Mondi plc

Good morning, everyone, and thank you for joining us today to discuss the third quarter trading update. I'm Andrew King, your group CEO, and with me today is Mike Powell, our group CFO. I'm sure you've all seen the announcement this morning, so I'll just pick up a few points before happy to go into questions. Our performance in the third quarter was, as we expected, lower than the previous quarter with an underlying EBITDA of 223 million euros. As we mentioned in August, we moved some of our planned maintenance shuts from the second quarter into the third quarter. Combined with the normal shut schedule for Q3, this resulted in a higher impact of planned maintenance shuts in the third quarter when compared to the previous quarter. In addition, we advised of a likely forestry fair value loss in the second half of the year when compared to the gain that we booked in the first half. Together for the third quarter, these resulted in a difference of 90 million euros when comparing the third quarter result with that of the second. Seasonally softer demand and modestly higher input costs mainly related to paper for recycling price increases and higher external energy purchases also impacted the quarter. Packaging paper price increases implemented earlier this year benefited our upstream businesses in the quarter, while uncoated fine paper and pulp prices declined in the quarter following a recovery in pricing earlier in the year. Going into the final quarter of the year, trading conditions remain muted against the backdrop of an uncertain macroeconomic environment, but there are fewer planned maintenance shuts, and we do expect a normal seasonal pickup in demand. We are very excited by the progress we are making on our capital investment projects. Our two biggest expansionary projects, the paper machine investments at Steti and Duino, remain on track for startup next year. While it can be difficult to stay the course on these investments in a down cycle, I firmly believe in our approach of investing consistently on a through cycle basis to deliver strong value creation. Together with the recently announced acquisition of Schumacher's Western European assets, which we expect to complete in H1 next year, we are very well placed to capitalize on the structural growth in sustainable packaging. With that, Mike and I are happy to take your questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 11 on their touchtone telephone please pick up the receiver when asking questions. We will now take our first question. Please stand by. And the first question comes from the line of Lars Kuehlberg from Stifel. Please go ahead. Your line is now open.

Thank you for taking my questions and good morning. Just to be clear, can you Please call out the fair value changes and the maintenance activity in the quarter as there are pretty big items and specify them. Also, if you kind of look at your underlying performance, excluding those items, it does look quite a sizable deterioration and with a backdrop of somewhat improving demand, near or at least, and with a significant part of your revenue base seeing progressive pricing. If you can walk us through the buckets there, if there was any particular negative volume movements in the quarter that you want to call out. And you talked about modest cost increases. We know about OCC, but it does seem as if there's more than modest cost increases. But if you can put some color there, that'd be helpful. Thank you. And finally, what do you expect for forest value Q4 in the total annual maintenance cost, please. Thank you.

Thanks, Lars. Yeah, no, certainly. Let me give you some numbers and then maybe Andrew can broaden out across the rest of your questions. Just recognising this is obviously a trading update and we'll help you with that. In terms of fair value, as we've already said, there was about 50% in the first half, of which probably around 35 was in Q2. So if you think of the sequence, it was 15 Q1, 35 Q2. These are approximate numbers. Q3, we have booked 15. And I think you also asked about where we'd expect it to land at the full year. Unfortunately, I don't know that. But I think you can expect at least the same as the Q3 number in Q4 sat here today. that number will change. I will be wrong on that because there's a detailed valuation done at the year end and at the half year, as you know. But if I was to sort of think about where that number may trend, it's probably at least the same again sat here today.

That was negative 15.

Correct. Thank you, Lars, for clarifying. So therefore, the delta, which I think was your question between Q2 and Q3, goes from a plus 35 to a minus 15. That delta, therefore, is 50, 5-0. So I think that covers off the fair value. In terms of maintenance shuts, we guarded at the very beginning of the year, and there's no change to that, of 100 million roughly. 20 of that was in the first half. Therefore, 80 was in the second half. Of that 80, about 60 is in Q3. and we said that Q3 would be the heaviest quarter, and therefore I'd expect about a 20 number in Q4. Again, the Q on Q delta, because most of the first half was actually in Q2, the Q on Q delta from Q2 to Q3 is therefore about 40. If you add up the 40 delta for the maintenance, Q2 to Q3 delta, and the fair value delta for the same period, which I said was 50, That's the 90 that you see in the release. So hopefully that clarifies it. And Andrew, maybe we can touch on the business environment.

