Mondi Group 74 Integrated report and financial statements 2017 Business reviews

Uncoated Fine

Our Uncoated Fine Paper (UFP) We’re a market leader, with a focus on Developing cost-efficient, high-performance, business manufactures and sells emerging Europe, Russia and South Africa. environmentally responsible solutions is an extensive range of quality We operate vertically integrated, well-invested, a cornerstone of our business strategy. cost advantaged assets and continually look We continually strive to transform credibly for use in offices and for ways to improve efficiency and productivity. sourced raw materials into innovative paper professional houses. solutions to meet customer needs in a cost- Our extensive range of office papers is effective and sustainable way. designed to achieve optimal print results on laser, inkjet and copy machines. High- Following the reorganisation of our business performance professional printing papers are units, we now manage 2.1 million hectares of dedicated for offset presses and the latest natural boreal forest in Russia and 245,000 digital print technologies. With our wide range hectares of plantation forests in South Africa. of high-quality papers we aim to provide customers a one-stop-shop solution for their needs.

Production information (Restated)1 Operating sites 2017 2016 Uncoated fine paper ’000 tonnes 1,644 1,666 6 in 4 countries Hardwood Employees Internal consumption ’000 tonnes 950 963 Market pulp ’000 tonnes 395 356 6,800 Softwood pulp ’000 tonnes 375 375 ’000 tonnes 277 313 Production capacity Pulp: 1,735 ktpa Financial performance Uncoated fine paper1: 1,985 ktpa (Restated)1 1 Includes newsprint € million % change 2017 2016 Key industries served Segment revenue 7% 1,832 1,720 Graphic and photographic Underlying EBITDA (7)% 449 481 Office and professional printing Underlying operating profit (12)% 331 375 Underlying operating profit margin 18.1% 21.8% Special items (15) (6) Capital expenditure 122 92 Net segment assets 1,446 1,466 ROCE 27.8% 32.3%

Sustainable development (Restated)1 2017 2016 TRCR per 200,000 hours worked 0.28 0.33 Energy consumption million GJ 93.25 93.85 Market positions Scope 1 and 2 GHG emissions million tonnes CO2e 3.38 3.49 Forest certification % managed land certified #1 to FSC standards2 1003 100 Uncoated fine paper FSC- or PEFC-certified wood % 80 79 supplier in Europe procured Environmental management % of pulp and paper mills certification and forestry operations certified to ISO 14001 #1 standards 100 100 Uncoated fine paper 1 Refer to note 2 in the notes to the combined and consolidated financial statements for basis of restatement producer in South Africa 2 Our forestry operations in Russia are also 100% PEFC certified 3 A new lease, acquired in 2017, of around 30,000 hectares will be certified in 2018 Mondi Group Integrated report and financial statements 2017 75

Uncoated Fine Paper

PERGRAPHICA® Color Copy

® We designed our PERGRAPHICA portfolio of premium Our flagship office paper is by far the most well-known Overview uncoated fine papers for perfectionists. As a hybrid paper, brand of office paper in Europe for colour printing PERGRAPHICA® works well with all printing technologies applications. Customers have relied on it for over a quarter and delivers consistent, high-quality results that meet of a century for perfect print results and consistent quality.

the exacting needs of the creative and commercial It also has an exceptional environmental profile: CO2 print industries. Available in a smooth or rough texture, neutral and FSC, EU Ecolabel and ISO 9706 certifications. it enhances sophisticated messaging with an elegant Recently we redesigned its wrapper to be even stronger look and feel. The choice of high white, classic or natural and more convenient to handle. It’s still the same great whiteness brings unique style to printed materials. Color Copy, now with packaging that is more user-friendly. Strategic report Strategic

Raw materials Production processes Products Governance Wood fibre Pulp mill Pulp

Professional printing paper Financial statements

Paper mill

Office paper Mondi Group 76 Integrated report and financial statements 2017 Business reviews Uncoated Fine Paper

