Mondi plc

Good morning all and welcome to the MONDI 2023 full year results presentation. I'm Andrew King, your group CEO, and I'm joined by Mike Powell, our CFO. I'll provide some highlights before passing on to Mike for an overview of our financial performance. I'll then give you an update on our performance of each of our business units before wrapping up with an update on our strategic positioning. After that, Mike and I look forward to taking your questions. I'm very pleased to report that we delivered a resilient performance against what was a backdrop of a very challenging trading condition. This is a reflection of our scale, quality asset base and integrated model, coupled with the great commitment and agility of our people in these volatile times. We've often spoken about our strong cash generation in the business, and this was clearly demonstrated this year. Importantly, this gives us the capacity and confidence to continue investing on a three-cycle basis, driving our strategy of sustainable value accretive growth. We are making good progress on our 1.2 billion euros organic growth projects aimed at leveraging the structural growth we continue to see in the packaging markets that we serve, despite the cyclical downturn we witnessed in 2023, while also building on our cost competitiveness and improving our environmental footprint. This, of course, in turn supports progress on our sustainability ambitions, along with the many other initiatives encompassed in our Mondi Action Plan 2030, designed to deliver circular solutions created by empowered people taking action on climate. With that, I'll hand you over to Mike to take you through the financials.

Thanks, Andrew. Morning all. And let me take you through the group's financial results. And to be clear, all the numbers I will talk to are for the group excluding Russia, as we have now completed our exit from that geography. We had a resilient performance against the backdrop of softer markets and destocking across many customer channels. You can see from the first two categories that with a lower EBITDA, the business demonstrated its strong through-cycle cash characteristics, delivering higher cash generated from operations in the year. With the EBITDA playing into a lower return on capital and EPS, our cash generation, strong balance sheet and confidence in the future leads the board to recommend a dividend in line with the prior year of 70 cents per share. Whilst Andrew will cover each business unit in a couple of minutes in much more detail, let me give you the high-level group picture of the change in underlying EBITDA when compared to the record year of FY22. Our volumes were lower, driven by softer market demand, in part due to customer destocking. Whilst it's fair to say that all business areas experienced some declines, the large part of this was flexible packaging, which only started to see the impacts of softer market demand during the financial year. Selling price was the big move year on year. The large part of this was in corrugated packaging. We continue to work hard on both efficiency and costs. We saw some forgiveness in major cost categories. The largest deltas, as we've already talked about previously, being energy and paper for recycling on the positives and wood on the downside. Energy prices in Europe reduced and have remained materially lower in 2023. Wood prices declined during the course of the year from the peak levels in early 2023. Average pricing, therefore, in the second half of the year was lower than that in the first half, but remained higher full year on full year. Now, as we enter 2024, input costs are broadly stable compared to the end of 2023 and therefore below the average of the 23 cost levels. To complete the picture to the EBITDA of 1.2 billion on the right hand side, we had as expected a lower year on year fair value gain. The strong through cycle cash characteristics continue to be a key quality of the Mondi business. Mondi has generated strong cash flows as shown by the delivery of more cash generated from operations this year than last, totaling 1.3 billion in the year. This is from a lower EBITDA contribution, which I've just taken you through, which was mitigated by a working capital inflow of some €230 million, which improved as we progressed through the year. Looking forward, we expect the working capital levels of 12% to 14% of revenue through cycle in line with our usual guidance. This strong cash generation facilitates our ability to continue investing in the business through cycle, We spent 830 million euros in the year and expect to spend a similar amount in 2024. And by the end of 2024, we expect to have spent around 80% of the current 1.2 billion of approved organic investments. We also pay 345 million of dividends together with approximately 300 million of interest and tax in the year. We ended the year with a net debt of 419 million euros, which included receipt of the proceeds from the disposal of the group's previously owned Russian operations, giving us a net debt to EBITDA of 0.3 times. These proceeds were distributed to shareholders in February 2024, and adjusting for that amount, the pro forma net debt to underlying EBITDA is one times. Our capital allocation framework and discipline has not changed. In a minute, Andrew will take you through the progress with regard to our organic growth investments into our long-term growth markets and our excellent position within them. But in short, on track, on time, on budget. As evidenced, the business has strong cash generation and the board is confident in the future of the business and has therefore held the dividend in line with last year at 70 cents per share despite the decline in earnings. This dividend represents a dividend cover of 1.5 times. And as we always say, a dividend is an important part of the capital allocation. And whilst this year's cover is lower than our through cycle cover of two to three times, you can see from the past five years that we remain, on average, comfortably within this. So let me wrap up. Last year, in 2023, we've delivered resiliently in challenging markets, thanks to our compelling customer service and execution, supported by our scale, quality asset base and integrated model, as well as our breadth of products, customers and end markets, all of which Andrew will talk in more detail shortly. Our business has shown its strong cash characteristics, We continue to have the financial strength and flexibility to build a strong platform to deliver value accretive growth. With that, let me hand you back over to Andrew.