Yes, I think you brought a question on the volume story last. I mean, to be clear, if you look at the overall industry numbers and you also look at our numbers, we have seen a year-on-year pickup in demand. And clearly the first half in particular was also supported, should we say, by a restocking effect. Clearly that is over now, and one looks to the underlying demand picture. I mean, if you look at it, generally speaking, in volumes, as I said, demand is up year on year, but I think it's also fair to say The momentum around the increase in demand is probably more muted than one might have anticipated earlier in the year, if I could phrase it like that. So we are seeing a reasonable volume picture. but it's reasonable, not strong. And I think, you know, if anything, one felt this year should have been more of a rebound year or for a pretty low base of last year. It's modestly improved on the demand front and certainly our volumes as well on a year-on-year basis, but it's not the type of really strong rebound that one might have anticipated, certainly at this point. And I think, again, as we say, one doesn't want to blame everything on the macroeconomic environment, but it happens to be true that I think the consumer remains fairly reluctant and nervous, and that affects everything in terms of the different end uses. But, you know, so I'm clear it's, you know, things are up year on year, but the rate of growth probably is not as strong as it might have been, you know, if we'd sort of sat here at the beginning of the year. So I think that's the key sort of impact of the trial side. You know, in terms of our overall, our own demand picture, I mean, quarterly numbers are always very noisy. because of all the shut effects and things like that. We try and quantify that shut effect, but it doesn't necessarily encompass all the knock-on impacts on energy usage and all of the other effects that occur around shuts. This year in particular, we obviously also have got a few projects that are being commissioned and the like, and that makes it even more complicated. But I'm very confident we are well on track on all of that. We are executing very well on all of these things, but that does create a bit of noise in the numbers, certainly on a quarterly basis.

And in terms of prices, are you seeing any, I mean, we can see the index prices, but are you actually seeing any benefits from those prices in TUP now?

Yes, I mean, so we see, I mean, prices, as you know, I mean, again, and giving a bit more color by segment, as it were, in the container board grades, we saw prices recovering through the first half of the year and into the second half, they clearly are higher than they were on average through the first half. Clearly, you don't see that all booked in one you know in in lockstep as it were because it takes time to filter through into your pnl but but we are you know we are seeing that and there should be further effect of that into into q2 sorry q4 um the only um modest sort of decline we've seen is in the recycled grades. I think you can all see it in the industries where we have seen some modest price erosion there. That's largely, I believe, because the PFR prices are now coming off a bit, having gone up. And, of course, the cost support at the high end of the cost curve in a muted demand environment means that you see some price erosion at the top end, you know, as a consequence of that sort of less price support. Oh, sorry, cost support. So you are seeing a bit of price erosion in the recycled grades, but the virgin grades are holding well, and the prices are higher than they were in the first half. Craft paper, it's a similar story. We're also seeing some price increases through the first half of the year and continued into the second and holding in the second half. And the, sorry, uncoated fine paper, you know, there we saw price increases actually start the back end of the prior year into the first half of the year. We have seen a bit of price erosion there in the Q3. Well-documented the pulp size declines, which of course does affect that business units because we do have open market pulp sales. But in addition, it obviously, I think, has contributed to some erosion in the fine paper space because of, again, the lack of cost support at the higher end of the cost curve with the unintegrated producers. And so there's been a bit of price erosion in the fine paper space. So that, I think, covers the main paper grade.

Thank you, Lars.

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Cole Hathorn from Jefferies. Please go ahead. Your line is now open.

Good morning. Thanks for taking the question.

