Chairmen’s statement

Dear shareholder

The 2009 financial year was challenging, but Mondi’s focused strategy and rigorous attention to operational efficiency enabled us to emerge from the current economic downturn in good shape and well-positioned to deliver attractive returns to our shareholders in the longer term.

The Mondi Group demonstrated its resilience through the very difficult trading conditions that characterised much of 2009. The global economic turmoil that was evident at the close of 2008 persisted through 2009, but with some more positive signs evident in the fourth quarter.

Volumes in most areas of the business recovered from the lows experienced in the fourth quarter of 2008 and the first quarter of 2009, although this was offset by lower average selling prices for most of the Group’s products during the year. Nonetheless, price increases announced early in the fourth quarter, partly driven by rising input costs, have been implemented for certain key grades in our European & International business.

Through these challenging times our strategy has guided management and enabled the Group not only to withstand market turbulence, but to continue to deliver on our long-term vision. By focusing on low-cost production, wide-ranging cost reduction programmes and the rapid alignment of our businesses to market demands, the Mondi Group has achieved a creditable operating and financial performance in 2009.

Operating and financial performance

Group revenue, at €5.3 billion (a decrease of 17% on 2008), and underlying operating profit, at €294 million (declining by 33% on the prior year), exceeded expectations.

The Europe & International Division showed particular resilience during the second half of the year, but profitability in our South Africa Division remained under pressure. Our cost restructuring initiatives across all businesses proved to be effective, with some €251 million of costs having been eliminated by year-end. In South Africa, inflationary pressures and weak export prices, exacerbated by the robust performance of the South African rand in the second half (up around 9.4% versus the euro and 17.0% versus the US dollar compared to the first half), placed particular pressure on margins.

Especially pleasing has been the substantial cash flow generation from operations, and the ability of the Group to continue to invest significant amounts of capital in our two major projects, Świecie in Poland and Syktyvkar in Russia. These projects will reinforce our position as a cost leader in our chosen markets.

Importantly, the Group has continued to reduce its level of debt – a commendable achievement in the current market – and has been successful in maintaining the quantum of committed debt facilities available to it despite the unfavourable banking environment.

Chief executive David Hathorn reports on the Group’s operating and financial performance and on its strategy in his review of the year.

Sustainability

Mondi is highly cognisant of the broader role the Group plays as an employer and responsible corporate citizen. With so much of our business in emerging markets, our role is clearly even more important as we strive to achieve a balance in terms of the economic, social and environmental impacts of our business. We report good progress on our sustainability commitments in the Sustainable Development Report (at www.mondigroup.com/sustainability) and a summary review can be found in this report under Sustainability review.

Safety continues to be a significant item on the agenda at every DLC Board meeting and an intrinsic part of our culture and our sustainable development philosophy. Although our focus on safety resulted in an improved workplace safety record for the year, with no reportable fatal accidents within the Group (2008: two fatalities), in 2010 we have regrettably already experienced a fatality in our forestry operations in South Africa. The Boards believe that this accident, as with all other accidents, could and should have been prevented and we take responsibility for ensuring that we learn from each and every safety incident and that we implement the necessary measures to further entrench safe behaviour.

A number of achievements in 2009 are worthy of special mention:

• Our Lost Time Injury Frequency Rate (LTIFR) reduced once more. This follows a continued focus on safety by management and our employees and was achieved notwithstanding the large-scale projects being undertaken in Poland and Russia.
• The second set of land claims involving seven communities in KwaZulu-Natal in South Africa was successfully concluded. We have developed a unique model, in close consultation with the South African Ministry of Land Affairs, which provides a long-term, mutually beneficial and sustainable solution to communities, to government and to the Group.
• All of our forests have now been assessed for Forest Stewardship Council (FSC) certification, with certification of the last outstanding area in Russia expected in the first half of 2010.
• We have reported significant progress in reducing and optimising our resource usage, in particular water and energy. More than half of our energy usage comes from biomass (renewable energy sources). Operating as we do in emerging markets where the effects of climate change are likely to be exaggerated, we have given critical consideration both to our role in respect of climate change and to the impact of climate change on our Group and our communities. During 2009 we reported a further reduction in CO₂ emissions and participated in the Carbon Disclosure Project’s 2009 greenhouse gas emission and climate change survey. The positive role played by sustainably managed forests has been recognised in the international climate change debate, underlining the point that these forests mitigate climate change by sequestering carbon from the atmosphere and storing it as biomass.

In the midst of these achievements we must reflect on the fact that the restructuring of operations resulted in job losses across the Group. While very necessary to ensure the long-term sustainability of the business and job security for those thousands of people employed directly and indirectly by our Group, we understand that job losses have a significant impact on employees and communities. We strive to be fair and responsible in our restructuring and are encouraged by the full support of the 31,000 people in our employ.

