INTEGR A TED REPOR T 2011 INTEGRATED REPORT

Transcription

1 INTEGRATED REPORT 2011

2 FIRST IMPRESSIONS COUNT Our underlying operating profit of R517 million was 6.4% higher than last year, while return on capital employed (ROCE) was up at 13.8%. Gearing was down to 35% from 96% as compared to the prior year, with underlying earnings up to cents from 24.3 cents. Mpact is a leading southern Africa producer of paper and plastic packaging. In 2011, approximately 90% of total revenue was derived from products of which Mpact is the largest producer * in southern Africa. These products include corrugated packaging, recycled-based cartonboard and containerboard; recovered paper collection; PET preforms, styrene trays and plastic jumbo bins. * Source: Mpact, BMI, Pamsa, Prasa Download the full Integrated Report 2011

3 CONTENTS ABOUT US Vision and values IFC Key features of Scope 4 Corporate profile 6 Strategy and objectives 10 Year in review Chairman s letter 14 Chief executive officer s review 16 Review of operations Paper business 22 Plastics business 23 Sustainability review Management approach 25 Sustainability issues 26 Stakeholder engagement 27 Economic performance 29 Social performance Safety 33 Health 36 Employment 37 Human rights 38 Community 39 Product responsibility 42 Environmental performance 44 Governance review Directorate 48 Management 50 Corporate governance 52 Risk management 58 Remuneration report 63 Audit and risk committee report 75 financial statements: A summary Directors report 80 Directors responsibility statement 82 Company secretary s certification 83 Independent auditors report 84 Annual financial statements 85 Administration Shareholder information 108 Shareholders diary 109 GRI content index 110 Notice of AGM 113 Annexure 120 Form of proxy 123 Glossary of terms 126 Corporate information IBC

4 ABOUT US Download this section Vision At Mpact, our vision is to be a leading business with the highest ethical standards, delivering exceptional value for our customers, employees, communities and shareholders. Values At Mpact we are differentiated by our people who are: Resolute: setting and achieving challenging targets continuously identifying innovative ways to do things accountable, especially in the face of adversity As one of Southern Africa s leading paper and packaging producers, we are committed to: Meeting and exceeding customers requirements for product and service quality, innovation as well as cost competitiveness. Providing a safe and secure working environment in which employees can fulfill their ambitions and aspire to continually improve their circumstances. Acting as a responsible employer and citizen in the communities where we operate, and managing natural resources with care, sensitivity and expertise. Achieving sustainable, profitable growth through a focus on business excellence and strategic expansion in chosen markets. Trustworthy: honouring commitments transparent Responsible: taking care of their safety, health and personal development as well as that of their colleagues striving to meet or exceed our customer s requirements (internal and external) for product quality, excellent service and cost competitiveness treating our natural resources with care and sensitivity doing what it takes to deliver good sustainable returns to our shareholders

5 MPACT LIMITED INTEGRATED REPORT 2011 / ABOUT US 1 Harare Walvis Bay Windhoek Brits Johannesburg Pretoria Maputo Richards Bay Bloemfontein Felixton Durban Recycling Atlantis Cape Town Paarl Port Elizabeth East London Corrugated Packaging and industrial paper Plastics MPACT IS ONE OF THE LARGEST PAPER AND PLASTIC PACKAGING GROUPS IN SOUTHERN AFRICA with 29 operating sites, 22 of which are manufacturing operations, based in South Africa, Namibia, Mozambique and Zimbabwe, and approximately 3,500 employees.

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7 MPACT LIMITED INTEGRATED REPORT 2011 / ABOUT US 3 key FEATURES OF 2011 A landmark year for Mpact, 2011 s highlight was our transition from being a subsidiary of the Mondi Group to our listing as an independent entity on the main board of the JSE. Listed on the JSE on 11 July 2011 Demerged from Mondi, launched Mpact and completed the rebranding of operations Underlying operating profit up 6.4% to R517 million Return on capital employed (ROCE) of 13.8% Underlying earnings per share increased to cents per share from 24.3 cents Gearing down to 35% from 96% in prior year Maiden cash dividend declared of 40 cents per share Revenue up 7.5% on prior year to R6,149 million (excluding Paperlink) Net debt lower at R1.3 billion following the re-capitalisation in July 2011, prior to listing Several senior appointments made to strengthen our management team Won the overall Gold Pack Trophy and several other product awards during 2011

8 4 MPACT LIMITED INTEGRATED REPORT 2011 scope We present our first annual Integrated Report to stakeholders for the year ended 31 December We were part of the Mondi Group until our demerger on 18 July 2011, which followed our listing as an independent entity on the main board of the JSE on 11 July This Integrated Report covers the activities and performance of the Mpact Group (the Group) which includes Mpact Limited, all our subsidiaries and associates. We manufacture paper and packaging products in South Africa, Namibia, Zimbabwe and Mozambique. This Integrated Report is presented in accordance with the International Financial Reporting Standards (IFRS), the South African Companies Act of 2008, the JSE Listings Requirements, the King Code of Governance Principles for South Africa 2009 (King III) and the guidance provided in the Integrated Reporting Committee of South Africa s Framework for Integrated Reporting. Reporting on our triple bottom-line performance demonstrates our commitment to sustainable development. This content is in line with the Global Reporting Initiative (GRI) guidelines, in terms of which we have self-declared a C application level. We intend to incrementally improve our reporting in this regard. The Integrated Report has been prepared to enable stakeholders to make an informed assessment of our ability to create and sustain value. This report is available on our website, The board has accordingly authorised the release of the annual Integrated Report AJ Phillips BW Strong Chairman Chief Executive Officer Johannesburg Johannesburg 28 March March 2012 Any queries regarding this report or its contents should be addressed to: External assurance Our external auditor, Deloitte, has assured the annual financial statements, while Empowerdex, an accredited empowerment rating agency, has provided assurance on the economic empowerment scorecard. Approval of this integrated report The board confirms its responsibility for the integrity of the Integrated Report. Its content has been collectively assessed by our directors who believe that we address issues that are material to us. Deborah Chapman Communications Manager Mpact Limited Tel: Cell: th Floor No 3 Melrose Boulevard Melrose Arch 2076 Johannesburg South Africa DLChapman@mpact.co.za Download the full Integrated Report 2011

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10 6 MPACT LIMITED INTEGRATED REPORT 2011 corporate profile Mpact Limited, formerly Mondi Packaging South Africa, is one of the largest packaging businesses in southern Africa and is involved in the manufacture and supply of paper and plastic packaging products. The Group, which listed as a separate entity on the JSE and demerged from Mondi * in July 2011, has the leading market position in southern Africa in corrugated packaging, recycledbased cartonboard and containerboard, recovered paper collection, polyethylene terephthalate (PET) preforms, styrene trays and plastic jumbo bins. These strong market positions allow us to meet the increasing requirements of customers, achieve economies of scale and achieve cost effectiveness at our various operations. Approximately 90% of our revenue was derived from these product lines in We have 29 operating sites, 22 of which are manufacturing operations, in South Africa, Namibia, Mozambique and Zimbabwe. Approximately 90% of our sales in 2011 were generated in South Africa. As at 31 December 2011, our workforce amounted to approximately 3,500 employees. * The full details of the demerger and listing can be found in our Pre-Listing Statement on the website, Group structure* 74% PAPER BUSINESS 26% TURNOVER TURNOVER PLASTICS BUSINESS RECYCLING PET BOTTLES AND CLOSURES PAPER MANUFACTURING TRAYS AND FILMS FMCG CONTAINERS CORRUGATED BINS AND CRATES * Excluding the paper merchant business, Paperlink, which was disposed of in March 2011.

11 MPACT LIMITED INTEGRATED REPORT 2011 / ABOUT US 7 paper business The paper business consists of three divisions: corrugated packaging, paper manufacturing and recycling. Our paper business contributed R4,573 million to revenue, with underlying operating profit of R560 million in Recycling We are the largest paper recycler in South Africa. The recycling division has seven sites across the country. Recovered paper sources include pre- and post-consumer material sourced from a multitude of paper pickup programmes including commercial, kerbside, schools, churches, communities, housing complexes, offices and an extensive network of agents and dealers. Approximately 450,000 tonnes of paper was collected and recovered in Seventy percent of the recovered paper collected by the Group in 2011 was consumed internally in our production of packaging and industrial papers, while the remaining portion was sold to external customers, including Mondi Shanduka Newsprint, for its newsprint production. Paper manufacturing (Paper) The paper division manufactures recycled-based packaging and industrial paper grades such as containerboard and cartonboard. Approximately 20% to 40% of the containerboard manufactured by the Group is consumed internally in our production of corrugated board and the remaining portion is sold to other producers of corrugated packaging products. The actual proportion of internally or externally sourced containerboard consumed in any period by our corrugated division depends upon the grade required for the final product and other commercial considerations. In addition, we sell Baywhite, a premium quality white top kraftliner produced by Mondi Limited, for which we have exclusive distribution rights in South Africa and sub- Saharan Africa. Our combined production of recycled containerboard and cartonboard for the year ended 31 December 2011 amounted to 387,870 tonnes, produced at our Springs, Piet Retief and Felixton mills. Production of recycled fibre-based containerboard at the Piet Retief and Felixton mills is complemented by sales of Baywhite. The containerboard produced comprises on average approximately 35% hardwood, softwood and bagasse pulp and 65% recycled fibre-based pulp. The main market for these products is the corrugated packaging industry. The Felixton and Piet Retief mills had combined production of containerboard in 2011 of 267,924 tonnes. The Springs mill produces coated and uncoated recycledbased cartonboard. It produced 119,946 tonnes in The products are used in a variety of applications including food and industrial packaging as well as other industrial applications such as ceiling board. The Group s customers for our packaging and industrial paper include corrugated board and box producers which require containerboard, such as our corrugated division and other containerboard converters. Cartonboard is sold to folding carton and other producers of industrial products, as well as for other uses such as cards and book covers. The top 10 external packaging and industrial paper customers represented approximately 79% of external sales in Approximately 12% of the cartonboard and containerboard produced by the Group in 2011 was exported, predominantly to other African countries. Corrugated The corrugated division manufactures and sells a comprehensive range of printed and unprinted converted corrugated products, including board, which we use to manufacture corrugated packaging, corrugated boxes, die-cut cases, folded glued cases, trays and point-of-sale displays. The corrugated division had saleable production of 391 million m 2 of corrugated packaging in The corrugated packaging division has nine corrugated box plants, each with corrugator and converting facilities, producing corrugated board and boxes. Eight plants are located in South Africa in Gauteng, KwaZulu-Natal, Western Cape, Eastern Cape and Mpumalanga and one plant is located in Namibia. We also own two corrugated sheet plants in Mozambique and Namibia respectively, and have an interest in several corrugated sheet plants throughout South Africa. The sites are fully equipped to produce a range of corrugated products from standard boxes to die-cut self-locking trays. All packaging is custom-made to specific customer needs and can be printed as required on site. We have developed our leading market position by focusing on investments in modern technology and training, customer relationship

12 8 MPACT LIMITED INTEGRATED REPORT 2011 corporate profile management and a decentralised operating structure to provide constant improvements to the products we supply. Since 2005, we have invested in three high-graphic printing machines situated at the Springs, Pinetown and Epping facilities. This has given us a leading position in high-graphic printing on corrugated boxes, in line with our objective of meeting customer requirements for innovative products and branding. Corrugated customers include producers of agricultural, fast moving consumer goods (FMCG) and other durable and non durable goods that use packaging primarily for the protection of products in transit and for point-of-sale display. Converted packaging products generally have a localised customer base each of the corrugated packaging operations has a large number of customers located within approximately 160km. Our top 10 corrugated packaging customers represented approximately 26% of our external corrugated packaging sales in plastics Business We are a leading producer of rigid plastic packaging in southern Africa, contributing R1,577 million to Group revenue and underlying operating profit of R114 million in The plastics business manufactures a range of plastic packaging products for the food, beverage, personal care, homecare, pharmaceutical, agricultural and retail markets, primarily in South Africa. Products include: PET preforms, bottles and jars; plastic jumbo bins, wheelie bins and plastic crates; plastic FMCG containers other than PET, such as bottles, jars and closures, with in-mould labelling; and styrene trays, fast food containers and clear plastic films. Our plastics business has nine production centres located in the Western Cape, Gauteng, KwaZulu-Natal and Zimbabwe. We converted 78,694 tonnes of plastics in 2011, including the production of over one billion preforms and PET bottles. Styrene trays, fast food containers and clear plastic films are produced at two sites, in Paarl and Harare. Large injection moulded plastic jumbo bins for the agricultural market as well as other large plastic bins and containers are produced at our plants in Atlantis and Brits. The other four sites, situated in Robertville, Wadeville, Pinetown and Atlantis manufacture injection and blow-moulded preforms, bottles, containers and closures for the food, beverage, personal care, homecare and pharmaceutical industries. In addition, our Wadeville facility houses a state-of-theart compression moulding facility with a beverage closure capacity of more than 1.3 billion units per annum and an advanced laboratory. The plastics business sources raw materials from a number of South African and international suppliers. The plastics business serves a diverse customer base from multi-nationals to regional manufacturers in the FMCG sector (such as carbonated soft drink makers and producers of personal care, homecare, pharmaceuticals and food products), fast food producers, agricultural producers and retail chains. Our top 10 plastics customers represented 43% of our plastics sales in Centres of excellence We have developed centres of excellence for our human resources, safety, health and environmental policy functions. In addition, we enjoy the benefits of shared services across our businesses for our finance, human resources administration and information systems and technology (IS&T), and have a research and development (R&D) facility located in Stellenbosch. Our investment in R&D covers innovation centres for structural and graphic design, value-added services and a plastics design studio where new designs are created and prototype forms for the development of new plastic containers are made. Our Stellenbosch-based R&D centre provides production and technical support for sales teams and often collaborates with customers on product developments in the plastics and paper businesses. Customer-focused operating structure We pride ourselves on our decentralised structure, with operations managers being responsible for customer relationship management and financial performance. We maintain close relationships and adapt quickly to customer needs, developing products tailored to specific requirements. Our proximity to our customers contributes to reduced transport costs.

13 MPACT LIMITED INTEGRATED REPORT 2011 / ABOUT US 9 AWARD- WINNING DESIGN AND INNOVATION During 2011, we were recognised as best-in-class among our peers and by the marketplace, having won the overall Gold Pack Trophy for our RAPPET 187ml Burgundy wine bottle at the 2011 Gold Pack Awards. We also won several other awards for our products, including the following: Plastics: Preform and closure light weightings for 500ml, 1-litre and 2-litre carbonated soft drink products (Beverage category) Backsberg Tread Lightly RAPPET wine bottles (Beverage category) RAPPET Georgian Green wine bottle (Beverage category) Poolbrite Month Mate Super Plus Floater (Household category) Corrugated: Itacitrus lime export carton (Export category) Kentucky ice-cream freezer transit pack (Transit and Bulk Packaging category)

14 10 MPACT LIMITED INTEGRATED REPORT 2011 Strategy and objectives The three key pillars of our business strategy are our leading market positions, customer-focused operating structure and focus on performance. Mpact intends to: Develop and selectively grow our leading market positions in rigid plastic packaging, paper-based packaging and packaging paper in sub-saharan Africa, where we are able to extract value through business, operational and management expertise as well as from product application, design and market knowledge. Further develop our manufacturing and service footprint to deliver superior solutions to our customers underpinned by: a decentralised structure reflecting management depth and experience at all levels; an innovative customer-focused product offering; and leading market positions that enable us to achieve sustainable cost-effectiveness through economies of scale. Focus on performance through business excellence programmes and sound asset management enabling us to: provide our customers with quality products and services; retain a motivated and skilled workforce; and deliver good returns to our shareholders. As part of our overall optimisation strategy, we have established business excellence programmes aimed at reducing costs and improving profitability. These programmes specifically focus on operational performance and prudent asset management and target continuous improvements in productivity, efficiency and reliability of operations, cost reduction programmes and profit improvement initiatives. We are committed to sustainable development in each of our businesses by adopting leading industry health and safety standards, obtaining raw materials from various sources and ensuring our businesses constantly seek to reduce their environmental impact. Specific strategic goals have been developed for the plastics and paper businesses: Paper In the recycling division, our strategy is to increase the amount and proportion of directly sourced quality recovered paper for use in the manufacturing of paper products. This will allow further input cost management and improved quality throughout the paper packaging value chain, as well as securing the source of a key raw material into our paper manufacturing operations. We also seek to develop our leading market position in product quality and lightweight capability in our corrugated and paper manufacturing divisions by continuing to improve the quality and design of our products while increasing the efficiency of production. This will be achieved by upgrading our corrugated packaging facilities and ensuring that we remain at the forefront of technological advances in the industry. We will also seek to optimise our cartonboard and containerboard operations by improving quality and operational efficiencies and hence production costs. We believe that using interchangeable raw materials to efficiently improve our fibre mix in the production of cartonboard and containerboard allows us to be more flexible in adjusting to changing customer needs and market dynamics. Plastics The plastics business has strong potential for growth as consumers continue to substitute packaging such as glass and metals with rigid plastics. We intend to seek both strategic growth opportunities through partnerships with established market players as well as organic growth through optimisation where management identifies convincing business opportunities. Additionally, our manufacturing facilities will be developed to ensure that production is closer to customers in order to improve services levels and reduce operating costs.

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16 12 MPACT LIMITED INTEGRATED REPORT 2011 YEAR IN REVIEW SECTIONAL HIGHLIGHTS The year under review was a momentous one for us and includes a number of significant milestones such as: Listing on the JSE on 11 July 2011 Demerger from Mondi on 18 July 2011 Establishment of a new board and sub-committees independent of Mondi Download this section

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18 14 MPACT LIMITED INTEGRATED REPORT 2011 CHAIRMAN S LETTER Dear stakeholder, It is a great pleasure to write to you introducing our 2011 Integrated Report, our first report as an independent entity was without doubt a landmark year for us, with the highlight being our transition from being a subsidiary of the Mondi Group to our listing as an independent entity on the main board of the JSE. Tony Phillips Chairman The enormity of the task of establishing Mpact as an independent company should not be underestimated. Looking back on this process and all that this entailed, one is struck by how it occupied so many people, so very intensely, for a substantial period of time. Advisors, lawyers, investment bankers and corporate financiers were involved, as well as many of the management team and employees. It entailed the setting up of the processes and systems and the acquisition of particular skills in order to comply with the listing requirements of the JSE and the Companies Act, among others, and to ensure that the business is in good order and conducted in line with best practice. It also involved an entirely new paradigm on debt since this now had to be raised in Mpact s own right, rather than under the auspices of Mondi. In particular and rather significantly, it necessitated the creation and setting up of an Mpact board of directors. Having the privilege of being appointed chairman, I was closely involved in the interviewing and selection process of my fellow board members, a most rewarding and exciting opportunity and one which seldom comes along. Once the board had been selected, the board was then involved in the actual listing of Mpact, followed by the reporting of our maiden set of interim financial results in August. The current report too represents a challenge in that Mpact has not officially existed for more than half of the financial year being reviewed. Our business is geared to the performance of the country s gross domestic product and so the success of the business depends on how the economy is growing. This in turn depends on a host of other factors, not least of which is the global macro-economic outlook. Other taxing concerns which affect our performance include increased administered costs such as those for fuel and electricity and over which we have little or no control. We are working hard to reduce our consumption of energy per unit of production. Compounding our costs is the fact that wage increases have exceeded the rate of inflation in both the public and the private sectors, and there are doubts as to whether this is sustainable in the long term without corresponding increases in productivity. The incidence of strikes too is cause for concern. We have nevertheless done remarkably well, particularly in the last quarter of the year. The weaker rand stimulated exports both on our part and for South African manufacturers, which in turn increased their packaging requirements. We are well positioned in the market in those sectors in which we operate. We are not overly burdened by debt and are positioned for expansion and growth. We are conscious of our cost structure and the sustainability of our business is determined by having the necessary building blocks in place.

