Mondi plc

Hello, everyone, and welcome to this Mondi Q1 event. Just to let you know, we do have captions on today's call, and these can be switched on and off within your Zoom settings, but please be aware they are automated and can sometimes contain errors. If you have a Q&A question today, then please use the raise hand function on your screen, and you can do this when we go into our Q&A section later. I'm now going to hand you over to Andrew King, CEO. Andrew, please unmute and go ahead.

Good morning, everyone, and thank you for joining our call today. I'm Andrew King, Group CEO, and with me is Mike Powell, our CFO. I'll apologize in advance for the slightly croaky voices. It seems like both Mike and I have managed to pick up a change of season sniffles that I'm sure we can be heard. I'm sure you've all seen the announcement today, so I'm just going to pick up a few points before we go to questions. Market conditions in the first quarter of 2026 did remain challenging, underlying EBITDA for the quarter of $212 million, broadly in line with the fourth quarter of 2025. On a sequential basis, sales volumes increased across a range of paper grades. There was also no planned maintenance shuts in the quarter. These volume increases were offset by lower average selling prices, and towards the end of the quarter, higher energy-related input costs. With our converting operations, corrugated solutions and paper bags experiencing margin pressure, while consumer flexibles delivered a broadly stable performance, supported by resilient end markets. Geopolitical tensions in the Middle East increased volatility in an already complex operating environment. Across the business, We have seen higher energy, raw material and logistics costs and we have responded with pricing actions. While there is an inherent time lag, we do expect these measures to take full effect by the third quarter. Despite the uncertain outlook, we continue to focus on what we can control and deliver great products and services to our customers. With that, Mike and I are now happy to take your questions.

Just a reminder, if you do have a question, then please use the raise hand function. Our first question comes from James from President Securities. James, please unmute and go ahead.

Thank you. Thank you very much. Thank you for the call. Could I just ask two questions? Firstly, there were energy credits. that were quite substantial last year. Could you talk about what the difference is in that on a quarter-on-quarter basis and a year-on-year basis in the quarter? And secondly, you've increased your cost-cutting progress from what I can see. Before you were saying the cumulative impact was offsetting cost increases, so I'm wondering whether whether it's now more than that or whether it's now simply offsetting the higher cost increases that we've now seen because of what's been going on in the world. Thank you very much.

Yeah, let me start, James, and then Andrew can add in. Just energy credits, I was pretty clear at the year end, that would be about a $60 million adverse, if you like, year on year, it's probably, you could probably average that over the quarters, very simply. And then on costs, just to be clear, when we were saying we were taking a number of actions, which we continue to take, and you see we closed, we announced closure of another three converting sites Since we last spoke, that's very much to control, if you like, the fixed costs, the overheads in the business. That's not really direct materials or import materials, which is clearly the cost increases you alluded to. So we do continue to work very hard on our fixed costs. We take advantage of scale, implants and production efficiencies, and that allows us to move less sustainable converting plants into the more efficient ones and that's something that as Monday we've done over the years you've seen us accelerate that a little bit in this economic decline but that really allows us to hold off fixed cost places flat which is the guidance I gave at the plug year and I'd hold by that today. Clearly on input costs that's a different story than before.

I think that's really important James and I think Obviously at the beginning of the year the outlook for the cost base for the year was somewhat different to what it is today, simply driven by the effects of the war in the Gulf. I think we can all sure go on to talk about it. But of course, as Mike said, the input costs dynamic has changed materially from the day input cost environment, but of course it has changed quite materially since then with the sharp rise in energy costs and the feed-through to all the other aspects. And that is why obviously our big focus is obviously in part mitigating that and part ensuring security of supply, which is critical in the current environment, and of course driving the necessary price increases.

Thank you very much.

Thank you, James. Our next questions come from Deltas with JP Morgan. Deltas, if you'd like to ask your question, go ahead.