And I'd just like to have a little bit of follow-up on Uncoded Fine Paper. I mean, I know it's a trading update and you don't give the detailed splits, but it's it'd just be useful to understand which segment was kind of the relatively weaker aspect in the third quarter. Any comments you can give, because I suspect there was probably relatively more weakness in UFP and wider pulp, just considering price deterioration there. So any further comments you could add on that would be helpful. And then just following up on your comment earlier, which was, We've seen waste paper costs roll over a little bit into the third quarter and we'll probably give back some pricing later today on that in Germany. But how do you see Virgin Container Board performing on that? We haven't seen wood costs easing in the Nordics. Do you think we could be in a position where the U.S. exports or supply-demand in the U.S. is a bit better than I suppose, in Europe and we've got cost support up in the Nordics. Could we get a bit of a divergence in virgin and recycled container board pricing? Thank you.

Thanks, Carl. I think just on the UFP question, I mean, clearly Q3 is always a more difficult quarter for Q3, for UFP for a variety of reasons. I mean, some of it is because obviously we take the preponderance of the UFP shots in Q3. UFP is the one that clearly where that fair value gain is booked or not. And then on top of that, there's the normal seasonal weakness, particularly in Europe, because obviously in Europe, you see, you know, everyone goes on holiday in August. And so there's no one's printing at their photocopiers. so there's there's a normal weakness i mean that's obviously partly why we also take the shots in those that quarter as well um so there's a combination of factors yes whereby ufp would be naturally i mean on an annual basis it's it's typically q3 is its weakest quarter um it's been exacerbated this year by the you know the distortion created by that fair value gain you know the shots have been pretty much all in Q3. And on top of that, there's normal seasonal demand decline. And of course, as we've already picked up, the pulp price decline coupled with the now we're seeing some price erosion in the paper prices. What changes into Q4? Obviously, the shots are behind us. There's normally a seasonal pickup. albeit the pricing clearly is not showing any signs of recovery in the short term. I mean, pop prices, frankly, who knows where they go next. On the paper side, there's some modest price erosion into Q4, but it started in Q3, really, and it's into Q4. Obviously, when you're not selling a lot of volume into the quarter because you're down on your machines and the seasonal weakness, it's The price effect is there, but it's not particularly highlighted. And then, sorry, on the second question on the container board, and particularly the VC, Virgin container board, you're correct in the sense that obviously the dynamic on the cost basis are quite different. You know, the recycled container board, the paper for recycling is the key input cost, and of course, in a market which we're currently experiencing where the demand is not extremely buoyant and pricing is effectively determined by the marginal producers. Then by definition, when the costs move up and down, it does have an impact potentially on pricing. And we are seeing that in the recycled side at the moment. And by contrast, the Virgin The virgin grade, as you say, if anything, the cost base for the industry more generally continues to nudge upwards because Obviously, the Nordics are important players in this segment. Our costs in our wood costs are typically being seen to be more stable. I mean, obviously, we do also have a couple of mills up in the Nordics, our semi-chem mill up in Cupia and Tinas, which is a craft paper mill. But clearly, in terms of our relative exposures, it's relatively limited. So there is ongoing cost support clearly on the virgin side. And yeah, it would appear that certainly there is some divergence taking place with the virgin grades holding in terms of pricing and some erosion in pricing on the recycled grades.

And then Andrew, if I can just follow up on that. Any big delta buckets that you're calling out into 2025? I know you've talked about, you know, 100 million contribution from, you know, the major CapEx investments, but I'm just trying to understand if there's any other bigger moving pieces that we should be thinking about into 2025, including, you know, maybe some impact from a recent fire at one of your mills or anything like that that you can call out at this stage.

I'm sure Mike can help us on that one with some of the moving parts. I mean, you mentioned the mills, Stambolinski, as you rightly point out. I mean, we mentioned the fact that that mill will be down at least for probably until the middle of next year. We are still assessing all our options around that operation. It's an important contributor to our craft paper offering. But it's obviously by far the smallest mill in our craft paper suite with 100,000 ton capacity. So it certainly is an earnings contributor to the group, but it's not material to the overall offering. In terms of the other sort of key moving parts in terms of, call it non-recurrings for want of a better term, maybe Mike can help us.