19 MPACT LIMITED INTEGRATED REPORT 2011 / YEAR IN REVIEW 15 Regarding the board and its performance, it is still too soon to judge but the mechanisms to assess this are being put in place. From a public perspective, we have a balanced, representative board with impressive industry experience. It is a small board but it has the necessary strategic skills in business and human resources and is committed to transformation. The audit and risk committee has an effective, experienced chairperson as well as a potential successor to this position. All the required sub-committees have been set up and their charters have been compiled and formalised. The benefits of all this ground work will become apparent in coming years. While we may not comply with King III in every respect, we are aware of our shortcomings and can certainly explain where and why we do not comply. These are being addressed. Management has faced many challenges in the past year it has had to take on increased responsibility by going it alone, and our team has risen to this. People who a year ago would have been involved only peripherally in events are now at the forefront. It has been a steep learning curve for many who now find themselves involved in risk mapping, funding, and investor relations, among other activities. Despite the separation from Mondi, one of our largest shareholders remains our black economic empowerment partner, Shanduka Packaging, and we continue to draw strength from this association. Currently, their investment in Mpact is at approximately 10.5%. In conclusion, I would like to formally welcome my fellow members of the board and thank them too for their dedication and commitment in this period of transition. I look forward to working with them in the coming year as we bed down the Group and our strategy. I also extend my gratitude to the executive management team lead by CEO, Bruce Strong, and to all our employees for their commitment, hard work and loyalty during the year. Tony Phillips Chairman

20 16 MPACT LIMITED INTEGRATED REPORT 2011 Chief executive officer s review 2011 was a momentous year for us and it gives me much pleasure to report for the first time to our shareholders and stakeholders in our inaugural Integrated Report. The highlight of the year was undoubtedly our listing on the JSE on 11 July 2011 in tandem with the demerger of Mondi Packaging South Africa (MPSA), as it was previously known, from the Mondi Group, effective 18 July This resulted in the rebranding as Mpact, a leading, independent and focused paper and plastics packaging company. As an autonomous entity, we are able to focus more fully on the implementation of our strategy to: develop and selectively grow our leading market positions, both domestically and in sub-saharan Africa; further develop our manufacturing and service footprint to enable us to consistently deliver superior solutions to our customers; and apply effective business excellence programmes and sound asset management to deliver good, consistent performance. Our principal objective is to deliver good and sustainable returns to our shareholders by providing innovative, quality products and services to our customers that are worth the price, and to consider and include our other stakeholders in all that we do. Governance, accountability and reporting There were obviously risks involved in Mpact s demerger and listing. We have established the necessary systems, processes and governance structures, including board committees, to identify the most material of these risks and to monitor the effectiveness of mitigation measures to limit them. Several appointments at a senior level have also been made to strengthen our management team and ensure we are appropriately resourced as a listed company. These include among others, the appointment of Noriah Sepuru as company Bruce Strong Chief Executive Officer secretary with effect from 1 December 2011, replacing our interim company secretary William Somerville, to whom we extend our thanks for all his efforts in the previous six months. In terms of reporting, we have adopted an integrated approach in this first Integrated Report. In this document we report on our operational, financial as well as our non-financial (socio-economic and environmental) performance. This is in compliance with JSE listings requirements and certain aspects of King III and the Companies Act 2008 and, regarding our nonfinancial performance, the guidelines of the Global Reporting Initiative (GRI). We will incrementally improve our reporting and the level of disclosure on the latter. Operational overview The past year was challenging with demand being under pressure across the industry for most of the reporting period. We attribute this mainly to the continued uncertain economic conditions prevailing both globally and locally. In the first half of the year, local demand for packaging was also negatively affected by import substitution of paper, packaging and finished goods as a result of the strength of the rand. Despite these challenges, through proactive intervention, both businesses realised substantial cost savings and improved operational performance which offset the effects of reduced volumes.

21 MPACT LIMITED INTEGRATED REPORT 2011 / YEAR IN REVIEW 17 Strikes during July and August, both at our own operations and at our customers, caused disruptions. However the overall net direct financial effect for the year was not considered material. Financial overview Revenue of R6,281 million was in line with the comparable prior year period with higher average selling prices offset by lower volumes in the paper business and in Paperlink, the paper merchanting business, which was sold at the end of March Underlying operating profit of R517 million was 6.4% up on the comparable prior year period. Return on capital employed for the year was 13.8% (2010: 13.1%). Paper business Revenue was 3.8% higher at R4,573 million. In line with seasonal trends, sales volumes for the second half of the year exceeded the first. However, volumes for the full year were down on the comparable prior year period, attributable predominantly to lower domestic sector growth, import substitution and reduced exports. Underlying operating profit of R560 million for 2011 was 6.4 % higher than the comparable prior year period owing mainly to productivity improvements, cost savings and higher average selling prices. Plastics business Revenue of R1,577 million grew 20.4 % compared to 2010 due to increased volumes and higher average selling prices. Selling prices in this business increased on the back of higher raw material costs. Underlying operating profit for the period increased by 25.6% over the prior year to R114 million due to higher sales volumes and cost savings. Special items In the year under review, special items include non-recurring costs amounting to R87.4 million relating to the listing and demerger from Mondi which are excluded from underlying profit before tax. Finance costs Net finance costs of R291 million were lower than the comparable prior year period by 24.8%. On 5 July 2011 net debt was substantially reduced as part of the capital restructuring prior to listing on the JSE on 11 July Consequently, net interest costs in the second half of the year were substantially lower than the first half. Tax The effective tax rate is 39%, which is higher than the normal company income tax rate of 28% mainly due to nondeductible listing costs and disallowable interest. Earnings per share In terms of a special resolution passed on 28 April 2011 the number of ordinary shares in issue was increased from 159,950 ordinary shares to 23,192,750 ordinary shares following a share split. Thus the number of ordinary shares in issue on 30 June 2011 was 23,192,750. On 5 July 2011 an additional 140,853,726 ordinary shares were issued to the then shareholders as part of Mpact s capital restructuring prior to listing. Consequently the company listed on 11 July 2011 with 164,046,476 issued ordinary shares. On the basis of 164,046,476 issued ordinary shares, basic earnings per ordinary share for the year ended 31 December 2011 are 54.9 cents (2010: 22.4 cents) while underlying earnings per ordinary share are cents (2010: 24.3 cents). Borrowings On 5 July 2011 the following major changes to the net debt occurred pursuant to the demerger of Mpact from Mondi and the listing on the JSE: A further 140,853,726 ordinary shares were issued for proceeds of R2,090 million The Group drew down R1,790 million against new banking facilities Existing bank loans of R1,144 million were settled All outstanding shareholder loans amounting to R2,833 million were repaid Consequently, at the date of listing, 11 July 2011, the Group s net debt amounted to R1,718 million. Net debt at 31 December 2011 was R1,307 million (2010: R3,640 million). Dividends On 6 March 2012, the board declared a maiden cash dividend of 40 cents per ordinary share payable on 30 April 2012.The last day to trade will be Thursday, 19 April Ex dividend trading begins on Friday, 20 April 2012 and the record date will be Thursday, 26 April 2012.

22 18 MPACT LIMITED INTEGRATED REPORT 2011 Chief executive officer s review The dividend declared is in line with our stated dividend policy which reflects our strategy of creating value and growth, with the objective of offering our shareholders long-term dividend growth. Capital expenditure Capital expenditure for the year was in line with depreciation charges, and was principally stay-in-business in nature as opposed to expansionary. We expect the status quo in this regard to continue for the foreseeable future. However, should an opportunity that is considered to be in the interests of shareholders present itself, we would certainly offer this to the board and shareholders for consideration. Sustainability We are strongly committed to the principles of sustainability in terms of environmental stewardship, our socio-economic responsibilities and best practice regarding our corporate governance and these underlie our business strategy. As the leading industry recycler of paper, a significant portion of our business is inherently sustainable. An established performance review system is in place for personnel from supervisory level up that ensures that these elements safety, health, care of the environment, among others together with production and financial parameters, are taken into account in determining remuneration and more specifically bonuses. Safety The safety and health of the people working at our operations is a top priority. We deeply regret the death of Mr Lungani Frederic Makoba, a construction contractor, at our plastics converting facility in Pinetown during July A thorough investigation into the incident was conducted involving all relevant parties and everything possible has been done to prevent a recurrence. We extend our condolences to the family, friends and colleagues of Mr Makoba. Other safety performance measures, such as the number of lost-time injuries recorded, restricted work cases and medical treatment cases for 2011, improved on those of Skills development We provide employment for approximately 3,500 people at our operations throughout southern Africa. A primary challenge at Mpact is the development of skills across all demographics, and interventions are underway to address both race and gender transformation within the Group. The Mpact Academy was established in 2010 to promote the development of skills throughout the organisation and has been especially active over the past two years. Included in this is a management development programme facilitated by the Gordon Institute of Business Science (GIBS), attended by our senior managers. In addition, the Academy runs training and skills development courses for the Group. Environment Our operations do have an impact on the environment and much effort is directed at minimising this. Several operations have been awarded ISO certification. Internally, the Mpact Excellence in Environmental Performance Award is presented for both excellence and improvements in environmental performance. This year the award was presented to an operation which has consistently improved its performance with a reduction of more than 30% in both energy usage and water consumption. While we face certain environmental challenges, these are being addressed and we are making good progress. In particular, the legacy issues at our Piet Retief and Felixton operations are a concern, although interventions to address these are ongoing. While we are committed to the responsible use of resources and to reducing CO 2 emissions, compliance with rapidly changing environmental legislation remains challenging. Black economic empowerment Our current BBBEE rating as determined by Empowerdex, on the basis of our 2010 results and ownership structure, is level 3 and is valid until July This is partly a function of the holding by Shanduka Packaging (Pty) Ltd of 25% in MPSA prior to the demerger as well as an effective 4% holding by black employees in the employee share ownership plan which

23 MPACT LIMITED INTEGRATED REPORT 2011 / YEAR IN REVIEW 19 was terminated in December Since December 2010, Shanduka s share holding has declined to 10.5%. Initiatives are under way to maintain a competitive rating that is in line with government regulations and requirements. Our recycling division, which is core to our business, offers the benefits of integration in tough economic times, especially with regard to the collection of waste paper to feed into the production of packaging paper and corrugated board. In so doing, we have promoted the creation of small, micro and medium enterprises (SMMEs). The use of owner drivers to collect recycling material has been one of the more successful models for the sustained empowerment of SMMEs and their businesses. We have established over 40 such companies to supply recycling material to us, thus contributing to improved grassroot empowerment. Outlook We expect margins in the paper business to remain under pressure as lower international paper prices and the threat of import substitution limit our ability to fully recover cost increases, especially energy, transport and labour. and the rest of our board, senior management and all those who worked together to bring this process to a successful conclusion and for their support. I would like to extend my gratitude to those colleagues and employees who although not directly involved in either the listing or demerger played their part by performing their tasks well, thus ensuring that we had a successful year, both operationally and financially. A high note of the year and one of which I am very proud, was the many industry packaging awards which we won, and especially winning the overall Gold Pack Trophy at the 2011 Gold Pack awards. In terms of personnel changes in the coming year, a new chief financial officer is to be appointed in addition to a successor to the head of the plastics business, on the retirement of the present incumbents, respectively, Les Leong and Ray Crewe-Brown. The coming year, 2012, will be as challenging as 2011 but given the calibre and commitment of those involved at Mpact I am sure we will be able to meet and rise above these. Despite this, our strong market position in the paper business remains a key competitive advantage. In the plastics business, we will continue with the optimisation of our existing operations while seeking further opportunities to establish Mpact as the leading southern African rigid plastic packaging producer. While the economy and trading conditions are expected to remain challenging in the near term, Mpact continues to be well positioned within the sectors it operates. In conclusion Our reception by the investor community on our listing on 11 July 2011 and subsequently has been most gratifying. The process of demerging from Mondi and listing on the JSE was virtually seamless largely due to the hard work and dedication of my colleagues. Our new board brought with it a wealth of experience and we have benefitted from this in the past year. I extend my heartfelt thanks to our chairperson, Tony Phillips, Bruce Strong Chief Executive Officer

24 20 MPACT LIMITED INTEGRATED REPORT 2011 REVIEW OF OPERATIONS SECTIONAL HIGHLIGHTS This was a solid performance by both the paper and plastics businesses under tough conditions. Paper underlying operating profit was up 6.4% to R560 million Plastics underlying operating profit increased by 25.6% from the prior year to R114 million Significant progress made in the optimisation of the plastics business Underlying operating profit Paper (R million) Underlying operating profit Plastics (R million) % increase % increase Download this section

25 MPACT LIMITED INTEGRATED REPORT 2011 / REVIEW OF OPERATIONS 21

26 22 MPACT LIMITED INTEGRATED REPORT 2011 PAPER business This business comprises the recycling, paper manufacturing and corrugated divisions. Key statistics Net revenue (Rm) 4,573 4,407 Underlying operating profit (Rm) Underlying operating margin (%) Recycling Our approach to recycling is driven by the key objective which is to ensure that our mills receive the required volumes and quality of fibre at a price that sustains the competitiveness of the mills. The paper recycling industry remains very competitive, particularly for old corrugated containers. After rising early in 2011, prices stabilised and even declined in certain paper grades. To some extent, this trend follows movements in international recovered paper prices which moved downwards as the economic downturn in Europe dragged on. Lower international prices for recovered paper made exports from South Africa less attractive, although the effects were partially offset in the latter part of the year by the weaker rand. Reduced export volumes are beneficial to Mpact. During the year under review, the focus was on restructuring operations to reduce costs and improve access to recovered paper. The groundwork for the restructuring was laid in 2011 and the new structure implemented from 1 January This restructure included the Pretoria and Midrand sites, which were previously outsourced, and are now directly under management control. Approximately 450,000 tonnes of paper were recovered in 2011 (2010: 448,000 tonnes). Seventy percent of the fibre recovered was consumed internally in the production of packaging and industrial papers while the remaining portion was sold to external customers, the largest of which is Shanduka Newsprint. Paper manufacturing The paper manufacturing division manufactures recycledbased containerboard and cartonboard, at our three manufacturing facilities in Gauteng (Springs), Mpumalanga (Piet Retief) and KwaZulu-Natal (Felixton). In addition, the paper division sells Baywhite, a premium quality white top kraftliner produced by Mondi Limited, for which we have exclusive distribution rights in South Africa and sub-saharan African locations. In 2011, the combined sales of recycled-based containerboard, cartonboard and Baywhite were approximately 442,000 tonnes (2010: 468,000 tonnes). Approximately 12% (2010: 13%) of these sales were exported, mainly to African countries. Domestic sales, including interdivisional sales, declined 5% versus the comparable prior year period, attributable mainly to low sector growth and import substitution which apparently reduced in the last quarter as the rand weakened. Improved operational performance, stringent cost management and higher domestic prices versus the prior year offset the impact of lower demand. The mills were affected by industrial action although the overall impact was not material. Cost management and operational performance will remain key focus areas. Corrugated The corrugated division manufactures and sells a comprehensive range of printed and unprinted converted corrugated products, including board, which are used to manufacture corrugated packaging, corrugated boxes, diecut boxes, folded glued cases, trays and point-of-sale displays. The corrugated division had sales of 391 million m² in 2011 (2010: 387 million m²). The agricultural sector was adversely affected by flooding and unfavourable climatic conditions during the year, compared to the prior year, while the relative strength of the rand for most of the year affected export volumes. The lack of volume growth was offset by higher average selling prices and stringent cost control over the period under review. Efficiency improvements are ongoing and together with cost management will remain the focus into 2012.

27 MPACT LIMITED INTEGRATED REPORT 2011 / REVIEW OF OPERATIONS 23 PLASTICS Business This business manufactures products in four product groupings. Key statistics Net revenue (Rm) 1,577 1,310 Underlying operating profit (Rm) Underlying operating margin (%) The four product groupings are: PET (polyethylene terephthalate) preforms, bottles and closures Plastic jumbo bins, wheelie bins and plastic crates Plastic fast-moving consumer goods (FMCG) containers other than PET, such as bottles, jars and closures, with in-mould labelling capability Styrene trays, fast food containers and clear plastic films Sales volumes for the year increased by 5% versus the comparable prior year period, attributable to sector growth and some market share gains. During the year significant progress was made to improve efficiencies and customer services. The compression moulding plant was moved from Robertville to Wadeville to benefit from customer synergies, while the restructuring of the Atlantis and Robertville FMCG plants was initiated to achieve improved customer service and productivity. Plastics Omnium Brits was acquired in the bin and crate division to increase flexibility and reduce transport costs from our Cape Town operation. We will continue to optimise and grow the business in 2012 in pursuit of our goal of being the leading rigid plactic supplier in southern Africa.

28 24 MPACT LIMITED INTEGRATED REPORT 2011 SUSTAINABILITY REVIEW SECTIONAL HIGHLIGHTS We are committed to sustainability principles which inspire our business strategy and operations. The Group has a BBBEE level 3 status We employ over 3,500 people across southern Africa There are comprehensive SHE policies and initiatives in place throughout our business We have a broad community engagement approach Download this section

29 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 25 MANAGEMENT APPROACH At Mpact, one of the fundamental tenets of the business is that of being a responsible corporate citizen manifesting in the creation of long term value for stakeholders. This commitment is outlined in our vision and values. Sustainability results from the integration of corporate governance with the sound management of the commercial, economic, social and environmental dimensions of the business. It is thus integral that factors other than commercial viability are considered and managed. The Group s Sustainability Policy will be finalised in 2012.

30 26 MPACT LIMITED INTEGRATED REPORT 2011 Sustainability issues We identified sustainability issues through stakeholder engagement as well as via business processes, including strategic and business planning, risk management and the analysis of regulatory requirements. On analysis, the following issues are considered material in terms of the sustainability of the business: Sustainability issue Environmental concerns include compliance with ever more stringent legislation Status and management response Ever more stringent environmental regulations and standards have the potential to increase our regulated costs. Such legislation includes: National Environmental Management Act Air Quality Control Act In addition planned legislation which could negatively impact our cost base includes the imposition of a carbon tax. We will engage with the authorities through the relevant industry bodies and other forums to provide meaningful inputs into discussions around this legislation. Reliability of energy supply and the cost of energy (electricity and coal) We require significant energy, particularly at the mills and the threat of electricity supply interruptions is a concern. Allied to this is the increasing price of energy, which has risen substantially over the past few years. This presents a problem where competitors costs, particularly those of overseas paper suppliers, have not increased commensurately. Approaches have been made to the South African National Energy Regulator (Nersa) by the Manufacturing Circle* to contain and possibly reduce the cost of electricity in South Africa. Internally, we have taken action to reduce our energy consumption and future initiatives may involve investment in capital equipment to become self-sufficient at some major operations. Management of talent and development and retention of skills Safety and health of employees and that of contractor employees Transformation in line with regulations Attracting and retaining the skills relevant to the business are essential to our success. For several years we have invested in the development of skills through learnership programmes and the Mpact Academy. Allied to this skills upliftment is the transformation of the Group in line with the demographics of the country. We have implemented programmes throughout the business to ensure vigilance and adherence to established standards related to health and safety. These include programmes to promote education and awareness around the prevention and treatment of HIV/AIDS. We have a level 3 empowerment grading in terms of the Department of Trade and Industry s Code of Good Practice, based on Shanduka Packaging s initial holding of 25%. Post the demerger, this has declined to 10.5%. * Formed in 2008, the Manufacturing Circle interacts with government and other stakeholders in order to review, debate and help formulate policies which have an impact on South Africa s manufacturing base. Membership of the Manufacturing Circle includes several of South Africa s leading medium to large manufacturing companies from a wide range of industries.

31 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 27 Stakeholder engagement We are cognisant that stakeholder engagement is essential for the efficient functioning and sustainable growth and development of the Group. Engagement is therefore aimed at creating a deeper awareness and understanding of Mpact among stakeholders. Through a comprehensive stakeholder identification process undertaken with leadership and senior management, and guided by the Group s external advisors, Deloitte, our primary stakeholders have been identified as follows these are parties who have an interest in our business and who can affect our business performance: Shareholders and the investment community Customers Suppliers Employees Trade unions Government institutions and regulatory authorities Community organisations Industry associations Financial institutions, including banks Engagement with stakeholders is conducted through regular meetings and forums held at both Group and operational level, as well as other mechanisms.

