Mondi plc

Good day, and thank you for joining us, Mondi, a leader in sustainable packaging and paper solutions with results for the six months ended 30th June 2025, presented by Andrew King and Mike Powell. There will be time for Q&A. At the end of the presentation, we'd ask you to use the raise hand function, and you'll be invited to unmute and put your question live. And our handover to host today, Andrew King. Andrew, over to you, please. Andrew, over to you, please.

Good morning all and welcome to Mondi's results presentation. I'm Andrew King, your group CEO, and I'm joined by Mike Powell, our CFO. I'll be providing some highlights before I pass on to Mike for an overview of the financial performance. I'll then finish with a progress update on some of the important strategic initiatives we are taking to drive sustainable value creation. After that, Mike and I look forward to taking your questions. In summary, I think we believe we delivered a solid performance in the period in what are and will continue to be, in our view, challenging market conditions. Ongoing geopolitical and macroeconomic uncertainties continue to undermine consumer confidence and business confidence, impact trade flows and affect relative competitiveness. In this context, it was pleasing to see that we could achieve volume gains in key categories supported by our recent investment program and some modest price gains in our packaging paper grades over the course of the first half. Our focus on margin management, cost containment and productivity gains helped mitigate ongoing labour cost pressures and currency headwinds, largely related to US dollar weakness. Pleasingly, cash generation was strong, a reflection of the inherent resilience of the business and our focus on tight cash flow management. We will continue to prioritise these initiatives in the second half in the face of the anticipated continuation of challenging trading conditions. Importantly, while ensuring we focus on the near-term controllables, we remain intent on positioning the business for long-term value accretive growth. In this regard, I'm very happy with the progress we have made on our key strategic initiatives. All our major capacity expansion projects are operational, with the Arduino Recycled Container Board Mill being the most recent to start up in April, as planned. The focus is now very much on ramping up and optimising production and sales to ensure we deliver the promised performance. The acquisition of Schumacher completed in March and we are pleased to welcome our new colleagues from sites across Germany, the Netherlands and the UK. While early in the process, integration is well on track. The trading environment is currently dominated by cyclical headwinds. However, I remain very excited by the long-term structural growth drivers in the packaging markets that we serve. With our great market positions, long-standing customer relationships, and high-quality integrated and well-invested asset base, we remain very well-placed to deliver value accretive growth for our stakeholders. I'll now hand over to Michael to provide more colour on the 2025 financial performance to date.

