Mondi plc

Everyone, it's Andrew King here, Group CEO, and with me is Mike Powell, our CFO. I'm sure you've all read today's announcement, so I'm just going to pick up a few points before we go into questions. The weak macroeconomic environment continued through the third quarter, resulting in a continuation of the challenging market conditions we've seen throughout the year. Market demand has generally remained subdued, with lower average selling prices largely mitigated in the third quarter by a low and tight fixed cost control. You will have seen that the forestry fair value gain was 14 million in the quarter, significantly lower than the 72 million euros recorded in the second quarter of the year. All of this then resulted in the group delivering underlying EBITDA of 261 million euros for the quarter compared to the 320 million euros for the second quarter of the year. We do anticipate the trends seen in the third quarter will continue to the final quarter of the year, but without further significant cost relief as wood and other costs are now stabilizing. We will be seeing a greater impact from maintenance and project-related shuts into the final quarter as well. Despite these short-term challenging markets, we do remain very well positioned to benefit when market conditions improve. with our very low cost base, broad product offering, and fully integrated business model, which continues to provide resilience in these current environments. With that, Mike and I are very happy to take your questions.

Excuse me. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 1 on their touchtone telephone, then pick up the receiver when asking questions. Anyone who has a question may press 311 at this time. We will pause for a moment as callers join the queue. And the first question comes from the line of Cole Hawthorne from Jefferies. The line is open. Please ask your question.

Morning, Andrew. Morning, Mike. Can I just start off firstly with the cost relief? You know, I think expectations were hopeful that we'd continue to see some further kind of wood cost relief into the fourth quarter and into 2024. So I'm just hoping you can give a little bit of color on what you're seeing regionally on kind of wood costs and expectations into 2024, and if there are any other major cost buckets that are worth calling out besides the wood cost. And then, secondly, on craft paper, I'd like to ask something around kind of the cyclical versus the structural side of that. paper side, you know, Mondi's a leader in sack and craft paper. You know, you're forward integrated into your bags. You've got visibility on the supply chain, medium term of what customers are doing and planning. Yes, right now it's very cyclical in this destocking in a number of regions and markets. But, you know, have you seen any changes to your medium term kind of growth prospects of 2% to 4% given the tailwinds of plastic to paper versus potentially, you know, some reductions in demand from other items and linking this to, you know, the supply and demand of SAC paper, which is, you know, different to container board. It's, you know, 20th the size. What does this mean for supply and demand over the next few years?

Thank you. Cold morning. Let me start with the first one and then Andrew can take the second. Cost relief into, I think your question really is Q4 on Q3. So let me answer that and see if it helps you. I mean, we saw wood, if I take wood first, come off as we expected in Q3. It's flattening out. It stayed high in Scandinavia and is flattening out from sort of, if you like, the exit point in September. So we will see some sort of averaging effect Q4 from wood. Difficult to call 2024, Carl. The reason it's sort of flattening out in our view is because, of course, the economic activity for the whole of the tree isn't being used. So the sawmills are quiet, the economic activity in the sawmills are quiet, which means that there's little chips and people are leaving the trees in the ground right now. Of course, what we really need is economic activity, those sawmills to start, and that might give us some both economic activity and also some help on wood into next year, but I think that's a bit early to call. So I think, you know, flat line from an exit point in Q3, sort of going sideways into Q4, maybe with a little bit of relief on the averaging on wood. I would say on other costs, I mean, energy is public. We use a lot of biomass, as you already know. I would say still sort of it's moving sideways mostly on most costs. I mean, some Some of the chemicals, some of the commodity inputs are flattening, maybe even early signs that they're starting to turn. I don't think we see that as a bad thing, because if that's a sign of economic activity picking up, frankly, I think we'll take that. But I think the other areas are definitely stabilizing, maybe even early signs of a turn. But again, we'll have to wait and see on economic activity. stabilizing for some small cost relief into Q4 and would other stuff sort of sideways and flat. Does that help? Thank you.