Yeah, morning, everyone. Maybe first one just on demand. You know, you kind of called out that demand was relatively stable, maybe potentially slightly higher, but that is helped by all the capacity expansions. I'm just curious to what extent you guys are seeing this as a restock or a pre-buy You know, we are seeing, obviously, tech prices up, quarter to 100, cumulatively. Normally, you see some pre-buying activity. Just curious what you see as underlying and what is not.

Cool. I think you've been confronting our volumes with industry demand. So, our volumes are obviously driven in part by the investments we've made over the course of the last few years. which we are in the process of ramping up. Undoubtedly, we gain some share in certain markets as a consequence of the increased capacity and obviously the offering we have into the provider markets that we serve. So first things first, our volumes were up because of those effects. In terms of the market demand as we see it, I mean, if you look, the year started quite February was pretty soft year on year, if you look at the industry stats and that's across most of the markets. But it has improved sequentially as the months have gone on. If I look at our order books now, typically in the paper business, in the paper grades, our order books are strong. pre-buying because undoubtedly price increases are coming through and I think there's also been some supply side effects for example I think there's been less exports from the US into Europe as a consequence of the US container board market in particular with capacity rationalization taking place there and of course exports were marginal for them so that's that as we've been saying for some time now people simply can't make money at these price levels and there's been I think quite a lot of industry downtime across the piece which has reduced stock levels and frankly is supporting these price increases we've seen coming through at the moment in addition to the impetus that's been brought through by the significant cost inflation we've seen since the start of the war on the gold

Cool, thanks. And then maybe if I can do one more. Just regarding, I mean, normally, you know, test counter prices go up, and I think you even called out there's normally a lag that we should have to wait for. And normally, I think about box lags of, call it, three to six months. Is there any chance of those lags moving a bit sooner, given how fast and how aggressive, you know, the cost inflation has been? I think we saw something very similar yesterday. during Russia-Ukraine period, maybe cost inflation not as severe as that, but just curious on if there's any room to shorten those lags.

Yeah, I think that is a big focus across the piece. I mean, it varies. Again, you mentioned particularly the boxes. There, undoubtedly, the normal lag is going to be shortened. It has to be because of the significance of these increases. I think our customers respect that and are acknowledging of that. So you are seeing a shorter time period, I think, from the cost input going up through to the In terms of boxes specifically, there's still quite a lot of in-depth business which does take time but it does happen invariably. I often say a big paper price increase is easier to get through the boxes than a small one and clearly we've seen some transport logistics and other cost items that are also being affected at the moment. So, yeah, I think net-net is realistic. It is realistic to assume that the lag effect would be probably a bit shorter in this environment where we are seeing pretty sharp cost inflation.

Awesome. Thank you. Thank you so much for your question. Our next one comes from Lewis of Goodbody. Lewis, please unmute and go ahead.

Hi, Andrew, Mike. I just wanted to break out what you're seeing on raw material costs, specifically fibre. I understand much of your energy source is there as biofuels, but just to get a sense of the group's exposure to natural gas or electricity. And then just also interested to see what you're seeing on the price and availability of plastics. I know that you use that in some of your consumer flexibles products and just what might be happening there. Thanks.

sure thanks um the year on energy uh again we have a very good uh natural edge uh in the use of biomass uh across a large part of our energy needs so our gas consumption uh i guess relative to the industry is uh super low um which puts us in a good place um in terms of the specifics I guess in Europe we probably spend about 100 million on gas for Europe. So if energy is like in March it doubles but it's a bit less than that today. That sort of gives you the scale of the gas. The rest, as I say, is biomass. The other category you mentioned, I think, is plastic resins. That's moved materially. Again, a lot of that is index-based, but resins are at 40, 50, 60%. But again, there's price-through mechanisms, and that whole industry, frankly, is having to pass those on. So whilst those are large increases, the wrong mechanisms and those are already being passed through relatively well. And I think you touched on availability as well which I think is a good point. At the moment we're seeing clearly no availability issues. And frankly, of course, all the categories, which we've been up on that, because obviously we're in a pretty volatile world. The cost is about everything right now. But at the moment, no availability issues. We have really good relationships, both on the customer side and on the supplier side. And at times like this, those become super important, because that just gives you extra flexibility in a world where you need to be really agile. So I'm super pleased with how... Both our sales side and our procurement side are responding to that, but no availability issues or something.