Thanks, Andrew. Good morning, everybody. And let me take you through the group's financial results. Our half warm 2025 results reflect a solid performance in a challenging macroeconomic environment. Underlying EBITDA of €564 million was in line with half warm 2024, but with increased cash generation supported by good cash flow management. The Group's ROSI was impacted by the start-up of our major capacity expansion projects, with a larger capital employed base and higher depreciation, more than offsetting the earnings generated from these projects as they are in ramp-up phase. Basic underlying earnings per share were also lower than the last year due to the associated higher depreciation charges along with higher net finance costs. The board has declared an interim dividend per share of 23.33 euro cents. This is in line with last year's interim dividend and equates to our usual practice being one third of last year's total ordinary dividend. Underlying EBITDA was comparable with that prior year. Sales volume and sales prices were both up compared to half one 2024. However, the movements seen across each business unit do vary, and I'll come on to that on the next slide. But before I do so, just on costs and other items, they were a touch higher, shown by the 11 million that you see on the chart. This includes some expected start-up costs with the commissioning of the paper machine at Arduino Mill in Italy, which we were pleased to successfully start up in April this year. On fixed costs, we demonstrated really good cost control to drive operating expenses lower, which offset the impact of labour cost inflation. Input costs were broadly stable overall compared to the prior year, supported by our cost saving initiatives. And as we enter the second half of the year, I would expect some modest input cost relief as we continue to drive efficient procurement practices across the group. From a currency perspective, you'll recall that we had a one-off loss in half one 2024 from the devaluation of the Egyptian pound. The non-recurrence of this in 2025 was partially offset by currency headwinds. Our largest non-euro currency exposure is the US dollar, and that weakened during the second quarter and into the third. And lastly, the forestry fair value gain was lower this year, the absolute in the half of €18 million compared to the €49 million of last year, giving you the delta that you see on the chart of €31 million. Adding all that up results in an underlying EBITDA of €564 million for half one 2025. If I now look at each of the business performances in turn, Corrugated packaging delivered an improved performance, underlying EBITDA up 42% to €203 million. This included a small contribution from Schumacher in the second quarter. In container board, the business delivered strong volume growth, supported by the ramp-up of capacity from recently completed projects. This includes the de-bottlenecking project at Switchi in Poland, the modernization project at Cupio in Finland, and most recently, as I mentioned, Duino in Italy. On pricing, container board selling prices were higher than half on 2024 average pricing following the implementation of price increases during the period. These increases largely reversed the price erosion that we saw at the back end of 2024 and were partly driven by cost support from increasing paper for recycling prices in the period. Since June, we have started to see some pricing pressure on our recycled grades with cost support diminishing as paper for recycling prices reduce. In corrugated solutions, box volumes excluding Schumacher were up on the prior year, driven by our customer relationships and improved demand for sustainable packaging solutions for consumer and e-commerce end-use applications. Turning to flexibles, flexible packaging business delivered an EBITDA of €302 million, which was in line with half one 2024 after you take account of prior periods one-off loss from the devaluation of the Egyptian pound recorded last year. Craft paper sales volumes were lower year on year as the volumes produced at our new paper machine at Stettie did not fully replace the previously produced volumes at the Stambolinski mill which we closed in the second half of 2024. On pricing, craft paper prices were higher on average compared to the prior year. The year started with reduced prices following some erosion at the back end of 2024. This was followed by the implementation of price increases during the half year in Europe, while pricing in other regions was relatively stable. In paper bags, we achieved good sales volume growth across all regions, supported by the growing demand for traditional building material and cement applications, as well as increasing demand for e-commerce solutions. And in uncoated fine paper on the right hand side, although market conditions remain muted, we do continue to gain market share supported by our strong customer offering, delivering stable sales volumes in the period compared to the prior year. Uncoated fine paper selling prices were lower compared to the prior period due to a combination of entering the year at reduced levels following price erosion over the second half of 2024. coupled with further price reductions in half one 2025. These reductions were due to softer market demand and weakened cost support from pull price movements, which increased modestly during the period before reducing towards the end of the half year period. And lastly, as previously mentioned and separated out here, the business recorded a lower forestry fair value gain compared to half one 2024. Let me now take you through the movement in net debt. We started the year with net debt of 1732 million. Cash generated from ops is made up of the next two items you see. That's the EBITDA contribution I've just taken you through of 564 million. together with a $130 million investment into working capital, which was mainly a result of higher trade receivable balances at 30th June following those price increases achieved during the period. I'd expect working capital inflow in the second half of the year, supported by our tight working capital management. We continue to invest through the cycle, nearly €350 million of capital expenditure in the period. This includes the investment into our major expansionary capacity projects, alongside investing to enhance the competitive advantage of our operations. And Andrew will touch on this a little later. Interest tax and ordinary dividend payments, €167 million and €202 million respectively, as you see on the slide. And lastly, we completed the acquisition of Schumacher on 31st March 2025. Really excited by this opportunity it brings to the group and although we've only owned the business for a few months now, we already see the benefits of being able to offer our customers a broader product portfolio as well as increased integration across the value chain. So to conclude, all of this leaves the group with a net debt balance at the end of the half year of around 2.6 billion, leverage of 2.5 times. The expected business performance and cash generation in the second half should lead us to a lower leverage by the end of this financial year. On capital allocation, framework has not changed, discipline has not changed. We maintain a strong and flexible balance sheet. We continue to generate cash, enabling the group to invest in the business alongside paying ordinary dividends to shareholders. And as evidenced by the recent acquisition of Schumacher, we always evaluate M&A. Our focus now is very much on delivery from our current asset base. And my last slide on technical guidance, where relevant, we've updated the technical guidance for 2025, reflecting the inclusion of Schumacher. As you'll recall, our previous guidance published in February excluded that effect as we had not acquired the Schumacher business at the time. Our capital expenditure expectation for 2025 remains at 750 to 850 million euros as we can cope with any Schumacher spend within the previously guided range. The depreciation and amortisation range has increased by €25 million to €475 to €500 million and our effective tax rate is unchanged at around 23%. Net finance costs expected to be higher due to higher debt levels post the debt funded M&A. We previously guided to the incremental EBITDA contribution from major capacity expansion projects to be in the range of 50 to 100 million euros in 2025, with the upper end of the range representing mid-cycle pricing levels. Based on current prevailing prices and the fact that we're halfway through the year already, I would now guide to 50 to 75 million euros for the year. About one third of that has already been delivered in the first half year numbers. There is clearly no change in our confidence that these major expansion capacity projects, when fully ramped, will deliver meeting returns on capital through cycle. With that, let me hand you back to Andrew. Thank you.

