.9%.

The average benchmark selling price for recycled containerboard was 4% higher than the comparable prior year period, and by December was 14% up on the same stage in the prior year, with increases being implemented at various stages throughout the year. Price increases were driven by reasonable demand growth supported by limited net capacity additions, with new capacity brought on stream during the year largely offset by closures.

Selling prices for the virgin containerboard grades increased modestly over the first half of the year before coming under some pressure during the second half. At year-end benchmark selling prices were around 2% lower than the average levels during the year. The price weakness in the second half was seen as a reaction to increased substitution towards recycled grades due to the abnormally high price differential that developed between virgin and recycled containerboard grades, competition from imports due to the weaker US dollar and an increase in supply as producers converted production from less profitable grades. The price differential has now reduced to levels towards the lower half of the historic trading range, typically seen as supportive of virgin containerboard pricing. With improving demand seen in early 2014, discussions are underway with customers around price increases in unbleached kraftliner grades.

Kraft paper prices were relatively stable for much of the year while volumes were up on the prior year, supported by stable European markets and strong gains in export markets. As anticipated, there was some price erosion seen towards the end of the fourth quarter and into early 2014 on the back of seasonally weaker demand in Europe and increased competition in key export markets. By the end of the year, average selling prices have declined by around 9% from their highs in mid-2013. It is however encouraging to note a recent pick-up in orders. Sack kraft paper price increases are currently under discussion with customers.

The uncertain regulatory environment surrounding renewable energy in Poland led to a significant decline in market prices for green energy in the first quarter of the year. As a consequence, the Group recognised an €11 million write-down in the value of its existing green energy credits in the first quarter. The lower market prices prevailed throughout the year and income from the sale of green energy credits in the Packaging Paper business was €17 million lower than in 2012 (excluding the impact of the one-off write-down).

Input costs were well contained. The cost of paper for recycling was relatively stable throughout the year following a sharp drop in prices seen in the second half of 2012, although there was some regional pressure in Poland following the start-up of new competitor capacity. The average benchmark price was approximately 7% lower than in 2012. Wood costs in central Europe were generally well contained.

Following the acquisitions, in Fibre Packaging, of the Duropack corrugated packaging plants in the latter part of 2012, Packaging Paper benefited from the realisation of supply chain synergies.

A strong operating performance and significant productivity improvements, most notably in Syktyvkar, ensured that increases in fixed costs were contained well within inflation.

Sustainable development

At our Świecie mill, we have steadily increased our use of biomass for energy, raising the proportion of green energy to total electricity generated from 71% in 2009 to 83% in 2013. Our €166 million capital investment project has as two of its objectives to eliminate the use of fossil fuels and for the mill to achieve near 100% energy self-sufficiency. The new recovery boiler at Frantschach and the new turbine at Stambolijski have improved biomass generated energy efficiency and self-sufficiency and, in so doing, will reduce the carbon footprint of these operations. Our Frantschach mill has also invested in projects to mitigate the effects of its operations on biodiversity in a nearby river and reducing its total waste to landfill through the re-use of certain waste products.

The effluent treatment plants at both our Świecie and Syktyvkar mills are being modernised in order to decrease our effluent load. We have also increased the recycling of rejects from our paper for recycling process and thereby reduced the landfill of these rejects.

In July 2013, our Stambolijski mill was certified according to FSCTM Chain-of-Custody standards.

We take an active role in the communities in which we operate, supporting initiatives aimed at the elderly, at disabled people and at children from families experiencing financial difficulties.

Europe & International – Fibre Packaging

Europe & International: Fibre packaging [organisational structure]
Key performance indicators Year ended
31 December 2013
Year ended
31 December 2012
Financial performance   
Segment revenue€ million1,9671,860
EBITDA€ million163168
Underlying operating profit€ million93101
Underlying operating profit margin%4.7%5.4%
Special items € million (3) (16)
Capital expenditure€ million7876
Net segment assets€ million903958
ROCE %10.8%12.5%
Production information   
Corrugated board and boxesmillion m21,3441,213
Industrial bagsmillion units3,9973,829
Coatings and release linermillion m23,3483,352
Sustainability information   
Number of employeeshundreds74 77
TRCR Per 200,000 hours worked1.521.49
Operations with CoC certification in place%60%21%

Financial performance

Underlying operating profit declined by 8% to €93 million as the business was impacted by rising input costs, adverse currency movements and market and operational challenges in the coatings segment.

Corrugated packaging benefited from higher sales volumes and higher prices, although margins were squeezed by the lag in passing on increasing paper input costs to customers, currency effects and aggressive competitor activity in certain markets. The business benefited from the successful integration of the acquisitions of the Duropack corrugated plants in Germany and the Czech Republic in the latter part of 2012.

Industrial bags continued to deliver solid results. Selling prices and paper input costs were at similar levels to 2012, while the business realised the benefits of its restructuring activities, mainly in western Europe, with fixed costs reducing significantly compared to 2012. Sales volumes increased with good demand in Russia and the CIS as well as in Africa, Middle East and north and central America. Sales volumes in Europe were marginally down on the previous year. The weaker export currencies relative to the euro had a negative impact on margins.

