Full directors report - Mondi

These products are an important part
of the overall UFP product offering.
Delivering a
high-quality, low-cost
asset base
The Mondi Group’s vision of
developing a modern, high-quality,
low-cost asset base has been
supported by management resolve
and a rigorous approach to asset
management. In just over two years
we exited some 930,000 tonnes of
high-cost paper operations (Europe
& International, 810,000 tonnes;
South Africa, 120,000 tonnes),
amounting to around 14% of the
Group’s global capacity. In total,
18 converting sites were rationalised
over the same period.
Our actions in 2009 in particular will,
we believe, prove to be prescient.
While some of these assets might
have survived the next cycle, this
downturn has been sufficiently severe
to warrant our decisive actions. In
addition, the resultant improvement
to the supply/demand balance is
favourable to industry fundamentals.
This is a very visible demonstration of
the implementation of our strategy and
our rapid response to the challenging
global environment. It bears repeating,
however, that for our industry, this
challenging environment has been
some time in the making. The global
paper industry has struggled for some
years to recover from overcapacity,
with resultant low prices and weak
earnings, thus heightening the need
for consolidation and closures. Our
approach, combined with numerous
cost savings initiatives, has brought
about a significant decrease in our cost
base. We believe that the increased
level of industry rationalisation that
has taken place over the past year as
a result of difficult conditions has
improved the underlying fundamentals
of the industry.
Despite financial constraints,
Mondi has continued to invest in
large-scale, low-cost, high-quality
assets to complete our long-term
modernisation programme, with
the ultimate aim of shifting the
Group’s production base further
down the cost curve. An excellent
demonstration of the success
achieved is to be found in the
recycled containerboard market
segment where, in less than three
years, our average cost position
relative to other producers has
improved from the third quartile
to the lowest quartile.
We are particularly pleased to report
on the substantial progress made
with our key projects, which will
further secure the Group’s position as
a cost leader in its chosen markets.
• In September 2009 Mondi saw the
New 470,000-tonne
recycled containerboard
machine producing well
ahead of expectations
of high cost production capacity
first saleable production from the
new, 470,000-tonne lightweight
recycled containerboard paper
machine in S ´ wiecie, Poland. We
anticipate that this installation will
have the lowest operating cost of
its type and up to 50% of its
production will be accounted for
by physical integration with our
surrounding box plant network.
Start-up of the machine was
ahead of schedule and the project
is expected to come in around 4%
(E20 million) below budget.
• The project to modernise the
Syktyvkar mill in Russia continued
to make good progress and is on
track for completion in the second
half of 2010. Severe weather
conditions did impact the project
timetable and a small cost overrun
of up to 4% is now anticipated
resulting in a capital cost of up to
E545 million. This project will lower
the Group’s cost base in Russia,
increase energy production (with
the benefit of selling surplus energy
to the energy grid), improve internal
efficiencies and increase integrated
paper output.
• In late August 2009, the new
machine-glazed paper machine
at Sˇ těti in the Czech Republic was
successfully commissioned on time
For further information please go to the
Business review on page 22 of this report;
or click on www.mondigroup.com/AR09
Directors’ report
Annual report and accounts 2009 Mondi Group 19