Mondi plc

Good morning, all, and welcome to Mondi's 2024 half-year results presentation. I'm Andrew King, your group CEO, and I'm joined by Mike Powell, our CFO. I'll provide you some highlights before passing on to Mike for an overview of our financial performance. I'll then come back to give you an update on performance by business unit before wrapping up with an update on our strategic positioning. After that, Mike and I look forward to taking your questions. Going into the first slide, as you can see, we refer to a robust performance in the context of what remain challenging, albeit improving market conditions. Mike will provide you a lot more detail on the numbers, but it is pleasing to see a sequential improvement in profitability on stronger volumes, notably in our flexibles business, and price increases across our paper grades achieved over the course of the period. We are not yet where we'd like to be, but it is nevertheless does feel like we're seeing some of the much-anticipated upward momentum. Importantly, we continue to work hard on our self-help initiatives to ensure we can deliver value-accretive growth sustainably. I'm particularly excited by the progress we are making on our capital investment projects. While it can be difficult to stay the course on these investments in a down cycle, I firmly believe in our approach of investing consistently on a three-cycle basis to deliver value accretion. As we'll highlight later, we expect a meaningful EBITDA contribution from these projects from 2025 onwards. With that, I'll hand you over to Mike for a review of the group's financial performance.

Morning all, and thanks Andrew. Let me take you through the group's financial results. We delivered a robust performance in the first half of the year, trading in line with our expectations. It's pleasing to see a sequential improvement in profitability compared to the second half of last year on the back of those improving market conditions supported by our strong customer offering and broad product portfolio. So whilst Andrew will cover each business unit in a couple of minutes' time, In more detail, let me take you through the high-level group picture in the next few slides, starting with the change in underlying EBITDA when compared to the first half of 2023. We successfully implemented and increased our sales volumes compared to the prior year, supported by the improved market demand and customer restocking performance. Most of this benefit was achieved in our craft paper business, where we are the global leader. Sales prices were lower on average due to the substantial price decline seen throughout 2023, resulting in us entering this year with prices below last year's first half average prices across all of our businesses. Improving market conditions seen during the period enable price increases to be implemented across all of our paper grades. We expect to realise the full benefit of these recent price increases in the second half of this year in both of our packaging businesses. The largest move on the slide, in line with what we said earlier in the year, was the significant reduction in input costs, mostly due to lower wood and energy prices. If you recall, prices fell through last year and into early 2024. And as we enter the second half of 2024, total input costs are stable overall, despite recent increases in paper for recycling prices. Other net costs were up 123 million euros, again, as anticipated, about half of which was driven by increases in personnel costs as we continue to reward our exceptional workforce. The remaining half mainly compromises operating cost inflationary increases and income received in the prior year from an insurance claim that obviously doesn't repeat in the current period and therefore that impacts the year-on-year change that you see here. The forestry fair value gain in absolute terms was 49 million euros in the period, higher than we may have anticipated by about 20 million euros in absolute terms. though lower than the gain in the first half of 2023 by 37 million euros, which is shown here as the movement. We value our forests at the balance sheet date. Since the half year, wood prices in South Africa have decreased, and therefore we expect a lower forestry asset value at the end of the year, and we'd expect that to lead to a fair value loss in the second half. Lastly, the currency and other impacts total 42 million euros, mainly compromising the one-off loss from the devaluation of the Egyptian pound, as already reported at the end of Q1. Whilst not on this slide, I should note that the Richards Bay maintenance shut was rescheduled from the second quarter of the year to the third quarter. Whilst our full year estimated EBITDA impact from maintenance shuts is unchanged at around 100 million euros, I'd now expect that half one, half two split to be more like a 20-80 split rather than the 40-60 split as previously guided. So let me now take you through the movement in net debt. On the left-hand side, you can see we started the year with a net debt of €419 million, which included the proceeds received in 2023 from the disposal of the group's previously owned Russian operations. These were subsequently distributed to shareholders in February 2024, resulting in a leverage at around one times. Cash generated from operations is mostly made up of the next two items that you see. The EBITDA contribution that I've just taken you through of 565 million euros together with 160 million euro investment in working capital. About a third of this working capital investment is from higher inventory levels, with the remaining two thirds coming from higher debtors, both of which are mainly as a result of higher prices as we exit the half. Looking forward, I'd expect some of this cash to come back in the second half of the year with our working capital levels expected to end the year towards our usual 12% to 14% of revenue through cycle range. Our strong balance sheet continues to support through cycle investment in the business. More than €400 million invested in the half and for the full year, I'd expect to be towards the top end of the €800 million to €900 million range for capital expenditure and in line with previous guidance, as we continue to make good progress in delivering the organic growth investments, which remain on track and on budget. And Andrew will cover these again later. Interest, tax and other payments, as well as the payment of the final 2023 ordinary dividend, complete the picture, and both totaled approximately €200 million each. That means at the end of June, we had net debt in absolute terms of 1.6 billion euros, levered at around one and a half times net debt to EBITDA. So let me wrap up. We delivered a robust financial performance in the first half of the year, in line with our expectations, sequentially improved compared to the second half of 2023. The group has the financial strength and flexibility to continue to deliver value accretive growth. With that, let me hand you back over to Andrew. Thank you.