The coatings business experienced volume declines and margin pressures, mainly due to weak demand in the industrial and automotive markets and increased competitor activity in the main European markets.

Sustainable development

At our operations in Turkey, we have invested in an anaerobic waste water treatment plant, enabling the mill to reduce discharges to the aquatic environment and recover some energy in the treatment process. During 2013, a community engagement plan was finalised, forming the basis for our ongoing engagement and support of our local communities.

Industrial bags has embarked on a project to certify two-thirds of its bag plants according to FSCTM and PEFCTM standards in response to growing market demand for paper bags to be certified to recognised standards. To date, 26 plants, spanning from Belgium to the Ukraine and south to Jordan, have been CoC certified.

Europe & International – Consumer Packaging

Europe & International - Consumer Packaging [organisational structure]
Key performance indicators 1 Year ended
31 December 2013
Year ended
31 December 2012
Financial performance   
Segment revenue€ million1,153502
EBITDA€ million129 45
Underlying operating profit€ million74 19
Underlying operating profit margin%6.4%3.8%
Special items € million (13) (11)
Capital expenditure€ million56 28
Net segment assets€ million855872
ROCE - adjusted *%9.1%10.8%
Production information   
Consumer packaging’000 tonnes283121
Sustainability information   
Number of employeeshundreds38 39
TRCR Per 200,000 hours worked1.711.60
Food contact packaging operations
certified to recognised food hygiene
standard
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  1. * 2012 has been adjusted to exclude one-off costs related to the acquisition of Nordenia.
  2. 1 Financial and production information for the year ended 31 December 2012 includes the results of Nordenia from the date of acquisition (October 2012). Sustainability information for 2012 excludes Nordenia.

Financial performance

The benefits of the acquisition of Nordenia in October 2012 are reflected in the increase in underlying operating profit by €55 million to €74 million. On a pro-forma basis, assuming Nordenia was acquired at the beginning of 2012, and excluding the effects of acquisition accounting, the underlying operating profit of the combined business was in line with the prior year, with synergy gains offset by a weaker trading performance, the impact of some one-off costs, and higher fixed costs.

Synergies related to the Nordenia acquisition of €16 million were realised during the year, well on track to achieve the targeted €20 million in 2014. One-off costs of €5 million were incurred in achieving these synergies.

Sales volumes in the commoditised films segment were lower than the previous year. With the focus on higher value-added products, it is pleasing to see volumes for fully converted packaging products held up well, up 2%, with good performances from the emerging European and north American operations. It is encouraging to note a pick-up in order intake in early 2014 following a weak finish to 2013.

An increase in fixed costs, excluding synergy effects, due in part to costs incurred on new product launches and a new plant start-up further impacted the underlying result.

The closure of the Lindlar operation and redirection of production to existing Consumer Packaging facilities in Germany and Hungary and to the Fibre Packaging business in the Czech Republic was completed.

Sustainable development

We have made good progress in integrating the Nordenia business and aligning these operations with our standards and requirements.

Our first priority was to introduce Mondi's approach to safety across all newly acquired sites. We kicked off this process in October 2012 by integrating our respective SHE organisations; aligning incident communication and reporting procedures; and instituting our Zero Harm strategy. We also conducted gap assessments and arranged related training on our key safety methodologies. Relevant safety initiatives were then launched and will be completed by mid-2014. Although some additional support is still scheduled for 2014, the majority of the safety-related integration activities have been completed.

In addition to safety, we also focused on integrating the management and reporting of environmental performance. As of January 2013, all ex-Nordenia operations have been included in overall Group reporting and where relevant, consolidated into the Group's full year 2013 performance against commitments disclosure. Local management teams have received training in our Sustainable Development Management System with key personnel participating in the relevant internal network groups.

Europe & International –Uncoated Fine Paper

Europe & International: Uncoated Fine Paper [graph]
Key performance indicators Year ended
31 December 2013
Year ended
31 December 2012
Financial performance   
Segment revenue€ million1,3881,466
EBITDA€ million277 300
Underlying operating profit€ million172 191
Underlying operating profit margin%12.4%13.0%
Special items € million (60)
Capital expenditure€ million80 58
Net segment assets€ million1,1351,248
ROCE %16.2%16.7%
Production information   
Uncoated fine paper’000 tonnes1,3811,418
Newsprint’000 tonnes207201
Hardwood pulp    
Internal consumption’000 tonnes1,014973
External’000 tonnes74 86
Energy consumptionmillion GJ59.7962.92
Water inputmillion m³135.06144.24
Number of employeeshundreds67 74
TRCR Per 200,000 hours worked 0.430.25
Total scope 1 and 2 GHG emissionsmllion tonnes CO2e2.252.47
Certified wood input%75%74%

Financial performance

Uncoated Fine Paper continued to deliver robust results, with underlying operating profit of €172 million and a ROCE of 16.2%.