Very good. Thanks, Mike. I'd like to just now quickly update you on the progress we're making on certain of our key strategic initiatives. As Michael has already mentioned, when we look at our free cash flow priorities, investing in our business has and always will remain a priority. We are firm believers in the merits of investing on a through cycle basis with the objective of providing a great value proposition to our customers and ensuring long term competitive advantage. As you all know, we have made a number of significant investments over the last few years in expanding production capacity, with expenditure totalling around €1.2 billion. The phasing of the cash out for this programme you can see is reflected in blue in the chart on the slide. Similarly, the recent Schumacher acquisition for over €600 million both extends our geographic reach and adds significant capacity in our corrugated solutions business. Our attention now turns to delivering the expected returns from these investments through optimising the commercial and operational ramp-up. While we acknowledge this is not easy in the current trading environment, we are nonetheless very confident that we have invested our shareholders' money in the right assets serving the right markets. Given this well-invested asset base with sufficient capacity to support the next phase of growth, we are now able to pull back capital expenditure over the coming years without prejudicing the upside we expect to come as markets recover. We will do this while ensuring our business remains highly cost competitive by continuing to invest appropriately in driving cost advantage. The focus of our capital expenditure in the short term thus very much turns to enhancing cost competitiveness, resilience and environmental performance. This next slide provides more detail on what our recently completed expansion in capital expenditure program does bring to us. The first thing to note is that the combined €1.8 billion of expansionary capex and acquisition spend is all in our growing, corrugated and flexible markets, which are supported by the ongoing growth in e-commerce and sustainable packaging solutions. As I mentioned in my opening remarks, while growth has been impacted in the short term by current macroeconomic events, we remain convinced that the long-term growth drivers are very much intact. This is supported by the ongoing dialogue we are having with our customers, where the drive for sustainable packaging solutions remains front of mind. As you can see on this page, from these investments, we've also strengthened our geographic footprint, most notably, as already mentioned, with the Schumacher acquisition, which has extended our reach in corrugated solutions across northern Europe, complementing our existing strengths in central and eastern Europe. They've increased our levels of integration, notably with the new paper machines in Duino and Steti, which ensures security of supply to our growing converting operations and allows us to reduce costs through supply chain optimization. Similarly, the expansion of capacity for the production of virgin paper grades at our flagship operations in the Czech Republic and Poland, together with the expansion of a niche semi-chemical grade at Kupio in Finland, bring both highly cost competitive capacity and a broadening of our product offering. Importantly, we've also invested in expanding our innovation capabilities. We now have dedicated innovation hubs for packaging offerings in the Czech Republic and Germany, with a third site currently in development in Poland. On the topic of innovation, we are very excited by the ongoing potential we see to innovate with our customers. By bringing pilot lines, testing capabilities and co-creation spaces together under one roof in our innovation hubs, we can reduce time to market for new packaging and paper solutions. On the slide, you can see a picture of the newly opened innovation and customer experience center in Steinfeld, Germany, which complements the corrugated focused center in Bupak in the Czech Republic. We have a unique capability to be truly material agnostic when it comes to providing advice on packaging solutions to our customers. As you'll see on the slide there, we use this capability together with our expertise in sustainability and the relevant legislative frameworks to support our customers in developing packaging concepts that are right for them. Importantly, these ideas then need to be brought to life through rigorous product development and commercialization where we have proven capabilities to support our customers. As always, an important objective of our three-cycle investment program has and will remain to ensure we maintain cost-advantaged assets in our upstream pulp and paper mills. These ensure we remain strongly cash-generative through cycle, provide security of supply to our customers, and allows us to plan for the long term with further investments that provide both growth opportunities and further cost optimization, something that more marginal producers simply do not have. Of course, judicious investment in the right assets is not enough in itself. They also need to be run well. Here our culture of continuous improvement is critical. We are always looking at ways to improve and drive operational excellence. As you would expect in the current downturn, we are redoubling efforts around productivity and cost optimisation. To summarise then, we fully acknowledge the ongoing challenges posed by a very uncertain macroeconomic environment. In this context, we delivered a solid performance in the period, And going into the second half of the year, we are very focused on our near-term deliverables, which include the successful ramp-up and optimization of our expansion projects and the Schumacher acquisition integration, ongoing proactive margin management, an intense focus on cost control and productivity, and cash flow optimization, which includes tight working capital management and focusing our capital investment program on essential stay-in-business capex and high-return cost optimization opportunities. But similarly, we remain very confident of the long-term value creation potential of the business. We have a unique platform offering a broad range of sustainable paper and packaging solutions with leading positions in structurally growing markets. We have a well-invested cost advantage asset base, putting us in the ideal position to support growing customer demand. With our strong balance sheet and proven track record of execution, we believe we are well positioned for sustainable long-term value accretive growth. With that, thank you for your attention and I'll hand back to the host for the Q&As.

Thank you so much. And just to remind our audience, if you would like to ask a question, please use the raise hand function and you'll be invited to unmute. Cole Hafhorn, can you please unmute and go ahead and ask your question.

We can't hear you if you aren't talking. Can you unmute?

Cole, please accept the invite and come through and unmute. Thank you.

Morning, Andrew. Morning, Mike. Sorry, I just took a little time to join there. Can I start off with the cost dynamics? Mike, you mentioned that input costs are broadly stable with some relief into the second half driven by procurement initiatives, just like some more context of what are the key input cost buckets doing here and what gives you confidence in the relief into the second half. And then, Andrew, I'm hoping you can give some context on, you know, how we've seen order books or the business change over July because a lot of your peers talked about kind of a softer June. And in the U.S. in particular, we saw some recovery in July. So I'm just wondering if you've seen any changes from customers and order books, kind of weaker June and then stabilization into July. And then finally, a question on your CapEx slide or your major CapEx slide. You talked about the $1.2 billion of major CapEx, but the underlying maintenance CapEx, we should still think about that as in line with depreciation because on the chart you do have, I assume, the Rajon Barak and Richard's Bay recovery boiler kind of cost-focused investment. So just thinking about the underlying level of CapEx per annum should be broadly in line with depreciation. Thank you.

Thank you. Let me start. I've never been so pleased to hear your voice, Cole, because you always worry about technical glitches on days like this. So very pleased to hear you come through. Just on procurement, in terms of the big buckets, what are we seeing? I think firstly the self-help. So there's some really good initiatives going on with our suppliers that the team have been working through in partnership to drive efficiencies and share wins. So there's sort of the internal help. Because then the economy is still pretty flat as Andrew's talked about and that allows some price downs on procurement. That's not necessarily good overall for all of us or the economy, but we are seeing some price weakness still in some of the major categories. If I think of energy, that's coming down. PFR is coming down. There's obviously a counter to that, which we can come on to in the RCB prices. And we're seeing some softness across other categories, as I say, that we're working hard. So it's little bits everywhere, Cole, in terms of the initiatives. But when numbers are weak, you know, these numbers start to add up, the little bits, and they're very useful when certainly you're looking at half-on-half bridges. Andrew.