32 28 MPACT LIMITED INTEGRATED REPORT 2011 Stakeholder engagement Stakeholder Type of engagement Reasons for engaging Shareholders and the investment community Customers Suppliers Employees Trade unions Government institutions and regulatory authorities Community organisations Industry associations Financial institutions (including banks) Annual and interim results, annual general meeting, media releases (including SENS), website, Integrated Report, road shows, meetings, site visits Customer calls, marketing materials, website, Integrated Report, meetings, trade shows, access to our R&D/Innovation Centres, customer satisfaction surveys Supplier review meetings, supplier audits, conferences, site visits, award functions, trade shows Newsletters and notices, intranet, staff conference, website, results presentations, Mpact Tip-Offs, engagement with relevant trade unions, imbizos, meetings Bargaining council meetings, other regular meetings as agreed in recognition and operational agreements, consultations when required Meetings, site inspections, direct responses to information requests, integrated tax audits (SARS), operating licence applications Public forums, meetings with specific community groups and associations Committee meetings of various industry associations Meetings and conferences on economic outlook and forecasts Communication of Group and segmental financial performance, growth prospects and other pertinent information Price negotiations, quality and service reviews, product development, market trends, general updates Pricing, product quality, service and product specifications, product development, stockholding and security of supply, safe working practices, general updates Skills development, safe working practices, transformation, succession, business developments and performance, general updates, the reporting of fraud and other related issues Transformation, wage negotiations, health and safety practices, skills development Water licence applications, environmental matters such as air emissions, waste management, electricity usage, etc Additional tax information and reconciliation requests Ensure understanding of industry issues Local community developmental projects, education, training, and other matters of concern to communities To promote industry-wide issues on a regional and national basis Economic forecasts and funding of system improvements To increase confidence and trust between us and our key financial institutions and to reduce the cost of funding

33 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 29 Economic performance Our vision is to be a leading business with the highest ethical standards that delivers exceptional value for our customers, employees, communities and shareholders. Our economic valueadded statement outlines the various financial contributions made with regard to shareholder dividends, employee salaries, and taxes to governments, among others. More detailed information relating to operational and other costs are available in the summary of the annual financial statements in this Integrated Report on pages 85 to 105 and on the website, for the comprehensive annual financial statements. Value added statement (R million) Value created 1, ,850.9 Value created by operating activities 1, ,799.4 Revenue 6, ,258.7 Expenses (4,441.7) (4,459.3) Finance income Share of associate profit , ,850.9 Value distributed (1,392.1) (1,445.5) Employee salaries, wages and other benefits (1,052.2) (994.6) Payments to providers of finance (319.0) (434.6) Finance costs (319.0) (434.6) Dividends Payments to government Taxes (20.9) (16.3) Value reinvested (370.2) (355.9) Depreciation and amortisation (323.4) (325.8) Deferred tax (46.8) (30.1) Value retained (107.7) (49.5) Retained earnings (107.7) (49.5) (1,870.0) (1,850.9)

34 30 MPACT LIMITED INTEGRATED REPORT 2011 Economic performance Four-year review (R million) Statement of comprehensive income Group revenue 6, , , ,710.6 Underlying operating profit Operating and financing special items (87.1) (6.3) 76.7 (1.7) Share of associated earnings/(loss) (0.3) 2.6 Total profit from operations and associations Net finance costs (290.6) (386.5) (467.0) (492.5) Profit/(loss) on ordinary activities before tax (157.7) Tax on profit on ordinary activities (67.7) (46.4) (76.9) 23.2 Profit/(loss) on ordinary activities after tax (61.0) (134.5) Total non-controlling interest (17.9) (12.7) (31.9) (10.9) Statement of financial position Goodwill and other intangible assets 1, , , ,170.8 Property, plant and equipment 1, , , ,992.4 Share of associates Financial assets Retirement benefit surplus Total deferred tax assets Current assets 2, , , ,170.6 Non-current assets classified as held for sale Current liabilities (1,885.0) (1,223.4) (1,574.4) (1,474.9) Non-current liabilities classified as held for sale (90.7) Non-current borrowings (1,151.2) (3,589.8) (3,556.6) (3,664.50) Retirement benefit obligations (non-current) (58.9) (73.5) (43.2) (45.8) Total deferred tax liabilities (61.1) (20.3) (35.5) (53.9) Other non-current liabilities (37.0) (50.5) (66.8) (72.0) Derivative financial instruments (27.2) (19.7) (26.4) Share capital and share premium (2,334.1) (244.3) (244.3) (244.3) Reserves Total non-controlling interest (110.9) (73.2) (62.5) (35.5) Cash flow statement Net increase/(decrease) in cash and cash equivalents (214.4) Net cash flow from operating activities Net cash used in investing activities (255.2) (274.3) (165.1) (437.7) Cash flow from financing activities (223.2) (589.5) (658.5) Ratios and statistics Performance Headline earnings per share * (cents) (88.1) (88.3) Net asset value per share * (cents) 1, Profitability Underlying operating margin (%) Return on capital employed (ROCE) (%) Solvency and liquidity Current ratio (times) Financing cover (times) Gearing (%) * Headline earnings per share and net asset value per share are calculated based on 164,046,476 shares in issue in the current year after listing on the JSE. Prior periods have been restated.

35 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 31 Preferential procurement We strive to support the South African economy through the procurement of locally produced goods and services as much as is possible. We are also focused on increasing our support for small to medium enterprises (SMEs) and black woman-owned suppliers. The success of these initiatives was reflected in our achievement of a score out of 20 points for preferential procurement on our BBBEE certificate. BBBEE SCORECARD Our current BBBEE rating as determined by Empowerdex, on the basis of our 2011 results and ownership structure, is level 3 and is valid until July This is partly a function of the holding by Shanduka Packaging (Pty) Ltd of 25% in Mondi Packaging South Africa (MPSA) prior to the demerger as well as an effective 4.02% holding by black employees in the employee share ownership plan which was terminated in December 2010 and our employees were paid out in the first quarter of Since December 2010, Shanduka s share holding has declined to 10.45%. Initiatives are under way to maintain a competitive rating that is in line with government regulations and requirements. Mondi employee share ownership plan (ESOP) Our employees previously participated in the Mondi employee share ownership plan (ESOP). In terms of the plan, which commenced on 1 January 2006, each eligible Mondi Group employee was allocated shares in the employee share plan investment company, Mondi Employee Investment Limited, at no cost to the employee. During the time the plan operated, any employee had the option of subscribing for more shares subject to conditions. This plan terminated on 31 December 2010 and our employees were paid a total amount of R25 million in the first quarter of Equity ownership As at 31 December 2010, the ownership of the company by black individuals was at 30%, including ownership of 6% by black women. This translates into 18.2 points out of the BBBEE target of 20 for black ownership. Due to the demerger from Mondi as well as the winding up of ESOP during 2011, we expect a lower score for The calculation of this effect on the ownership score will only be available in the second quarter of 2012 when the next BBBEE audit takes place.

36 32 MPACT LIMITED INTEGRATED REPORT 2011 social performance Our core values, culture and people development approach are embedded in our Transformation Philosophy in which we commit to conducting our business in a socially responsible and ethical manner, promoting performance and transformation interdependence and supporting the communities where we work through partnerships and capacity building interventions. This is also echoed in our vision.

37 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 33 safety We are committed to providing a safe and healthy working environment for all employees, as well as contractors and service providers. The principle of zero harm is entrenched at each of our operations. The CEO s safety, health and environmental (SHE) philosophy clearly states that all injuries, occupational illnesses, safety and environmental incidents are preventable and that the target for them is zero. There are three underlying principles that give effect to this philosophy: individuals are responsible for their own safety; adherence to the safety rules to live by is the minimum standard throughout Mpact; and there is no differentiation in terms of the treatment and expectations of employees, contractors and service providers. To achieve this, a number of safety and health interventions are in place and these are regularly monitored and enforced. Our commitment to safety People and culture are vitally important in creating a safe working environment. Compliance with rules and procedures alone cannot address or mitigate all hazards and risks. A culture which fosters improvements in safety performance is built on people who think for themselves about safety issues and who take ownership and accountability for creating a safe environment. Systems play a key role in influencing the work environment. We have set ourselves the task of building robust systems that are specific to safety and ensure that safety considerations are thoroughly integrated with other organisational systems. Our approach is to eliminate hazards where possible, and if they cannot be eliminated, to manage their risks. This requires broader thinking about hazards and risk, which will result in building more robust defences to protect people from harm, based on technical, administrative and individual controls. Safety and health is the responsibility of senior management, who are assisted by line managers at each operation, and who are held accountable for the well-being of employees under their leadership. SHE systems and procedures are in place to ensure compliance with the relevant South African legislative requirements and the mitigation of safety and health risks to prevent injury or ill health through hazard identification and risk assessment processes. Safety and health inductions, as well as numerous safety and health training courses, were conducted at each operation for various levels of employees during the year. Training modules included first aid, responsibilities of health and safety representatives, the duties and responsibilities of General Machinery Regulations Sections 2(1) and 2(7) of the Occupational Health and Safety (OHS) Act 85 of 1993 appointees, mobile equipment drivers licences, safe stacking and storage standards, an overview of the regulations related to hazardous chemical substances, noise-induced hearing loss, lifting machinery and tackle, incident investigation and root cause analysis, among others.

38 34 MPACT LIMITED INTEGRATED REPORT 2011 SOCIAL PERFORMANCE Reinforcing safety at Mpact To assist with the management of safety and health and maintain a safe and healthy working environment, we have put a number of initiatives and programmes in place during the year. These include a SHE plan, which was developed at Group level at the beginning of the year. The plan was cascaded down to divisional level and thereafter to the plant and mill level. The plan defines the actions required, how these will be addressed, who will be responsible, target dates and the progress made in order to achieve targets set for safety and health per division, plant or mill. ADDITIONAL SAFETY AND HEALTH IMPROVEMENT INITIATIVES There are a number of additional initiatives in place, which include, among others: Our safety, health and environmental policy, set out in accordance with section 7 of the OHS Act 85 of Our safety rules to live by, a set of rules and standards covering areas such as entry into confined spaces, working at heights, energy and machinery isolation procedures, lifting and material handling, rotating and moving machinery, hazardous substances, and work permits for duties such as hot work and controls around mobile plant and equipment. A set of sustainable development management systems (SDMS), adopted initially by Mondi, have been retained and entail safety standards and guidelines over a wide spectrum of safety- and health-related matters. A system of visibly felt leadership (VFL) whereby management do regular observations on safety and health on the operating floors of plants or mills and interact with employees on a one-on-one basis. The implementation of a behaviour-based safety programme (BBS) to manage safety-related behaviour in the workplace. In addition, operations compete annually for the Mongoose Safety and Health trophy, an Mpact award for excellence in safety and health performance. For this purpose, comprehensive health and safety audits are conducted annually by an independent auditor. Based on the audit results, operations are awarded platinum, gold or silver status. To be awarded platinum status, an operation s safety record over a five-year progressive period has to meet the following requirements: No fatality over the five-year period. Lost time injury frequency rate (LTIFR) of less than 0.2. For 2011, six operations achieved Platinum status and the Mongoose trophy was shared between two operations, namely Mpact Corrugated Epping and Mpact Corrugated Brakpan. Safety performance We deeply regret the death of Mr Lungani Frederic Makoba, a construction contractor, at our plastics converting facility in Pinetown during July A thorough investigation into the incident was conducted involving all relevant parties and everything possible has been done to prevent a recurrence. We extend our condolences to the family, friends and colleagues of Mr Makoba. Other key safety measures such as the LTIFR have shown an improvement over the prior year. Safety statistics year-on-year Mpact Lost time injuries (LTI) 8 7 LTIFR Fatalities 1

39 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 35

40 36 MPACT LIMITED INTEGRATED REPORT 2011 SOCIAL PERFORMANCE Health Ensuring the well-being of each employee is a strategic imperative. Occupational health and safety compliance is the responsibility of line management, and is a key indicator of business performance. In line with the CEO s SHE philosophy, all our operations and sites provide wellness programmes and support to employees for primary health care and chronic illnesses including HIV/ AIDS. The SHE committees a joint management-worker health and safety forum at each site monitor and provide guidance on occupational health and safety programmes. In addition to primary health care, site clinics and mobile medical facilities provided free annual medical assessments to all employees during the year. Occupational health surveillance examinations take place when an employee joins the company, at periodic intervals during employment (depending on the risk and local regulatory requirements), on transfer from one operation to another and on retirement or resignation. HIV/AIDS We recognise that HIV/AIDS is a serious threat to the wellbeing of our employees, the Group and the industry. While acknowledging that there is no simple way to counter this threat, our approach includes the following: actively driving awareness programmes at each operation; involving all stakeholders in a multi-faceted approach to educate employees and their dependants to prevent the incidence of HIV/AIDS; the development of wellness programmes for employees; and the provision of confidential, informed voluntary counselling and testing (VCT), treatment and antiretrovirals. Approximately 2,100 employees undertook an annual medical test with approximately 1,900 opting for VCT during the year.

41 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 37 EMPLOYMENT At the end of December 2011, we employed approximately 3,500 people across the Group. Employment practices As set out in our Fair Employment and Promotions Philosophy we believe that: There is place for all people in Mpact and cognisance must be taken of merit-based employment equity to address the issue of diversity throughout the organisation, especially regarding race, gender and disabilities. Underpinning this philosophy is the practice of attracting the best talent, recognising talent, and transparency in selection processes. Benefits provided to full-time employees include membership of pension and provident funds, access to medical aid schemes and primary healthcare, study assistance and incentive bonuses. Skills development We acknowledge that an integrated people development approach aimed at improving performance, skills upliftment and the execution of our workplace skills plan is fundamental to our sustainable growth and competitiveness. Through the Mpact Academy, we offer both career and skills development programmes. These range from Adult Basic Education Training (ABET) to senior management development programmes. We actively encourage employees to increase their formal education through the further studies assistance programme in which employee studies at external institutions are funded by the company in return for a service commitment. employees in the fields of legal compliance; safety, health and environment pulp and paper technology; operational skills; leadership development; and computer training, among others. In 2011, a total of 27,558 man-hours were devoted to training and skills development, approximately 18.4 hours per employee. In addition we supported 106 individuals on apprentice and learnerships of which 83% are from previously disadvantaged backgrounds. Employment equity We continue to work towards our employment equity plan for the period 2008 to 2012, which sets targets for the representation of previously disadvantaged persons at all levels of the Group, along with strategies for skills development, succession planning and retention. Transformation committees have been established at operational and Group level to encourage employees to discuss employment equity and training-related issues. At the end of 2011, our South African operations employed 3,484 people. Of these, previously disadvantaged persons filled 71% of junior management, 54% of middle management and 33% of senior management positions. In addition, the new Mpact board includes two black women. As a result we expect a significant improvement in the employment equity and management and control sections when our audited scores are released in July We have also developed relationships with various tertiary educational institutions through in-service training opportunities. This in-service training initiative has led to a number of permanent placements within the Group. To effectively deliver on our skills development initiatives, annual training needs assessments are undertaken to inform our workplace skills plan which in turn outlines our skills development targets. During 2011, skills development programmes were offered to some 1,500

42 38 MPACT LIMITED INTEGRATED REPORT 2011 social performance Human rights We recognise the right of employees to freedom of association, and as such, promote and support the existence of the relevant structures and relationships Approximately 60% of our workforce is represented by various unions, with the majority being members of the Chemical, Energy, Printing, Wood and Allied Workers Union (CEPPWAWU) (34%), National Union of Metal Workers South Africa (Numsa) (8%), United Association of South Africa (Uasa) (3%) or Solidarity (2%). Furthermore, we are a member of various bargaining councils including: the Statutory Council for the Paper Packaging Industries Bargaining Forum, the Bargaining Council of the Wood and Paper Sector as well as the Metal Industries Bargaining Council. Three senior Mpact HR managers are represented on these councils.

43 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 39 Community We aim to be a truly transformed company making a difference to the lives of the communities we touch. We recognise community engagement as a business imperative and the cornerstone of sustainable investment. The emphasis is on capacity-building and multi-stakeholder focused sustainable community development initiatives rather than handouts. Our strategy is to support and partner on community development initiatives that seek to strengthen the Group s role as a responsible corporate citizen. Our focus areas to date include education, health, entrepreneurial and enterprise development. Education Promote entrepreneurial skills and accountability through the principle of life-long learning. Promote early childhood development. Motivate learners and stimulate interest in Science and Mathematics through workshops, in particular for schools in rural areas. Piet Retief mill: Education centre The education centre is a partnership initiative with Mondi s South Africa Division, Kangra, the Mpumalanga Department of Education and the wider community of the Gert Sibande region. It incorporates a career guidance centre, science centre and a further education and training (FET) skills development centre. A total of 20,000 learners, educators and community members visited and benefited from the centre during the period from January 2010 to July Piet Retief mill: Science workshops Through the facilitation of Mpact and Mondi South Africa Division, the University of Zululand and the Mpumalanga Department of Education are continuing their community development partnership focused on science as a subject. The programme aims to achieve the following: Address learners low pass rates at a Matric level Equip teachers and learners with science resources Impart knowledge through practical experience Motivate learners and make science practical in day-today life Prepare Grade 12 learners taking science as a subject for the Matric exam Afrika Tikkun In partnership with the non-governmental organisation (NGO), Afrika Tikkun, Mpact supports the Phutudijaba Child and Youth Development Centre in Alexandra, Johannesburg, which accommodates over 2,000 beneficiaries on a monthly basis. The centre s activities include family support programmes that ensure a stable family environment for the development of children, early childhood education for children between two and six years old, child and youth development programmes (library services, computer literacy training, learning support, numeracy, literacy, homework support and study skills), arts and cultural programmes, sports and recreational programmes and career path and job readiness programmes. The aim is to empower communities to produce generations of productive citizens. In addition to these programmes, nutritional, food security and primary healthcare programmes are also provided to children and their families, ensuring a holistic developmental support to the child/youth. In the 2011 Matric examinations, 85% of the learners who attended our child and youth development programmes passed. In addition, approximately 70 unemployed youths were placed in various learnership and employment opportunities with a range of corporates and partners in Gauteng. Health Promote, support and participate in initiatives concerned with women, youth and HIV/AIDS, as well as other wellness awareness campaigns. Support orphan care centres which serve as resource centres to the community by promoting awareness and excellence in caring for children including orphans and vulnerable children. Isibindi project, Mkhondo, KwaZulu-Natal This is a community-based programme run in conjunction with Mondi, where identified community members are trained in child and youth care. Each individual is responsible for between six and 12 orphans and vulnerable children. The provision of antiretroviral (ARV) drugs, HIV/AIDS psychosocial support, assistance with school work, budgeting, safe parks, child protection, application for identity documents (so that they may access state grants) and foster care are core elements of the programme. The project reaches 308 orphaned and vulnerable children in 21 villages within the remote rural areas of Mkhondo.

44 40 MPACT LIMITED INTEGRATED REPORT 2011 social performance Entrepreneurial development programmes Stimulate economic growth and job creation in the community especially amongst the poor and marginalised through entrepreneurial development programmes. During 2011, we committed R1.1 million towards community projects. Through partnerships with NGOs and other socially responsible companies, voluntary employee participation is encouraged. Some of the main projects we supported on our own or in partnership with other companies and NGOs, included the following: Felixton mill: Development of a community garden east of the N2 The N2 community vegetable garden is an initiative to help gardeners from neighbouring informal settlements such as Eskihawini to generate income from planting crops and selling them to the local communities and our employees. The community uses our land next to the N2 to plant crops and sell the produce at local taxi ranks and markets. We are also involved in preparing the land and water supply to ensure uninterrupted income for the gardeners. Felixton mill: Ash users project Ash is sold at a nominal rate to local block manufacturers to assist them with low-cost materials to make concrete blocks used for building houses. We sell approximately 550 tonnes per month to eight manufacturers in Eskihawini. Springs mill: Entrepreneurial development programme In 2006 the mill identified an entrepreneurial skills development initiative as an alternative strategy to combating unemployment and a dependence mind-set within local communities. As a result in 2007, four students were recruited, trained and supported in the establishment of their own businesses. Piet Retief mill: BizVenture In partnership with the NGO, Junior Achievement South Africa (JASA), we support the BizVenture programme which incorporates the Be Entrepreneurial, Mini Enterprise and Success Skills programmes for 50 grade 10 and 11 learners selected from various previously disadvantaged high schools in Piet Retief. Mpact Recycling: Small business initiatives Mpact Recycling contributes to the development of SMMEs, with over 40 entrepreneurial companies having been empowered to facilitate our collection strategies this is primarily related to owner drivers involved in collecting recovered paper. Recycling s broad national footprint also includes community recycling and collection projects throughout South Africa an essential element of enterprise development. In addition, we operate 42 buy-back centres (centres where people bring waste for collection). Small business Small business entrepreneurs are encouraged to start paper and cardboard collection businesses, receiving advice, training and equipment from us. This is aimed at creating employment for people in local communities. We also provide hawkers with paper barrows to make it easier for them to transport the cardboard and paper they collect.

