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Announcement:

Moody's changes outlook on Mondi's Baa3 issuer rating to positive

28 Jul 2011

EUR500 million of rated debt affected

Frankfurt am Main, July 28, 2011 -- Moody's Investors Service today changed the outlook to positive from stable on Mondi's Baa3 issuer rating. The rating action follows Mondi's announcement of 2011 half year results.

Moody's also maintains the following ratings on Mondi plc and its following affiliates:

Mondi Plc

LT Issuer Rating (domestic currency) of Baa3

Mondi Finance plc

BACKED Senior Unsecured (foreign currency) ratings of Baa3

BACKED Senior Unsecured MTN (foreign currency) ratings of (P)Baa3

BACKED Other Short Term (foreign currency) ratings of (P)P-3

Outlook Actions:

..Issuer: Mondi Finance plc

....Outlook, Changed To Positive From Stable

..Issuer: Mondi Plc

....Outlook, Changed To Positive From Stable

RATINGS RATIONALE

"The change in outlook was prompted by Mondi's strengthened financial profile, a result of an improved demand and supply balance for paper and packaging products in Europe as well as subsequently implemented price increases over the past quarters" says Anke Rindermann, a Moody's Assistant Vice President and lead analyst for the paper and forest products companies in EMEA. While high input costs, in particular for fibre, chemicals and energy continue to be negatively impacting profitability, we nevertheless believe that it is possible that Mondi will be able to sustain current credit metrics, which could warrant a higher rating.

At the same time, we note that positive momentum in the industry might be fading, driven by weaker demand in particular for fine paper, but also on the back of weakening pulp and recovered paper prices, which will likely limit further upward price potential. Nevertheless, driven by tight working capital management as well as reduced capex spending as the two major expansion projects in Poland and Russia are largely completed, we expect Mondi to continue to generate sizeable free cash flows. The positive outlook therefore also assumes a continued balanced financial policy and cautious approach to external growth activities to support free cash flow generation.

Today's publication of H1 2011 results support the positive rating action. Based on point in time credit metrics, Mondi is strongly positioned in its rating category as indicated by leverage in term of Debt/EBITDA at about 1.7 times and RCF/Debt around 40%. The positive outlook therefore reflects the increasing likelihood of a rating upgrade over the next quarters, if the recent improvement in credit metrics are sustained, on the back of a thorough approach towards supply management to preserve pricing levels, ongoing efficiency improvements and a financial policy also focused on a further strengthening of financial flexibility.

More fundamentally, the current rating reflects (i) Mondi's well-diversified business profile by products and regions, underpinned with leading regional market positions for most of Mondi's paper and packaging grades, (ii) a track record of relatively stable and strong margins compared to peers, supported by the company's strong degree of vertical integration and a proactive approach towards capacity management, (iii) improved operating performance and cash generation over the past quarters, which resulted in some headroom in the current rating (iv) benefits from the completion of two major capex projects in Poland and Russia, supplementing Mondi's strong footprint in the faster growing developing market of Central and Eastern Europe, and (v) a conservative financial policy, reflected in a moderate leverage and a further reduction of net debt levels over the past quarters on the back of free cash flow generation.

The ratings are constrained by (i) Mondi's exposure to the cyclical and structurally challenged paper and packaging products industry with constant pricing pressure and declining demand in some segments and markets, (ii) the recent history of negative free cash flows linked to the completion of large-scale capex programmes, which however returned to positive territory since 2010, (iii) some degree of structural subordination, although we assume further gradual improvements over time.

An upgrade would require a track record of sustaining improved profitability and cash flow generation as indicated by EBITDA margins in the mid-to-high teens, Debt/EBITDA close to 2x and RCF/Debt towards 30%. A further important factor will be the group's approach to cash usage going forward, in particular with regards to shareholder returns and a further expansion of the group.

Rating pressure could build up were Mondi unable to sustain recent performance improvements as indicated by RCF/Net debt trending to below 20%, EBITDA margin deteriorating towards 10% or should the group generate negative free cash flows.

The principal methodology used in rating Mondi was Moody's "Global Paper and Forest Products" rating methodology, published in September 2009 and available on moodys.com

Mondi is an integrated paper and packaging group which generated revenues of EUR 6.1 billion in the last twelve months ending June 2011. The group is principally involved in the manufacture of uncoated fine paper, packaging paper and converted packaging products as well as specialty products. Mondi has production operations in more than 30 countries and employs about 29,000 people.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the credit rating action. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst, and to the Moody's legal entity that has issued the rating.

Frankfurt am Main
Anke Rindermann
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on Mondi's Baa3 issuer rating to positive
No Related Data.
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