Yeah, I think just to add to that, I know wood is always a big topic, but Mike rightly didn't raise it simply because it's pretty benign. I mean, if we look, wood costs are generally fairly flattish. There's a little bit of rolling over in our Scandinavian mills, I think, but otherwise pretty flattish, which is in some ways remarkably unremarkable. Just on the order book situation, I think it's always dangerous to quote literally one month to the next. I think it is fair to say that not so much reflected in order books per se, but clearly Q2 was a bit weaker in the corrugated industry more broadly than Q1 if you look at the European delivery stats and the like. So we definitely saw a bit of a slowdown, probably most profound in kind of April, May. June was a little bit better, and certainly when we look at our order situation, it's I would hesitate to say it's strong, but it's also certainly not weak or anything like that. So I think it's wrong to call it from literally one month to the next, but it's not bad at all, but at the same time we're not seeing a very strong upward momentum that one would hope in a kind of recovery phase. Similarly in the bags business, which is obviously a nice forward lead indicator for that value chain, as you saw from our numbers, roughly 5% volume growth in H1, which is a decent number. And I think it's also reflected, I think we're a bit ahead of the industry as a total, but within Europe you saw the industry numbers also up quite nicely. Again, one would have to say the first quarter was stronger and then it slowed down a bit in the second quarter, but having said that, the June numbers were a bit better again. And certainly again our order books are decent on that side as well as they are on the craft paper deliveries which are more global in nature. And I think finally the US there is a bit flatter year on year but certainly not weak. But I think it does mask some volatility that we've seen through the period. Undoubtedly, you know, everyone alludes to the various trade discussions and the tariff discussions that go back and forth. Undoubtedly, for example, during the half, we saw a rapid drop off in orders out of China for obvious reasons when it was at the height of the tensions around the trade tariffs. That came back again, but it's obviously affected, for example, the pulp deliveries out of our Hinton Mill, a lot of which goes into Asia. Similarly, I think the global pulp prices have also been impacted in the short term by those disruptions. hopefully as things stabilise and everyone understands the rules of the game and they settle down, some confidence can come back into those markets and we can see those develop. And maybe if I can give you the details, CapEx, but in short, yeah, I think we agree that to depreciation is the best guide for stay-in-business. You mentioned those boilers, there's always a combination of factors in there. There is an element of stay-in-business in those boilers, obviously, because we are replacing old boilers, but of course there is an expansionary element as well, not in terms of new capacity but in terms of cost optimization because we are effectively for example in South Africa replacing a coal-fired boiler with a much more efficient biomass boiler which brings huge environmental benefits but also cost benefits to us likewise in Slovakia where we're increasing the biomass energy capacity and efficiencies and so that brings us margin enhancements in in addition to the stay-in-business element. And, you know, clearly we're always looking at those sort of opportunities. But in short, stay-in-business CapEx, we'd still guide to roughly depreciation to a little bit above.

And you've seen, Carl, that we've added in some early guidance for next year. That really reflects exactly what Andrew's just said about stay-in-business being around depreciation, plus the boilers, plus the balance of the spend of the $1.2 billion. So hopefully that's useful for early views on next year too.

Thank you. Thank you. Thank you. Our next raise hand is from Charlie for your sounds. Charlie, please unmute and go ahead.

Good morning, guys. Can you hear me okay?

We can. Thanks, Charlie.

Excellent. So obviously you alluded to some softening in recycled containable prices towards the end of H1 and looking into H2O. I just wondered, obviously, all the new supply coming into the European market is on the recycled side. You know, you've got quite a lot of exposure on the virgin side and within that into niche premium grades. I just wondered what your view was in terms of the chances that there can be quite good resilience on the craft liner side, given that there isn't really any capacity coming in there. Secondly, just on the craft paper volumes, I think you said down in the first half, but you obviously alluded to some good leading indicators around the actual paper bags. Was that just the phasing of the ramp up of the steady capacity, you know, not yet meeting the retired capacity from Stambolinski? Or is that a reflection of where demand was for your external customers? And then the last question, also on the FlexPulse business, I just wondered if you'd give a bit of colour around the performance of C-Flex versus the paper value chain.

Thanks. Yep. No, very good. I think there's a few there. So firstly, in terms of, call it the container board pricing dynamics, as you say, and Mike mentioned it, clearly the recycled container board is where all the new supply is, as you rightly say. That is where the market is in oversupply. And as a consequence, pricing right now is frankly being driven by the cost curve. So we saw PFR prices go up and recycled container board prices followed that. Simply there's no margin for the higher cost producers. But likewise, as soon as the PFR price started to come off, that gave relief to the higher end of the cost curve and that was promptly passed on because of the intense competition in that market. It is clearly a somewhat different dynamic on the virgin grades, as you rightly say, and even more so in those niche virgin grades where we have a big exposure. The supply side is much more constrained. There's a little bit of new capacity coming on, particularly in the sort of unbleached craft liner, but it's really fairly limited, and it is a more consolidated market more generally. And I think that is reflected in the pricing dynamics. So we did see some modest price increases on the virgin side, particularly in the unbleached craft space, less so on the white top, and that is good. often the case because the white top products typically if you look at the long term the pricing is typically a bit more stable and those that's held into the second half in spite of as you rightly say the recycled prices coming off and there's good reason for that as I said because of the supply side dynamics being so totally different so Can one see the virgin to recycle spread widening and staying wider? I think there's every reason to believe that that can be the case. Will it ever totally decouple? As I always say, that's not likely to happen because of course you will drive aggressive substitution. You would use heavier and heavier basis weights of the recycled side, for example, to substitute for the stronger virgin if if the pricing got too far out of kilter, but a lot of the easy wins there have already taken place. So yeah, I mean the Virgin is holding up well in that context and clearly is more resilient with a much better supply side dynamic. To your second question on craft paper and the volumes down and what does it relate to, clearly in our world it is partly related to, as Mike said, we were down and we had a full first half contribution from Stambolinski last year which is clearly out of our business now and And we were just ramping up that PM10 through the half. But it's safe to say it wasn't all because of that. There's also a market dynamic in place. As you rightly say, the underlying bag demand was decent, but there seemed to be something of an odd decoupling between bag demand and craft paper deliveries in the half. I say odd because we can't fully explain it ourselves, but if you look at the industry delivery stats on the craft paper markets, it was down year on year into Europe, I'm saying, while the bags were growing. And funny enough, this was the exact reverse of what happened in the first half of last year, where in some ways we couldn't explain the reverse situation where craft paper deliveries were much stronger than the underlying bags. In some ways I would much rather have it this way around because the underlying vague demand is what really is the true underlying demand picture and it's encouraging that that is growing off the lower space that we saw from the previous couple of years, but nonetheless showing solid growth. I think there's always this sort of destocking effect that takes place in this sort of dynamic and no doubt that has contributed somewhat to this slight discrepancy, but we are confident that we continue to see a good underlying bag demand more importantly as importantly on a global basis the demand picture is pretty decent clearly in our export business and craft paper a lot of it is exposed to the cement industry and cement in emerging markets which is a big exposure there seems to be reasonable but still not rampant again I don't like to keep coming back to it but if we start to see settling in terms of the rules of the game around the trade dynamics I think that can be very helpful maybe another point to mention in this business obviously it is also one where we have some dollar exposure because we are exporting into countries which are effectively either dollar priced or certainly competing against dollar based competitors and this is where the recent dollar weakness is a headwind into those markets. And then, sorry, last point on the C-Flex performance. Solid. It is, as we keep saying, very defensive by nature, this business. It's mainly food, beverage, other consumer non-durables. It is evident that in the current world the European consumer is is still anxious about life and probably trading down a bit still. They still buy their pet food, but maybe not quite as exclusive a pet food as they used to in better times, and that does have some implications, but nonetheless very robust earnings out of that business. So I hope that answers your question, Charlie.