45 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 41 Buy-back centres Buy-back centres are located centrally through small business entrepreneurs. Communities and hawkers can deliver directly to any of these centres and receive cash for recycled paper and cardboard. Mpact Recycling provides a range of formal employment options, which include economically empowered sorting centres, buy-back centres and owner-driver fleet initiatives. Recycling is therefore a big informal sector growth engine and job creator. Mpact Recycling: Community initiatives Recycling within the community involves several postconsumer programmes such as kerbside collections and paper banks at schools, churches, housing complexes, offices, as well as at small business buy-back centres with an extensive network of agents and dealers as follows: Schools, churches and charities paper banks The schools paper pickup programme allows schools to raise funds by recycling their paper while educating school children on environmental awareness. Schools are provided with a paper bank for easy collection and storage of recycled paper. The general community can also support schools, churches and charities by placing their paper into the igloo-shaped paper banks. Offices The office paper pickup programme provides office recyclers and white bags to offices as well as a confidential shredding service. Kerbside house-to-house collection service Kerbside paper pickup allows for a weekly paper collection service to collect unwanted magazines, newspapers and cardboard directly from homes. People are encouraged to put all their unwanted paper and board in the highly recognisable Ronnie Bag ready for collection on their kerbside. Waterval pilot project: Separation at source The kerbside separation at source pilot project within the Waterval area of Johannesburg is a joint venture between us and Pikitup. The aim of this project is to provide householders with overall recycling solutions. The 35,000 households receive a Ronnie Bag for paper and a clear plastic bag for other recyclables such as cans, glass, plastic, etc. Collections are done every week from the kerbside on the same day as the municipal refuse collections. Kerbside house-to-house collection service: joint venture with the ethekwini municipality The ethekwini kerbside programme is a joint venture between Mpact Recycling and Durban Solid Waste (DSW). The aim of the programme is to provide residents with a convenient and hassle-free recycling collection service at no cost to the households. The residents receive a three-month supply of recycling bags for the collection of paper, cardboard, newspaper, magazines, Tetrapak, plastic and polystyrene on a weekly basis. The bags are placed on the kerbs and collected on the same day as the black bag collection. This project commenced in 2007 and has since expanded to include the entire ethekwini area, covering approximately 400,000 homes. Contractors who collect the recyclables have been appointed to the programme by DSW and deliver the recyclables to the Durban Household Waste Recycling Centre (DHWRC) located in Teakwood Road, Jacobs. The DHWRC is owned and run by Mavis Ndlovu (a former employee) whom we assisted in setting up her own business. Mavis has employed approximately 70 previously disadvantaged and unemployed individuals (mostly women) from the Umlazi, Jacobs area. In total, the project has employed approximately 150 people (including drivers, collectors and sorters). The recycling centre generates approximately 1,000 tonnes of recyclables on a monthly basis. All recyclables are sorted, baled and sent for recycling, including the bag itself. Enterprise development We believe that we have an important role to play in ensuring the economic opportunity provided to small businesses owned by previously disadvantaged members of the society. With continued support it is hoped that these businesses will not only be sustainable, but will also grow and create job opportunities. We assist such businesses by providing them with preferential payment terms, thereby improving their cash flow. There are currently more than 50 businesses supported in this way.

46 42 MPACT LIMITED INTEGRATED REPORT 2011 social performance Product responsibility We are committed to developing and delivering costeffective, quality, innovative and environmentally responsible paper and plastic packaging solutions for our customers and users. We are equally committed to sustainable development, managing all of our resources with care and expertise and ensuring that sustainability is taken into account in the manufacture of our products. The Group undertakes regular safety, health, environmental and quality audits and maintains environmental management registers in all operations. Given that we provide a wide range of packaging products to a variety of customers, across numerous industries, including the food and beverage industry, our products are subject to various voluntary and compulsory standard-testing procedures to ensure that a high level of health and safety is maintained. Paper Management seeks to further develop our leading market positions in product quality and lightweight capability in our corrugated and paper manufacturing divisions by continuing to improve the quality and design of our products while increasing the efficiency of production. This will be achieved by upgrading our corrugated packaging facilities and ensuring that we remain at the forefront of technological advances in the industry. All the manufacturing operations in the paper business carry the ISO and ISO 9000 accreditation. The Springs mill also carries Forest Stewardship Council (FSC) mixed accreditation. This emphasises the responsible management of raw materials throughout the product lifecycle of our products, ensuring the re-use of wood fibre raw materials and preventing waste paper from entering landfill sites. In line with this, virgin pulp used in our white-lined products is also sourced from FSC accredited mills. Our products manufactured for use in food packaging at our Felixton, Piet Retief and Springs mills are certified as suitable for food packaging applications as they meet the German Bundesinstitut für Risikobewertung (BfR) Recommendation XXXVI requirements. In addition, our Felixton and Piet Retief products also meet the American Food and Drug Administration (FDA) requirements for food packaging. RoHS Directive 2011/65/EU Annex II is a European Union directive restricting the use of specific hazardous substances namely lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls and polybrominated diphenyl ethers in the manufacture of various types of electronic and electrical equipment, including associated packaging. Products manufactured at our three mills meet the limits set out by RoHS as well as various other international standards aimed at protecting the consumer against product contamination through the migration of hazardous chemicals. Our products can be used safely in various industrial packaging applications. Plastics We are on a constant drive to reduce the packaging weight associated with our products, and have been recognised for our efforts in this area, having won the overall Gold Pack Trophy at the 2011 Institute of Packaging SA (IPSA) Gold Pack Awards for our RAPPET 187ml Burgundy wine bottle. The wine bottle received the award for the best overall product with the product s environmental benefits, significant cost saving and practical functionality. We also received a Gold Pack Award for our Preform and Closure Light weightings for 500ml, 1-litre and 2-litre carbonated soft drinks (CSD) products, amongst others. Projects of this nature are in close collaboration with customers and suppliers of raw materials and equipment. All our operations in the plastics business are ISO 9001 compliant and accredited. The Versapak operation, which

47 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 43 is then paid over to Petco every month. During 2011 Petco initiated the recovery of approximately 39,000 tonnes of post consumer PET waste for recycling, representing a fourfold increase in six years. We are also members of the Polyolefin Recycling Company (Polyco), formed in August 2011 by leading polyolefin plastic packaging players. One of the aims of this company is to co-ordinate the administrative operations and to initiate negotiations with converters, recyclers and government in order to increase both collection and reduce volumes. Recycling We are the leading South African paper recycler, having collected approximately 450,000 tonnes of paper in Mpact s recycling division supplies our three mills and 70% of the paper recovered in 2011 was used in the production of our cartonboard and containerboard. This considerably decreases our reliance on virgin fibre. The input of recovered paper also has a positive impact in terms of climate change, replacing virgin material thus reducing greenhouse gas emissions linked to the production of virgin fibre, and the landfilling or incineration of this recycled paper is prevented. Our collection and recycling activities also have further environmental benefits, including the following: Recycling conserves scarce and valuable resource such as water and energy. According to the Paper Recycling Association of South Africa, for every tonne of paper recycled, 3m 3 of landfill space is saved. manufactures styrene products and PVC cling film for the food and agricultural sectors, is British Retail Consortium (BRC) certified. Mpact Plastics continues to participate in the sustainability initiatives driven by Plastics SA, and is a member of Petco, which was established in December 2004 with the specific objective of promoting and improving the waste management and recycling of post-consumer PET products, on behalf of all stakeholders in the PET industry in South Africa. A levy system has secured the buy-in of industry players. The PET recycling levy is collected at source by resin manufacturers as a charge per tonne of resin purchased. It In a report by the Waste and Resources Action Programme (Wrap), a waste action group based in the UK, on average, when comparing the manufacture of recycled paper versus virgin paper (paper made from trees), one tonne of recycled paper can save 1.32 tonnes of CO 2 equivalent. This considers the complete lifecycle. The recycling industry is a significant employer with potential for growth. The recovery and recycling of paper in South Africa ensures local beneficiation of raw materials. Economic and social benefits include creating opportunities for SMME s in South Africa Mpact Recycling has seven of its own operations in major centres around the country and 42 buy-back centres (a place where traders deliver waste for payment). We also buy from more than 65 independent dealers throughout the country.

48 44 MPACT LIMITED INTEGRATED REPORT 2011 environmental performance We actively manage our environmental footprint and have had a safety, health and environment (SHE) philosophy in place since This is updated regularly. The Group operates in an industry which is subject to comprehensive environmental regulation. Certain operations generate hazardous and non-hazardous waste as well as air and water emissions. As a result, we manage our environmental obligations through regular safety, health, environmental and quality audits and maintain environmental management registers at an operational level. Water usage, wastewater discharge and quality, waste management and disposal, energy consumption, and air emissions are managed in accordance with applicable environmental laws and standards. Our operations have environmental management systems in place, and all the manufacturing operations in the paper business are ISO certified. Regular compliance audits (both internal and external) and reporting are undertaken at local, divisional and Group level. We have invested substantial capital resources in ensuring environmental compliance and in monitoring our impact on the environment. Recent major capital projects include the addition of a wastewater clarifier at the Piet Retief mill, completed in 2009, and a wastewater clarifier, completed during 2011, at the Felixton mill. In August 2009, the Department of Environmental Affairs (DEA) conducted a compliance audit and issued a related compliance report in late December 2010 in respect of the Group s Piet Retief mill. The compliance report included a number of allegations of non-compliance with relevant legislation in respect of which the Group was invited to provide responses and explanations. The alleged noncompliances included potential offences. We submitted a comprehensive response to the findings on 15 April 2011 indicating factual accuracies, providing explanations and corrective plans, where appropriate. The matter is still being reviewed by the DEA. Water As water is recognised as a scarce and precious resource, water consumption at all operations is monitored and reported. A number of programmes are in place to reduce water consumption and improve the efficient use of water. The total volume of water used in 2011 was 4,715Ml (2010: 5,136Ml) this is 8% down on the prior year. The major water users in the business are the paper mills. Water use at Felixton mill has reduced by approximately 47% since 2004 while total suspended solids (TSS) in wastewater reduced by approximately 70%. Interventions included monitoring and awareness drives and process optimisation. Air emissions The main source of atmospheric emissions is from power boilers. All our operations, where required, have valid scheduled process certificates issued in terms of the Air Pollution Prevention Act, which authorise the emissions from the operations. These certificates are all in the process of being reviewed and converted into Atmospheric Emission licences in terms of the new Air Quality Act. Controls are in place to monitor emissions sulphur dioxide (SO 2 ) particulates and carbon dioxide (CO 2 ) from the Group processes and these are reported regularly. The SO 2 emissions are generated by the combustion of coal. Measures to reduce SO 2 are controlled by managing sulphur levels in the coal, and energy efficiency measures to reduce coal consumption. Solid waste Waste management plans are currently being reviewed to bring into effect the requirements of the new Waste Management Act. We plan to complete the review of Waste Management plans during The Industry Waste Management plan which informs this process has not yet been gazetted. The main focus is on reduction, reuse and recycling, as well as on energy and landfill hierarchy. The Group has made progress in this regard the Felixton and Springs mills recycle approximately 85% of the residual materials (waste) generated at these mills as materials for compost and aggregate for block manufacture. Energy The main source of energy at Mpact is fossil fuel in the form of coal and electricity purchased from the national grid. Some heavy fuel oil and gas is used. The total energy used in 2011 was 4,569TJ (2010: 4,854TJ). This resulted in CO 2 emissions of 640,332 tonnes. Of this total, 263,064 tonnes resulted from fossil fuel combustion and 377,268 tonnes from electricity usage. Energy efficiency projects are pursued on an on-going basis and various interventions are in place for electrical energy reduction and boiler efficiency improvements. We do not have a climate change policy or an energy policy at this point although these will be considered in the foreseeable future.

49 MPACT LIMITED INTEGRATED REPORT 2011 / SUSTAINABILITY REVIEW 45

50 46 MPACT LIMITED INTEGRATED REPORT 2011 GOVERNANCE REVIEW SECTIONAL HIGHLIGHTS We have a new balanced board in place with several senior appointments made to strengthen the management team. All board committees have been established. Our corporate governance approach is integrated into every aspect of the business. This approach strives to include all stakeholders and is based on good communication. Board (Independence) Board (Gender) 71% Non-executive directors 29% Women Download this section

51 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 47

52 48 MPACT LIMITED INTEGRATED REPORT 2011 Directorate We have an experienced and representative board that is committed to transformation. 1. Anthony John Phillips (Tony) (65) Chairman BSc (Eng) (University of KwaZulu-Natal) Tony is an independent non-executive director and the chairperson of Mpact. He previously held the position of CEO of Barloworld, serves as chairperson on a number of companies boards of directors, and is involved in various nongovernmental organisations (NGOs) including World Wildlife Fund and Nurturing Orphans of AIDS for Humanity (NOAH). Executive directors 2. Bruce William Strong (43) CEO BSc (Eng) (Summa cum laude) (University of KwaZulu-Natal), BCom (Hons) (University of South Africa) Bruce has been the CEO of Mpact since March Prior to this, he was the general manager of the paper manufacturing division of Mpact. He has 16 years of experience in the paper and packaging industry, both locally and in Europe. 3. Egar Leslie Leong (Les) (62) CFO CTA (University of the Witwatersrand), CA (SA) Les has 27 years experience in the paper and packaging industry and was the financial director of Kohler Packaging, which was subsequently acquired by Nampak. He has been the CFO of Mpact since December 2008.

53 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW Independent non-executive directors 4. Neo Phakama Dongwana (39) BCom, Post-Graduate Diploma in Accounting, BCom (Hons) (University of Cape Town), CA (SA) Neo is an independent non-executive director of Mpact. She is a Chartered Accountant by profession and has previously served in the position of audit partner at Deloitte. She is also a non-executive director of Anglovaal Industries Limited, the PPC Ntsika Fund (Proprietary) Limited and Telkom SA Limited. 5. Nomalizo Beryl Langa-Royds (Ntombi) (50) BA (Law), LLB (National University of Lesotho) Ntombi is an independent non-executive director of Mpact. She also runs her own human resources consultancy business and has more than 24 years experience in human resources. Ntombi is a non-executive director of companies such as African Bank Limited, Pretoria Portland Cement Company Limited and African Bank Investments Limited (ABIL). 6. Timothy Dacre Aird Ross (Tim) (67) CTA (University of KwaZulu-Natal), CA (SA) Tim is an independent non-executive director and chairperson of the audit and risk committee of Mpact. He previously (for a period of 37 years) held the position of partner at Deloitte, and was the head of Johannesburg Audit, head of Client Services and a member of the Deloitte executive committee and board. He is a non-executive director as well as chairperson of the audit committees of Liberty Life Holdings Limited, Liberty Group Limited, Eqstra Holdings Limited, Adcorp Holdings Limited and Pretoria Portland Cement Company Limited. 7. Andrew Murray Thompson (54) BSC (Eng) (University of the Witwatersrand), MBA (Finance) (University of Pennsylvania, Wharton) Andrew is an independent non-executive director of Mpact. He is a current non-executive director of Adcock Ingram Holdings Limited and previously served as the chief executive officer of Mondi Limited as well as an executive director of Anglo American South Africa Limited.

54 50 MPACT LIMITED INTEGRATED REPORT 2011 Management We have a well balanced senior management team with many years of industry experience and the necessary strategic skills. 1. Raymond Crewe-Brown (Ray) BSc (Eng) (University of the Witwatersrand) Ray has been the executive chairman of the plastics business since November Prior to this, he was the founder and chief executive officer of Astrapak until June He has 36 years experience in the plastics industry. 2. John William Hunt BSc (Eng) MSc (Eng) (University of KwaZulu-Natal) John has held the position of managing director of the recycling division since April He was also the business manager of Technology Optimisation until the end of February He was previously the executive director of the Paper Manufacturers Association of South Africa and has 20 years experience in the paper industry. 3. Vuyokazi Menye BSc (Computer Science) (University of Western Cape) Vuyokazi was appointed chief information officer with effect from 1 March Prior to being appointed to this position, Vuyokazi was chief information officer at Armscor and was previously departmental head of

55 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW information resources management at the National Energy Regulator of South Africa. Vuyokazi is currently completing her Masters in Information Technology at the University of Pretoria. 4. Noriah Sepuru FCIBM, ACIS Noriah was appointed Group company secretary at Mpact from 1 December Prior to this, Noriah was company secretary at Jasco Electronics Holdings Limited and spent four years at Barloworld in various company secretarial positions. Noriah is a member of the Institute of the Chartered Company Secretaries Association and a fellow member of the Chartered Institute of Business Management. 5. Hugh Michael Thompson CTA (University of South Africa), CA (SA) Hugh has been the managing director of the paper manufacturing division since October He fulfilled the role of chief financial officer of Mpact until March 2007 and then the role of managing director of the plastics division until September He has nine years experience in the packaging sector. He was previously senior vice president corporate finance for Anglo American South Africa Limited. 6. Ralph Peter von Veh Ralph is the managing director of the corrugated division. He has been in this position since 1999, prior to which he was the regional director of Kohler Corrugated. He has 35 years experience in the paper and packaging industry.

56 52 MPACT LIMITED INTEGRATED REPORT 2011 Corporate governance Our approach to corporate governance strives to include all stakeholders, is based on good communication and integrated into every aspect of our business. Commitment and approach to corporate governance The directors endorse and accept full responsibility for the application of corporate governance principles. In discharging this responsibility, the directors ensure that effective corporate governance is practiced consistently throughout the Group by complying with the requirements of the King Report on Corporate Governance for South Africa (King III) in both letter and spirit. King III and Companies Act The Group continues to measure the effects of King III and the Companies Act, No 71 of 2008, on our governance structure and processes. An initial assessment of King III principles has identified the gaps set out in the table below. The board is, however, satisfied that the Group is in substantial compliance with King III. King III compliance table Description of King III principle The board should provide effective leadership based on an ethical foundation that does not compromise the natural environment. The board should be responsible for governance of risk and develop a policy and plan for risk management. The board should be responsible for information technology (IT) governance. The board should ensure that the IT internal control framework is adopted and implemented. The board should receive independent assurance on the effectiveness of IT internal controls. The board may appoint an IT steering committee or similar function to assist with the governance of IT. Governance of information technology the CEO should appoint a chief information officer (CIO) responsible for the management of information technology. The audit committee should ensure that the internal audit function is subject to an independent quality review. Sustainability reporting and disclosure should be independently assured. Our action plan Although we consider the impact we have on the environment and have put controls in place to mitigate this, a great deal of work is required to assess and measure the impact. In the latter part of 2011, the board reviewed the Group enterprise-wide risk management policy and this will be approved in The Group is still in the process of finalising its approach to risk tolerance and appetite levels. The board is in the process of ensuring that IT governance is included in our strategy. This forms part of a 2012 work plan to ensure adherence to complete recommended practice, taking into account the King III IT governance principles. IT risks will be incorporated into the risk and opportunities register and a full report will be presented to the audit and risk committee for final review. This will form part of the 2012 work plan. The internal audit function will assess the independent assurance requirement for the effectiveness of IT internal controls and will recommend solutions to the audit and risk committee. There is currently no IT steering committee in place within the Group. The CIO has direct responsibility for IT governance and submission of an IT report to the board on a quarterly basis. John Hunt, managing director of Recycling, held dual roles while we were in the process of identifying suitable candidates for the CIO position. The new CIO was appointed with effect from 1 March 2012 The internal audit is not currently subject to a quality review. The board is currently reviewing systems available in the market to assist in the process of collating environmental data. The audit and risk committee can therefore not express an opinion on the accuracy of the environmental data. No external assurance providers were engaged as we were not in the position to have this data verified.