Yes, and then to call to your question on the – particularly the bags and Xacroft value chain. I think the short answer is no in terms of any change we see in terms of our medium-term expectations for this market. We do still see it as a structurally growing market. Why is that? Obviously, you've got the traditional uses of bags, and I'll come on to that, but of course there's always cyclicality in that because you have a lot of building materials, cement, chemical type of exposure and in a macroeconomic downturn you do see pressure on those and that's what we have seen. But outside of that we're also seeing non-traditional uses growing in the e-commerce applications which typically didn't exist previously but now are a growing source of demand for bags and craft paper. Also the consumer applications which are as you've mentioned displacing the likes of non-recyclable plastic solutions for paper-based and which are renewable, recyclable, et cetera. And of course, there is a growing demand for that now in the short term that all packed it by the cycle because people are focused on cost of living and the ability to transfer transfer costs onto the end consumer. So I think there has been a slowdown in the rate of take up in certain aspects, but certainly that when we talk to our customers there, they remain extremely committed to driving a more sustainable packaging solutions in the products that they use. And as you well notion is also pushing in this direction as well. So I think that will continue as a trend. albeit in the short term, we are clearly being affected by the cyclical pressures that one sees. You know, it is a product which we've seen extremely strong period of demand followed by this current weaker period of demand. I'm convinced that that is a cyclical issue. As we say in the sort of announcement, it is typically a bit later cycle in the business in the sense that it was holding up much better into actually the beginning of this year, whereas container board and pricing and volumes were coming under pressure back end of last year or even into Q3 last year. So it's a bit later cycle, but I'm convinced it's a cyclical thing. It's certainly not a structural question here. and we remain very confident in the structural demand growth into the future. As you say, on the supply-demand side, what does it mean in the short term? Obviously, if you see a demand, you see an imbalance in supply and demand. The good thing, though, on this product is it is very limited new supply coming on. As you know, as you say, it's a very well-consolidated sector, typically, both upstream and downstream, importantly. The only real new volume of any significance coming into the market is the product that we're going to be bringing in 2025 with the ramp-up of Steti into 2025 and 2026 and beyond as we ramp it up. So, yeah, I guess the supply side is a different dynamic to what it is in other grades, and I think all is well for the future as and when we see a pickup in demand driven by, no doubt, a macroeconomic recovery.

Andrew, thanks on the longer term, and maybe just on the short term, is there any color you can call out on the flexible paper side on demand, order books, any changes you've seen recently, and thoughts into 24-1, if you can say anything on volumes pricing?

Yes, I mean, one always looks at the downstream business, so particularly on the bags business, which is the sort of the lead indicator, I guess, in terms of the demand picture going forward. I mean, what's, I think, somewhat encouraging is if you look at Europe, which is still the biggest market for us by some distance, you know, we see the first half was very difficult on the demand side. It seems to be stabilizing now. Look at the sort of year-on-year numbers coming through. We're certainly stabilizing in Europe. but clearly off a lower base than we enjoyed at the peak back end of last year or second half of last year. So you are seeing a stabilizing. US was a bit later in slowing down. So it has been slowing down a bit into the third quarter now relative to where it was. Other markets that we serve, which are very for us, Middle East, North Africa, clearly volatile as always. But generally, I would say, okay. So, you know, we've seen the real decline has been in the core European markets in the first half of this year. I would say there seems to be some stabilizing going, you know, coming back into the back end of Q3 into Q4, but it's obviously early days in that. But, again, you know, like we've seen in other – there's been a destocking effect. I mean, that doesn't last forever, and it's probably come to an end now, and that's why we're starting to see things stabilizing. But, you know, it's still early days to call a turnaround at this stage.

Thank you. And now we're going to take our next question.

And the question comes from Muriel Sands from BNP Paribas Exxon. Please go ahead.

Thanks very much, guys, for taking my questions. Three from me, please. The first is very short. Just in terms of the maintenance shutdowns that you're flagging will impact Q4 a bit more, can you put any numbers around the impact in you know, the third quarter of this year, the fourth quarter of this year, as you anticipate it, and also what the fourth quarter of last year, the maintenance is.

Sure. Do you want to give us your other two, Charlie, and then we'll... Sure.