Yeah, more if I could just... dive in. Just on your outlook for 2026 and the lower capex and the focus on delivering on the returns of the investments you've already made, should we read anything into that around the engineering assessment on Hinton or is that just because Hinton would not be a project that would really start to cost money until 2027 plus?

It's more the latter. I mean, we are, I think as we've been saying, we're working on the feasibility right now, which is more the technical, the permitting and everything else like that. I think as we've said before, realistically, the first call we'd be able to make on that is early next year. And even if we push the button, then the actual cash out in the year 2026 would be fairly minimal. So you can say it's wrapped up in there. But clearly in the current world, we also will be looking closely at how those markets develop and, of course, how the trade situation develops as well, because while there might be a deal with the EU, as you well know, there's a lot of other uncertainties that still exist around the trade impacts of dealing with the US in particular.

Thanks, Charlie. Thank you. Our next raise hand is from Brian Morgan. Brian, please go ahead and ask your question.

Yeah, thanks very much. Thanks, Andrew, Mike. Two questions from my side. We've had a couple of moving parts of this period in terms of operations. So you've had Greeno coming in. You've had Stetsi Volumes coming in. You've lost Stambuliski, as you said. So just trying to get a sense of maybe like a like-for-like volumes evolution.

um for corrugated and for flexibles are you able to provide that i mean capex we don't think i mean when you think like for like you think m a activities and we can say we if we exclude the schumacher volumes which only affects our corrugated solutions business we were up one to two percent i think in volumes So I'll call it organic growth in corrugated would be about 1% to 2%, I think. Otherwise, everything else, as the numbers show, so they're not affected by it. I don't think it's right to sort of start doing like-for-like comps on CapEx. CapEx is part of your organic growth, I believe, right?

Okay, cool. And then, Mike, maybe a question for you. Are you able to provide us with FX headwind by division during the half?

Gosh. Off the top of my head, well, I think you were on about translation FX. As Andrew said, the dollar weakening effect. affects our business quite a lot in terms of pricing in export markets and certainly for pulp markets. But if you're just talking translation effect, probably more in craft earnings than in corrugated. It's probably not the biggest element. The bigger element is probably the trade flows and the effect of the dollar effect. The effect Q2, Q1 was pretty stark because of course you had a very strong dollar in Q1 and a very weak dollar in Q2. So the shift between Q1, Q2 was probably about 15 million just because of the dollar. But again, as we sit here going forward, a bit of currency headwinds, the dollar is strengthening a little bit, having weakened now, but it's still weaker than the first half. Okay, that's good, thank you.

The important thing is the relative competitiveness and of course if you have a Euro and or Polish Zloty Czech Krona type of production base and some of your businesses into export markets or imports can be attracted into your market because of the relative strength of the Euro, then that's the bigger effect. So if you look at on the margin you do a bit of export business and it becomes less attractive if you're selling into, call it, weaker dollar markets. So I think, as Mike says, that's the bigger effect of the, call it, weaker dollar environment than the direct impact. The direct impact probably, frankly, most profound in our flexibles business because we do have a US business there, which on translation means less euro profits. but also we sell some craft paper on a global basis, and even when you're selling into Egypt, for example, it's de facto a dollar market.

Okay, cool, thanks.

Thank you. Our next great hand is from Lars Kelberg. Lars, please unmute and go ahead and ask your question.

Yeah, good morning. A couple of from me left. So looking at the flexible business, we're quite a lot weaker than I had expected for various reasons. You mentioned some of them, but you didn't mention any startup-related costs to Steti, which I would assume would not be insignificant. So if you can clarify a bit on that. The other point there, I suppose, you talked about about a third of the contribution expected for the current year was realized in H1. And I think in the last time we spoke around the Q1 trading statement, you said the 50 to 100 at the time was a net number. net of startup costs. But that doesn't necessarily make a great deal of sense to me. So if you can clarify startup costs versus is this sort of a third of the 50 to 75 now, Is that a net number, net of startups? I just wanted to get some clarity on that. Shumaka, you did mention a small contribution. And, of course, it's kind of an interesting and good acquisition for you. Can you help us understand what sort of run rate you are and what sort of contribution we should expect in H2 from Schumacher? Of course, we know the 23 numbers and 24 we haven't been able to share in the past. That would be helpful. Final question from me, and I should know this, but I don't. Your share of craft paper, the export share of your total output would be helpful.