Thanks very much, Mike. I'll take you through a bit more detail on the business unit performance before commenting on some of our key strategic initiatives. In corrugated packaging, you could see profitability was down from the very high levels achieved in the prior year, due largely to the sharp paper price declines seen over the course of the first half of 2023. Second half performance was also, of course, impacted by extended maintenance and project-related shuts due to the commissioning of organic growth projects, most notably those at Sweetsie in Poland and Cupio in Finland. We are very excited by these and the other ongoing projects we have in corrugated packaging that are expected to deliver growth, enhance our market positions, and maintain our cost competitiveness. As Mike has already mentioned, container board sales volumes were broadly flat year on year, supported by our strong cost position, integration strength, and the broad geographic reach of our sales infrastructure. Importantly, container board prices stabilized during the second half, following the end-to-de-stocking, which had clearly exacerbated the softer underlying demand picture. At these price levels, there is also a degree of cost support, as the higher end of the cost curve is clearly underwater, and we are seeing capacity reductions, both temporary and permanent, across the market. Pleasingly, despite the volume pressures in the first half, our corrugated solutions business was able to deliver stable year-on-year profitability due to strong margin management. It is similarly encouraging that we achieved year-on-year volume growth in the second half of the year. Going into 2024, while Q1 container board prices are lower than the average for the second half of last year, we are seeing an improved demand reflected in our strong order situation. and on the back of this have recently announced price increases across our full range of container board grades. In flexible packaging, we delivered a resilient performance despite the volume pressures and price decline seen over the course of the year. Strong integration, a broad geographic reach, and important exposure to more defensive consumer markets supported this performance. In the craft paper and bags value chain, we saw sharp volume declines relative to the very strong performance in 2022. The general macroeconomic slowdown impacted demand for building materials, cement, chemicals, and other key industrial applications in particular. This was partly offset by good growth in non-traditional end-users such as e-commerce. I'll come back later to more on our e-commerce applications and bags. As anticipated, prices in this value chain did weaken over the course of the second half, but remained on average at similar levels for the year compared to the prior year, supported clearly by our high levels of integration. As we enter 2024, price levels are below the average for 2023, but recently we have seen a steady improvement in our order books and have announced price increases in all craft paper grades, which we expect to take effect from Q2. Pleasingly, our more consumer-orientated segments, consumer flexibles and functional paper and films, delivered a steady performance as higher selling prices and mixed benefits offset higher costs and softness in demand. Uncoded fine paper, profitability was down year on year and roughly flat second half on the first half if you exclude the impact of the forestry fair value gain. In Europe, market demand fell very sharply in the first half, a combination of destocking, cyclical pressures and the ongoing structural decline we continue to plan for. Pleasingly though, in Q4 we saw a year on year improvement in our volumes. While we do continue to gain market shares, the supply of choice in the markets we serve, this does also reflect a general improvement in demand. Largely, we believe, due to an end to destocking and possibly some short-term restocking in the system. Given the stronger order situation, we recently implemented price increases for all European deliveries. Demand for uncoded fine paper products in southern Africa held up well during the year, while pulp volumes were up due to the full-year contribution from the Richards Bay pulp mill, which, if you remember, underwent a rebuild in late 2021, early 2022. Market pulp prices did fall sharply during the year, although there was some recovery in the latter part of the year, which has continued into early 2024. In fine paper, we remain very focused on leveraging our market leadership positions in those two core regional markets of Central Europe and Southern Africa, while driving productivity and efficiency measures at all our uncoated fine paper operations. We continue to invest selectively to further improve cost competitiveness and our environmental footprint. Coming back then to our strategic positioning, I'd just like to highlight some of the progress we are making on our key strategic initiatives. I spoke briefly in my opening remarks about our strategy of developing value accretive growth sustainably. Our focus remains very much on leveraging our unique packaging platform to continue to grow in the structurally growing markets in which we operate. We believe we are and will continue to be a leader in sustainability to the benefit of all our stakeholders. In the short term, we have seen the world naturally distracted by heightened geopolitical and macroeconomic risks, at times slowing down progress on key sustainability issues. We see this in the rate of adoption of some of the sustainable packaging solutions we have developed, where our customers and ultimately the end consumer has been reluctant to make the change due to cost considerations. However, we firmly believe that this is more of a cyclical phenomenon and the imperatives around sustainability haven't gone away. Importantly, we continue to put our shareholders' money to work in investing for growth. I'll come back later to the progress we are making on our expansionary investment program. We talk about an exceptional packaging platform, which I appreciate can easily be dismissed as a throwaway line, but I'd just like to spend a couple of minutes reminding you of why we believe we can make this claim. Firstly, I remind you that we are on two packaging verticals, corrugated and flexibles. In both, we are strongly vertically integrated, giving our customers security of supply. We produce quality products at our 12 cost-competitive mills, located primarily in Europe but also with important operations in South Africa and most recently Canada. And we convert paper but also other substrates, depending on the barrier properties required, into packaging solutions for our broad range of customers at our 85 converting sites. In corrugated solutions, we are a focused European business, while our flexibles business, while also centered in Europe, has a global offering with a production presence in key markets of North and Central America, North and West Africa, the Middle East, and Southeast Asia. Few can match our scale and global reach in paper-based flexible