Yeah, so, Carl, you talked particularly about the projects. Yeah, the way we think about the projects and I think about the projects, you know, there's the build phase. That's on track, on budget. That's in good shape, as we've said before. We're very much moving into the commercial ramp-up phase. Clearly, the converters always come earlier, so those are clearly in good shape. And then, obviously, the sort of the upstream paper-making phase commercial ramp-up phase again that's in good shape but clearly sort of high on our agendas today which is finish the build do the commercial ramp-up the hundred million you refer to is the number we quoted as the mid cycle returns on the capital investment if you remember 1.2 billion at mid cycle returns it's about 250 million in EBITDA which splits 50 100 and 150 in FY 24 100 100 and I will just say they are mid cycle returns and do I think we're at mid cycle today no we're clearly not what's the difference therefore if build is on track on budget and commercial ramp up is in good shape today the variable is price call yeah if the cycles good as we've always said it will be more than 100 if the cycle remains muted it would be less than 100. But we don't know where the price is. But today, we're certainly not mid-cycle in our view. So we'll clearly give a bit more guidance on that number as we get closer to next year. But if it was on today's muted markets, we're clearly not mid-cycle. Yeah, fair value. We normally use the 10-year average, which is sort of 40 to 60 for next year. Again, I can give more guidance for that as we get into next year. But if you think, you know, what would I be putting into my internal thoughts, you know, it would be that sort of 40 to 60 range positive for next year. And therefore, you're likely to get a small upside year on year, most likely, but relatively small. Hope that helps, Colin.

Thank you.

Thanks.

Thank you. We will now take our next question. Please stand by. And the next question comes in the line of Patrick Mann from Bank of America. Please go ahead. Your line is now open.

Good day. Thank you very much for the opportunity to ask the question. Just to ask again around container board. So, you know, you're saying craft liner or the virgin grades holding up on costs and test liner costs. rolling over and I think the price has just come out and it's a little bit lower in Germany. I'm just trying to think how that feeds through to your box prices into the fourth quarter. So we usually have that lag between container board and box prices, but given that they sort of seem to be diverging now and how should we be thinking about maybe box prices delta from here into the fourth quarter and then into next year? Thanks.

Yeah, Patrick, I mean, we always use the rule of thumb, and it's a pretty good rule of thumb that box prices follow paper prices with a kind of three- to six-month lag. So, clearly, paper prices have been going up. And, you know, I think it's important to mention that. I mean, paper prices are up relative to where they were at the beginning of the year. And clearly in the short term, that gives rise to some margin squeeze in the box businesses as they have to digest that and then look to pass it on. And so that's a sort of normal sequence of events that takes place. Clearly, if one starts to see some price erosion in the container board space, then it becomes a more complex discussion with your customers as to what is the new sort of price to be using as your sort of anchor for price negotiations in the box business. It's fair to say that the recycled container board prices probably is the most important input cost for the box makers relative to the virgin grades. I mean, on average across the industry because in Europe certainly, On average, every box is 80% recycled. So it's very clear that that's the most important benchmark price for the price negotiations in turn on the boxes. So clearly, if we see some price erosion in the recycled container board side, that could in turn translate into the negotiations on the box side. But it's also fair to say the box prices today are not reflective of the increases we've seen in recycled container board over the course of the first six months of the year. Got it. Thank you.

And then if I could maybe have one more. When you say, I mean, trading conditions are muted and we can see reports from companies in the sector and companies in other sectors in Europe sort of all warning on a more muted backdrop. Can you maybe give us a bit more color? Are you seeing it across the board? Is it in, you know, is it in corrugated flexibles, UFP? Is it worse or better in particular segments or subsegments? Is there any kind of more color you can give us just on those muted trading conditions? Thanks.