Sales volumes in uncoated fine paper were around 1.5% down on the prior year, reflecting mainly the effects of the decision to restructure the Neusiedler mill. In May 2013, Mondi announced plans to restructure the non-integrated Neusiedler operation to improve the competitiveness of the mill. The restructuring was successfully completed and the mill is now focused on production of speciality paper grades enjoying higher margins.

Selling prices were largely unchanged in the first part of the year compared to the levels at the end of 2012, but decreased in the second half in the face of continuing weak demand and the introduction of additional capacity from industry competitors in an already oversupplied market. Average benchmark selling prices for uncoated fine paper were around 2% lower than the prior year, while prices at the year-end were around 1% below the average for the year.

Input costs increased, with higher wood costs in Ružomberok, higher pulp input costs at the unintegrated Neusiedler mill in Austria and higher gas and transportation costs in Syktyvkar. In Syktyvkar, wood costs reduced as a result of a number of cost reduction initiatives. On average, own wood costs in Syktyvkar have decreased by more than 10% from 2012 average costs.

Profit improvement initiatives and productivity improvements more than offset inflationary fixed cost increases, enabling the business to realise a net reduction in fixed costs compared to 2012.

Sustainable development

Uncoated Fine Paper is actively involved in a number of initiatives to increase awareness about sustainable products and the associated environmental benefits. Training is offered to customers and employers to promote a better understanding of key environmental issues related to FSC™, PEFC™, recycling and carbon neutral papers.

Since 2012, all Mondi branded uncoated fine paper products are part of our Green Range (FSC™ or PEFC™ certified, Totally Chlorine Free or 100% recycled). In promoting transparency, our paper profiles, carbon footprints and fibre sources (including species and region of origin) are provided to customers.

The bark boiler in Syktyvkar now enables the recycling of all bark and wood waste generated in the production process, decreasing the mill's environmental footprint whilst generating green energy. The recovery boiler investment at Ružomberok will enable the operation to be 100% energy self-sufficient.

South Africa Division

South Africa Division [graph]
Key performance indicators Year ended
31 December 2013
Year ended
31 December 2012
Financial performance   
Segment revenue€ million624 702
EBITDA€ million135 125
Underlying operating profit€ million93 69
Underlying operating profit margin%14.9%9.8%
Special items € million (11) 6
Capital expenditure€ million52 43
Net segment assets€ million622821
ROCE %16.0%9.6%
Production information   
Containerboard’000 tonnes255263
Uncoated fine paper’000 tonnes259258
Hardwood pulp    
Internal consumption’000 tonnes332338
External’000 tonnes314321
Newsprint 145198
Softwood pulp – internal consumption ’000 tonnes 166 216
Energy consumption million GJ 27.97 29.72
Water input million m³ 31.23 32.36
Number of employeeshundreds 17 18
TRCR Per 200,000 hours worked0.450.68
Total scope 1 and 2 GHG emissionsmillion tonnes CO2e1.271.43
Certified wood input%84%77%

Financial performance

The South Africa Division delivered a very strong performance. Underlying operating profit was €93 million, an increase of 35%, and ROCE was 16.0%, despite net fair value gains from the revaluation of the Division's forestry assets being around €23 million lower than those realised in the prior year.

The business benefited from higher domestic selling prices, good domestic containerboard volume growth, and improved export margins due to the weaker South African rand coupled with higher average export pulp prices.

In May 2013, the closure of one of the two newsprint machines located in Merebank was announced as a result of the continued decline in demand for newsprint in South Africa. The machine stopped production with effect from 1 July 2013.

The South African rand came under significant pressure during the year, closing the year more than 30% weaker against the euro than in December 2012. The Division generates approximately 40% of its revenue from exports, with a predominantly rand cost base and thus benefited from the weakening currency.

The Division has continued to invest in the modernisation of its forestry operations, with a focus on silviculture and harvesting in the current year. The benefits of these investments, further productivity improvements and strong cost management ensured that fixed costs were contained to well within inflationary levels.

Sustainable development

Over the last seven years, the South Africa Division has pursued a strategy of modernisation in its forestry operations, moving from a labour intensive model to one that includes higher skilled and better rewarded workers, and is more sustainable. This includes the introduction of international best practice forestry techniques and new equipment, and has had positive impacts on safety, ergonomics and skills development.

We actively support enterprise development and broad-based black economic empowerment (BBBEE) in the communities in which we operate and with suppliers in our value chain. We have maintained a BBBEE rating of level three over the past four years, which remains ahead of the average BBBEE performance in the resources and manufacturing sectors.

In terms of our land claims process, all settled claimants (some now in their sixth year of operation) continue to progress and develop, playing an active role in providing us with some of our fibre requirements. We maintain FSC™ accreditation for both our mills and our forests, ensuring that we have credible external certification of our sustainable forestry practices and wood supply.

In our Richards Bay mill, we have completed the third phase of our odour abatement project, contributing favourably to a reduction in ambient sulphur levels in surrounding areas.