Okay, should I start and we'll dip in. Steti was positive, so startup costs are part of the process and Steti was making money and contributing into that 50 to 75 in the first half. So I don't know how you define startup costs, but it wasn't negative if that's your question. The one that did carry some costs, which I called out, was Duino. That's because it started up in April and you have those startup costs. That was probably the order of 10 in the quarter. So if you sort of fuss about sort of startup costs, I mean, we tend to look at the whole year and that whole year contribution is net of everything. That's the 50 to 75. But if you said, you know, what was the Duino startup cost? It's about 10 in the quarter. Obviously, as the year goes on, that'll turn into profitability and that forms part of, excuse me, the 50 to 75. So hopefully that wraps up your sort of first and second point. Schumacher, we've said the guidance for this year is about 30 million. For this year, there's probably about a quarter of that delivered in quarter two. So therefore, obviously three quarters to come in the second half of the year. We've clearly only just got the business. The synergies within that probably are net nil this year. That's in line with our expectations. So we've got some synergies, but we've got some costs to deliver those. We remain very confident of the 22 million of synergies As we move forward, those will obviously come in 26 and 27. And clearly the run rate, the synergies is only one part of the story. And Andrew, you might want to touch on the integration. The second part, of course, is the volume ramp up to increase the run rate of the EBITDA and the volume through the factories.

Yeah I think just quickly on Schumacher, I mean clearly as Mike rightly says there are three parts, there is the colour based business as it is, then there is the synergies, the cost synergies which we refer to, which again we are extremely confident on and clearly we are looking to beat that number if we can find the opportunities. I feel we should be able to, but we're not yet confident enough to be talking about that. And then there's the capacity optimization opportunities, which we're working hard to achieve. And as I said in my opening remarks, clearly difficult in the current situation. environment, I mean box volumes in Germany if you take the industry numbers were kind of flat year on year, so it shows the market is still struggling, albeit there are some signs of life if we are looking to see some bigger government expenditure which has obviously been promised and hopefully now with some clarity around tariffs and that can also drive some more confidence in both amongst local consumers but also amongst local businesses and I think that can all go to contribute to getting Germany back on the front foot in terms of growth and of course we are well positioned to benefit from that. Just on the craft paper, I'm not going to give you specifics on export positions and craft paper itself. That is clearly, as you can imagine, quite commercially sensitive. But in broad terms, if you take our craft paper and bags value chain, probably these days it's around 50% Europe, 50% call it. non-European business which is obviously includes both the bags operations on a global basis where they are located you know in the markets that they serve but also obviously the paper that we export largely a lot into our own bag production and of course we also sell into the open market on the export business. I think those were your questions, Lars, unless you've got anything else.

Just one more. We rarely speak about this because it's obviously not what we focus on, but the uncodified paper business, we don't have in market statistics anymore to look at, but can you talk us through what's going on in that market and how you see going into H2 the underlying market conditions? Sure.

Yeah, I mean obviously we serve two different markets. We serve the local South African market out of Meerbank and we serve Central Europe out of Rojambork and Noisila and even within that there's some peculiarities, particularly around Noisila where we do a lot of specialities. But if you take European market, which I think is the one you're referring to, if you look at it from a deliveries perspective, Europe was roughly 7% down year on year, taking industry as a whole, which is obviously a big number. Now, it must be remembered that Q1 last year in particular was actually relatively strong. I think there was a bit of a restocking effect and the like. You have to interpret these numbers quite carefully, but nonetheless, whichever way you look at it, the market declined year on year. In that context we were basically flat on volumes, both across our business. which again reflects the fact that we gain share as weaker players have dropped out and of course there has been some capacity take out in that market. Clearly we believe it's likely that there should be more to come. At the moment the unintegrated producers are getting a bit of cost relief because the pop prices you all know has come off. but that in turn has been passed on essentially and so there's still a huge margin pressure in that space and I suspect there will be more closures in due course simply because the current margin levels are just intolerable.

Thank you.

Thank you. Thank you. Our next raise hand is from Reinhard van der Waal. Reinhard, please unmute and go ahead and ask your question.

Hi there. Good morning, folks. Can you hear me?

Yes.

Perfect. Thanks for taking my question. Just wanted to get a sense of what would cost inflation was doing in your business in the first half and how you're seeing that profile into the second half. Is that kind of also captured in your comment around moderating input costs? And just for good measure, any change in your would cost mix across regions during the half? Thanks.

Yeah, so I think as Andrew said earlier, wood cost is pretty benign. It has obviously relative, Europe costs are higher than some of the other global costs, but in our business it's been pretty benign. I know historically we've seen Scandi go up, so Scandi's still got higher prices. which clearly we have some business in those markets. And then Europe came off the highs. So Scandi went up slower and stayed high. Europe went up and then came back down year on year and half on half. Pretty benign. And as we look forward, we see a pretty benign environment. There's been a bit of softness in some of the euro markets. markets, but again in the scale of the volatility that we've seen both in the supply and the pricing of wood, I would say looking forward into the second half you should expect it to be pretty flat.

Absolutely, thanks. And just so that we can understand the you know, if there's any flow through from a pickup in industrial demand through to your bag sales. Can you give us a sense of where inventories are at the moment in bags?

Yeah, I mean clearly we don't have full transparency in the supply chain but I suspect there isn't, people are not sitting on a huge amount of inventory and so as I mentioned there seemed to be a bit of a disconnect in the first half between bag volume growth and craft paper but the good news is yes, inventory drawdowns can only happen once You've got to believe that if we start to see some continued growth on the bag side, that will tighten up the supply side, or the supply-demand dynamics in craft paper even more, and then clearly that gives opportunity, of course in a more flattish demand environment than the opposite is true. And I think just maybe an extra comment in terms of some colour on that. If you look at the European bagged demand, the growth has largely come from what I call the non-construction related activities, so food, feed, chemicals, that sort of thing. Construction related end uses have been actually quite flat, which is not surprising. I mean it remains pretty muted, the construction sector in Europe, but hopefully if one still to see some cyclical recovery in that, then of course that can be beneficial for our bags demand in the first place and you would hope that then translates into both demand side improvements on the graph paper side, but obviously also then in turn pricing. But I hesitate to say we're not seeing that at the moment, but it's hopefully an opportunity if and when we start to see some cyclical tailwinds.