That's great.

Thanks.

Thank you for your question, Lewis. Our next question comes from Brian of RMDN Stanley. Brian, please unmute and go ahead.

Good morning, guys. Can you hear me? Cool, very good. Actually quite an easy one. If you could just update us on where we stand with maintenance. There was no maintenance in the first quarter. What are you expecting for the second quarter and maybe into the second half of the year?

I was worried with your easy ones, Brian. This one, it falls into that camp. So no maintenance. Again, there's no maintenance first quarter. We guided pretty similar year on year. That means it's about 100 as we sit here today. I'd expect about 20. in quarter two and therefore 80 in these can pass. I hope that gives you what you need.

That's perfect, thank you. Thank you Brian. Our next question comes from Cole of Jefferies. Cole if you'd like to unmute and go ahead please.

Good morning Mike, Andrew, thanks for taking my question. Could I just start with how we see the various moving parts developing into the second quarter just so we can get the quarters in a reasonable position. Could you give some color, you've given some maintenance commentary, but color on the forest fair value gains considering that's going to be nil versus kind of 30 million or 40 million normal expectations on the annual run rate. So just wanting to know forest fair value and then any other items that we should be thinking about into the second quarter, particularly on the cost inflation. It's been clear that it's cost comes first, but any kind of quantum would be helpful.

Yeah, so let me, I mean, Andrew can talk about price versus cost, because I think with such significant inputs, you know, material cost increases, you know, it's the net that obviously matters. And we can touch about that price development versus cost increase too. But more importantly, you know, through the year, because as you know, this isn't a quarterly gain. On your specific unfair value, the price of wood chips in South Africa, as defined. That means we need to value the asset on a spot basis. For the full year, I'd expect zero. If I just sort of step back up a bit, you know, we've normally, the average I've always said for fair value is 40 to 60 in a year. That's normally growth with little price. So if you think of growth at 10.25 is the sort of norm and price at nil and recognising price goes up and down. You saw the 10 roughly fair value in the first quarter. I think it was 8 to be precise. That's the growth. You'll see that in Q2, Q3, Q4. So you'll get roughly 10.25 of the growth. The issue is obviously the price. That affects us all immediately in Q2. So I'd expect that to be a sort of price element to be about a minus 40 in Q2. And then, of course, it'll depend what happens in the future. But if you put 0 in for Q3, Q4, what that means is you've got for Q2 10 growth, minus 40 on price, giving you minus 30 for fair value. and then in Q3 and Q4 it comes back at us for growth. That adds up to nil for the year. I would just mention, of course, the world's pretty volatile. That's our best guidance today is nil for the full year, but obviously with that negative in Q2 being the price effect which we're taking into account. Does that help on fair value, Carl, just before we get back on to the trading business? Yes, that's very fair.

