Mondi's strategic advantage

We have a particularly strong presence in western and emerging Europe, Russia and South Africa, where we occupy the number one or two market positions in almost all our chosen packaging and uncoated fine paper product segments.

We continue to concentrate our activities and resources in the emerging markets of Europe, Russia and South Africa, which offer appreciably higher rates of growth than the more mature markets of western Europe. In 2007 these markets accounted for approximately 46% of the Group's sales and our objective is to increase this percentage.

The key to delivering above-average returns is to operate low-cost assets. That means concentrating production in lower-cost regions, where our principal input costs – wood, energy and personnel – are inherently lower. In 2007, 65% of our operating assets were deployed in these markets.

This strategy has given us significant upstream cost advantages. For example, our entire unbleached and white-top kraftliner capacity and all our universal uncoated fine paper capacity are in the lowest cost quartile delivered to their respective geographical markets.

In addition, our owned or leased forests in Russia and South Africa meet more than half our total pulp-production needs and make us fully self-sufficient in two of the world's lowest-cost fibre-producing regions. We are also close to potential self-sufficiency in pulp.

This high level of vertical integration gives us security of supply and greatly reduces our exposure to price volatility in our key raw materials.  

Our unremitting challenge is to produce more with less and one of our key differentiators is our rigorous control of costs.

Over the past three years we have delivered cumulative cost reductions of approximately 10% of total cash costs and this process continues through a series of ongoing cost-reduction programmes and profit improvement initiatives.

Productivity has improved substantially over the last decade, with significant gains particularly in our bag converting business and at our mills in Poland, Russia and Slovakia.  Where sites do not meet our strict performance criteria they are closed or divested, which not only improves our overall cost base and asset quality, but also contributes to supply-side reductions, leading to an improved supply/demand balance in our respective grades, with resultant margin improvements.

We are committed to generating value-enhancing growth, both organically and through acquisition, primarily by expanding our asset and sales base in emerging markets. In deciding upon capital allocation, we focus on our ability to secure a sustained low cost position, thus ensuring that we deliver a return in excess of our cost of capital over the cycle.

For example, we are currently investing €0.9 billion in new or upgraded production facilities In Poland and Russia.

Over the last seven years we have also acquired and integrated numerous businesses in growing markets with the potential for enhanced returns, improving their efficiency, leveraging synergies with our existing operations, transferring 'know-how' from elsewhere in the Group and improving the product mix.

Our recent major acquisition has been in the key market of Turkey, where we have completed the purchase of a majority stake in Tire Kutsan, the country's leading corrugated packaging company, giving us immediate market leadership in corrugated packaging in emerging Europe, including Turkey.