Many thanks, Mike. I'll now take you through a review of the business unit performance before again coming back to the progress we're making on our key strategic initiatives. Moving to corrugated packaging, you can see profitability was down on the first half of last year, but we delivered a sequential improvement on the second half. Container board prices fell sharply over the course of the first half of 2023, if you'll recall, before stabilising through the second half and increasing now through a series of price increases in the first half of this year. It is encouraging to see an upturn in demand for our container board grades, partly due to restocking but also indicative of underlying demand recovery. This, together with ongoing cost support, has driven these price increases. Our corrugated solutions business continues to deliver strongly despite the pressure from increasing container board prices. Box volumes grew in the period and efforts are underway to pass on the recent container board increases with the usual three to six month lag. Looking forward, we expect continued structural growth in these markets, supported by the drive for sustainable packaging solutions and the ongoing development of e-commerce markets. Clearly, a return to macroeconomic growth in our core European markets will also be supportive. To this end, we continue to invest for the future. We are currently ramping up production at various of our projects in both our upstream and downstream operations. to expand our product offering while improving cost competitiveness and enhancing our environmental footprint. Again, I'll come back to some of these later in the presentation. In flexible packaging, profitability was down on the first half of last year due mainly to the sharp fall in prices in the paper value chain over the course of 2023. Pleasingly, we have seen a recovery in sales volumes during the first half with a particularly strong recovery in demand for craft paper and a combination of restocking and, again, improving underlying demand. We continue to enjoy success in developing new sources of demand for our craft paper, primarily linked to the increasing need for sustainable packaging solutions in consumer markets. Again, I'll show you a few examples of these later in the presentation. On the back of the stronger demand, we successfully implemented price increases across our range of craft paper products over the course of the first half. Consumer flexibles and functional paper and films delivered good volume growth, which in turn supported better margins. We remain excited by the platform these businesses provide to develop innovative new products by combining our deep customer relationships in consumer flexibles with our breadth and depth of knowledge and expertise across the various substrates ranging from resin to paper. Again, in flexible packaging, we are making good progress in delivering our various projects to better serve these exciting growth markets. Uncoated fine paper delivered a stable result compared to the first half of 2023 and a sequential improvement on the second half. Good volume growth in our European business, driven by restocking and strong market share gains, coupled with selling price increases successfully implemented over the course of the period, supported this performance. As we move into the second half, it is clear that restocking phase is over and we are now moving into a more normal demand environment. The strategy for this business remains unchanged. We are focused on leveraging our market leadership positions in our two regional markets of Central Europe and Southern Africa, while driving productivity and efficiency measures at our operations. Our customers value our long-term commitment, together with our ongoing focus on quality, reliability and service, as reflected in the recent gains as others have exited these markets. I'd now like to come back to our strategic positioning and highlight the progress we are making in delivering on this strategy. Much of this will be familiar to you, but I make no apologies for this, as the strategy we have been pursuing for a number of years remains as relevant today. First, I'd like to remind you of how we are positioned as a group. As you know, we have leading positions in the markets that we serve. In corrugated, we have real strength in the niche virgin container book grades delivered out of our well-invested and cost-advantaged integrated pulp and paper mills. Further, we have a strongly integrated network with the leading corrugated solutions business in emerging Europe. In flexible packaging, we are the global leader in craft paper and paper bags with a strong position in the more sophisticated niche markets in consumer flexibles. In uncoated fine paper, we enjoy leadership positions in those two regional markets of Central Europe and South Africa. On the next slide, we illustrate our geographic positioning in our two growing packaging verticals. In Flexibles, as mentioned, we have a truly global platform with market-leading positions in the two biggest markets of Europe and North America and important positions in other regional markets spanning Central America, Middle East, Africa and Southeast Asia. We intend to continue growing wherever people need our high-quality, reliable supplies of our paper bag products, leveraging our unparalleled scale, know-how and integration strength. Excitingly, we are also consistently innovating new products to add to our portfolio, driven by the need for sustainable packaging. with the most obvious example being the growth we are seeing in e-commerce applications for our flexible paper bags. In corrugated, our focus is very much on growing in our core European markets, where we see significant further growth opportunities given our existing well-invested integrated platform and the still relatively fragmented nature of the market, even following recent high-profile consolidation steps in industry. which have largely been about transcontinental combinations. I am particularly excited by the opportunities that we have to leverage our unique platform to better serve our customers' needs, driven mainly by demand for more sustainable packaging