57 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 53 The Companies Act, No 71 of 2008, became effective on 1 May We ensure compliance with the Act and have aligned our internal governance documents to the requirements of the Act. Our memorandum of incorporation (MOI) has been reviewed and updated in line with the new Companies Act for shareholder approval at the next AGM. Integrated reporting In line with the recommendations of King III, we have adopted integrated reporting in this inaugural report. Guidance provided within the Framework for Integrated Reporting and the Integrated Report, a discussion paper published by the Integrated Reporting Committee of South Africa, and the report of the International Integrated Reporting Committee has been used. In our sustainable development reporting and in determining our material issues, we have been guided by the G3 guidelines of the Global Reporting Initiative (GRI). A GRI content index is provided on pages 110 to 112. The board is responsible for the integrity of the Integrated Report and is assisted in this task by the audit and risk committee. While we have made good progress with regard to integrated reporting, we acknowledge that this is the start of a process and are committed to incremental improvement. Consideration will be given to the assurance of non-financial performance indicators in coming reports. Board of directors Our board is a unitary body that is effective in leading and controlling the Group. The board comprises seven directors, two of whom are women. There are two executive directors, the CEO and CFO. The remaining five directors, including the board chairperson, are all independent, non-executive directors, whose independence has been externally assessed in line with the recommended King III guidelines. Board practices The board is ultimately responsible for the Group s business, approval of our strategy and key policies and is the focal point and custodian of corporate governance at Mpact. The board is also responsible for approving the Group s financial objectives and targets. The roles of chairperson and CEO are separate. The board is led by the chairperson, who is elected by the board annually, while operational management of the Group is the responsibility of the CEO. No business of the Group is or will be managed by a third party. The board recognises the necessity for directors to occasionally seek independent professional advice at the Group s expense and there is an agreed upon procedure for this. A minimum of four board meetings are scheduled per financial year. Additional board meetings may be convened when necessary. Well-structured board agendas and comprehensive papers are circulated to board members on a timely basis, ensuring that they are well informed and that debate and decisions are constructive and sound. The board charter has been updated to incorporate improvements recommended by King III and the Companies Act. The purpose of this charter is to set out the mission, duties and responsibilities of our board, as well as the requirements for its composition and meeting procedures. A summary of the duties of the board as outlined in the board charter are: Provides leadership based on an ethical foundation and ensures that the Group s ethics are effectively managed Appreciates that strategy, risk, performance and sustainability are inseparable Acts as the focal point for, and custodian, of corporate governance Has a responsibility to the broader stakeholders, which include present and potential beneficiaries of the Group s products and services, clients and employees, to achieve continuing prosperity for the Group Reviews and approves financial objectives, plans and actions, including cost allocations and expenditures Ensures that the Group is a responsible citizen by having regard to not only the financial aspects of the business, but also the impact that the business operations may have socially and environmentally Ensures that the Group complies with applicable laws and considers adherence to non-binding rules and standards Appointments to the board In compliance with the MOI, the remuneration and nomination committee recommends appropriate candidates to the board, who are in turn approved by the shareholders. Non-executive directors bring an independent view to the board s decision-making. As a group, they enjoy significant influence at meetings of the board, ensuring an appropriate balance of power. This also ensures that no one director has unfettered decision-making powers. Generally, directors have been and will be nominated based on their calibre, knowledge, experience and the impact they are expected to have, as well as the time and attention they can devote to their roles. Appointment to the board is via a formal and transparent process and is a matter for the board as a whole. The remuneration and nomination committee is responsible for vetting the individuals nominated for approval. New directors are taken through a formal induction programme and are provided with all the necessary background and information to familiarise them with issues affecting the board.

58 54 MPACT LIMITED INTEGRATED REPORT 2011 Corporate governance Board and committee effectiveness evaluation During the year ahead, the board intends to conduct an evaluation of its effectiveness reviewing its skills set, the effectiveness of the sub-committees and related corporate governance matters. This will also include one-on-one sessions involving the board chairperson and each individual director to identify any areas of concern. Strategic planning The directors who are also members of the executive committee, namely Bruce Strong and Les Leong, are involved in the day-today business activities of the Group. The executive committee formulates strategy, which is approved by the board for implementation. The board is responsible to the shareholders and other stakeholders for setting the strategic direction of the Group with the assistance of the executive committee. The board meets with management at least annually to debate and agree on the proposed strategy and to consider longterm issues facing us as well as the environment in which we operate. Board committees The board has established several committees in which nonexecutive directors play a pivotal role. The responsibilities delegated to the committees of the board are formally documented in the terms of reference for each committee, which have been approved by the board and are updated from time to time to keep abreast of developments in law and best practice in governance. There is transparency and full disclosure from board committees to the board. The committees chairs provide the board with a verbal report on recent committee activities and the minutes of committee meetings are available to the board. In addition, the chairs of the committees or a nominated committee member will attend the annual general meeting (AGM) to answer any questions from shareholders pertaining to the relevant matters handled by their respective committees. The committees meet at least four times a year. Attendance at meetings Details of directors attendance at board and committee meetings since our listing on the JSE Limited on 11 July 2011, are set out below: Director Board Audit and risk committee Remuneration and nominations committee Social and ethics committee AJ Phillips (Board chairperson) 2/2 N/A 2/2 * N/A BW Strong (CEO) 2/2 2/2 (invitee) 2/2 (invitee) 2/2 (invitee) EL Leong (CFO) 1/2 1/2 (invitee) N/A N/A NP Dongwana 2/2 2/2 N/A 2/2 NB Langa-Royds 2/2 N/A 2/2 2/2 * TDA Ross 2/2 2/2 * 2/2 N/A AM Thompson 2/2 2/2 N/A 2/2 * Committee chairperson N/A Not a member of the committee Audit and risk committee The audit and risk committee comprises three nonexecutive directors, all of whom are independent. Tim Ross, as chairperson, and Neo Dongwana and Andrew Thompson are the current members of the audit and risk committee. The CEO, the CFO, the head of internal audit and a representative of Deloitte, the independent external auditors, attend committee meetings by invitation. The audit and risk committee provides the board with additional assurance regarding the quality and reliability of financial information used by the board and the financial statements for the Group and, on an annual basis, considers and confirms to the shareholders of the appropriateness of the expertise and experience of the CFO. The committee

59 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 55 Governance structure BOARD OF DIRECTORS AUDIT AND RISK COMMITTEE Delegation REMUNERATION AND NOMINATIONS COMMITTEE Accountability SOCIAL AND ETHICS COMMITTEE CHIEF EXECUTIVE OFFICER GROUP EXECUTIVE COMMITTEE also reviews the composition, experience and resources of the finance function. In addition, the audit and risk committee reviews the internal control systems, the financial control systems, the accounting systems, reporting on the internal audit function and sets our policy on nonaudit services provided by the external auditors. It also liaises with the external auditors, monitors compliance with legal requirements, ensures management addresses any identified internal control weakness, assesses the performance of financial management, approves external audit fees, budgets, plans and performance, and conducts an annual review and assessment of the business risks the Group faces. The approval of the Integrated Report is also the responsibility of the audit and risk committee. The committee members are appointed annually by shareholders at the AGM. The audit and risk committee report can be found on pages 75 to 77 of this report. Remuneration and nomination committee Tony Phillips (chairperson), Tim Ross and Ntombi Langa- Royds are the members of the remuneration and nomination committee. The remuneration and nomination committee considers the remuneration policy of the Group with the assistance and guidance of independent experts, if required, and makes recommendations to the board on the remuneration policy. Further, the committee ensures that the directors are fairly rewarded for their individual contributions to the Group s overall performance. The committee also considers bonuses, which are discretionary and based upon general economical variables, the performance of the Group and the individual s performance, and share options and certain other employee benefits and schemes. No remuneration of any nature shall be paid, increased or varied to any director without the prior approval of the members of the committee. The committee is also responsible for identifying and evaluating suitable potential candidates for appointment to the board and recommending the same to the board, which may then appoint such candidate in accordance with the MOI. Such appointment is valid until the following AGM, where such director s appointment shall be subject to confirmation. Social and ethics committee The social and ethics committee comprises Ntombi Langa- Royds (chairperson), Neo Dongwana and Andrew Thompson. It is tasked with monitoring our activities in respect of sustainability issues. It considers relevant legislation and best practice social and economic development (including BBBEE), good corporate citizenship, the environment, safety and health, labour and employment. Executive committee The CEO is responsible for the execution of the boardapproved strategy and the day-to-day running of the business, and is accountable to the board in this regard. He is assisted in the task by the executive committee, which comprises the CEO and certain senior executives of the Group. This committee is responsible for our operational activities, developing strategy and policy proposals for consideration by the board and implementing the board s directives. It has a properly constituted mandate and terms of reference. Other responsibilities include:

60 56 MPACT LIMITED INTEGRATED REPORT 2011 Corporate governance leading the executive, management and staff of the Group; developing the annual budget and business plans for approval by the board; and developing, implementing and monitoring policies and procedures, internal controls, governance, risk management, ethics and authority levels. The CEO and management team have specific key performance areas and targets which are set and monitored by the board with the assistance of the remuneration and nominations committee. Rotation of directors In terms of our MOI, one third of the directors (other than the executive directors) retire by rotation and, if eligible, their names are submitted for re-election at the AGM, accompanied by appropriate biographical details set out in the report to shareholders. Amongst other matters, the board considers the independence and performance of each director due for re-election at the AGM and makes an appropriate recommendation to shareholders in this regard. The board has the power to remove a director from the board at any time in accordance with the provisions of the MOI and the Companies Act. Succession planning Succession for the CEO, chairperson, board of directors and senior management is reviewed annually by the remuneration and nomination committee. Recommendations are made to the board as required. Ethics policy A Code of Ethics is in place which sets out standards of integrity and ethics in dealings with suppliers, customers, business partners, stakeholders, government and society at large. Every employee is expected to subscribe to the code, which requires all to act with honesty and integrity in all dealings with stakeholders. The members of the board, subsidiary directors and prescribed officers are required to disclose their personal financial interest and interests in contracts in terms of Section 75(4) of the Companies Act, 71 of The Group ensures that directors and prescribed officers are free of any conflicts between the obligations they have to us and their private interests. Directors are required to disclose any potential conflict at quarterly meetings and as and when necessary to the company secretary. Legal compliance The Group does not have a compliance function. The company secretary together with the internal audit function, the legal advisor and the risk management function assist the board in ensuring that there is an appropriate process in place with respect to legal compliance. Compliance with laws and regulations is reported to the audit and risk committee. Share dealings The Group has adopted a share dealing policy requiring all directors, management and the company secretary to obtain prior written clearance from either the chairperson or company secretary to deal in the Group s shares. The board chairperson will in turn require prior written clearance from the chairperson of the audit and risk committee. Closed periods (as defined in the JSE Listings Requirements) are observed as required. During these periods, the directors, management and employees are not permitted to deal in the Group s securities. Additional closed periods are enforced during corporate activity where a cautionary announcement (as defined in the Listings Requirements) is published. Company secretary Noriah Sepuru is the company secretary. The company secretary is responsible to the board for, inter alia, ensuring compliance with procedures and applicable statutes and regulations. To enable the board to function effectively, all directors have full and timely access to information that may be relevant to the proper discharge of their duties. This includes information such as corporate announcements, investor communications and other developments which may affect us and our operations. This also includes access to management where required. The company secretary s certification is set out on page 83 of the Integrated Report. Internal control systems To meet our responsibility to provide reliable financial information, we maintain financial and operational systems of internal control. These controls are designed to provide reasonable assurance that transactions are concluded in accordance with management s authority, that the assets are adequately protected against material losses, unauthorised acquisition, use or disposal, and that all transactions are properly recorded. The systems include a documented organisational structure and division of responsibility, established policies and procedures which are communicated throughout the Group, and the careful selection, training and development of people. The internal audit function monitors the operation of the internal control systems in order to determine whether there are deficiencies. Corrective actions are taken to address control deficiencies as they are identified. The board, operating through the audit and risk committee, oversees the financial reporting process and internal control systems.

61 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 57 There are inherent limitations on the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, only an effective internal control system can provide reasonable assurance with respect to financial statement preparation and the safeguarding of assets. Board statement of effectiveness of controls Based on the formal review of internal audit reports covering the Group s system of internal controls and risk management and considering the information responses and explanations given by management, together with discussions with the external auditor on the results of their audit, nothing has come to the attention of the board that caused it to believe that the Group s system of internal control and risk management is not effective, or that the internal financial controls do not form a sound basis for the preparation of reliable financial statements. The board s opinion is supported by the audit and risk committee. Risk management Effective risk management is integral to the Group s objective of consistently adding value to the business. Management is continuously developing and enhancing our risk and control procedures to improve the mechanisms for identifying, assessing and monitoring risks. The board approves strategies and budgets and monitors progress against the budget. It also considers the identified business risks. Risk management is addressed in the areas of physical and operational risks, human resource risks, technology risks, business continuity and disaster recovery risks, credit and market risks and compliance risks. We have implemented several policies and procedures to manage our governance, operations and information systems with regard to the: reliability and integrity of financial and operational information; effectiveness and efficiency of operations; safeguarding of assets; and compliance with laws, regulations and contracts. Risks are periodically reviewed and updated on a regular basis. The material risks are in the table on pages 60 to 61 of this report. Insurance Insurance arrangements are reviewed annually by the audit and risk committee and appropriate insurance cover is in place to cover all material risks. Internal audit Until 31 December 2011, internal audit services were provided by the Mondi Group internal audit function. This function is guided by an internal audit charter which sets out the function s purpose, independence, ethics, duties, responsibilities and scope. The audit and risk committee approved an internal audit plan and received regular reports from the internal audit function. During the period under review, the head of internal audit reported to the CEO on an administrative basis and to the audit and risk committee on a functional basis. The head of internal audit has unhindered access to the CEO, chairperson of the audit and risk committee and the chairperson of the board. The internal audit plan, as overseen by the audit and risk committee, is based on the key risks identified by executive management. In addition, the audit and risk committee was satisfied that the internal audit team had the appropriate professional qualifications and skills to maintain the internal audit competence. With effect from 1 January 2012, we appointed KPMG to perform our internal audit function. Information Technology (IT) governance During the financial year, a detailed IT governance gap analysis was conducted and presented to the audit and risk committee. We have made good progress in aligning our IT governance with King III principles and an IT governance policy is in the process of being developed. All of the essential IT controls are in place and IT governance will continue to receive attention in the year ahead, with the intention of closing any gaps identified. Progress will be communicated to the board. Fraud and illegal acts The Group takes a zero tolerance approach to fraudulent behaviour and illegal acts. A whistle-blowing facility has recently been put in place to replace the Mondi Speakout service and incidents are reported to and monitored by the audit and risk committee. Relations with shareholders/ STAKEHOLDERS We are committed to communicating our strategy and activities to shareholders and, to that end, maintain an active dialogue with investors through a planned investor relations programme. Please refer to the Stakeholder Engagement section of this report on pages 27 to 28.

62 58 MPACT LIMITED INTEGRATED REPORT 2011 RISK MANAGEMENT Risk management review In the latter part of 2011, we commenced a comprehensive review of our risk management function given that we were previously governed by the risk management policy and framework of our former holding company, Mondi. This review is not yet complete but will ultimately cover the Group s risk strategy, governance, risk management process, risk management function, and our risk culture and capability. Enterprise-wide risk management framework The board has committed the Group to a process of risk management that is aligned with the principles of King III, as well as generally accepted good risk management practices. The board retains responsibility and accountability for the overall risk management process, setting risk appetite and tolerance limits. The audit and risk committee will assist the board in the execution of its fiduciary duties regarding risk management. Our executive committee will review the output of the risk management process to ensure the appropriate management of major risks. It is intended that a risk management committee, accountable to the executive committee, be appointed to ensure implementation of the risk management process, working with the relevant staff at operations. In addition, a Group enterprise-wide Risk Management policy was presented to the board on 1 November 2011 but is yet to be approved. Guidance was provided on putting a structured and systematic risk management process in place. We will only finalise our approach to and acceptance of risk tolerance and appetite levels in These levels will be aligned with the business objectives and strategies, and will give guidance on the limits set for management to take risks and capitalise on opportunities. An enterprise-wide risk management framework has also recently been developed that sets out the approach to be taken to address and improve risk management to achieve our objectives. Our enterprise-wide risk management cycle to identify, assess, rank and report risks is illustrated below: Annual review of the risk management process Preparation for the risk management process Identification of risks Assessment of risks This process is currently scheduled to be conducted on an annual basis, but could be initiated at the occurrence of any significant development either internal or external to the business. Consideration is given to the environment in which the business operates, stakeholder interests in the organisation, as well as alignment with the business strategy and objectives. The risks determined by all business units and service departments are recorded in a risk register. These inherent risks are rated in terms of their potential impact on the business and likelihood of occurrence.

63 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 59

64 60 MPACT LIMITED INTEGRATED REPORT 2011 RISK MANAGEMENT Mitigation of risks Each risk is reviewed in the context of the mitigating controls that are in place as a preventative measure. Appropriate action is then determined based on the level of residual risk. Ranking of risks Reporting and monitoring of risks Combined assurance These responses could be risk avoidance, risk sharing (with insurers or other parties), risk acceptance or risk mitigation (actions to reduce the impact or likelihood of occurrence). The material risks to the business are highlighted for prioritisation by management. The management and monitoring of material risks is reported to the audit and risk committee as well as the board. A combined assurance plan will be put in place to confirm mitigating controls. Material risks Mpact started a cycle of enterprise-wide risk management in late 2011 and in this process identified material risks as those given in the following table. These material risks were presented at the audit and risk committee meeting held on 5 March Source and description of risk Impact of risk Mitigation actions taken to limit impacts Economic Market risks We operate in a highly competitive environment in which the following material risks exit: Loss of revenue from key customers for both finished goods and by-products. Competitively priced imports resulting from global manufacturing excess capacity could pose a threat to local sales. Loss of agricultural sales volumes due to climate conditions and global factors such as the demand for domestic fruit. Subdued growth across the sector. South African trading conditions A strong rand/foreign currency exchange rate affects the competitiveness of local manufacturers and Mpact in the following ways: Imports of fully packaged products into the country, impacting local packaging manufacturers. Packaging for goods exported will be impacted as exports become less viable due to a reduced translated rand selling price. Loss of business from a key customer could impact the Group financially if the loss of sales volume was not replaced. Reduction of our revenues and production. Increased costs not fully recoverable. Build mutually-beneficial customer relationships. Deliver the high quality of service and product performance by understanding customer requirements. Leverage the capabilities of our innovation centres and packaging technology expertise to develop product solutions for our customers. Enhance the performance of our existing products. Use the Group s integrated arrangements to protect the business from losing volume in the supply chain. Building relationships with key customers to ensure longer term supply agreements, and contractual agreements to recover any proportion of cost increases. Continue with a programme to increase production efficiency, reduce waste and improve capacity utilisation to further develop our competitiveness. These may include investment in new technologies and capital equipment.

65 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 61 Source and description of risk Impact of risk Mitigation actions taken to limit impacts South African trading conditions (continued) Labour and overhead costs. Wage settlements and increases in administered prices of electricity and services have been at levels above inflation for several years. The packaging industry in South Africa is governed by stringent regulatory and compliance requirements. Continue to engage with labour unions to partner with business to share benefits on productivity improvements. Various industry bodies are in discussions with regulatory authorities to seek solutions to this issue. Operational Incidences of fire We deal in paper and plastic products, which are flammable under certain circumstances. There have been a number of fires. Access to raw materials In South Africa the supply of key grades of recovered paper used for paper manufacturing does not always balance with demand. There is limited availability of certain raw materials for both the paper and plastic businesses with few suppliers. There would be disruptions in production and supplies to the market during the rehabilitation period. Any increase in demand or exports from South Africa could result in a shortage of these recovered paper grades, resulting in an additional cost of this raw material to us. A shortage of these raw materials could result in an additional cost to us. We have implemented a strict fire prevention programme and fire standards are continuously being updated. Catastrophic fire loss is insured. Increase the Group s footprint of collection depots/channels. Encourage separation at source in line with the new Waste Management Act so that waste paper is collected before it reaches landfill sites. Contract with municipal waste agencies to pick up waste directly from consumers. Discourage the export of recovered paper. Annual supply agreements negotiated that secure supply at competitive prices.