Got it. That's great, Kala. Thanks, Andrew.

Thank you. Our next raise hand is from James Perry. James, please unmute and go ahead and ask your question.

Good morning. Thanks for the presentation. I think most of my questions just have been asked, but just one about flexible packaging pricing. Would you be able to comment a bit more on the dynamics here into H2? Obviously, we've seen the Test liner prices start to inflict downwards. Are you seeing any similar pressure at all in second craft with a lag, or is the H2 average still likely to be higher following the earlier increases?

Yeah, I think the two are quite different in their dynamics at the moment. As we've already said, the container board space and that test line in particular has a supply side challenge. On the flexible side, the supply side is much more constrained, should we say. I mean, clearly we are bringing our new supply. At the same time, as we've always said, it's probably more cyclically impacted from a demand side perspective. So, you know, while the first half demand was okay, it also – It was also a bit slower into Q2 versus Q1, so I think we'll have to watch how that demand develops for the quality underlying bag demand into the second half, and clearly that will have a major impact on the pricing environment in the craft paper space more so than what is happening on the container board side.

Okay, thank you. Okay.

Thank you. Our next raised hand is from Andrew Jones. Andrew, please unmute and go ahead and ask your question.

Hi, gents. Yeah, most of my questions have been answered as well, but just one point of clarification. From the feedback from some of the other producers, it sounds like sort of packaging demand in general sort of tailed off sort of towards the end of the quarter. At least that was my kind of impression, obviously, with the sort of price momentum that shifted at the end of the quarter. Incorrogated, you were saying earlier that sort of April, May were weaker, June stronger, was that correct? consistent across, like, the flexible grades as well, or, you know, what are the different dynamics there? I mean, how would you talk through how that demand evolved, you know, entry and exit through the quarter in the different grades?

Yeah, again, I'm hesitant to sort of pick each month as if it's illustrative of the direction of travel because, you know, genuinely... I mean, the one thing we know about the current world is it's volatile. I think, I mean, clearly it is safe to say that Q2 generally was softer than Q1 from a demand perspective, and we saw that in corrugated, particularly more pronounced, I guess, in the bag side, also to a degree, albeit, for example, the June, our June numbers and certainly the industry numbers as well, they start to come through, seem to imply a better June situation. obviously too soon to say what July looked like from that perspective. But, you know, I think all we could comment on is the fact that the SQ2 generally was a bit softer than Q1 from an underlying demand perspective. Going into H2, as you say, literally month by month numbers, I think one has to be interpreting with some degree of caution. But having said that, it's not... nothing's falling off a cliff or anything like that it was just a bit softer and certainly I think the June numbers and bags looked a bit better than the April May numbers as a simple illustration but let's not get sucked into month by month numbers here because they can change and you can have you can misinterpret them both up and down but there's industry shots coming up as well Andy so the monthly numbers tend to get messed about with those as well Yeah, because you have the big maintenance shut season, for example, people buy into that or you build stock into it and things like that can also impact it, as Mike rightly says.

Okay, that's clear.

Thank you. Thank you. Our next raised hand is from James Twyman. James, please unmute and ask your question.

Yeah, thank you very much. Yes, thanks very much for the presentation, but my question is a little bit longer term. So I've got three questions. The first one is the benefits of the projects. You obviously said 50 to 75 million this year. Can we expect similar for next year as you get the run rate continuing next year or is most of it this year? That was my first one. The second one was, could you just talk around these boilers? I know the Riches Bay one, but I think someone mentioned another one. What the capex cost is of those and, you know, what the benefits of those are, because they're big beasts. They take a while to turn into money. And then the final question was, Mike, I think you mentioned that debt would fall by year end. I wasn't sure exactly if you said that or not, but those are my questions. Thank you very much.

Sure, so let me start with three and then I'll take the first one and then Andrew you might want to comment on the benefits of the boilers. Yeah, in terms of leverage is likely to fall towards the end of the year, I would hope we generate some cash, so you've got a numerator and denominator, you know, I would hope both improve and therefore what I was saying was that I would expect the leverage to fall towards the end of the year. In terms of project benefits, one thing we do remain absolutely confident of, despite being in a tricky world right now, is the benefits of these expansionary projects that we have built and have started up on time and on budget. We guided to mid-teen returns through cycle. We need mid-cycle pricing to deliver that. I think if you do the maths on the capital, I've been quite explicit that that's about a 250 million incremental to the group from when we started. I therefore would expect even at these pricing levels to have some incremental benefits, 26 over 25, absolutely. We've started some machines this year, some are still ramping up. You get that ramp up effect into next year. That's obviously a function of two things in terms of how much the number is. I don't know what the number is. I can't even guess this year's number properly. Never mind next year's, but it'll be a function of two things. One is where pricing is, and we don't know that. And the second one is, of course, how much we deliver this year, because it's an incremental year on year. So the more we deliver this year, there'll be less next year and vice versa. But again, James, we should expect some incremental benefits, 26 over 25. We'll guide to those once we get a bit closer and have some idea where pricing might settle into the beginning of next year. But it will be meaningful. And as I say, long term, we're absolutely behind our mid-cycle returns off these assets and the fact that we've deployed capital into the right markets for the right reasons. Andrew, do you want to touch on the borders?

