OREANDA-NEWS. November 2, 2011. This interim management statement provides an update on the financial performance and financial position of the Group since the half year ended 30 June 2011, based on management accounts up to 30 September 2011 and estimated results for October 2011, which have not been audited or reviewed by Mondi's external auditors.

Audited results for the year ending 31 December 2011 will be published on or around 23 February 2012.

Except as discussed in this interim management statement, there have been no other significant events or transactions impacting either the financial performance or financial position of Mondi since 30 June 2011 up to the date of this statement.

Group Performance Overview

The Group’s underlying operating profit in the third quarter 2011 of €136 million (year to date €490 million) was well above that of the comparable prior year period but below that achieved in the previous quarter (€175 million). This performance reflects the impact of the planned third quarter maintenance shuts, estimated to have negatively affected underlying operating profit by approximately €20 million, and a generally softer trading environment, including the impact of destocking, compared to a very strong first half of 2011.

During the quarter, the uncertainties inherent in the macroeconomic environment resulted in some weakening in demand and moderately lower sales prices. This was partly offset by stable or reducing input costs. Average benchmark recovered fibre prices were down by 4% in the quarter, whilst wood costs remained largely unchanged over the same period.

Most emerging market currencies to which the Group is exposed as a net exporter were slightly weaker against the euro when compared to the second quarter, providing a small positive contribution to the Group’s performance. Similarly, the recent strengthening of the US dollar versus the euro is offering some support to European pricing.

Divisional Overview

Europe & International

The Uncoated Fine Paper (UFP) business continued to perform very strongly. Underlying operating profit was in line with that of the comparable period of the prior year, but below that of the previous quarter. Sales volumes were lower than the previous quarter due to the expected seasonal summer slowdown and the impact of planned annual maintenance shuts. Maintenance shuts were carried out at all three of the Group’s large mills during the quarter. Average selling prices were marginally down on the previous quarter on currency and mix effects.

In the Corrugated business, underlying operating profit was well above the comparable prior year period, but below that of the second quarter due to the planned maintenance shuts at Swiecie and Syktyvkar, lower average paper selling prices and reduced income from green energy credits (around €10 million reduction versus the second quarter). Selling prices for the virgin containerboard products were flat to marginally down in the quarter. Recycled containerboard prices were down by around 5% on a combination of currency and mix effects and input cost declines. Sales volumes were marginally higher than those achieved in the first two quarters of the year. Recovered fibre input costs reduced during the period, most notably towards the end of the quarter, with benchmark recovered fibre prices down by around 4% between 30 June 2011 and 30 September 2011. Wood costs have remained largely constant when compared to the second quarter of 2011.

In the Bags & Coatings business, underlying operating profit was well above the comparable prior year period and at similar levels to that achieved in the second quarter of 2011. Some weakness in demand, due to a combination of mildly weaker end user demand resulting from the European macroeconomic slowdown, and destocking in the value chain, led to lower kraft paper sales volumes. In response, the business took downtime at certain of its operations in order to manage inventory levels. In anticipation of further destocking in the value chain, including at the Group’s own converting operations, plans are in place for further downtime to be taken in the fourth quarter. Flexibility will be retained to bring this capacity back on stream as the destocking process comes to an end. Export demand for kraft paper remains good and sales prices were generally stable through the quarter.

The weaker end user demand and customer destocking also impacted volumes in the industrial bags segment when compared to the second quarter, although the business continued to benefit from the seasonally stronger European summer months. Volumes are expected to reduce further in the fourth quarter due to normal seasonal effects and continued customer destocking.

The Coatings & Consumer Packaging business was impacted by weaker volumes in certain industrial product segments. Benefits of recent resin price declines were marginal as these were largely passed on to customers.

As part of the continued optimisation of the Group’s production base, the industrial bags facility in Aberdeen is expected to be closed, with associated impairment and restructuring costs of approximately €5 million. With effect from 3 October 2011, the Group disposed of its Unterland flexible packaging business to Sun European Partners LLP at a loss of €4 million. Further restructuring of the Coatings & Consumer Packaging business will take place during the fourth quarter resulting in restructuring costs of approximately €6 million.

South Africa Division

The South Africa Division’s underlying operating profit, while down on the comparable prior year period, was significantly up on the second quarter of 2011 following the planned maintenance shut at its Richards Bay mill in the second quarter. Lower average pulp prices in the quarter were offset to some extent by the weaker rand, while domestic uncoated fine paper prices were relatively stable. Export sales volumes of white-top containerboard were lower than the previous quarter, partially offset by increased domestic sales, whilst sales prices remained flat to marginally lower.

Newsprint

The Newsprint business continues to deliver poor results. The South African business, Mondi Shanduka Newsprint, continues to be impacted by a rising cost base, largely due to a series of significant electricity price increases. Management is actively assessing various options to address the resultant unacceptable financial performance. The very weak European newsprint market continues to impact on Aylesford Newsprint’s ability to return to profitability.

Financial Position

In September 2011, Standard & Poor’s upgraded Mondi’s credit rating to investment grade. This is an outcome of the Group’s clear commitment to achieving and sustaining investment grade credit metrics. The upgrade provides further testament to the robustness of the Group’s business model and the ability of the business to generate meaningful cash flows through the business cycle. The Group now has investment grade credit ratings from both Moody’s (Baa3 outlook positive) and S&P (BBB- outlook stable), which will further improve access to liquidity and provide additional financial flexibility going forward.

Cash flow from operations remained strong with working capital levels maintained within the Group’s targeted range (10% to 12% of turnover). Following the conclusion of the major capital projects in Swiecie, Poland and Syktyvkar, Russia, capital expenditure was markedly reduced when compared to the third quarter of 2010 and at similar levels to that incurred in each of the previous two quarters of 2011. Capital expenditure remains within the targeted range of 80% of depreciation.

The Mpact demerger was completed during July 2011. As a result of the demerger, net assets were reduced by approximately €400 million from the position at 30 June 2011. The net result of the demerger on the Group’s consolidated net debt position was a reduction of €172 million (of which a reduction of €111 million was already reflected in the Consolidated Statement of Financial Position at 30 June 2011). The related consolidation of the Mondi Limited shares was completed in August 2011, reducing the number of shares in issue from 147 million shares to 118 million shares, bringing the total number of Mondi shares in issue (Mondi Ltd plus Mondi plc) down from 514 million to 486 million.

The average maturity of the Group’s committed debt facilities is 4.2 years compared to 4.1 years as at 30 June 2011, with unutilised committed borrowing facilities of €726 million. Finance charges have reduced compared to the previous quarter, primarily as a result of the reduction in relatively more expensive South African rand denominated debt following the Mpact demerger.

Net debt reduced to €1,054 million at 30 September 2011. The financial position of the Group at 30 September 2011 remained robust.

Summary

Broader macroeconomic weakness is giving rise to some slowdown in demand and moderate pricing pressure across certain of the Group’s product areas. In large part, the current demand weakness would appear to be driven by destocking, making predictions on near term underlying demand trends difficult. We will continue to respond decisively by taking production downtime where appropriate. Supply side fundamentals for the Group’s core grades remain good. Furthermore, the Group’s robust financial position, low-cost operating model, and focus on performance leaves the Group well-positioned to deliver strong returns through the business cycle.