No, I think, you know, again, obviously, there's always differences depending on the different end markets, etc. But I think it's a it applies as a general statement if you look at across the board and obviously focusing on our packaging end uses. Clearly, for example, in Europe, construction activity remains fairly muted. I mean, clearly, we also see pockets of strength in our construction exposures in emerging markets, for example. But if one takes it as a more general sort of comment, generally speaking, it's still muted. We're seeing some modest pickup on a year-on-year basis, but I remind you, it's off a fairly low base. But at least it's encouraging that there is a pickup as opposed to continued deterioration. in in the corrugated business again obviously it serves a myriad of different end markets and it's dangerous to sort of you know start going into every sub segment but more generally again year on year the numbers are up um in terms of you know the demand numbers on the industry-wide basis etc but it's just not you know the rate of pickup is just simply not as strong as one might have anticipated earlier this year you know as i said earlier because If anything, one still expects some sort of rebound off the lower base that we saw from last year. It's modestly up, but not the sort of very strong rebound. But again, I'm very clear, these are cyclical impacts, not anything to do with the structural change in these markets. It's purely because when the consumer's anxious and they're not buying as much, we don't need as much packaging. hopefully with what appears to be the end of the sort of concerns around an inflationary environment leading in turn to potentially sort of interest rate declines and they like all of these do feed into consumer confidence which in turn drives demand for our packaging products The fine paper market, you know, we already said at the beginning of the year was flatted somewhat by a restocking effect. That's clearly over. Long term, we always assume that that is a market in some mild structural decline, and that's what we plan for. We're well positioned within that, but clearly we are not looking to invest to grow capacity in that business. We continue to optimize where we can. where appropriate, but we think we're well positioned within that, but it's a long-term structurally declining market very clearly.

Thank you. Thanks, Patrick.

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Brian Morgan from Morgan Stanley. Please go ahead. Your line is open.

Hi. Thanks very much. Andrew, in the past you've mentioned, I think most recently mentioned that you thought that 30% of test liner producers were cash negative. Is that number still valid or have you changed that?

I don't know what the precise number is. And hopefully, whenever I gave you that number, I really caveated by saying it's a best guess. No, I mean, it's very clear that the top end of the cost curve, well, a lot of the cost curve, frankly, is under deep pressure at the moment. I think we've seen some anecdotal evidence of that with some capacity closures in certain cases. Obviously, some of these big projects have been kind of delayed and things like that as well for I suppose a variety of reasons, but probably one of them being, you know, the challenge of being able to make a return in this or make a margin in this environment. So, yeah, I mean, there's a little bit of relief, obviously, you know, with these sort of modest paper for recycling price reductions, which of course can just change things quite quickly. But I think despite that, you know, the industry average returns right now or poor, I would say. And certainly, one has to remember, over time, this is a structurally growing product and the world needs more of this product. And certainly, there is no incentive to put new capacity in, acknowledging that there is new capacity coming on, following decisions made in previous times. And that will come on in the short term, undoubtedly. I mean, there's a lot of sunk costs in that. But it won't be long before no one's incentivized to bring anything else on. And I suspect that will lead to tightness in due course. So, you know, again, I remain extremely confident in the long-term structural growth in demand for this product. And right now, the margins are simply not there, not only to not incentivize further investment, which will be required in due course, but also, you know, I suspect there's a lot of pressure to rationalized capacity in the near term. I can't say if and when that happens, but right now the margins are simply not there.

Thanks, Andrew. Why do you think that we haven't seen rationalization? We've been under pressure for quite a long time now.

I mean, there's any number of reasons, I guess, why different players, their relative positions. I mean, clearly, I remind you it wasn't that long ago where this market was extremely tight and margins were very good. And so I guess there's still a legacy of that. I mean, people always wait and hope, I suppose. But I mean, every day that the current margin dynamic prevails, I suspect capacity closures become more of a reality. And it's not to say there haven't been. I mean, I don't need to. remind you of some of the closures that have taken place. And as I say, I think it's very clear that at current levels, there's a lot of capacity that is in trouble.

Cool. Thank you very much. Thanks, Brian.

Thank you. We will now take our next question. And the next question comes from the line of James Perry from Citi. Please go ahead. Your line is now open.

