Mondi Group Annual report and accounts 2009 The Mondi Group Mondi is an international paper and packaging company, with production operations across 31 countries and revenues of E5.3 billion in 2009. The Group’s key operations are located in western and emerging Europe, Russia and South Africa, employing 31,000 people on average in 2009. Mondi is fully integrated across the paper and packaging process, from the growing of wood and the manufacture of pulp and paper (including recycled paper), to the conversion of packaging papers into corrugated packaging and industrial bags. The Group is principally involved in the manufacture of uncoated fine paper (UFP), packaging paper and converted packaging products as well as speciality products. Mondi is a dual listed company (DLC), with primary listings on the Johannesburg and London stock exchanges under the ticker codes MND (JSE) and MNDI (LSE) respectively. The Group has been recognised for its sustainability performance through its inclusion in the FTSE4Good UK, Europe and Global indices in 2008 and 2009 and the JSE’s Socially Responsible Investment (SRI) Index in 2007, 2008 and 2009. The design of our 2009 report This annual report reflects not only the Group’s operational and financial performance over the past year but also gives an insight into the products Mondi creates – from uncoated fine paper to packaging and speciality products. Origami is the traditional Japanese art of paper folding, in which the artist takes ordinary paper and board or packaging such as Mondi produces, and creates a beautiful representation or design. This report uses our products to invite the reader into our world. Contents Directors’ report 12 Chairmen’s statement 61 Remuneration report 16 Chief executive’s review 73 Additional disclosures 2 Performance highlights 22 Business review 3 Financial overview 34 Sustainability review 4 Divisional overview 44 The board of directors 6 Global operations 48 DLC executive committee and 8 Group structure company secretaries 9 Mondi’s products 50 Corporate governance report 10 Integrated value chain Directors’ report Directors’ Financial statements 81 Combined and consolidated 165 Notes to the Mondi plc parent statement of financial position company financial statements 75 Directors’ responsibility statement 82 Combined and consolidated 169 Independent auditors’ report to 76 Independent auditors’ report to statement of cash flows the members of Mondi Limited the members of Mondi Limited 83 Combined and consolidated 170 Mondi Limited parent company 77 Independent auditors’ report to statement of changes in equity statement of financial position the members of Mondi plc 85 Notes to the combined and 171 Notes to the Mondi Limited 79 Combined and consolidated consolidated financial statements parent company financial income statement 162 Independent auditors’ report to statements 80 Combined and consolidated the members of Mondi plc 173 Group financial record statement of comprehensive 164 Mondi plc parent company 175 Production statistics income Financial statements balance sheet Shareholder information 176 Additional information for Mondi plc shareholders 180 Shareholder information 185 Glossary of terms information Shareholder Shareholder Annual report and accounts 2009 Mondi Group 1 Performance highlights Mondi has delivered a solid full-year performance in very challenging market conditions. The early part of the year was particularly difficult for our European operations, characterised by sharp volume declines and consequent pricing pressures. It was, however, pleasing to see the subsequent recovery in demand, which supported price increases during the fourth quarter in various packaging segments. Our initiatives to prioritise cash flow generation in light of the downturn in trading have been very successful, evidenced by the reduction in net debt over the course of the year, while still funding the two major capital expenditure projects. • Resilient performance in challenging circumstances • Clear pick-up in European trading conditions in the final quarter • Strong performance from European Uncoated Fine Paper business throughout the year • Substantial cash generation from operations of E867 million • Strong cash management with net debt down to E1.5 billion despite around E300 million spent on major capital projects • Delivered cost savings of E251 million, significantly in excess of target • Achieved very strong control of working capital, resulting in a net working capital inflow of E248 million for the year • Polish recycled containerboard machine and box plant projects successfully completed and significant progress on Russian project 2 Annual report and accounts 2009 Mondi Group Financial overview E million, except for % and per share measures 2009 2008 Change % Group revenue 5,257 6,345 (17) EBITDA 1 645 814 (21) Directors’ report Directors’ Underlying operating profit 2 294 441 (33) Underlying profit before tax 3 182 284 (36) Reported profit/(loss) before tax 6 49 (103) 148 Basic loss per share (E cents) 4 (6.5) (41.6) 84 Underlying earnings per share (E cents) 4 18.7 33.9 (45) Headline earnings per share (E cents) 4 11.4 20.3 (44) Cash generated from operations 867 795 9 Net debt 1,517 1,690 10 Group ROCE 5 7.6% 9.5% (20) Total dividend per share (E cents) 9.5 12.7 (25) Notes: 1 EBITDA is operating profit of subsidiaries and joint ventures before special items, depreciation and amortisation. 