Governance

The Group Boards, constituted in accordance with our dual listed company (DLC) structure, have continued to provide counsel and support to the executive committee. In particular we extend our thanks to Sir John Parker, who relinquished his role as joint chairman as well as his membership of the boards of Mondi Limited and Mondi plc, with effect from 4 August 2009. This followed his appointment as chairman of Anglo American plc. Sir John’s contribution to the Mondi Group has been significant, both in the period leading up to Mondi’s successful listing in 2007 and during its first two years as an independent, publicly listed Group.

We welcome John Nicholas as a new non-executive director to the Boards. John has a strong financial background and brings a wealth of commercial business experience to the Group. In addition, he is a member of the UK Financial Reporting Review Panel.

Matters of governance have become critical issues for shareholders around the globe. We at Mondi are satisfied that we comply with the regulations applicable to the exchanges and in the markets in which we operate. We have put in place the highest standards of governance and we continue to review and amend these as required in light of new and proposed governance, legislation and recommendations in South Africa and the UK.

We were pleased to be admitted once again to the FTSE4Good UK, FTSE4Good Europe and FTSE4Good Global indices of the London Stock Exchange (LSE) and the Socially Responsible Investment (SRI) Index of the JSE Limited (JSE).

Delivering to shareholders

While our share price came under pressure in the early part of the year, in line with the sell-off witnessed in most major equity markets, we are pleased to note the subsequent recovery. The Mondi Limited shares listed on the JSE closed the year 24% higher than the prior year close, while the Mondi plc shares listed on the LSE closed the year around 65% higher than the prior year close.

Mondi is among the lowest cost operators in its sector with a balance sheet that remains strong and well funded. The Group was cash-generative throughout the year and its operations are well positioned to benefit as market conditions improve. Consequently, notwithstanding the difficulties encountered during 2009 and the significant capital expenditure to develop low-cost operations for the future, we have been able to adhere to our long-term dividend policy.

The Boards aim to offer shareholders long-term dividend growth within a targeted dividend cover range of two to three times on average over the cycle. The decision was taken in the prior year to pay a reduced full-year dividend in light of the uncertain economic outlook and lack of liquidity in the financial markets. This also served to ensure that dividend cover was maintained within the targeted range. Given the Group’s strong balance sheet and healthy operating cash flows, coupled with an improving outlook, it is proposed to pay a final dividend that reflects an increase on the prior year final dividend, while remaining within the Group’s targeted cover range.

Accordingly the boards of Mondi Limited and Mondi plc have recommended a final dividend of 7.0 euro cents per share (2008: 5.0 euro cents per share), payable on 19 May 2010 to shareholders on the register at 23 April 2010. Together with the interim dividend of 2.5 euro cents per share, paid on 15 September 2009, this represents a total dividend for the year of 9.5 euro cents per share. In 2008, the total dividend for the year was 12.7 euro cents per share. To shareholders on the South African registers of Mondi Limited and Mondi plc, an equivalent dividend of 28.41150 South African rand cents per share was paid on 15 September 2009 and, together with a final dividend of 73.54690 South African rand cents per share payable on 19 May 2010, the total dividend amounts to 101.95840 South African rand cents per share.

In July 2009, the South African Treasury approved the reclassification of the secondary listing of Mondi plc’s ordinary shares on the JSE as domestic assets in the hands of South African investors. This had the effect of all but eliminating the price differential that had existed between the Mondi Limited and Mondi plc shares trading on the JSE. Importantly, the reclassification had the effect of allowing a new group of potential shareholders access to the Mondi plc shares, and this, we believe, has contributed to the share’s strong performance in the second half of 2009.

Thanks

Operating in 31 countries across the globe, the people of Mondi have shown resilience and commitment. Their contribution has underpinned the Group’s resilient performance. Management, and in particular the chief executive and senior leadership, have been quick to react and wholehearted in their response to a rapidly changing and uncertain global environment. On behalf of the Boards we thank them.

Strategy and outlook

The current financial year will, no doubt, continue to present challenges to the Mondi Group. These will continue to be met with enthusiasm and dedication. Mondi’s strategy remains valid: a focus on low-cost production and emerging markets, combined with ingrained cost-consciousness and a decisive response to market circumstances. These will continue to serve as our guidelines, and provide a platform for organic growth in our target markets.

The Group’s solid foundation, built on operational efficiency and market leadership, will continue to underpin both operational and financial performance. The measures we have taken prior to and during the global financial crisis mean that the Group is better positioned at the end of 2009 than it was at the beginning of the year to deliver returns to shareholders in the longer term. While we remain cautious about the macroeconomic outlook and the potential impact this will have on our business in 2010, it is encouraging that both volumes and pricing in most of our key markets continue to improve.