packaging, while our presence in both corrugated and flexibles in Europe provides the opportunity to engage with customers as a single source of truth for their packaging needs. I think this ability to offer multi-material solutions to our customers is illustrated by our e-commerce offering. As you can see from the slide, we can offer our e-commerce customers a range of solutions depending on their exact needs, from the high protection and functionality of corrugated boxes, through the convenience and lightweight of flexible mailer bags, to a deep knowledge and product range in crafter paper and barrier papers used typically in inline applications by our e-commerce customers. all supported by the scale and backward integration that ensures security of supply to these large and demanding customers. Despite the near-term challenges created by the macroeconomic environment, transitioning to more sustainable packaging solutions does remain a priority for our customers. Again, we are uniquely placed to bring together our deep knowledge, expertise and customer relationships in both consumer packaging and paper-based solutions to solve our customers' problems. Typically in industrial markets, we are currently seeing a transport packaging move from single-use plastic to paper solutions, while in consumer packaging we see a strong focus on recycling. This naturally involves replacing single-use plastic solutions with paper-based solutions. But where paper doesn't provide the necessary barrier properties or consumer appeal, fully recyclable plastic solutions are favored. Some great examples of recent developments are included on this page. You see our Hug and Hold product where we bring together our expertise in both corrugated and flexible packaging to deliver a solution that replaces traditional plastic shrink wrap. Similarly, our mixed berry solution in corrugated eliminates the need for plastic entirely in the transport of delicate groceries. Our finished pouch product, using technology developed by our functional paper and films business, replaces 75% of the plastic in the previous solution with paper. while at the same time retaining the necessary properties around sealability, durability and water resistance, and at the same time being recyclable in existing paper recycling streams. As already mentioned, sustainability is at the core of what we do, both in terms of how we make our products and what products we make. I've just taken you through some examples of the new products we are developing centered around circular-driven solutions. This offers us many exciting growth opportunities while also fulfilling our commitment to make all our products reusable, recyclable, or compostable. Currently, as you can see from the slide, around 85% of our revenue comes from products that meet this criteria, up from 74% in our 2020 baseline year. All our corrugated and unco-defined paper products already meet this commitment. While in flexible packaging, we currently have sustainable packaging solutions in place or identified and in development for around 94% of our product. On empowered people, again, I would just like to take this opportunity to pay tribute to our fantastic people for their huge dedication, commitment, and skills in navigating what are clearly highly volatile and uncertain times. They have confronted and overcome any number of obstacles and distractions to remain focused on the job at hand and keep delivering for all our stakeholders. You'll see on the slide here we quote a key metric we use to measure safety performance, always the top priority for the organization. We are rightly proud of our safety performance, which puts us very clearly among the industry leaders, but there's always plenty more to do, and we remain fully committed in our goal to eliminate all fatalities and life-altering injuries in our organization. I've already mentioned how our CAPEX projects are contributing to reductions in the environmental footprint of our operations. There is again still much more to do to reach our near-zero targets by 2050, but we are very clearly on the right track. A reminder then of our balanced €1.25 billion organic growth projects, which touch all aspects of our packaging businesses, both upstream and downstream. As a consequence, we are not overly exposed to any one geography, product segment, or production base, and remain very confident that this pipeline will deliver mid-teen returns on a through-cycle basis when in full operation. It is important to note that around 80% of the capital investment, as Mike has already mentioned, is expected to be spent by the end of 2024, with a meaningful EBITDA contribution expected from 2025 onwards. As is usual for the big upstream projects in particular, we would expect them to take around two to three years to reach full potential. We of course continue to seek further organic growth opportunities within the framework of our disciplined capital allocation policy. I'm very excited by the opportunity provided to us by the recent acquisition of the Hinton pulp mill in Canada, which completed earlier this year. The priority in the short term is to optimize the current operation through a combination of best practice sharing with our other mills and selected capital investment. As noted, when we acquired the mill, we will also be developing out the option to build a craft paper machine on site with the intention to backward integrate our leading paper bags position in North and Central America. To finish then, a quick look at what we have achieved historically and how that frames our thinking going forward. We pride ourselves in our disciplined, value-focused capital allocation framework, which we have pursued consistently over many years and I believe holds us in good stead into the future. Underpinned by the very strong through-cycle cash generation, again amply demonstrated in a very challenging 2023, we have sought to invest selectively in our cost-advantaged asset base to drive organic growth, cost optimization, and, of course, environmental improvements, while also seeking to supplement this with selected acquisitions at the right value. At the same time, we have not shied away from restructuring or divesting of assets that are non-core or underperforming Importantly, of course, this has facilitated strong returns to shareholders in line with our cash flow priorities. Again, this year's proposed dividend of €70 per share, together with the recent special dividend returning the proceeds from the disposal of our Russian assets, illustrates the importance we place on shareholder returns. We believe this disciplined capital allocation strategy has created a unique platform for Mondi to be a market leader in sustainable packaging, with a high-quality integrated asset base well-positioned in structurally growing markets, offering a broad product range. This allows us to deliver strong cash generation and, most importantly, sustainable value accretive growth through the cycle. With that, I thank you very much for your interest, and I'll now hand over to Mike to host the Q&A session.