Yeah, okay. So, and then question two is, I know it's early days, but I just wondered if you could give us any of the kind of key puts and takes you think about, or you think we should be thinking about as we look into 2024, obviously some new, you know, the fruits of some new projects should start to deliver. But, you know, the run rate, as you see it, to the limited extent you have, any other considerations there? And then the third question is really, obviously the, you know, the next draft of the EU PPWR is due to come out, I think, next week. I wondered if you could sort of talk to, you know, what your hopes and fears are on that, you know, not wanting to prejudge how the revised draft might change from the first draft. Thanks.

Thanks, Charlie. We'll take those in the order. Maintenance shuts, we said at the annual results and then actually again at the half year, the number for the year is about 100. We had about 40 in the first half of the year. The delta between Q3 and Q4 is about 30. And therefore, you know, we probably have 10 to 15 in Q3. And we'll have 30 more than that in Q4. So we've got a big maintenance shut program, some of that to introduce new projects as well. So it's not just the normal maintenance, but we have got the shuts to introduce some of the new projects in the month of October. And all of that is going well. The maintenance shut, I think you asked for Q4 last year, pretty similar numbers, actually. both Q3 and Q4. So if you want the year on year delta, pretty small. Projects, projects 2024, I'll guide those at the end of the year. Once we get a bit covered, normally do. Fair to say all the CapEx expansion projects on track, on time and being well executed. And that will bring good growth. As we've said in the past, the big upstream projects, come on 25-26. The converters do start to come through a little bit earlier because, of course, the build phase on those is a shorter time. So we will see some effect into 2024 and I'll update that at the year end.

Yeah, and Charlie, on the PPWR, we've published some thoughts on our positioning around PPWR and it's available on our website. I mean, I think As an industry, generally, we are urging the European Union to consider reuse and recycling as equivalent, whereas I think early drafts of the PPWR were promoting reuse over recycling. It has to be guided by the science. In every situation, it can be different as to which is frankly better from the environmental perspective, whether it's a reuse solution or recyclable solution. And I think the amendments that have been tabled, the direction of travel of the drafting is positive from that perspective. I think there's been a lot of carve-outs, as you know, corrugated, has been carved out a lot of the reuse requirements. And so generally speaking, I think it's moved in a better direction. And to be very clear, we support good legislation in this regard that drives the use of sustainable packaging solutions. It's just important that the legislation doesn't have unintended negative consequences for the environment and we certainly believe that recycled product in a highly established, very efficient recycling stream is a very important contributor to the environment and the box business in particular has a fantastically established circular economy system. So I think that is always very well for it and I think it's being recognized by the rule makers. But yes, we will adapt to whatever the circumstances and similarly on the flexibles business, we certainly see it actually is a net positive for us, the direction of travel of the regulation, as I mentioned earlier, it is driving the use of paper-based solutions, displacing non-recyclable plastic solutions, and similarly on the plastic solutions is driving the use of recyclable solutions, including a recycling content. And we've got a lot of great new products that we have developed and brought into the market already to serve those requirements. So we actually see it as a very good opportunity for us on the flexible side.

Thank you. Thanks. Thanks, Charlie. Thanks, the operator.

Nadia, we're ready for the next question. And the next question comes to the line of David O'Brien from Goodbody. Your line is open. Please ask a question.

Good morning. Thanks, everyone, for taking my questions. I have three as well, please. First on corrugators. think at the half-year stage, Andrew, you talked about the pressure on container board manufacturers and particularly independent guys in Europe. Could you give us an update on where you think these guys are positioned now and what the potential timing around any price increases in container board may be? Is it a 2024 event or is there any chance of pre-Christmas people are kind of forced into price increases just given OCC tick up and maybe other pressures in the system? And related to this, any evidence that the box price is any more stickier in this cycle than previous cycles, or what has the Monty experience been? That's number one. And number two, you guys have been renowned for tight cost control. You call it out again in this morning's statement. As we look at a pretty sluggish environment into 2024, do you guys have anything planned incremental in terms – cost takeout program or anything, you can point us toward above and beyond kind of your normal cost takeout. And then finally, and maybe a little bit more philosophical, there's been a lot of debate about GLP-1 diabetes drugs in the market and the potential for reduced food consumption. And maybe I'm one of the people who should be taking them, but the question to you guys, have you guys thought about the potential impacts here on packaging consumption in the market or how it may structurally impact the Maundy business kind of long-term view.