Yes. I mean, on the ongoing theme of the big piece, as Mike says, I mean, these big projects do take time to fully optimise. So you turn on a machine and, A, you need to get the production up and running and in full capacity and at the right qualities, et cetera, but you also have to develop your commercial opportunities to fully optimise that into the markets that you want to serve in the long term. And that's a period of time and that's why we guide to these ramp-up periods. And similarly, you know, on the boilers, the returns are, once you turn them on, are quite quick because it's actually just a cost and efficiency optimisation, so it's not like you have to develop new markets and develop... develop your commercial sort of offering. It's a pure cost efficiency gain. And so what are we doing there? In South Africa we're spending 150 million euros. This is basically building one big biomass boiler which will replace three existing coal fired boilers. So, A, you get the efficiencies that come with having one boiler over three boilers. You obviously have a – you're changing the raw material mix materially from coal to biomass. That has a couple of benefits. Clearly, there's a huge environmental benefit, which I think is the 350,000 tonne CO2 reduction. But also we have big forestry operations, we collect the trees and we use most of the tree for pulp, but there's bits of the tree that we don't currently use for pulp. That is essentially a biomass material that we can collect and use and turn into a valuable energy source. So in essence that's what we're doing. Similarly, in Rajamberak, there is an existing biomass boiler, but it's much smaller and it's an efficient old technology. It's coming to the end of its useful life. This gives us the opportunity to upgrade both the capacity of the boiler and the efficiency of it. And again, we have access to the biomass materials that allow us to make a green energy source. So, in round – and that's – sorry, that's net $120 million after we get some subsidies on that one. So, what is that $270 million spent? You know, we don't take these decisions lightly. I mean, clearly, that's a lot of money. It'll come in – it'll go – it'll be over three years that that money is spent. But – And in rough terms, you can say kind of half of it is what you would call stay in business. You know, if we hadn't gone for the expansion options, we could have saved half the money. But on the other half, we get a meaningful returns, you know, well into double digits and, you know, type of returns on those numbers, on those investments. And it's pretty low risk in terms of, well, there's no real market risk and, of course, we are very confident in the technical risks around these because you can build them alongside the existing boilers so it's not like we have to take a huge downtime in order to commission them and the like which is also very important so hopefully that gives you a bit of flavor for for what we are doing there thank you thank you very much Andrew time for one last question operator

Thank you. Yes, we have one more question. I find one from Pallav Mittal. Pallav, please unmute and go ahead.

Hi. Good morning. Can you hear me? A couple of questions. On the previous one, when you say mid-teens returns through cycle on mid-cycle pricing for your new projects, can you please just quantify what this level of pricing is on the container board side and also on the craft paper side? And then secondly, it seems that this will be the second consecutive year when free cash flow is not going to be enough to cover your dividends. So I know your policy is two to three times coverage, but how does this affect your dividends going forward?

Yeah, maybe, I mean, in the question of mid-cycle, what I can categorically say is current margins are not mid-cycle. If you look at industry profitability right now, on the simple premise that over time the world needs more of the products that we make, which I firmly believe, They do and will corrugate it as a structurally growing market as are Flexible's offerings. There's simply no incentive to put new capacity in. In fact, the incentive right now is to close capacity. And you could argue that that's exactly what should be incentivized right now, particularly in the container board side where all the new capacity is coming on. So that's what the current margins unfortunately reflect is there's an oversupply problem and capacity needs to be taken out but of course in due course that changes, the markets tighten again and you need an incentive price for more capacity that is simply not there and I suspect that's hence why one feels confident that we are far from mid-cycle pricing right now. On the other side, on the Craft paper, likewise, it's a growing market. It's doing okay in the current environment because the supply side is a bit more constrained, but it's certainly not a price that incentivizes ongoing investment. So exactly what is mid-cycle we're not going to get because it's not an absolute price discussion it's a margin question because it's also dependent on what the cost base is doing and costs more generally have structurally gone up everywhere I mean labour inflation which was never a thing until the last few years. Labour costs are simply higher than they ever were before. Energy in Europe has gone up. Wood costs, even though they're coming off a bit, have come off from the highs, are structurally higher than they were historically. So all of these things mean, generally speaking, you need higher pricing than was historically the case in terms of long-term averages and the like. And then maybe the question dividends, I don't know if you... Yeah, so free cash flow, no, you're correct.

Our dividend cover is outside our two to three times. We've been super clear on this. I think people laugh at me when I put up our capital allocation slide every time. The reason I put it up is because what we follow, you know, dividends is an important part of our capital stack. The board recognised that and of course we're in the phase where we are spending a lot of money for future earnings to come through and future cash to be generated. Therefore, right now we're very comfortable under that cover ratio to hold the absolute dividend flat. Clearly going forward we will generate more cash and the earnings will go up when the cycle recovers and that's why the board is currently comfortable with holding the absolute dividend and being lower than the cover range. The cover range is a three cycle range very deliberately, two to three times we're currently under that, we recognise that. Long term, of course, you should not be borrowing debt to pay dividends, but I think we've got confidence in the future earnings of the group and therefore it makes sense right now. As I said earlier, the interim dividend is always a third of the previous year, so let's call it maths. The board, of course, every year look at the dividend and we'll look at that again as we approach the end of the year and go through that discussion again. So it's always on the board's discussion table. But up to now, we've been comfortable being outside of that dividend range because of the future cash flow of the business that we frankly invested in. I hope that answers your question.

Thank you very much.

I appreciate we've taken more of your time than we normally ask for, but I hope that was useful in terms of covering a number of topics. But as always, thank you very much for your interest. Please, if there's any follow-up questions, you've got the various contact details of Fiona and the team and look forward to staying in touch. So thank you very much for your attention.

Thank you.