Delivering on our strategy

Strategic value drivers Progress in 2017 2018 objectives Drive performance along ee Improved productivity and efficiency with performance ee Continue to optimise performance and increase the value chain improvement initiatives implemented across our productivity and efficiency in our mills and related network forestry operations ee Further optimised product mix in line with customer ee Ramp up restarted uncoated fine in demand Merebank (South Africa)

Invest in assets ee Good progress on modernisation of power plant ee Execute investment projects currently underway with cost advantage and the investment in waste water treatment plant at and evaluate investments to increase saleable Syktyvkar (Russia) production by 100,000 tonnes per annum in the ee Continued work with Packaging Paper on the project to medium term at Syktyvkar expand production at our Ružomberok mill (Slovakia) ee Progress on Ružomberok mill expansion, in collaboration with Packaging Paper

Inspire our people and ee Continued focus on contractor safety management ee Continued focus on improving safety record grow responsibly following fatality ee Progress investments to reduce environmental ee Landmark voluntary agreement to protect core areas of footprint of our mills and increase energy efficiency Intact Forest Landscapes in Russia

Partner with customers ee Launched the myMondi initiative providing customers ee Continue to roll out the myMondi initiative with the for innovation with a single interface for product information, order objective to reach all customers by the third quarter processing and query management of 2018 ee Evolution of our cloud-based CRM platform (Cloud for ee Continue to improve delivery performance Customer)

Segment revenue € million Financial review Generally rising commodity prices saw Our Uncoated Fine Paper business an increase in input costs, most notably delivered another strong performance, for wood and energy in Europe and €1,832m generating underlying operating profit South Africa. of €331 million and ROCE of 27.8%. 1,840 1,832 Higher maintenance costs, inflationary 1,722 1,764 1,720 Higher average selling prices were achieved cost pressures on the cash fixed cost across all regions on stable volumes, partly base and a higher depreciation charge offsetting the negative impact of a lower were also seen across the business, fair value gain on our forestry assets (down mitigated by our continued focus on driving €21 million year-on-year) and higher costs. operational excellence. We estimate European market demand The forestry assets fair value is dependent was flat year-on-year, above our expected on a variety of external factors over which 2013 2014 2015 2016 2017 long-term trend of 1% to 2% decline per we have limited control, the most significant annum. Demand in Russia and South Africa being the export price of timber and the Underlying operating profit was in line with our long-term estimate of exchange rate. Moderate increases in € million 0% to 1% growth per annum. export prices, resulted in a fair value gain Average benchmark European uncoated of €43 million being recognised in the €331m fine paper selling prices were similar to the year, €21 million lower than the unusually prior year and 2% up in the second half of high gain recognised in the prior year. ROCE the year compared to the first half following While difficult to estimate, should the 375 current strength in the South African rand 341 331 the implementation of price increases during the period. Supported by steady demand, prevail, we would expect a significantly 224 227 reduced imports, supply disruptions in lower fair value gain in 2018.

32.3% Europe and cost pressures, a price increase Planned maintenance shuts were 27.8% 27.0% of up to 5% was implemented in January completed at Syktyvkar in the first half

17.0% 2018. Uncoated fine paper domestic selling of the year, and at Ružomberok and 15.0% prices were increased in Russia and South Neusiedler (Austria) in the second half of the 2013 2014 2015 2016 2017 Africa towards the end of 2017 to offset year. In 2018, our Syktyvkar and Richards domestic inflation. Further price increases Bay (South Africa) shuts are planned for the have been announced across our range first half of the year and the remaining shuts of uncoated fine papers in Europe, Russia are scheduled for the second half. and South Africa for implementation from the end of March 2018. Discussions are underway and the actual price increases achieved remain subject to individual negotiations with customers. Mondi Group Integrated report and financial statements 2017 77