2 Underlying operating profit is operating profit of subsidiaries and joint ventures before special items. 3 Underlying profit before tax is reported profit before tax and before special items. 4 The Group has presented underlying earnings per share to exclude the impact of special items, and headline earnings per share in accordance with circular 3/2009 ‘Headline Earnings’ as issued by the South African Institute of Chartered Accountants. 5 Group return on capital employed (ROCE) is an annualised measure based on underlying operating profit plus share of associates net earnings divided by average trading capital employed before impairments and adjusted for major capital projects not yet commissioned. 6 Profit/(loss) before tax is reported after special items of E133 million. For further information please go to the Business review on page 22 of this report; or click on www.mondigroup.com/AR09 Annual report and accounts 2009 Mondi Group 3 Divisional overview Europe & International Division Uncoated Fine Paper Corrugated Bags & Specialities • Uncoated fine paper (UFP): • Containerboard: 1.8 million tonnes • Kraft paper: 0.8 million tonnes 1.5 million tonnes • Corrugated: 1.7 billion m2 • Pulp: 0.9 million tonnes • Newsprint: 0.2 million tonnes • Pulp: 0.7 million tonnes • Bag converting: 3.3 billion units 2009 • Pulp: 1.0 million tonnes • Coating & release liner: 2.7 billion m2 Production • 2.06 million hectares of forest in • A network of 4 mills producing • Kraft paper converted into the Komi Republic in Russia, with virgin and recycled containerboard industrial and consumer bags, at an allowable cut of 5.1 million m3 and 18 corrugated packaging 6 mills and 54 converting plants of wood per annum plants, mainly in central and mainly in emerging and western • Uncoated fine paper produced at eastern Europe Europe paper mills in Austria, Israel, • Leading European producer of Russia and Slovakia release liner, extrusion coating products and consumer bags Key products & operations Key products Net segment assets E1,494 million Net segment assets E 872 million Net segment assets E1,222 million Capital expenditure E 191 million Capital expenditure E 195 million Capital expenditure E 81 million Segment revenue E1,351 million Segment revenue E1,041 million Segment revenue E1,787 million Contribution to Group revenue Contribution to Group revenue Contribution to Group revenue Key statistics UFP 24% Corrugated 18% Bags & Specialities 32% Underlying operating Underlying operating Underlying operating profit E146 million profit E23 million profit E82 million ROCE 14.5% ROCE 3.6% ROCE 7.5% Employees 9,800 Employees 6,400 Employees 7,300 No. of production sites 5 No. of production sites 20 No. of production sites 56 • No. 1 in office paper and UFP • No. 2 in virgin containerboard in Europe • No. 1 in kraft paper in Europe in emerging Europe • No. 1 in containerboard in emerging • No. 1 in bag converting in Europe • No. 2 in office paper and UFP Europe • No. 1 in commercial release liner in Europe • No. 1 in corrugated packaging in in Europe emerging Europe Market positions 4 Annual report and accounts 2009 Mondi Group South Africa DivisionMondi Packaging Merchant & Newsprint South Africa • Uncoated fine paper (UFP): • Containerboard: 0.4 million tonnes • Newsprint: 0.3 million tonnes 0.4 million tonnes • Corrugated: 0.4 billion m2 • Containerboard: 0.2 million tonnes • Pulp: 0.7 million tonnes • Woodchips: 0.3 million bone-dry tonnes • 332,000 hectares of plantations in • 2 containerboard mills, 1 cartonboard • Merchanting of graphic, packaging KwaZulu-Natal and Mpumalanga mill and a network of 12 corrugated and office paper across central and provinces packaging plants in southern Africa eastern Europe report Directors’ • Hard- and soft-wood pulp and virgin • Recovered fibre collection and • 48,000 hectares of plantations in containerboard produced at the processing KwaZulu-Natal province Richards Bay pulp mill in • A broad spectrum of rigid plastic • Joint venture production of KwaZulu-Natal packaging newsprint and telephone directory • Uncoated fine paper produced