66 62 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report

67 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 63 Responsibility for the remuneration policy rests with the nomination and remuneration committee, appointed annually by our board of directors. The objective of our remuneration policy is to enable the business to: direct employees energies and activities towards key business goals; retain competent employees who enhance business performance; reward, recognise and confer appreciation for superior performance; achieve the most effective returns (employee productivity) for total employee spend; and recruit high-performing, skilled individuals from a shrinking pool of talent. To achieve this, we reward our executives and managers in a way that reflects the dynamics of the market and the context in which we operate. All components of this remuneration policy, including the fixed pay and variable pay for performance, are aligned to our strategic direction and business-specific value drivers. The nomination and remuneration committee Responsibility for the remuneration policy rests with the nomination and remuneration committee, appointed annually by the our board of directors. The committee comprises at least three members, the majority of whom are independent non-executive directors, and is governed by formal terms of reference With respect to remuneration matters, the committee is charged with: Assisting the board by setting and administering remuneration policies in our long-term interests, and ensuring, through an ongoing review of our remuneration policy for both appropriateness and relevance, that we remunerate fairly and responsibly. Being especially concerned with and providing recommendations regarding the remuneration of both executive and non-executive directors, and giving due regard to any relevant legal requirements. Determining, within the terms of the agreed policy, the total individual remuneration package, of the chief executive officer and, in consultation with the chief executive officer, the other members of executive management and any other executive whose total remuneration is comparable to, or higher than, that of executive committee members. Ensuring that individuals are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to our success. Approving the design of and determining targets for any performance-related pay schemes in which our executive management and other members of our senior management population participate. Determining the design of and targets for such schemes by taking into account all factors it deems necessary including performance-related pay schemes, and regularly reviewing incentive schemes to ensure their continued contribution to shareholder value. Reviewing the design of all executive and all employee share plans for approval by the board and shareholders. Being responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee. Ensuring, in determining remuneration policy, specifically that contractual terms on termination of the chief executive officer and executive management, and any payments made, are fair to the individual and Mpact.

68 64 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report Key principles of the remuneration policy Our remuneration policy has been set with the objective of attracting, motivating and retaining experienced directors, managers and employees in a manner that is consistent with best practice and aligned with the interests of our shareholders. The remuneration policy for executive directors and other senior managers is framed around the following key principles: Remuneration packages should be set at levels that are competitive in the relevant market. The structure of remuneration packages and, in particular, the design of performance-based remuneration schemes, should be aligned with shareholders interests and should support the achievement of our business strategy and the management of risk. A significant proportion of the remuneration of executive directors and other senior executives should be performance-based. The performance-based element of remuneration should be appropriately balanced between the achievement of short-term objectives and longer-term objectives. The remuneration of executive directors and other senior executives should be set taking appropriate account of remuneration and employment conditions elsewhere in the Group. Pay mix Pay mix is defined as the balance targeted between the major components of remuneration, namely: guaranteed pay based on total guaranteed cost of employment (TGCOE); and variable pay for performance comprising: short-term incentives; and long-term incentives. Our targeted pay mix aims to align the incentives of employees with the interests of shareholders. A significant proportion of executive director and other senior executive remuneration should be performance based. Guaranteed pay We aim to establish and maintain a logical pay scale with pay levels that ensure we are able to remain competitive, while managing costs. Salaries are reviewed annually, normally with effect from 1 January. We undertake annual market pricing exercises against top management reward surveys conducted by reputable consultancies. The benchmark used is the median TGCOE for similar positions in South African listed companies which are of a similar size, complexity and scope to the Group. The committee also takes into account business performance, salary practices prevailing for other employees in the Group and, when setting individual salaries, the individual s performance and experience in their role. Variable pay Short-term incentives Our annual incentives are aimed at rewarding a combination of both business and individual performance: business performance is assessed in terms of one or more performance indicators, covering both financial and nonfinancial elements (such as safety); and individual performance is assessed from a weighted (balanced) scorecard of key performance areas or value drivers. The selection of these is informed by our performance management framework. Long-term incentives Mpact share plan In order to attract, retain, motivate and reward executives and managers who are able to influence the performance of the Group on a basis which aligns their interests with those of shareholders, we have established the Mpact share plan. The plan provides for the inclusion of a number of performance conditions, designed to align the interests of participants with those of shareholders, and to reward organisational and individual performance, more so than merely the performance of the economy or the sector in which we operate.

69 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 65 In terms of this plan, our executives and selected managers and our subsidiaries may be offered annually a weighted combination of: awards of performance shares; grants of bonus shares; and allocations of share appreciation rights. The combined, weighted implementation of the above share plan elements allows us to be competitive in annual and share-based incentives and rewards long-term sustainable company performance. This also acts as a retention tool, and ensures that executives share a significant level of personal risk with our shareholders. Performance share awards Annual conditional awards of performance shares may be made to executives. Performance shares will vest on the third anniversary of their award, to the extent that we have met specified performance criteria over the intervening period. The committee will dictate the performance criteria for each award. There are two performance criteria, total shareholder return (TSR) and return on capital employed (ROCE). For the 2011 awards, the performance criteria are as follows: TSR To satisfy this criteria in full, Mpact s TSR over the performance period must be ranked in the top quartile of the companies making up the FTSE/JSE Africa INDI 25 index. This means Mpact must perform equal to or better than the sixth ranked company. At the median level of performance, requiring us to perform equal to or better than the 13th ranked company in the comparator group, 30% of the award will vest. No vesting will occur if we are ranked in the bottom quartile, i.e. 19th or worse. If we rank between the above thresholds then the proportion vesting will be determined on the basis of a straight line interpolation. ROCE This half of the performance share method will vest in full if 15% or better is achieved. If 10% is achieved, 30% of the part of the Performance Share Method will vest. No vesting will occur below this level of performance. Between the 10% (threshold) and 15% (maximum) performance levels vesting will be based on straight line interpolation.

70 66 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report Any performance shares which do not vest at the end of the three-year period will lapse. The Performance Share Method closely aligns the interests of shareholders and executives by rewarding superior shareholder and financial performance in the future. Bonus share grants On an annual basis, executives and selected senior managers may receive a grant of bonus shares, the value of which matches, according to a specific ratio, the annual cash incentive accruing to the executive. The 2011 grant of bonus shares will vest after three years conditional only on continued employment. The Bonus Share Method provides for share-based retention to those executives who through their previous loyalty and / or their performance on an annual basis have demonstrated their value to the organisation. Allocations of share appreciation rights Annual allocations of share appreciation rights may be made to executives and selected employees. They will be available to be settled in equal thirds on the third, fourth and fifth anniversaries (alternatively all on the third anniversary), but need not be exercised until the sixth anniversary, at which time they must be exercised or they will lapse. Notwithstanding the above time frame(s), vesting will only occur, and exercise and settlement will only be permissible, as and when the performance targets that may have been set are met. On settlement, the value accruing to participants will be the appreciation of our share price from date of allocation to date of exercise. The board will dictate the performance targets for each allocation. For the 2011 allocation, the performance target is that the compound annual growth rate in our underlying EBITDA (audited underlying operating profit plus depreciation and amortisation) must exceed the Consumer Price Index (CPI) by two percentage points, with the base being the EBITDA for the year ending 31 December Mpact cash plan (deferred cash bonus) In order to retain, motivate and reward other key personnel, such as those with scarce skills who are vital to our success, we operate the Mpact Cash Plan. On an annual basis, identified employees may be granted a deferred cash bonus, the value of which matches, according to a specified ratio, the annual cash incentive accruing to the employee. The deferred cash bonus vests after three years conditional only on continued employment. Interest accrues monthly at the Johannesburg Interbank Agreed Rate (JIBAR) rate and is paid out with the cash bonus at the time of vesting. Policy on employment contracts Executive directors service contracts should provide for a maximum of six months notice by either party, except where a longer notice period is appropriate as a transitional measure, in which case the notice period would reduce automatically to six months within a reasonable period of time. Employment contracts for senior management provide for three months notice by either party. In the event of early termination of service contracts, our policy is to act fairly in all circumstances. The service contracts for senior executives should contain pay in lieu of notice provisions which may be invoked at the discretion of the committee if we terminate the service contract. The payment in lieu of notice would comprise the TGCOE for the notice period and an amount in respect of the bonus for that part of the financial year worked, at the discretion of the committee. All employees within the Group should have employment contracts.

71 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 67 Given that existing contracts may have been entered into in prior years, current notice periods and termination clauses for executive directors and senior managers may differ. Non-executive directors pay Non-executive directors fees are benchmarked against similar sized companies listed on the JSE. The level of complexity of the underlying business is also taken into consideration when benchmarking. The appointment of a nonexecutive director may be terminated without compensation if that director is not re-elected by shareholders or otherwise in accordance with our MOI. For the year under review, financial performance had a weighting of 60%, safety 10% and individual performance 30% for all executive directors and prescribed officers. The financial targets were based on EBITDA and ROCE, adjusted for the cost of the listing, as well as the disposal of Paperlink. For the year under review, the executive directors and prescribed officers achieved 89.7% for financial performance, between 50% and 100% for safety and differing levels for individual performance. Incentive bonus parameters and achievement for the year under review For the period under review, the maximum potential incentive bonus for executive directors and prescribed officers was 117% of TGCOE as reflected in the table below. The annual incentive bonus is paid against the achievement of financial, safety and individual performance targets. Maximum potential annual incentive bonus for year under review CEO BW Strong CFO 1 EL Leong Other prescribed officers 2 Annual cash bonus maximum potential as % of TGCOE (A) 72% 117% 72% Conditional bonus shares as % of annual cash bonus earned (B) 62.5 % 0% 62.5% Maximum potential incentive bonus as % of TGCOE (C) where C = A + (AxB) 117% 117% 117% 1 EL Leong is on a fixed-term employment contract with the Group, which is due to expire on 30 June Excludes prescribed officer 4 (PO 4) who is employed under a fixed-term consultancy agreement which, for the year under review, excludes conditional bonus shares but includes an annual cash bonus with a maximum potential of 60% of TGCOE.

72 68 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report EXECUTIVE DIRECTORS AND PRESCRIBED OFFICERS REMUNERATION Prescribed officers are defined as having general executive control over and management of a significant portion of the company or regularly participate therein to a material degree, and are not directors of the company. Prescribed officers include the three highest paid non-directors. The remuneration of the executive directors and prescribed officers, all of which is paid by Mpact, who served during the period under review was as follows: R Salary Incentive bonus 7 Value of deferred bonus shares awarded 8 Retirement funding contribution 9 Other cash benefits 10 Total Executive directors BW Strong ,592,087 1,183,141 1,150, , ,744 5,745, ,143,463 1,495, , , ,289 5,318,951 EL Leong 2, 3, ,283,404 72,631 76,383 1,432,418 RP von Veh 3, ,554 1,547,921 71, ,470 2,539, ,871,615 1,389, , , ,929 4,755,199 Prescribed officers PO ,431, , , ,409 2,830, PO ,534,435 1,789,181 1,084, , ,184 5,761, ,335,611 1,608, , , ,646 5,303,904 PO ,198, , , , ,593 3,140, ,050, , , , ,810 2,839,176 PO ,638, ,341 3,544, ,530, ,767 2,823,608 PO ,911 1,308,888 37,063 34,358 1,953, ,566, , , ,521 2,719,567 1 Participates in defined benefit pension fund. 2 EL Leong is on a fixed term employment contract with the company, due to expire on 30 June Participates in defined contribution fund. 4 From date of appointment to the board on 21 April 2011, prior to this date was a prescribed officer. 5 To date of resignation from the board on 4 May 2011, thereafter prescribed officer. 6 Employed under a fixed term consultancy agreement which includes an annual salary and cash bonus incentives linked to performance. As such he does not participate in any of the company s share plans. 7 Paid in March each year based on prior year performance. 8 Conditional awards based on prior year performance vesting in three years. 9 Employer contribution towards retirement funding. 10 Other cash benefits include car allowances, employer contributions to the medical aid scheme and other benefits.

73 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 69 Non-executive directors remuneration Fees R AJ Phillips 1 449,658 NP Dongwana 1 199,178 NB Langa-Royds 1 219,178 TDA Ross 1 239,178 AM Thompson 254,247 58,000 Total 1,361,439 58,000 1 From date of appointment to the board on 21 April 2011.

74 70 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report Share awards granted to executive directors and prescribed officers The following tables set out the share awards granted to the executive directors and prescribed officers. Mpact Limited 2011 Type of award 1,2,3,4 Awards held at beginning of year or on appointment to the board Awards granted during year Awards exercised during year Awards held as at 31 December 2011 Award price basis (ZAR cents) Date of award Release date Executive director BW Strong BSP 5 85,817 85,817 1,341 Sep 11 Mar 14 PSP 234, ,899 1,341 Sep 11 Mar 14 TSP 6 76,286 76,286 1,341 Sep 11 Mar 13 SARP 352, ,349 1,341 Sep 11 { Mar 14 Mar 15 Mar 16 Prescribed officers PO 1 BSP 5 70,039 70,039 1,341 Sep 11 Mar 14 PSP 105, ,584 1,341 Sep 11 Mar 14 SARP 263, ,957 1,341 Sep 11 { Mar 14 Mar 15 Mar 16 PO 2 BSP 5 80,855 80,855 1,341 Sep 11 Mar 14 PSP 77,532 77,532 1,341 Sep 11 Mar 14 TSP 6 55,499 55,499 1,341 Sep 11 Mar 13 SARP 193, ,829 1,341 Sep 11 { Mar 14 Mar 15 Mar 16 PO 3 BSP 5 39,316 39,316 1,341 Sep 11 Mar 14 PSP 48,322 48,322 1,341 Sep 11 Mar 14 SARP 120, ,805 1,341 Sep 11 { Mar 14 Mar 15 Mar 16 1 Bonus share plan (BSP). 2 Performance share plan (PSP). 3 Transitional share plan (TSP). 4 Share appreciation right plan (SARP). 5 The value of the BSP awards granted during the year as set out in this table are included in the executive directors and prescribed officers remuneration. 6 In addition to the PSP, BSP and SARP, BW Strong and PO 2 have been granted a once-off transitional award of conditional performance shares in compensation for value lost under the 2010 Mondi Limited LTIP as a result of the time-based pro rating of awards.

75 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 71 Mondi Limited 2011 Type of award 1,2 Awards held at beginning of year or on appointment to the board Awards granted during year Awards exercised during year Awards forfeited or lapsed Awards held as at 31 December 2011 Award price basis (ZAR cents) Date of award Release date BW Strong BSP 4 6,957 (6,957) 6,547 Mar 08 BSP 4 17,978 (17,978) 2,301 Mar 09 BSP 4 19,861 (19,861) 4,596 Mar 10 LTIP 54,200 54,200 2,301 Mar 09 Mar 12 LTIP 29,683 (14,841) 14,842 4,596 Mar 10 Mar 13 BSP 4 9,718 (9,718) 6,547 Mar 08 PO 1 BSP 4 21,611 (21,611) 2,301 Mar 09 BSP 4 18,847 (18,847) 4,596 Mar 10 BSP 4 11,696 (11,696) 6,547 Mar 08 PO 2 BSP 4 26,377 (26,377) 2,301 Mar 09 BSP 4 21,400 (21,400) 4,596 Mar 10 LTIP 12,650 (4,217) (8,433) 6,547 Mar 08 LTIP 40,311 40,311 2,301 Mar 09 Mar 12 LTIP 21,595 (10,797) 10,798 4,596 Mar 10 Mar 13 BSP 4 2,992 (2,992) 6,547 Mar 08 PO 3 BSP 4 12,200 (12,200) 2,301 Mar 09 BSP 4 10,578 (10,578) 4,596 Mar 10 1 Bonus share plan (BSP). 2 Long-term incentive plan (LTIP). 3 The value of the BSP awards granted during the year as set out in this table are included in the executive directors and prescribed officers remuneration. 4 All Mondi BSP awards held at the time of listing were subject to advanced vesting during the year.

76 72 MPACT LIMITED INTEGRATED REPORT 2011 Remuneration report Mondi Limited 2010 Type of award 1,2 Awards held at beginning of year or on appointment to the board Awards granted during year Awards exercised during year Awards prorated Award lapsed Awards held as at 31 December 2011 Award price basis (ZAR cents) Date of award Release date BW Strong BSP 5,588 (5,588) - 6,423 Aug 07 BSP 6,957 6,957 6,547 Mar 08 Mar 11 BSP 17,978 17,978 2,301 Mar 09 Mar 12 BSP 19,861 19,861 4,596 Mar 10 Mar 13 LTIP 54,200 54,200 2,301 Mar 09 Mar 12 LTIP 29,683 29,683 4,596 Mar 10 Mar 13 BSP 7,057 (7,057) 6,423 Aug 07 RP von Veh BSP 9,718 9,718 6,547 Mar 08 Mar 11 BSP 21,611 21,611 2,301 Mar 09 Mar 12 BSP 18,487 18,487 4,596 Mar 10 Mar 13 BSP 11,696 11,696 6,547 Mar 08 Mar 11 PO 2 BSP 26,377 26,377 2,301 Mar 09 Mar 12 BSP 21,400 21,400 4,596 Mar 10 Mar 13 LTIP 12,650 12,650 6,547 Mar 08 Mar 11 LTIP 40,311 40,311 2,301 Mar 09 Mar 12 LTIP 21,595 21,595 4,596 Mar 10 Mar 13 BSP 2,992 2,992 6,547 Mar 08 Mar 11 PO 3 BSP 12,200 12,200 2,301 Mar 09 Mar 12 BSP 10,578 10,578 4,596 Mar 10 Mar 13

77 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 73 Interest of directors AND PRESCRIBED OFFICERS in share capital The aggregate beneficial holdings as at 31 December 2011 of the directors and prescribed officers of the company and their immediate families (none of which has a holding in excess of 1%) in the issued ordinary shares of the company are detailed below. There have been no material changes in these shareholdings since that date Direct Indirect Executive directors BW Strong 4,313 Non-executive directors AM Thompson 4,208 Prescribed officers PO 1 14,819 PO PO 3 4,427 Total 28,294 A register detailing directors and prescribed officers interest in the company is available for inspection at the company s registered office.

78 74 MPACT LIMITED INTEGRATED REPORT 2011

79 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 75 Audit and risk committee report The audit and risk committee has pleasure in submitting its report for the year ended 31 December 2011 in compliance with section 4(7) of the Companies Act 71 of INTRODUCTION Since the separate listing of Mpact on the JSE, the risk committee has been reconstituted as a combined audit and risk committee. The committee acts as the audit and risk committee for all the subsidiaries in the Mpact Group. The committee is an independent entity and accountable to the board. It operates within a documented charter and complies with all relevant legislation, regulation and governance codes and executes its duties in terms of the requirements of King III. The committee s terms of reference were approved by the board and will be reviewed annually. The committee s role and responsibilities include its statutory duties and further responsibilities assigned to it by the board. The objectives of the audit and risk committee are: To assist the board with discharging its duties relating to the safeguarding of assets, the operation of adequate systems and controls, overseeing integrated reporting, reviewing of financial information and the preparation of interim and annual financial statements in compliance with all applicable legal requirements and accounting standards. To facilitate and promote communication and liaison between the board of directors and the Group s management in respect of the matters referred to above. To recommend the introduction of measures which the committee believes may enhance the credibility and objectivity of financial statements and reports concerning the affairs of the Group. To perform its statutory functions under section 4(7) of the Companies Act. To advise on any matter referred to the committee by the board of directors. MEMBERSHIP The committee comprised the following independent nonexecutive directors: TDA Ross (chairperson) NP Dongwana AM Thompson Biographical details of the committee members are provided on pages 48 to 49. Fees paid to the committee members are outlined on pages 116 to 117. The chairperson of the board, chief executive officer, chief financial officer, and certain other non-executive directors and representatives of the internal and external auditors together with other key financial staff are invited to attend the meetings. COMMITTEE ACTIVITIES The committee met on two occasions during the period under review. Attendance has been set out on page 54 of the corporate governance report. The committee attended to the following material matters: External auditors Reviewed the independence of Deloitte as our external auditor and that Michael Jarvis is reappointed as the independent individual registered auditor who will undertake the Group s audit for the ensuing year; before recommending to the board that their re-election be proposed to shareholders (refer to section on independence of external auditors). Approved, in consultation with management, the audit fee and engagement terms for the external auditors for the 2011 financial year. The fees paid to the auditors are disclosed in note 3 to the annual financial statements.