Morning. Thanks for the presentation. just want to ask about the forestry again um so to the extent that lower forestry evaluation reflects lower south african wood prices is it reasonable to extrapolate this to mean lower wood costs for your south african production if it persists or is that too simplistic and secondly actually just on the 20 25 projects um drino stetty So as we approach the startup, are you able to give any more details on the timing of the ramp-up? As in, should we be modeling much volume contribution for H1, or will it mostly be HD? Thanks.

I'll take the first one, James. The simple answer is yes, because it ends up ultimately in your cost of goods. So that's probably the simplest answer. Andrew?

Yeah, I think, I mean, just on that, we have a perverse effect that in the first half of the year, the valuation went up because the external selling price went up. So that means in Q3, effectively, you get the negative effect of the higher cost of fellings, even though your cash costs haven't changed at all. Perversely, when you get a fair value loss, by definition, in the next quarter, for example, you should have a lower cost of fellings. even though the actual cash costs haven't changed at all through that period. But that's the joys of accounting for a long-term asset as if it was a sort of, you know, as if it was a current sort of asset.

That's why I said yes, James.

I just had to get that off my chest as a past accountant. Yeah. But, yeah, and just in terms of Duino and Steti, as we've already said, I mean, we are very much on track. You know, these will both start in H1. Steti is very much first off the ranks. So I remind you, you know, Steti will be 200,000 tons of low-cost sackcraft paper. And at the same time, we effectively liberate another 100,000 tons of of pulp capacity and then we'll be reducing our external pulp sales by 100 000 tons so that's where you get the 200 000 tons of pulp you need to integrate um to make this product so um you know we we we delighted with the progress there you know as you could imagine it's a complex um project with building a new paper machine and all the modifications to the pulp line But the team at Shteti is extremely experienced, particularly in making, you know, what is a very demanding product being the sackcraft. It's the strongest paper you can make with the burst resistance required for these heavy industrial uses. From a market perspective, so that will start early in the new year and start to ramp up through the course of the year. Obviously, you don't just turn these things on and they start producing at capacity. I mean, realistically, the ramp-up period is a three-year ramp-up period, albeit it's very front-end loaded in terms of the volume. And then, of course, you optimize it over a three-year period. So it will be contributing from next year. On the actual market impact, I remind you it's roughly 100,000 tons of saccraft into the market, plus 100,000 tons of specialities, because at the same time, we'll be focusing all our other machines that would have made saccraft and specialities in the past into specialities. So we have a lot of levers to pull in terms of the different sort of commercial offering we have. And again here, we're very excited by the ongoing growth in the new demand sources for these craft paper products. This is where these are the paper grades where you're using a lot of it into products which are substituting other less recyclable substrates. As I say, everything from our industrial applications to consumer applications. So when you're seeing more and more paper-based products on the supermarket shelves, a lot of it is these craft paper products, which is an exciting growth area. And Arduino will be a bit later. So Arduino is during H1 that we'll be switching it on. it'll then start to ramp up through H2. So it will have less of an impact, but certainly will start to contribute in more like the second half of next year as it ramps up. And I'll just remind you as well, obviously, I mean, the other factor for next year is the completion of our Schumacher transaction, which certainly we expect hopefully by the end of Q1 next year. That obviously brings both box capacity and, of course, container board consumption, which allows us also to forward integrate some of that Duino volume, which mitigates any near-term market risks around the container board side.

Thank you. Thanks.

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of James Twyman from Prescient Securities. Please go ahead. Your line is now open.