Okay, David. Thanks, David. That certainly is quite a left field, a large question. And I must say, not something I've dwelt on particularly. I mean, clearly food and beverage is an important component of of the sort of end-use demands for boxes, but it's, yeah, as you could think about boxes, it touches just about every sort of industrial and consumer application at one point or the other because it's the primary transport packaging. As I said, to be honest, I wouldn't know what the longer-term consequences would be if people sort of eat less. but something we would have to consider as one of our risks going forward, but I think it would be a very long-term issue if it was indeed an issue. There are probably other issues which will impact the markets both positively and negatively well before that becomes a major consideration, but something we will certainly be considering. Coming back to the recycled container board markets and the pressures, Yes, I mean, you know, I think the pressures have only continued to build, you know, while pricing has been relatively stable since, you know, we last spoke at the half-year results announcement. You know, the cost base has stabilized, and as you rightly say, I mean, you're starting to see energy prices tick up a little bit, nothing like what we saw, you know, through the course of last year, but they are going up a bit. And PFR prices are also picking up a bit. So, of course, that means the whole cost base for the industry goes up. You know, we are relatively less affected because we've got such an integrated energy system. But if that has the effect of pushing up the cost base, of course, by definition, margins become even more squeezed and the top end of the cost curve comes under even greater pressure. So, yes, I mean, I think there is huge pain at the top end of the cost curve. I mean, you're seeing it manifest to the extent of project delays, cancellations, et cetera, and also some capacity permanent closures. But, of course, there's also a lot of temporary closures. Temporary closures are extremely expensive and, you know, cannot persist for too long. You've basically got no revenue in a fixed cost base. And so, you know, one only believes that something has to give, yeah. because the current paradigm really is not sustainable for the industry. I think clearly in the longer term, I certainly firmly believe that the demand picture will improve because, again, we're seeing a cyclical downturn right now. There's nothing to my mind that is structural in this. But at the same time, there is new supply coming on, and I suspect some supply-side rationalization as well, which is always forgotten about in the traditional supply and demand sort of calculations that we see the consultants do and the like. As to pricing expectations, obviously, I'm not going to sort of be preempting any of that in terms of the discussions we have with our customers, but it's fair to say that the margins right now are unsustainable for the industry as a whole. We still make money because we are a low-cost producer, but it's very tough for the industry. In terms of box price stickiness, I don't think there's any real, you know, it's not, one cannot generalize it's only it's different this time or any other time. I mean, generally speaking, my perspective on it is when you see sharp moves in paper prices, the box prices move quicker relatively, and if it's a modest move, it takes longer for the box prices to move, and that applies up and down, frankly, and that's That's really what differentiates. It's not that the market has changed dynamics and suddenly it takes longer or it's either stickier or less sticky for that matter. And finally, as regards to cost takeout, I mean, the short answer is no, we don't believe in big bang, one-off, you know, headline-grabbing cost takeout programs. We believe in constantly driving costs out of our system, constantly searching for efficiencies, productivity gains, And of course, we're constantly doing that. Some of our CapEx opportunities obviously will also bring cost benefits. And that's why they, you know, they're very attractive. They not only bring sort of top line growth, they also bring cost optimization in a lot of cases. But of course, in the short term, the impact of market standstills and things in the industry more broadly is also to, you know, play havoc with cost structures, because as you could imagine, it's extremely inefficient to be and stopping machines and the like, and so that also impacts the cost curve more generally. You know, we're in the fortunate position that we can typically manage that better because being a low-cost producer in a containable grade, for example, we can typically still run full even in a softer market, and that also helps our cost position. But in short, it's something we, you know, it's ingrained in our culture to continue to drive that. Obviously, in the downturn, like you're currently seeing one, you know, one double the pressure on the organization to drive costs out. But I certainly believe that that's the best and most sustainable way to manage your cost base as opposed to sort of one-off restructuring programs which grab headlines but not necessarily are that effective.

Appreciate it, Collier. Thanks very much.

Thanks.

We're ready for the next question, Nadia.

And the next question, and the next line of Sean Unger from Chronix Research. Your line is open. Please ask your question.