solutions. On this slide, you'll see, for example, in each of those columns, some e-commerce solutions that are made from both corrugated, flexible packaging, or a combination of the two. We can truly be the single source of truth for our fast-growing e-commerce customers as they look to optimize their packaging. In the central column, we have some other examples where we have combined our expertise in flexibles and corrugated to solve some of our customers' most urgent challenges. On this slide, we show you a few examples of how we have innovated for our customers to develop sustainable packaging solutions, changing from the less sustainable option. In the first example, you will see we have moved from a non-recyclable multi-laminate structure to a fully recyclable monomaterial structure for pet food. In the bottom left-hand quadrant, you will see a new product we have developed in conjunction with our customer to produce fully compostable coffee pods. I particularly like this example because it was developed through a combination of our expertise in consumer flexibles, functional paper and films, and craft paper. a truly collaborative effort across our organisation, and of course it is a great product. We also continue to develop corrugated products to displace less sustainable solutions, as shown in the example on the top right of a corrugated pallet solution replacing a traditional plastic pallet. Finally, in the bottom right-hand quadrant are a couple of examples where we have replaced non-recyclable, multi-laminate plastic products with laminated paper-based solutions that are fully recyclable in a paper recycling system. So as you all have heard, we continue to have a clear strategy going forward, and let me summarize what that is. We see great growth opportunities in both our packaging verticals of corrugated and flexibles. In flexibles, we have a global platform in the paper-based value chain, which we'll continue to leverage through both organic growth and bolt-on acquisitions, if available. In corrugated, our strength and focus for growth, both organic and through acquisitions, remains very much in Europe and adjacent markets. In fine paper, we will continue to optimize our existing positions as supplier of choice in our two regional markets of Central Europe and South Africa. We believe in the strength offered by integrated value chains, providing security of supply, efficiencies between upstream and downstream operations, and enhanced innovation capabilities. To bring the full value to bear, we will continue to drive productivity and efficiencies across the entire value chain, invest in assets with cost advantage, and actively seek and deliver the synergies that exist in our integrated model, both vertically and horizontally across the different product lines. I remain very excited by the huge potential we have to drive innovation with our customers. I showed you a few of the many examples we have. and there's plenty more to come as we fully leverage this unique platform. Lastly, none of this can be done without the right culture that provides a committed, inclusive, diverse, and above all, safe working environment. We have made great strides in this area and can be proud of our many achievements, but clearly there's still more to do. All of the above must be achieved within the framework of our disciplined capital allocation framework. You have seen this slide often enough, but we never tire of showing it. We'll continue to grow through selective organic investments while supporting returns to shareholders and evaluating inorganic growth opportunities, all while ensuring we maintain a strong and stable financial position. The good news is that this is facilitated by a business model that drives strong cash generation, even in the toughest of market environments, as we have witnessed recently. Here quickly we illustrate how we have put into action our capital allocation approach over the past 10 years, balancing the allocation of cash generated from the business between investing in the business and rewarding our shareholders. I've already mentioned the progress we are making on our current capital expansion program, but just to remind you, we are currently in the midst of a $1.2 billion expansionary program spread evenly across our two growth verticals. We expect this program to be about 80% complete by the end of this year, with a meaningful EBITDA coming through from 2025 as these projects ramp up to full operational capabilities. To make this more tangible, I thought I'd show you a couple of pictures of what our shareholders' money has bought so far. On the left, you can see our newly expanded corrugated plant in Warsaw, Poland, while on the right is our corrugated plant in Simmet, Poland. Both are now in full operation, with the major expansion projects at these sites having been completed on time and on budget, and most importantly, with no injuries. Warsaw is now the largest plant in our network and the largest corrugated plant in Poland, with a production capacity of around 320 million square meters per annum. In the center picture, you'll see is the building of our new state-of-the-art, for our new state-of-the-art craft paper machine at Steti, capable of producing over 200,000 tons per annum of high-quality sack craft paper when in full production. We remain on target for startup in H1 2025. As you'll see, the building is still very much a work in progress, and in that building is the bones of the paper machine which is being built. Total craft paper production at Stettie after this expansion will be over 800,000 tons per year, extending its lead as the largest dedicated craft paper mill in the world. So finally, I finish with this slide, which summarizes our investment thesis. I won't reiterate all the points, which I believe have largely been covered in the presentation, but suffice to say we are a well-informed exposure to structurally growing markets, providing great growth opportunities, both organic and inorganic, a track record of disciplined capital allocation, and the financial strength to continue investing to deliver value-accretive growth sustainably. With that, I'll hand you back to Mike to facilitate the Q&A.