Yes, thank you very much. And thank you for all the detail. So I've got three questions, if I may. The first one is just quickly, are you clear that the impact of the Bulgarian mill is pretty minimal on EBITDA next year on the basis that that the impact is that any sack paper that you don't produce there will be produced elsewhere. I think that was the implication. Secondly, the recycled, containable price fell pretty sharply. We only saw the data today, but I think you must have seen it a while ago, much more than the waste paper price fall. Are you confident that the Kraftliner price won't fall as a result of this? You know, it normally does. But I'm just wondering whether there are any specific cases there. And then just the final final question was just in terms of demand for sack paper specifically rather than container board. What are you seeing there in terms of domestic demand and export demand? That would be great. Thank you very much.

yeah i mean just quickly i mean we i think i've already alluded to the impact of stambolinski i mean we do have a big portfolio of craft paper production so we are working very hard to to make sure that any impact on our customers in the short term is minimized by the the effects of of having to to to not one not being able to produce in stambolinski so it is a hundred thousand tons of of that craft paper that we are currently not producing. But as I say, we are in the fortunate position of producing capacity-wise 1.2 million tons, soon to go up to about 1.4 million tons in total. So we are able to mitigate any risks to not being able to supply our customers in the short term through managing the portfolio. And so, you know, that has been a big focus of ours is firstly to make sure our customers are looked after. And as importantly, you know, in a very difficult situation for the local team, you know, we are fortunate that there were no injuries, of course, as a result of the fire. But obviously we're working very hard to support the local team, you know, in what is a very difficult period for them as well. So I'm not suggesting it's not a blow because it's, you know, valued colleagues who've been working very hard for us for a long time. And, you know, it does make a contribution to the group. But as to my earlier comment, in the context of the overall group results, it's not particularly material. In terms of your question on the VCB, I think it's really sort of a VCB relative to recycled container board question. Clearly, there's always a correlation between recycled container board and virgin container board prices over the long term. At the same time, these prices do diverge at various times. Clearly, as I said already, there's a very different dynamic in terms of the level of cost support between the two right now. At the same time, you know, as I said earlier, the recycled The recycled industry is not in great shape at the moment in terms of the overall margins, so difficult to predict exactly what happens next on that front, but it's, you know, there's growing cost support again on the recycled side simply because, yes, PFR prices have come off a bit, but it's not enough to, you know, make any real margin gains for the higher cost producers. Whereas clearly on the Virgin side, the cost support is there if anything is growing because of the pressure on pricing in the Nordics. And yeah, these prices do diverge at different times through the cycle. And then finally, the SAC craft, I can't remember the exact nature of the question. It was around- Demand. Overall demand. um in terms of the demand picture for the sack craft you know as i said already i mean obviously one looks to the you know the downstream business our bags business um europe has been pretty soft but it's nice to see that we are starting to slowly see a year-on-year improvement in demand but you know as i keep emphasizing it is off a low base of last year and and the improvement in the increase the increased demand at this stage is fairly modest What really matters, as I said earlier, is when the European consumer, particularly in the industrial sort of building materials and cement and aggregates in these sort of areas, starts to get more confident in building that extension to their house. We've seen modest indications of that, but it hasn't taken hold to a great extent as yet. But it's encouraging at least to see a upward tick on a year-on-year basis. As I said already, in terms of the export markets, and by that we mean everywhere that's in Europe and North America, where we also are very present in bag converting, we are seeing a pickup in demand, which is encouraging. That's largely driven by cement. Cement growth in emerging markets is starting to look better, and we benefit as a result of that, as being a major producer to the cement industry. So we are seeing some signs of improvement. But as I've already alluded to in the earlier discussions, it still remains relatively new to the recovery. That's very clear.

James, thanks very much. Thank you. Appreciate that. Thank you. Thanks. I believe that answers. We don't have any more questions, operators. I'll hand back to Andrew just to wrap up. Thank you.

Yes, thanks very much, everyone. Thanks for your attention, as always. Appreciating it's a short trading update, but hopefully we've given you sufficient color around the current dynamic. As I say, while we fully acknowledge the more muted trading environment that we are currently experiencing, We certainly see this as very much a cyclical effect. We firmly believe in the long-term structural dynamics that we see in these markets and remain very excited by all the new developments we're seeing, particularly around sustainable packaging. And this is a growth area and one we're investing behind and are well-positioned to capitalize from as we see some tailwinds from the macroeconomic side. So again, appreciate the interest. As always, if there are any follow-up questions, please get back to Fiona and team in the first instance. Thank you very much.