Good morning, Inder Mark. Thanks for the time. Just a quick one from mine, thanks. Just in terms of the Flexibles business, specifically focusing on the SACCROF side. If you maybe just, I know you have already given some color, but perhaps you could give a little bit more to the cadence of the SACCROF price that have been coming through and sort of on the volume end as well. That would be appreciated. Thanks.

When you say cadence of the SACC price, I mean, we've seen, you know, as we say in the literature, we said it a half year, we've seen from Really what happened was, unlike Container Board, which started to price erosion started happening really Q3 into Q4 last year, and Satcraft was still going up through the whole of last year. It really peaked at the end of the year into Q1. It was fairly stable. And then you started to see some price erosion. as a consequence of the softer demand and destocking and all of these things into Q2, and that continued into Q3, as we suggest. So it was really a bit of a later cycle, as I said, in the container board pricing, but it's followed a similar pattern, but obviously different bases, but slightly delayed relative to where the container board moves to take place. But I think what's also important to note, and this applies cross the piece. I mean, it's really since the middle of last year that you've seen volumes starting to come under pressure, industry volumes I'm talking about more generally, and that's both in container board and craft paper and, of course, the box and bag, respectively. And so we now, what are we, 15 months into a sort of down cycle, as it were. I mean, that's normally quite a long down cycle. I'm not suggesting that history always tells you exactly what's going to happen to the future, but it feels like it's been a pretty long down cycle, which I think people tend to forget. Sometimes the commentary is that it's only just been happening. I mean, the volume side has been under pressure from an industry perspective since really the middle of last year.

If you go back to H1, we're down about 8% here and there. It's going sort of Q3, Q4. What sort of run rate are we looking at there?

I didn't get the paper volumes. What?

I didn't hear. Sorry, Andrew. I've lost my voice. In the flexible packaging business, the paper bag volumes sold or produced in H1, I think we're down about 8% year-on-year, if I understand the correction. And I was just asking, tell us the sort of movements that we've seen in Q3 and potentially Q4.

Yeah, I mean, this is a trading update. We don't give all the production volumes and things like that on that level of detail, but it's... It's continued a similar trend, I think, is what we suggested, and, you know, that's appropriate. Okay, cool. But as I was saying, you know, things are having, if you look at the industry trends, the first half of Europe was in particularly, you know, under pressure. That seems to have stabilized into Q3 and going into Q4. America's was a bit later sort of to the party. I mean, it held up for longer. It's come off a bit now. So that's been a sort of bigger sequential contributor as you go into what is now Q3 into Q4. So, you know, we obviously... sell bags on a global basis. It's not any one regional market. You have to look at the whole big bit. In totality, yes, the trend of softer price, softer volumes has continued.

Excellent. Thanks, Andy. Bridget, Tom?

Thanks, Sean. Nadia, we're ready for the next question. Yes, of course.

And now we're going to take our next question. And the next question comes from the line of James Twyman from Prescient. Your line is open. Please ask your question.

Yes, thank you. Thank you very much. The first one is we're seeing closures going on in the industry in fine paper and container boards. Although you're a low-cost business, are there any closures that you're looking at or is it something you're looking at in general in addition to the receiver? And secondly, just in terms of the Canadian acquisitions, It's been going for a few months now. Is the pulp mill there still in line with your expectations in terms of its abilities and could you talk around the reasons for that acquisition? Certainly.