80 76 MPACT LIMITED INTEGRATED REPORT 2011 Audit and risk committee report Approved the non-audit services policy including the pre-approval of non-audit services. Determined the nature and extent of allowable non-audit services and approved the contract terms for the provision of non-audit services. It is our policy that the auditor is restricted from rendering accounting, IT consulting services, company secretarial, internal audit and human resource services. Reviewed and approved the external audit plan, ensuring that material risk areas were included and that coverage of the significant business processes was acceptable. Reviewed the external audit reports and management s response, considered their effect on the financial statements and internal financial control. Financial statements Reviewed the interim result and year-end financial statements, including the public announcements of our financial results, and made recommendations to the board for their approval. In the course of its review, the committee: took appropriate steps to ensure that the financial statements were prepared in accordance with the IFRS; considered the appropriateness of accounting policies and disclosures made; and completed a detailed review of the going concern assumption, confirming that it was appropriate in the preparation of the financial statement. The committee was not required to deal with any complaints relating to accounting practices or internal audit, nor to the content or audit of our financial statements, nor internal financial controls and related matters. Internal audit Reviewed and approved the existing internal audit charter which ensures that our internal audit function is independent and has the necessary resources, standing and authority within the organisation to enable it to discharge its duties. Satisfied itself of the credibility, independence and objectivity of the internal audit function. Ensured that internal audit had direct access to the committee, primarily through the committee s chairperson. Reviewed and approved the annual internal audit plan, ensuring that material risk areas were included and that the coverage of significant business processes was acceptable. Reviewed the quarterly internal audit reports, covering the effectiveness of internal control, material fraud incidents and material non-compliance with our policies and procedures. The committee is advised of all internal control developments and advised of any material losses, with none being reported during the year. Considered and reviewed with management and internal auditors, any significant findings and management responses thereto in relation to reliable financial reporting, corporate governance and effective internal control to ensure appropriate action is taken. Oversaw the co-operation between internal audit and external auditors. The committee reported that the assurance coverage obtained from management, internal and external assurance providers in accordance with an appropriate combined assurance model has not yet been completed. Assessed the performance and qualification of the internal audit function and found them to be satisfactory. Internal financial control and compliance Reviewed and approved our existing treasury policy and reviewed the quarterly treasury reports prepared by management. Reviewed the quarterly legal and regulatory reports setting out the latest legislative and regulatory developments impacting the Group. Reviewed the quarterly report on taxation. Reviewed information technology reports. Considered and, where appropriate, made recommendations on internal financial control.

81 MPACT LIMITED INTEGRATED REPORT 2011 / GOVERNANCE REVIEW 77 Appointed an outsourced internal audit service to replace the Mondi Group internal audit function for KPMG Internal Audit, Risk and Compliance Services were selected to provide this service and will also act as the chief audit executive. In the separation arrangements with Mondi Limited, Mondi internal audit continued with their audits for the six months to 31 December In this arrangement, Mondi internal audit advised that they would not provide a written assessment of the effectiveness of the Mpact system of internal control and risk management. Under the circumstances, the audit and risk committee considered the comments in the audit reports issued by Mondi internal audit on audits conducted, and together with other information available from management and the year-end external audit reports, determined that there were no material weaknesses in internal control and risk management. On this basis, the audit and risk committee has made a recommendation to the board on the effectiveness of the system of internal controls for inclusion in the directors responsibility statement. Integrated report The committee fulfils an oversight role regarding our report and the reporting process. Accordingly, it has: Considered our Integrated Report and has assessed our consistency with operational, financial and other information known to audit committee members, and for consistency with the annual financial statements. The committee is satisfied that the Integrated Report is materially accurate, complete and reliable and consistent with the annual financial statements. The committee has at its meeting held on 5 March 2012, recommended the Integrated Report for the year ended 31 December 2011 for approval by the board of directors. INDEPENDENCE OF EXTERNAL AUDITORS The committee is satisfied that Deloitte is independent of the Group. This assessment was made after considering the following: Confirmation from the external auditors that they, or their immediate family, do not hold any significant direct or indirect financial interest or have any material business relationship with Mpact. The external auditors also confirmed that they have internal monitoring procedures to ensure their independence. The auditors do not, other than in their capacity as external auditors or rendering permitted non-audit services, receive any remuneration or other benefits from us. The auditor s independence was not impaired by the nonaudit work performed having regard to the quantum of audit fees relative to the total fee based and the nature of the non-audit work undertaken. The auditor s independence was not prejudiced as a result of any previous appointment as auditor. In addition, an audit partner rotation process is in place in accordance with the relevant legal and regulatory requirements. The criteria specified for independence by the Independent Regulatory Board for Auditors. The audit firm and the designated auditor are accredited with the JSE. The committee confirms it has functioned in accordance with its terms of reference for the 2011 financial year. Governance The board has assigned oversight of our risk management function to the committee, which has an oversight role with respect to financial reporting risks arising from internal financial controls, fraud and information technology risks. In line with the terms of the JSE Listings Requirements, the committee has satisfied itself as to the appropriateness of the expertise and experience of our chief financial officer. TDA Ross Chairman Audit and risk committee

82 78 MPACT LIMITED INTEGRATED REPORT 2011 FINANCIAL STATEMENTS A summary SECTIONAL HIGHLIGHTS Underlying operating profit up 6.4% to R517 million Underlying earnings per share increased from 24.3 cents to cents per share Return on capital employed (ROCE) of 13.8% Maiden cash dividend declared of 40 cents per share Net debt lower at R1.3 billion following the re-capitalisation in July, prior to listing Download this section The following financial statements are in summarised form. The detailed financial statements can be found on our website,

83 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 79

84 80 MPACT LIMITED INTEGRATED REPORT 2011 Directors report The directors have pleasure in presenting their report on the annual financial statements of the Group for the year ended 31 December Business activities Mpact Limited was formerly called Mondi Packaging South Africa as part of the Mondi Group. The demerger of Mpact from the Mondi Group was with effect from 18 July By special resolution passed on 4 May 2011, the company changed its name from Mondi Packaging South Africa Limited to Mpact Limited. By special resolution passed on 28 March 2011 and registered with the Registrar on 20 April 2011, Mpact was converted from a private to a public company. Mpact Limited successfully listed on the Main Board of the JSE under code MPT on 11 July Mpact Limited, its subsidiaries and associates, operates in southern Africa as manufacturers of paper and plastic packaging. The principal activities of the company and its subsidiaries remain unchanged from the previous year except that its paper merchanting division, Paperlink, was disposed of from 31 March Review of operations A review of operations can be found on pages 22 to 23 in this report. Stated capital/share capital and premium On 28 April 2011 the share capital of Mpact was altered by: increasing the authorised share capital from 1,000,000 shares of R0.001 each to 1,500,000 ordinary shares of R0.001 each; sub-dividing all authorised shares from 1,500,000 ordinary shares of R0.001 each into 217,500,000 ordinary shares of R each; sub-dividing all issued shares from 159,950 ordinary shares of R0.001 each into 23,192,750 ordinary shares of R each; and converting all issued and authorised shares in the company with a par value of R each into ordinary shares of no par value. The authorised share capital is 217,500,000 ordinary shares of no par value. On 5 July 2011 an additional 140,853,726 ordinary shares were issued to the then shareholders as part of Mpact s capital restructuring prior to listing. On 31 December 2011 the issued share capital of the company was 164,046,476 ordinary shares of no par value. (2010: 159,950 shares of R0.01 each). Register of members The register of members of the company is open for inspection to members and the public, during normal office hours, at the office of the company s transfer secretaries, Link Market Services South Africa (Pty) Limited. Directors interest in share capital Details of the beneficial holdings of directors of the company and their families in ordinary shares are given in the remuneration report on page 63 to 73 of this report. Dividends We declared no dividends during the year ended 31 December On 6 March 2012 the board declared a dividend of 40 cents per share. This would attract a secondary tax on companies charge of R6.6 million. Major beneficial shareholders Details relating to the beneficial shareholders owning more than 5% of the issued share capital of the company appear in the analysis of shareholders on page 108. Special resolutions passed by subsidiary companies Notwithstanding the title of Section 45 of the Companies Act 71 of 2008, being Loans Or Other Financial Assistance To Directors or an interpretation thereof, the body of the section also applies to financial assistance provided by the company to any related or inter related company or corporation, a member of a related or inter related corporation, and to a person related to any such company, corporation or member.

85 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 81 On 22 August 2011, all the subsidiaries of the company passed special resolutions to authorise the companies to provide any direct or indirect financial assistance, including by way of lending money, guaranteeing a loan, or other obligations as it may be required, or otherwise to any of its present or future related or inter-related companies or corporations for such amounts and such terms and conditions as the board/s may determine. Property, plant and equipment Certain of our properties are the subject of land claims. The Group are in the process of discussion with the Land Claims Commissioner and await the outcome of claims referred to the Land Claims Court. The claims are not expected to have a material impact on the company s operations. At 31 December 2011 the net investment in property, plant and equipment amounted to R1,935.1 million (2010: R1,897.9 million), details of which are set out in note 9 to the annual financial statements. Capital commitments at year end amounted to R72.4 million (2010: R178.1 million). There has been no change in the nature of the property, plant and equipment or to the policy relating to the use thereof during the year. Borrowings In terms of the MOI, the directors are permitted to borrow or raise for the purposes of the Group such sums as they deem fit for the operation of the business. At the close of business on 31 December 2011, the total borrowings less cash resources was R1,307.0 (2010: R3,639.9 million). At 31 December 2011, we had approved general banking facilities of R2.0 billion (2010: R1.6 billion) Events after reporting date In November 2011 the trustees of the defined benefit pension plan in South Africa, with agreement from the participating pensioners and employees, resolved to wind up the fund subject to regulatory approval which was received in January Mpact Limited will receive a reimbursement of the pension surplus of R19.1 million and a settlement charge of R7.5 million will be recognised in On 20 January 2012, a non-controlling shareholder exercised their put option in respect of 6.84% shares in a subsidiary. Directors and Group company secretary The directors in office at the date of this report appear on pages 48 and 49, and details relating to the group company secretary appear on page 51. As a result of the demerger from Mondi and the listing of Mpact on the JSE, the following changes to the board of directors were made: The following directors were appointed on 21 April 2011: AJ Phillips (non-executive chairman); EL Leong (executive director); NP Dongwana (non-executive director); NB Langa-Royds (nonexecutive director); TDA Ross (non-executive director and chairman of the audit and risk committee). The directors appointed were considered and voted upon separately by the shareholders at a meeting held on 4 May The following directors and alternate directors resigned on 4 May 2011: DA Hathorn; ACW King; PA Laubscher; KA Mills; MC Ramaphosa; RM Smith; RP von Veh; R Govender; K Sewpersad. Noriah Sepuru was appointed group company secretary with effect from 1 December 2011, in place of William Somerville who stepped down as interim company secretary with effect from the same date. In terms of the MOI of the company, AM Thompson and NP Dongwana are required to retire by rotation at the next annual general meeting. Both directors have offered themselves for re-election and the remuneration and nominations committee has recommended their re-election to the board. Board statement of effectiveness control Based on the recommendation of the audit and risk committee on page 77, nothing has come to the attention of the board that caused it to believe that the Group s system of internal control and risk management is not effective, or that the internal controls do not form a sound basis for the preparation of reliable financial statements.

86 82 MPACT LIMITED INTEGRATED REPORT 2011 Directors responsibility statement The directors are responsible for preparing the annual financial statements in accordance with applicable law and regulations. South African company law requires the directors to prepare financial statements for each financial year giving a true and fair view of the Mpact Group s state of affairs at the end of the year and profit or loss for the year. The directors have prepared the Group s consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs). BASIS OF PREPARATION These condensed, consolidated annual financial statements for the year ended 31 December 2011 have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (in particular IAS 34: Interim Financial Reporting), the AC500 standards as issued by the Accounting Practices Board, the JSE Limited s listing requirements and the South African Companies Act, 2008 as amended. The Group s annual financial statements, from which these condensed annual financial statements have been derived, have been audited by the company s auditors, Deloitte, whose unmodified report is available for inspection at the registered company office. The preparation of these condensed consolidated financial results for the year ended 31 December 2011 was supervised by the chief financial officer, EL Leong CA(SA). These condensed, consolidated annual financial statements should be read in conjunction with the Group s annual financial statements, from which they have been derived. Included in this report is a summary of the annual financial statements while the full annual financial statements are available on the Group s website, APPROVAL OF THE FINANCIAL STATEMENTS The directors confirm that to the best of their knowledge the financial statements, prepared in accordance with IFRS and the requirements of the Companies Act of South Africa, fairly represent the assets, liabilities, financial position and profit or loss of Mpact Limited and the undertakings included in the consolidation taken as a whole. The directors believe that the group has adequate resources to continue in operation for the foreseeable future and the financial statements have therefore been prepared on a going concern basis. The financial statements and related notes, which appear on pages 85 to 105 were approved by the board of directors and authorised for issue on 6 March 2012 and were signed on its behalf by: AJ Phillips BW Strong Chairman Chief Executive Officer Johannesburg Johannesburg 28 March March 2012

87 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 83 Company secretary s certification I certify that the company has lodged with the Companies and Intellectual Property Commission all such returns as are required for a public company in terms of the Companies Act, 71 of 2008, in respect of the year ended 31 December 2011, and such returns are true, correct and up to date. MN Sepuru Company Secretary Johannesburg 28 March 2012

88 84 MPACT LIMITED INTEGRATED REPORT 2011 Independent auditors report The accompanying condensed financial statements set out on pages 85 to 105, which comprise the condensed statement of financial position as at 31 December 2011, the condensed statement of comprehensive income, condensed statement of changes in equity and condensed statement of cash flows for the year then ended, and related notes, are derived from the audited Group annual financial statements of Mpact Limited for the year ended 31 December We expressed an unmodified audit opinion on those Group annual financial statements in our report dated 6 March Those Group annual financial statements, and the condensed financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those financial statements. The condensed financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS). Reading the condensed financial statements, therefore, is not a substitute for reading the audited Group annual financial statements of Mpact Limited. Directors Responsibility for the condensed Financial Statements The directors are responsible for the preparation of the condensed financial statements in accordance with the framework concepts and the measurement and recognition requirements of IFRS, the AC 500 standards as issued by the Accounting Practices Board and the information as required by International Accounting Standard ( IAS ) 34: Interim Financial Reporting and the requirements of the Companies Act of South Africa. Auditors Responsibility Our responsibility is to express an opinion on the condensed financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing 810, Engagements to Report on Summary Financial Statements. Opinion In our opinion, the condensed financial statements derived from the audited Group financial statements of Mpact Limited for the year ended 31 December 2011 are consistent, in all material respects, with those financial statements, in accordance with the framework concepts and the measurement and recognition requirements of IFRS, the AC 500 standards as issued by the Accounting Practices Board and the information as required by IAS 34: Interim Financial Reporting and the requirements of the Companies Act of South Africa. Deloitte & Touche Registered Auditors Per: MJ Jarvis Partner 6 March 2012 Deloitte Place The Woodlands Woodlands Drive Woodmead Sandton National Executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Risk Advisory & Legal Services, NB Kader Tax, L Geeringh Consulting, L Bam Corporate Finance, JK Mazzocco Human Resources, CR Beukman Finance, TJ Brown Chairman of the Board, MJ Comber Deputy Chairman of the Board. A full list of partners and directors is available on request.

89 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 85 STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December R million Notes Before special items Special items (note 4) After special items Before special items Special items (note 4) After special items Revenue 2 6, , , ,258.7 Cost of sales (3,775.5) (3,775.5) (3,859.7) (3,859.7) Gross margin 2, , , ,399.0 Administration & other operating expenses (1,665.6) (53.1) (1,718.7) (1,594.2) (1,594.2) Depreciation, amortisation & impairments (323.4) (323.4) (319.5) (6.3) (325.8) Operating profit 2/ (53.1) (6.3) Profit on disposal of investments Share of associates profit Total profit from operations and associates (52.8) (6.3) Net finance costs 5 (256.3) (34.3) (290.6) (386.5) (386.5) Investment income Finance costs (284.7) (34.3) (319.0) (434.6) (434.6) Profit/(loss) before tax (87.1) (6.3) 95.9 Tax (charge)/credit 6 (76.1) 8.4 (67.7) (48.2) 1.8 (46.4) Profit/(loss) from continuing operations (78.7) (4.5) 49.5 Other comprehensive income: Effects of option to equity holders 3.0 Effects of cash flow hedges 4.1 (7.5) Actuarial (losses)/gains and surplus restriction on post-retirement benefit schemes 28.4 (13.7) Exchange differences on translation of foreign operations 1.6 Cash flow hedge reserve recycled through profit and loss 23.1 (0.4) Tax relating to components of other comprehensive income (15.6) 11.5 Other comprehensive income/(loss) for the financial year, net of tax 41.6 (7.1) Total comprehensive income for the financial year Attributable to: Non-controlling interests in subsidiaries Equity holders of Mpact Profit for the financial year Attributable to: Non-controlling interests in subsidiaries Equity holders of Mpact Earnings per share (EPS) for profit (loss) attributable equity holders of Mpact (cents) Basic EPS Diluted EPS

90 86 MPACT LIMITED INTEGRATED REPORT 2011 STATEMENT OF FINANCIAL POSITION for the year ended 31 December 2011 Group R million Notes Goodwill and other intangible assets 8 1, ,087.6 Property, plant and equipment 9 1, ,897.9 Investments in associates Financial asset investments Deferred tax assets Retirement benefits surplus Non-current assets 3, ,125.9 Inventories Trade and other receivables 1, ,176.2 Cash and cash equivalents Derivative financial instruments Current assets 2, ,959.6 Non-current assets classified as held for sale Total assets 5, ,256.5 Short-term borrowings Trade and other payables 1, ,034.4 Current tax liabilities Provisions Derivative financial instruments Current liabilities 1, ,223.4 Non-current borrowings 1, ,589.8 Retirement benefits obligation Deferred taxation liabilities Other non-current liabilities Derivative financial instruments 27.2 Non-current liabilities 1, ,761.3 Liabilities directly associated with assets classified as held for sale 90.7 Total liabilities 3, Stated capital/share capital and premium 2, (Accumulated loss) (10.5) (58.3) Other reserves (22.5) (78.1) Total attributable to equity holders of Mpact 2, Non-controlling interests in subsidiaries Total equity 2, Total equity and liabilities 5, ,256.5

91 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 87 STATEMENT OF CASH FLOWS for the year ended 31 December 2011 Group R million Notes Operating cash flows before movements in working capital Net decrease/(increase) in working capital 48.1 (128.4) Cash generated from operations Taxation paid (23.6) (30.0) Net cash inflows from operating activities Cash flows from investing activities Acquisition of subsidiaries net of cash 11a (16.8) Proceeds from disposal of business 12a 90.0 Proceeds from disposal of associates 0.3 Replacement of property, plant and equipment 9 (337.4) (269.4) Proceeds from the disposal of property, plant and equipment Acquisition of intangible assets 8 (0.2) Investment in associate (13.9) (20.0) Loan advances to related parties 2.4 Loan repayments from/(advances to) external parties 2.4 (5.8) Interest received Net cash outflows from investing activities (255.2) (274.3) Cash flows from financing activities Repayment of borrowings (3,811.8) (198.8) Proceeds from borrowings raised 1, Finance costs paid (269.8) (416.3) Dividends paid to non-controlling interests (1.5) (2.0) Acquisition of non-controlling interest in a subsidiary (3.6) Proceeds from non-controlling shareholder on corporatisation of a business 23.7 Issue of ordinary share capital 2,089.8 Repayment of other non-current liabilities (40.0) (6.8) Net cash outflows from financing activities (223.2) (589.5) Net increase/(decrease) in cash and cash equivalents (214.4) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents net of overdrafts.

