Rating Action: Moody’s changes Mondi’s outlook to negative; affirms Baa1Global Credit Research – 16 Mar 2022London, March 16, 2022 — Moody’s Investors Service (“Moody’s”) has today changed Mondi Plc’s (Mondi, company) outlook to negative from stable and has affirmed its Baa1 ratings. Mondi is a UK-listed integrated packaging and paper company.”The negative outlook reflects the uncertainty as the company assesses options for its operations in Russia, which represent around 20% of EBITDA and were previously a core part of its operations. Excluding the Russia operations, Mondi’s financial metrics and its cash flow generation will weaken at a time the company seeks to invest meaningfully into growth and macro uncertainties are rising. However, Mondi also entered 2022 in a position of financial strength. While headroom within the rating category will reduce and free cash flow could turn negative, we currently expect financial metrics to largely remain at adequate levels for the rating.” says Tobias Wagner, a Vice President — Senior Credit Officer at Moody’s.A full list of affected ratings can be found at the end of this press release.RATINGS RATIONALEThe negative outlook reflects the uncertainty as the company assesses options for its operations in Russia, which represent around 20% of EBITDA and were previously a core part of its operations. While it remains uncertain at this stage what these options are, Mondi’s financial metrics excluding its operations in Russia are weaker, including cash flow generation, at a time the company seeks to invest meaningfully into growth and macro uncertainties are rising. Accordingly, headroom within the rating category reduces and free cash flow could turn negative. However, Mondi’s metrics such as Moody’s-adjusted debt/EBITDA and Moody’s retained cash flow (RCF)/ debt stood at 1.5x and 40% for 2021, and Moody’s currently expects leverage to remain below 2.0x and RCF/debt above 30% excluding the Russia operations. Moody’s also expects the company to maintain its financial policy and capital allocation priorities including regarding its “investment-grade credit metrics” commitment and earnings-based dividend policy. Moody’s also understands Mondi remains on track regarding the disposal of its personal care components business for around 615 million by the second half of 2022.Mondi is assessing options for its Russia operations, including any form of legal separation. Mondi operates an integrated pulp, packaging paper and uncoated fine paper mill located in Syktyvkar (Republic of Komi), Russia. The company also has three converting plants in Russia. According to Mondi, these facilities primarily serve the domestic market and continue to operate although Mondi has reported some operational challenges that may significantly impact the operation of the mill. The mill operates an integrated power plant, which is an important energy provider to the region. In addition, the mill provides heat, warm water and waste water treatment services for the local community. In Ukraine, Mondi has one small paper bag plant located in Lviv, which has currently suspended production.The rating continues to take into consideration that Mondi remains well diversified in terms of products, regions and end markets, excluding the Russia operations. It also reflects the market-leading positions in most of its paper and packaging grades, track record of above-average and structurally strong margins enabled by cost-efficient assets and mostly in lower-cost emerging markets, and a high level of integration between its upstream and downstream assets with a good degree of self-sufficiency in fibre and energy. The company has a long track record of steady free cash flow (FCF) despite continued investments well above the depreciation levels and growing dividends, and a track record of managing growth conservatively, as reflected in its Moody’s-adjusted debt/EBITDA, which has remained below 2.0x over the past ten years.The rating also continues to be constrained by Mondi’s exposure to the cyclical paper and packaging product industries, which are competitive and offer relatively limited scope for product differentiation. They also reflect the secular decline in the use of graphic paper in mature markets as a result of the continued migration towards electronic forms of communication. Mondi is also exposed to industry-related volatile and rising input costs, which the company may not always be able to pass on although it has done so successfully in the past. There is also at times some risk of debt-funded growth or extraordinary dividends given the lack of public commitment to a specific leverage target.Moody’s considers Mondi’s liquidity as sufficient. As of December 2021, the company had 1.3 billion of liquidity available, including 803 million of undrawn committed debt facilities and 455 million of cash (net of overdrafts). The company has various bilateral lines and a 750 million syndicated revolving credit facility, which was renewed in June 2021 for another 5 years and contains no financial covenant. These liquidity sources, the cash-generative profile and access to capital markets underpin Mondi’s liquidity. Aside from some smaller bank loans and overdraft facilities, the company has no significant maturities until 2024. Mondi also remains on track regarding the disposal of its personal care components business for 615 million by the second half of 2022. Moody’s also understands that there is no material external debt at the Russia operations and that the business is self funded.RATING OUTLOOKThe negative outlook reflects the uncertainty as the company assesses options for its operations in Russia, which represent around 20% of EBITDA and were previously a core part of its operations. Excluding the Russia operations, Mondi’s financial metrics and its cash flow generation will weaken at a time the company seeks to invest meaningfully into growth and macro uncertainties are rising. However, Mondi also entered 2022 in a position of financial strength. While headroom within the rating category will reduce and free cash flow could turn negative, we currently expect financial metrics to largely remain at adequate levels for the rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSPositive pressure could come from further portfolio diversification, Moody’s-adjusted EBITDA margin remaining above 20% through the cycle, retained cash flow (RCF)/debt above remaining 40% through the cycle, a commitment to maintain a conservative capital structure that would translate into Moody’s-adjusted gross debt/EBITDA remaining below 1.5x on a sustained basis or further strengthening of liquidity. Conversely, negative pressure could come from Moody’s-adjusted EBITDA margin declining towards 15% on a sustained basis, Moody’s-adjusted RCF/debt remaining below 30% on a sustained basis, Moody’s-adjusted debt/EBITDA remaining above 2.0x on a sustained basis, negative FCF over a prolonged period or erosion of liquidity. LIST OF AFFECTED RATINGS Affirmations: ..Issuer: Mondi Finance Europe GMBH….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1..Issuer: Mondi Finance plc….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1..Issuer: Mondi Plc…. LT Issuer Rating, Affirmed Baa1Outlook Actions:..Issuer: Mondi Finance Europe GMBH….Outlook, Changed To Negative From Stable..Issuer: Mondi Finance plc….Outlook, Changed To Negative From Stable..Issuer: Mondi Plc….Outlook, Changed To Negative From StablePRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Paper and Forest Products published in December 2021 and available at Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILEMondi Plc is a UK-listed integrated packaging and paper group. In 2021, the company generated revenue of 7.7 billion across its four segments: Corrugated Packaging (32% of 2021 revenue), Flexible Packaging (36%), Engineered Materials (11%) and Uncoated Fine Paper (21%). The UFP segment also includes managed forest holdings in Russia and South Africa. Mondi has production operations across more than 30 countries, with key operations across Europe (significantly in Central Europe and also Russia), Africa (South Africa) and North America, and employs about 26,000 people (of which 5,300 in Russia).REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. 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