Thank you. Thanks, Joe. Just on the closures, as you say, we shut off PM6 in Oisila and have restructured that business accordingly earlier this year. I mean, as you would expect from a responsible industry player, we're always looking at what makes sense for us in terms of our production portfolio. But as you also know, we are in the privileged position of having extremely cost-competitive assets, well-invested, and that can do well even in the most difficult of times. But, of course, we're always looking at what most makes sense. But certainly we believe we're well-positioned in that regard. As regards the Canadian acquisition, firstly, we haven't completed on it, so it's not ours yet. So it's still being run for the benefit of the seller. And we're hoping to complete back into this year, into early next year. So it's only then that it becomes under our ownership. So it would be wrong for me to really comment on the off-site environment for an asset that we don't yet own. But again, we are extremely confident that she has a an asset which provides a very compelling cost structure for the type of pulp we need to be making craft paper. The logic behind it is it's very cost competitive wood delivered into a pulp mill that makes this particular grade of unbleached craft pulp which we need to make the high-end SACCRAFT paper that we need in turn for integration into our America's business. We are the number two converter of bags in America, number one in Mexico. We will need by the time this machine comes into operation, which is only in 2027, if all goes well, at least half of the volume from the machine will be immediately integrated into our own system. And we know it's also highly cost competitive delivered into global markets. So, you know, we see that it is a very compelling opportunity to continue to cement our position as the by far market leader in both the craft paper production and obviously the downstream converting. And as I said earlier, yes, there's some short-term cyclical headwinds on the demand side, but, you know, I'm convinced that those are very much cyclical as opposed to the structural growth that we've been seeing. on a through cycle basis, and I'm convinced we'll continue to see, and certainly by the time this machine comes on in 2027, it will be a very different looking market anyway.

Thank you very much.

Thanks, Nadia. We're ready for the next question, please.

Yes. And the next question comes from Brian Morgan from Morgan Stanley. Your line is open. Please ask a question.

Hi, guys. Thanks very much for the call. Just on the Russian disposal, congrats on getting that across the line. Do you have any thoughts on shareholder distributions, sort of buybacks, dividends, timing, et cetera?

Brian, it's Mike. No, I think we've been very clear that once we've got all the cash, we will give that some thought. I think the focus right now has been getting the transaction over the line and getting the cash into our bank account and converted into euros, which, as you know, we're well on with and we've announced, but no change to any previous announcements, which is we'll return the net proceeds to shareholders and we'll announce how to do that at the time where we've got the transaction actually finalized. Okay. That's it. Thank you. Thanks, Brian.

Thanks, Nadia. We're ready for the next question. And now we're going to take our next question. Just give us a moment. And the question comes from the line of Pavel Mittal from Barclays. Your line is open. Please ask your question.

Thank you. Thank you for taking my questions. I have three questions. So firstly, Q1 and Q2 saw a significant impact from destocking. And the trends started improving in Q2 as you had highlighted. Can you please talk about the volume trajectory over the last three months and what are your expectations going forward? So any color on that would be great. Secondly, the utilization in the industry is very low currently, where it used to be versus two years ago. In this weak demand environment, are you planning to then pull back on some CAPEX going forward? And lastly, what is the discount rate that you use to value the forestry? Because as discount rates have gone up, I'm just trying to understand, does the value of these assets go down? Thank you.

Very good. Yes, in terms of the volumes, I think we've discussed that to some degree in various other questions. So as we've said on the On the corrugated value chain, we've seen the volumes come off quite sharp. This is the industry volumes. This is across from the middle of last year through the back end of that year into the first half of this year. It started to stabilize going into the Q3 and certainly our order situation. And when you look at the industry delivery stats on a like-for-like basis, it appeared to be stabilizing. albeit obviously we now have easier comps because it was into the Q3 last year that you see the volume softness. Similarly in flexibles, as I said earlier, it was a bit later cycle. We started to see the volume pressures start into the second half of last year, but really the pricing dynamic only started to weaken into Q2 this year. And as a sort of sequential basis, we have seen volumes come under pressure. At the same time, as I stressed earlier, certainly in Europe, it would appear as though, you know, the order is stabilizing, albeit at lower bases. So, yeah, a mixed picture, but, you know, I refer also to the previous questions we were dealing with. On the CapEx front, the short answer is no. I mean, we certainly, you know, where we are putting our money on the CapEx front is where we believe We will make money on a three-cycle basis. We see we are putting money behind the structuring packaging markets where we know there's products that people will need more of going forward, where we also can produce it in a highly cost-effective way, and we can make sure, as a consequence, you know, we all make good returns, you know, irrespective of the market conditions. Obviously, always nice to bring new capacity into an upcycle. Typically, these big projects are, you know, three-, four-year lead times. Big incremental volume expansion is only coming on in 2025, which will be steady. And then again, you know, we've also got the Arduino operation and container board coming in at a similar time. You know, frankly, two years is a lifetime in the current world because we've seen the volatility from, you know, this time last year where everyone was crying out for volume. to a more difficult environment simply because of the cyclical done. I'm convinced that that will return. But more importantly, you know, with the investments we're making, you know, are highly cost competitive. And as a consequence, we, you know, we are very confident we'll make good returns. Obviously, outside of that, we always are optimizing our CAPEX spend and making sure we spend it in those areas that make most sense. And frankly, don't spend it where we don't see good future opportunities. And finally, the whack on the forestry, I don't know what you can read about it in the integrated report, but I'm sure Mike can give you a chapter on this.