Drive performance along Inspire our people This collaboration has allowed us to the value chain and grow responsibly sign a landmark voluntary agreement During the year we kept our focus on We remain committed to providing a safe between Mondi, WWF Russia and driving the performance of our operations and healthy workplace for our employees Silver Taiga to protect the core areas of and reducing waste. Efforts to optimise and contractors. We sincerely regret Intact Forest Landscapes in our Russian machine performance and increase the fatality of a contractor at our South forestry operations. efficiency and productivity continued African forestry operations in February We have an extensive community Overview leading to record production at two of 2017 following a timber vehicle incident. engagement and investment programme our pulp mills and three of our paper and We also experienced one life-altering focused on areas around our mills and pulp drying machines. We made ongoing injury when a contractor lost sight in one people living on our forestry land. A key productivity improvements at our forestry eye due to the incorrect use of an angle initiative in South Africa is the Mkhondo operations in Russia and South Africa, and grinder during the annual Syktyvkar shut. Development Project, a pioneering public- at Syktyvkar we also focused on improving In addition, a forestry worker was reported private partnership set up to improve the our administrative processes. missing (presumed deceased) during living conditions of people living in isolated cleaning activities on the Vychedga river We continue to optimise our product mix villages on our forestry land, and to find near Syktyvkar. Thorough investigations in line with customer demand through sustainable solutions to alleviate poverty. are conducted after all incidents and action strengthening the capabilities of our mill plans have been implemented across network. In order to improve the efficiency Partner with customers for innovation Mondi to prevent any repeat incidents. of our logistics, we have launched a new During the year, we launched the Our 2017 TRCR is below the limit we set folio sheeter at our Neusiedler mill and myMondi initiative, a web-based solution

for ourselves and we continue to strive to report Strategic conducted an extensive supply chain providing customers with detailed product achieve a culture and safety performance review in order to improve our delivery information, the ability to place and track where everybody works safely and returns capability and provide higher delivery orders, and functionality to enquire and home safely every day. accuracy to our customers. follow up on product and order-related Our additional focus on contractor safety queries. This easy-to-use, 24/7 service was Due to the accelerated rate of local demand management and implementation of positively received by customers during decline, we ceased production of newsprint Mondi’s risk assessment methodology the pilot phase resulting in it being rolled at our Merebank mill at the end of the year. across all our sites aims to ensure safe out to a wider range of customers during During the third quarter we restarted an annual maintenance shuts and projects in the second half of the year. We plan to give idled uncoated fine paper machine at the 2018. We have placed special emphasis all customers access by the third quarter same site, which will produce annually on engineering out risks related to moving of 2018. Quarterly updates have, and will around 70,000 tonnes of uncoated fine and rotating machinery. Our focus on top continue to, further enhance this service paper to serve the local market. risks has contributed to our improved and provide the best solution to meet performance over the years and as a our customers’ needs, while identifying Invest in assets with cost advantage result, we will continue this approach. efficiency gain opportunities and related Our investments in modernising the power The majority of our first line managers benefits internally. plant and waste water treatment plant at have completed our tailor-made safety and Governance During 2017 our cloud-based CRM Syktyvkar are progressing well. The rebuilt health programme, and all safety and health platform, Cloud for Customer, evolved. power plant will replace three existing bark professionals complete a four-module in- This tool, launched in 2016, was enhanced boilers and four turbines with a single new depth specialist training. bark boiler and turbine providing process during the year by adding new functionality, simplification, improved reliability, reduced We continue to improve the environmental reinforcing and promoting existing costs, reduced natural gas consumption performance of our operations. At capabilities and highlighting its analytical and increased use of biomass for energy. Ružomberok we invested in further odour potential. These developments support our The waste water treatment plant investment abatement initiatives including odour from ongoing commitment to finding solutions aims to significantly improve waste water the mill’s waste water treatment plant. that maximise benefits for both our customers and our business. quality and reduce chemical oxygen Working in partnership with NGOs, demand and total suspended solids. government and business is central to our These projects are on track with completion approach. We are proud of our progress expected in early 2019 and late 2018, in protecting Intact Forest Landscapes respectively.

as these large unfragmented areas, Financial statements As part of our plan to maintain Syktyvkar’s undisturbed by roads or other significant competitiveness and increase saleable human infrastructure, are globally production by around 100,000 tonnes recognised as priority protection areas. per annum in the medium term, we are In Russia we have partnered with WWF investing to debottleneck production and Russia and Silver Taiga to identify and avoid unplanned shutdowns. protect these areas in the Komi Republic.