92 88 MPACT LIMITED INTEGRATED REPORT 2011 STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011 Stated capital/ Share-based Share capital and payment Cash flow R million share premium reserves 2 hedge reserves Group Balance at 31 December (19.7) Total comprehensive income for the year 0.1 Issue of shares under employee share schemes (1.8) Share schemes charge for the year 7.1 Dividends paid to non-controlling interests Reclassification (0.3) Contribution paid to Mondi Incentive Scheme Trust (2.5) Balance at 31 December (19.6) Total comprehensive income for the year 19.6 Issue of shares 2,089.8 Demerger arrangements (22.5) Share schemes charge for the year 12.3 Dividends paid to non-controlling interests Reclassification (0.1) Change in foreign subsidiary functional currency Increase in shareholding of subsidiary Increase in non-controlling interest in a subsidiary Balance at 31 December , Other reserves consist of the option to equity holder reserve of R61.8 million debit (2010: R61.8 million debit) revaluation reserve of R0.8 million (2010: R0.8 million) and currency translation adjustment reserve of R19.6 million (2010: R6.3 million debit). 2 As a result of the demerger from Mondi, our employees no longer participate in the Mondi share schemes. This resulted in an advanced vesting of the share based payment reserve relating to the Mondi share scheme. The Mondi bonus share scheme charge for the year including the advanced vesting of the shares amounted to R10.5 million. (See note 10). Subsequent to the advanced vesting of the Mondi share scheme, we have set up our own share schemes in the current year. The closing balance of the share based payment reserve as at the 31 December 2011 represents the reserve relating to the new Mpact share schemes.

93 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 89 Total attributable Post-retirement Retained earnings/ benefit reserves Other reserves 1 (accumulated loss) to equity holders of Mpact Ltd Non-controlling interests Total equity 6.5 (69.9) (97.2) (9.8) (2.0) (2.0) 0.3 (2.5) (2.5) (3.3) (67.3) (58.3) , ,089.8 (15.3) (37.8) (37.8) (1.5) (1.5) (25.9) (1.3) (1.3) (1.2) (1.2) (2.4) (3.6) (41.4) (10.5) 2, ,412.0

94 90 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December BASIS OF PREPARATION These condensed, consolidated annual financial statements for the year ended 31 December 2011 have been prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS as issued by the International Accounting Standards Board (in particular IAS 34: Interim Financial Reporting), the AC500 standards as issued by the Accounting Practices Board, the JSE Limited s listing requirements and the South African Companies Act, 2008 as amended. The Group s annual financial statements, from which these condensed annual financial statements have been derived, have been audited by the company s auditors, Deloitte, whose unmodified report is available for inspection at the registered company office. The preparation of these condensed consolidated financial results for the year ended 31 December 2011 was supervised by the chief financial officer, EL Leong CA(SA). These condensed, consolidated annual financial statements should be read in conjunction with the Group s annual financial statements, from which they have been derived. Included in this report is a summary of the annual financial statements while the full annual financial statements are available on the Group s website, Accounting policies The accounting policies and methods of computations used are consistent with those applied in the preparation of the annual financial statements for the year ended 31 December The following new or revised accounting standards and interpretations, which had no significant impact on the Group, were adopted in the current period: IFRS 2 Share-based Payment IAS 19 Employee Benefits IAS 24 Related Party Disclosures IAS 32 Financial Instruments: Presentation IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRIC 19 Extinguishing Liabilities with Equity Instruments IFRS 3 Business Combinations IAS 34 Interim Financial Reporting 2. OPERATING SEGMENTS R million Segment revenue Internal revenue 1 External revenue Segment revenue Internal revenue 1 External revenue Operating segment revenue Paper 4,591.2 (18.6) 4, ,428.3 (21.5) 4,406.8 Plastics 1,577.0 (0.4) 1, , ,309.9 Corporate and other businesses Segments total 6,300.0 (19.0) 6, ,280.2 (21.5) 6,258.7 Inter-segment elimination (19.0) 19.0 (21.5) 21.5 Group total 6, , , , Inter-segment transactions are conducted on an arm s length basis.

95 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 91 Group R million External revenue by product type Products Corrugated and paper board products 4, ,406.8 Plastic packaging products 1, ,309.9 Other Group total 6, , Revenues derived from product types that are not material are classed as other. External revenue by location of customer Revenue South Africa (country of domicile) 5, ,667.3 Rest of Africa Rest of world Group total 6, ,258.7 There are no external customers which account for more than 10% of the Group s total external revenue. Operating segment underlying operating profit/(loss) Paper Plastics Corporate and other businesses (157.7) (132.1) Segments total Special items (see note 4) (87.1) (6.3) Share of associates profit Net finance costs (see note 5 excluding special financing) (256.3) (386.5) Group profit before tax Depreciation and amortisation Paper Plastics Corporate and other businesses Segments total

96 92 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December OPERATING SEGMENTS (CONTINUED) Group R million Operating segment assets Segment assets 1 Paper 2, ,577.3 Plastics 1, ,028.0 Corporate and other businesses 1, ,171.4 Inter-segment elimination (1.9) (3.8) Segment total 5, ,772.9 Unallocated: Investments in associates Deferred tax assets Other non-operating assets Group trading capital employed 5, ,139.7 Financial asset investment Cash and cash equivalents Group assets 5, , Segment assets are operating assets and as at 31 December 2011 consist of property, plant and equipment of R1,935.1 million (2010: R1,897.9 million), goodwill and other intangible assets of R1,064.8 million (2010: R1,087.6 million), retirement benefits surplus of R26.6 million (2010: R21.3 million), inventories of R729.3 million (2010: R680.6 million) and operating receivables of R1,249.3 million (2010: R1,085.5 million). 2 Other non-operating assets consist of derivative assets of R3.1 million (2010: R1.4 million), other non-operating receivables of R79.9 million (2010: R90.7 million) and assets held for sale of Rnil (2010: R171.0 million). Group R million Non-current non-financial assets 1 South Africa (country of domicile) 2, ,945.5 Rest of Africa Group total 2, , Non-current non-financial assets consist of property, plant and equipment and goodwill and other intangible assets, but excludes retirement benefits surplus, deferred tax assets and non-current financial assets.

97 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY 93 Group R million Additions to non-current non-financial assets 1 Paper Plastics Corporate and other businesses Group and segments total Additions to non-current non-financial assets reflect cash payments and accruals in respect of additions to property, plant and equipment and intangible assets and include interest capitalised as well as additions resulting from acquisitions through business combinations. Additions to non-current non-financial assets, however, exclude additions to deferred tax assets, retirement benefits surplus and non-current financial assets 3. OPERATING PROFIT Group R million Operating profit for the year has been arrived at after charging/ (crediting): Depreciation of property, plant and equipment (see note 9) Amortisation of intangibles (see note 8) Rentals under operating leases Research and development expenditure Net foreign currency (gains)/losses (10.0) 0.4 (Profit)/loss on disposal of tangible and intangible assets (1.1) (1.6) Auditors remuneration Audit fees current prior 0.7 Non-audit fees 2.3 Staff costs (excluding directors emoluments) 1, Directors emoluments (excluding valued and deferred bonus shares awarded) Total revenue, as defined under IAS 18, Revenue, consisting of revenue, interest income and dividend income was R6,291.0 million (2010: R6,276.7 million).

98 94 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December SPECIAL ITEMS Group R million Listing transaction costs Special finance costs (see note 5) Demerger arrangements (see note 10) Profit on disposal of part investment in associate (see note 12a) (0.3) Impairment of property, plant and equipment 4 (see note 9) 6.3 Total special items before tax and non-controlling interests Tax (8.4) (1.8) Non-controlling interests (1.4) Total special items attributable to equity holders of Mpact Listing transaction costs associated with the listing of the company on the Johannesburg Stock Exchange. 2 As a result of the demerger from Mondi, and separate listing, we restructured, and settled our long term debt including our floating rate debt. As a result of the settlement of the floating rate debt, the corresponding interest rate swap on this debt was terminated. The costs of R23.1 million of early termination of the interest rate swap, have been included in finance costs charge for the current year. In addition, finance costs of R11.2 million were incurred on the debt financing arrangement. 3 Equity-settled demerger arrangements for senior management have resulted in a fair value charge for the Group in the current financial year. 4 In 2010, an impairment of R5.6 million and R0.7 million was recognised relating to the closure of the Polystyrene Cup Plant at Versapak Paarl and impairment to damaged assets in Mpact Namibia, respectively. Group R million Special items before tax and non-controlling interests by operating segment: Paper (0.3) 0.7 Plastics 5.6 Corporate and other businesses 87.4 Segments total

99 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY NET FINANCE COSTS Group R million Investment income Bank deposits and loan receivables Other Total interest income Dividends subsidiary companies Expected return on defined benefit arrangements Fair value gains Total investment income Finance costs Interest on bank overdrafts and loans (266.0) (416.3) Interest on defined benefit arrangements (18.7) (18.3) Total interest expense (284.7) (434.6) Special finance costs (34.3) Total finance costs (319.0) (434.6) Net finance costs (290.6) (386.5) 6. TAX CHARGE Group R million Analysis of tax charge for the year from continuing operations South African corporation tax at 28% Other country tax Current tax (excluding tax on special items) Deferred tax in respect of the current period (excluding special items) Deferred tax in respect of prior period (2.2) 14.3 Total tax charge before special items Deferred tax on special items (8.4) (1.8) Total tax charge

100 96 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December TAX CHARGE (CONTINUED) Factors affecting tax charge for the year The Group s effective rates of tax before special items for the year ended 31 December 2011, calculated on profit before tax after special items and including net income from associates is 38.6% (2010: 48.4%). The Group has estimated tax losses of R929.2 million (2010: R1,135.6 million) on which a deferred tax asset of R260.2 million (2010: R318.0 million) has been raised. The Group s total tax charge for the year can be reconciled to the tax on the Group s profit before tax at the South African corporation tax rate of 28% as follows: Group R million Profit before tax Tax on profit before tax calculated at the South African corporation tax rate of 28% Tax effects of: Expenses not deductible for tax purposes Non-deductible interest Non-deductible special items 12.9 Other non-deductible expenses 0.4 Non-taxable income Other non-taxable income (2.0) (1.7) Temporary difference adjustments Effect of differences between South African corporate tax rate and other country tax rate Prior period tax losses and other temporary differences not previously recognised Other adjustments (3.3) Tax charge/(credit) for the year IAS 1 requires income from associates to be presented net of tax on the face of the income statement. The Group s share of its associates tax is therefore not presented within the Group s total tax charge. The associates tax charge included within Share of associates profit for the year ended 31 December 2011 is Rnil (2010: Rnil).

101 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY EARNINGS PER SHARE Cents per share Earnings per share (EPS) Basic EPS Diluted EPS Underlying earnings per share for the financial year 1 Basic underlying EPS Diluted underlying EPS Headline earnings per share for the financial year 2 Basic headline EPS Diluted headline EPS Underlying EPS excludes the impact of special items. 2 The presentation of Headline EPS is mandated under the JSE Listings Requirements. Headline earnings has been calculated in accordance with Circular 3/2009, Headline Earnings, as issued by the South African Institute of Chartered Accountants. The calculation of basic and diluted EPS, basic and diluted underlying EPS, and basic and diluted headline EPS is based on the following data: Earnings R million Profit for the financial year attributable to equity holders of Mpact Special items (see note 4) Related tax (8.4) (1.8) Related non-controlling interests (1.4) Underlying earnings for the financial year Special items to be included in headline earnings (87.4) (Profit) on disposal of tangible and intangible assets (see note 3) (1.1) (1.6) Related tax 8.7 (0.4) Headline earnings for the financial year Basic number of ordinary shares outstanding 1 164,046, ,046,476 Effect of dilutive potential ordinary shares 2 173,484 Diluted number of ordinary shares outstanding 164,219, ,046,476 1 The calculation of basic EPS, HEPS and underlying EPS has been based on the profit for the reported period, as shown above, and on 164,046,476 ordinary shares, which represents the aggregate number of shares that were listed on 11 July The Group was not a stand-alone entity prior to the demerger date. The number of shares in issue has therefore been retrospectively applied to the comparative period, so that meaningful comparison can be made. 2 Diluted EPS is calculated by adjusting the weighted average number of ordinary shares in issue, on the assumption of conversion of all potentially dilutive ordinary shares.

102 98 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December goodwill and other INTANGIBLE ASSETS Group R million Goodwill Other intangibles Total 2011 Cost At 1 January 1, ,231.1 Acquisition of business At 31 December 1, ,232.4 Accumulated amortisation and impairment At 1 January Charge for the year At 31 December Net book value at 31 December , , Cost At 1 January 1, ,230.9 Additions At 31 December , ,231.1 Accumulated amortisation and impairment At 1 January Charge for the year At 31 December Net book value at 31 December , ,087.6

103 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY PROPERTY, PLANT AND EQUIPMENT R million Land & buildings Plant & equipment Group Assets in the course of construction Other Total 2011 Cost At 1 January , ,993.8 Acquisition of business Additions Disposal of assets (0.1) (19.1) (6.2) (25.4) Reclassification 0.2 (0.3) 0.1 Change in subsidiary functional currency 1 (7.3) (0.1) (7.4) At 31 December , ,309.5 Accumulated depreciation and impairments At 1 January ,095.9 Depreciation Disposal of assets (0.1) (13.3) (5.3) (18.7) Reclassification 0.2 (0.2) Change in subsidiary functional currency 1 (2.0) (0.1) (2.1) At 31 December , ,374.4 Net book value at 31 December , , Cost At 1 January , ,731.5 Additions Disposal of assets (0.6) (8.8) (3.0) (12.4) Reclassification (35.8) Transfer to disposal group (1.0) (3.0) (4.0) At 31 December , ,993.8 Accumulated depreciation and impairments At 1 January Depreciation Impairment loss recognised Disposal of assets (8.4) (2.5) (10.9) Transfer to disposal group (0.1) (1.5) (1.6) At 31 December ,095.9 Net book value at 31 December , , A subsidiary in Zimbabwe changed its functional currency to US Dollars.

104 100 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The Group has pledged all property, plant and equipment, other than assets under finance leases and those of certain Group entities, as security in respect of the bank loans. The net book value and depreciation charges relating to assets under finance leases amount to R53.9 million (2010: R53.7 million) and R16.9 million (2010: R13.7 million) respectively, and have been pledged as security for these long-term borrowings. The net book value of land and buildings comprises: Group R million Freehold Leasehold long Leasehold short 2.4 Total land and buildings SHARE-BASED PAYMENTS The Group has a share-based payment arrangement for executives and senior employees of the Company and its subsidiaries. The Group intends to operate three schemes on a continuing basis, namely; Bonus Share Plan ( BSP ), Performance Share Plan ( PSP ) and Share Appreciation Right Plan ( SARP ). In addition to the three schemes, two executives were granted once-off share awards under a Transitional Share Plan ( TSP ). Prior to the demerger from Mondi Limited on 11 July 2011, the Group participated in a number of share-based payment arrangements operated by Mondi Limited. During the period under review, share awards made under the Mondi Limited schemes vested. The total fair value charge in respect of all the Mondi Limited and Mpact Limited share awards granted during the year ended 31 December is made up as follows: R million Bonus Share Plan (BSP) 1.0 Performance Share Plan (PSP) 0.6 Transitional Share Plan (TSP) 0.2 Share Appreciation Right Plan (SARP) Mondi Limited share arrangements Total share-based payment expense Consist of Bonus Share Plan (BSP) and Long-Term Incentive Plan (LTIP). Of this charge, R6.8 million relates to the accelerated vesting of the Mondi share awards on demerger.

105 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY SHARE-BASED PAYMENTS (CONTINUED) The fair values of the share awards granted under the Mpact Limited schemes are calculated with reference to the facts and assumptions presented below: Bonus Share Plan (BSP) Date of grant 1 September 2011 Vesting period (months) 31 Expected leavers per annum (%) 5 Grant date fair value per instrument (R) Performance Share Plan (PSP) Date of grant 1 September 2011 Vesting period (months) 31 Expected leavers per annum (%) 5 Expected outcome of meeting performance criteria (%): ROCE component 100 TSR component determined inside the valuation model and incorporated in the fair value per option Grant date fair value per instrument (R): ROCE component TSR component 7.51 Share Appreciation Right Plan (SARP) Date of grant 1 September 2011 Equal third on 31 March Vesting period 2014/2015/2016 Expected leavers per annum (%) 5 Expected outcome of meeting performance criteria (%) EBITDA component Strike price (R) Transitional Share Plan (TSP) Date of grant 1 September 2011 Vesting period (months) 19 Expected leavers per annum (%) Expected outcome of meeting performance criteria (%): ROCE component 79.4 TSR component determined inside the valuation model and incorporated in the fair value per option Grant date fair value per instrument (R): ROCE component TSR component

106 102 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December SHARE-BASED PAYMENTS (CONTINUED) A reconciliation of share award movements for the Group is shown below: 1 January 2011 Share conditionally awarded in year Shares vested in year Shares lapsed in year 31 December 2011 BSP 641, ,662 PSP 466, ,388 TSP 131, ,786 SARP 2,599,608 2,599, BUSINESS COMBINATIONS (a) The Group acquired a 100% interest in Plastic Omnium Urban Systems (Pty) Ltd, through its shareholding in Mpact Plastic Containers South Africa (Pty) Ltd for a purchase consideration of R19.7 million effective as of 31 January Profit for the year arising from this acquisition was not material to the Group. Details of the net assets acquired and the attributable goodwill are presented as follows: Group R million Non-current assets 11.9 Current assets 12.6 Non-current liabilities (1.3) Current liabilities (4.8) Net assets acquired 18.4 Goodwill acquired 1.3 Total cost of acquisition 19.7 Cash acquired (2.9) Net cash paid 16.8 (b) The Group acquired a 49% shareholding in an associate company with effect from 1 January (c) The Group increased its shareholding in a subsidiary on the 17 October 2011.

107 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY DISPOSAL OF BUSINESSES (a) Sale of Merchant business The Merchant business acquired by the Group from Mondi Limited in 2007 has been sold back to Mondi Limited with effect from 1 April The total consideration of the sale amounted to R90.0 million which represented the net value of the sale assets and liabilities. (b) Corporatisation of the Recycling business On 1 July 2011 Mpact Recycling (Pty) Ltd purchased the Recycling business from Mpact for a purchase consideration of R94.2 million. This purchase consideration was funded by Mpact Recycling (Pty) Ltd through a subscription of its shares to Mondi Limited and Mpact, equalling the value of the purchase consideration. Mondi Limited and Mpact own a 25.1%, and 74.9% shareholding in Mpact Recycling (Pty) Ltd respectively. 13. CAPITAL COMMITMENTS Group R million Contracted for, but not provided Approved, not yet contracted for The capital commitments will be financed by existing cash resources and borrowing facilities. 14. CONTINGENT LIABILITIES AND CONTINGENT ASSETS Contingent liabilities for the Group comprise aggregate amounts at 31 December 2011 of R8.6 million (2010: R13.2 million) in respect of loans and guarantees given to banks and other third parties. A dispute has arisen in respect of the value of shares put by a minority shareholder in a subsidiary. A Group mill is the subject of a land claim, which should not have a material impact on the financial position of the Group. There are a number of legal and tax claims against the Group. Provision is made for all liabilities that are expected to materialise. There were no significant contingent assets for the Group at 31 December 2011 and 31 December 2010.

108 104 MPACT LIMITED INTEGRATED REPORT 2011 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December OPERATING LEASE COMMITMENTS At 31 December, the outstanding commitments under non-cancellable leases were: Group R million Expiry date Within one year One to two years Two to five years After five years The majority of these operating leases relate to land and buildings.

109 MPACT LIMITED INTEGRATED REPORT 2011 / FINANCIAL STATEMENTS: A SUMMARY RELATED PARTY TRANSACTIONS The Group has a related party relationship with its associates and directors. The Group and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and services transactions with joint ventures and associates and others in which the Group has a material interest. These transactions are under terms that are no less favourable than those arranged with third parties. These transactions in total are not significant. Transactions disclosed elsewhere in the notes have not been repeated here. Details of transactions between the Group and other related parties are disclosed below: Group R million Sales to related parties Purchases from related parties Admin fees Loans from related parties ,322.1 Loans to related parties 2.4 Receivables due from related parties Payables due to related parties Dividend income Interest Income Management fee 0.4 Management salaries paid to non-controlling shareholders of a subsidiary In the prior year, Shanduka Group (Proprietary) Limited and its subsidiaries were disclosed as related parties to Mpact. This was due to MC Ramaphosa, joint chairman of Mondi, having a 33.1% stake in the Shanduka Group (Pty) Ltd. Subsequent to the demerger from Mondi, MC Ramaphosa is no longer a related party to Mpact.

110 106 MPACT LIMITED INTEGRATED REPORT 2011 ADMINISTRATION

111 MPACT LIMITED INTEGRATED REPORT 2011 / ADMINISTRATION 107