Yeah, well, the integrated report gives you a lot of detail. I mean, it's quite a complicated calculation in the long-term assets. The risk premium, if I remember rightly, for the immature forests is about 12.5%. For the mature ones, it's 4%. And then we give a sensitivity also in the note that Andrew's referred to. But it's in the detailed note, the 2022 calculation. But those are the risk premiums. But you have to value it differently depending on the stage of life.

Great. Thank you.

Thank you.

I think we've got two more questions on the line. So, Nadia, if you could take the question from Andy, and then we'll take the question from Cole.

Yes, of course. Thank you so much for confirming. And our next question comes to the line of Andrew Jones from UBS. Your line is open. Please ask your question.

Hi. Thanks, Jones. Just a quick reminder on contract structure, spools particularly. Can you just remind us on how much of your bag and, you know, set craft pricing resets at the year end? I mean, how much is – can you just give us a breakdown of how those contracts work and also just on the container board side given the price has been flat for a while I'm just curious If prices stay flat from here, when do you expect the boxes to actually stop falling? And can you give us any sort of sense as to what the potential delta is on box pricing from the levels we saw in the third quarter if container board doesn't move?

Thank you. Yeah, thanks, Andy. I mean, you talk about flexibles and then the bags and craft as sort of synonymous. Obviously, our flexibles offering is broader than that. And particularly our consumer flexibles, reality craft, you know, has a different dynamic to consumer flexibles and is extremely defensive on a three-cycle basis because obviously a lot of it is to food and beverage that you, you know, in primary packaging that you see on the supermarket shelf and the like. And albeit that there's invariably a mixed effect in a downturn with people buying down per se, you know, the quantum of food and drink that they purchase is not necessarily hugely affected. So, you know, that remains pretty resilient on a three-cycle basis. In terms of the contract business, you're referring specifically then to the paper-based craft paper and bags. On that score, you know, when you look at it on whether you're selling a of paper or the paper in the form of a bag. In rough terms, around 10% of our volumes are contracted out for a year, probably 20-ish percent is for six months, and then the rest is floating, which is a change from historic sort of ratios because because of the volatility we've seen in this market over the last number of years, you know, no one wants to be caught with too long dated contracts. And also the nature of the customer base has evolved, because obviously, as we've seen new demand sources for the likes of e-commerce customers, consumer FMCG customers and the like, which simply didn't exist. It used to be dominated only by the industrial customers, mainly cement and building materials and the like. So that combination of the annual price negotiations that typically, I mean, they really start now, but it will only conclude into the new year are important but not quite as relevant as they used to be. As you've seen, frankly, this year with price erosion taking place, I mean, it has come through in the numbers, which it wouldn't otherwise do. Obviously, if you had much more annual contract business and vice versa when prices are going up, it feeds through quicker than it would historically. And then your question on the box prices, you know, our rule of thumb is always it takes three to six months for the box prices to sort of move relative to the movements in the container board prices. As to, you know, that question was raised earlier about the relative stickiness. I don't think that rule of thumb per se has changed other than, you know, when you see sharp moves in container board, it moves quicker than that. If you see, you know, if it's slower... more predictable moves, then it moves a bit slower than that. So, you know, container board prices started to really stabilize going into Q3, sort of, I suppose, three-ish months of that. So that's the way I'd look at it.

Yeah, that makes sense. It sounds like 2024, you know, start of 2024, we stop any decline in box prices given container boards have been selling for quite a while. now. Is that fair? Couldn't pick that up? Sorry, just saying, so if basically pricing has been stable through 3Q and then through 4Q, you'd imagine with that six-month lag that box pricing wouldn't be declining anymore at the start of 1Q this year?

Yes, I think all being equal, but obviously these are These are fluid markets, you know, that if you use that rule of thumb, you're not far wrong.

Okay, that's great.

Thank you. Nadia, we're ready for the last question from Cole. Thank you.

Yes, of course. Just give us a moment. from is open. Please ask your question.

Thanks for taking the follow-up. Just for clarification, you talked about order books improving in corrugated packaging. I'm just trying to understand if that's your kind of central Eastern European box business or kind of your wider container board portfolio.

Yeah, so I think when we talk about corrugated solutions particularly, it's obviously our box business, which, as you say, is more regional in nature. But I do think there's a sense that there is a general pickup. I mean, if you look, I know the industry data is always a bit delayed, but typically you're starting to see that feed through on a more industry-wide basis. Again, you know, I stress our container board order books maybe look a bit different to the overall industry because of our our very strong cost position and the like, but I think if you look again at the more general industry stats, there is a sense that now you're starting to get into a position where certainly it's not getting worse in terms of the overall volume picture. It's getting a bit better. As I say, the year-on-year comps start to look better as well because the comp is easier, but generally speaking, I think the order books are or improving, I would say.

Andrew, you gave some good colour around the high-cost recycled producers in the industry remain under pressure. The market is always guilty of, when times are good, extrapolating better demand into the future, and when times are bad, extrapolating more negative demand. But with packaging and packaging waste directors, David's comments around GLP-1, are we in a position where we're probably going to maybe trim our longer term container board growth outlooks? And what does that mean for, you know, supply to bond? Do you think we're in a period where we're going to start seeing the industry rationalized like we're seeing in the US?

I would be about sort of taking a longer term, taking a view on longer term dynamics given sort of the current sort of cyclical issues. I mean, the first As always, it's always the case in packaging more generally. I mean, one's longer-term view in the first place is impacted by one's longer-term view of the macroeconomic outlook and what that might be. It's fair to say we're in a macroeconomic downturn right now and one would expect a recovery in due course. But in terms of the structural dynamics relative to call it overall economic growth, et cetera, I still think they remain very positive for both key packaging areas of corrugated and flexibles. This PPWR, I know there's a lot of talk about it, but I do believe ultimately there are no real obvious substitute products for a good corrugated box. Clearly, industry ever since I've been involved has been working to lightweight, to use less raw material, I mean it makes economic sense as well as obviously environmental sense, and of course driving recyclability, and it is a highly developed, recycled infrastructure that one enjoys in boxes. And simply put, I firmly believe there are no better solutions out there from a sustainability perspective. And I believe the science, you know, we do a lot of work on life cycle analysis and the like, and you compare the different solutions, of course, in very specific cases. You might see an example where a reuse option is better, but if you think about sending, you know, plastic crates around Europe, for example, and the logistics and that, all the chemicals involved in cleaning them, and then, of course, you've got to dispose of them eventually because nothing's reusable forever. You know, the dynamics just don't support that from a sustainability perspective. So I think, you know, boxes have an incredibly attractive proposition from a sustainability perspective, from a cost perspective, an efficiency perspective, and there are not a lot of things that can substitute it from a negative perspective and, in fact, enjoys positive substitution. Similarly, on the flexible side, we have a bags business, which is, as I say, seeing all sorts of new demand sources come through, similarly on the craft paper, all these applications. I note David's concern about maybe fast foods and things into the future, but we have a big good component there, or food component, because craft paper is used to wrap various foods and things like that. These are growing markets, and again, I think that you know, the legislation is going to support further development of these types of applications in addition to simply consumer preferences going forward. So, you know, we see it as all very exciting. So I think it's extremely dangerous to extrapolate near-term clearly into, you know, longer-term growth dynamics. Thank you. That was helpful. Very good. I think we are coming close to the hour, so I think it is time to wrap it up. But again, thank you very much, everyone, for your interest. We make no bones about the fact that it is a current challenging trading environment in the short term, but as I've just said, I think most of this is very much in a sort of short-term cyclical nature. We know that markets do turn. We think we're in an extremely strong position from a in terms of the fundamentals of our asset base and also the markets that we serve. So again, thank you very much for your attention today. And obviously, if you've got any further questions to please follow up with us, you've got all our details. So thank you very much. Back to the operator.