Thank you. As Mike said, just in terms of what into Q2 and beyond it's very dangerous I think just to look at one side of the equation undoubtedly costs are going up and you know to a degree we didn't foresee the beginning of the year but at the same time we are now clearly seeing pricing momentum so one has to recognise that you know call it January February as you will recall we spoke about at the full year results announcement, and that means that we came into the year with low pricing levels. Pre-war, should we say, there were already some price increase initiatives that were being successfully implemented. We were starting to see some movement in the recycled container board grades, we were starting to see some movement in the fine paper markets with some price recovery there. obviously also supported by some modest increases in the pulp prices, and we were starting to look at price increases also in the craft paper and virgin container montrose. Clearly what then happened was we got the sudden shock of the energy price inflation and all the knock-on effects. So clearly March was particularly badly affected by that because obviously there was not yet a price response and yet we'd seen almost immediately a big spike in gas, which of course hits us immediately to the extent we are, you know, we do buy some on the open market as Michael already referred to. And there was immediately surcharges on transport, et cetera, from certain regions of the world. So that was quite an immediate cost effect. Obviously, we've been continuing the work on the pricing side, which has had added input to staff for obvious reasons, given this significant cost inflation. So that is why, A, we're very confident of getting price increases, too, because there is cost support. But in addition to that, as I've already alluded to, our order books are strong. in the relative trade flows, as I say, on the virgin container board grades, cloth paper grades, even though industrial bags, Europe is relatively flattish to slightly softer in certain spots of the The likes of the e-commerce markets, demand is coming through strongly, so these are tightening up those markets and hence the reason we are pushing price increases across all our main paper grades which undoubtedly then feed through into the diversity products. worst of it right now but as we see these price increases we can be confident we can restore and improve certainly the margins from where we are today so it's undoubtedly something of a lag effect and we see that's what we're experiencing right now that's what we experienced in March into April as we saw the worst of this cost inflation and then we are now starting to see the prices move which will take effect through Q2 into Q3. So if I try and summarize that in terms of quarter-on-quarter effect, I do expect to see on the underlying basis ignoring the noise around set value and things like that, an improved margin environment in Q2, and then obviously in Q3, better still. I mean, who knows what happens next on the costs side if peace breaks out tomorrow and you have some checking down in the costs, but we are certainly not predicting that. I think the forward gas costs, all of these things tell you, is going to be higher for longer, even if we have some residual costs.

Andrew, can I follow up on that last point? Because, I mean, how do you see the cost curves for the industry over the next, let's say, two years? Because even if we do see resolution tomorrow, which we all want because it will come back for demand and you'll see the benefit, hopefully, for construction, et cetera, but gas prices, chemical prices, logistics costs, are you of the view that those costs probably don't come down for a while, and that steepens the cost curve over the next two years. And, you know, how is Monty relatively positioned at that? I mean, is this ultimately good for you that this probably steepens the cost curve even if the wall was to end tomorrow?

In terms of a relative positioning, As you say, I mean, given that we make so much of our own energy and it's biomass-based, and yes, biomass prices have historically also had to some degree been impacted by energy. It's not nearly on a one-to-one basis. um relative to uh especially our competitors especially those who are obviously much more predominantly sort of recycled based because almost almost by definition the recycled container wood producers are not backward integrated into their own um energy production that they would be buying a fossil fuel typically to So you do see, yes, when the whole cost curve goes up, and I doubt it, to be clear, our costs also go up, but not nearly to the same extent as, as you rightly say, more exposed producers that are buying fossil fuels. So that is what's happened already. I mean, the cost curve has, container board has gone up and has steepened materially. Those players who were, Underwater, should we say, at the beginning of the year, under a certain cost dynamic or under even more pressure today, even with the type of price increases we've been seeing going through the market at the moment, it is not enough to, should I say, rescue the top end of the cost curve. And it's very clear that there's a lot of producers who are simply not producing in the current environment. As I said to an earlier comment, the stock levels for recycled container water are actually quite significantly below average levels for this carbon here and I think that is a clear function of the fact that simply put there is no margin for among the higher cost producers to be producing into this market and these price increases are not necessarily supporting a material change to the margin dynamic for those producers. Of course if you've got less cost pressures you don't see quite the same margin squeeze You know, I think we also have to recognise in our craft paper business, obviously there is still consternation around that data being less exposed. But I would say there, you know, it's also a strong demand side dynamic that's taking place, as I say, even though, call it the traditional industrial uses in Europe, it's outside of Europe demand is good into our export markets and that's everywhere from Latin America to Southeast Asia obviously the Middle East by definition right now is volatile but it's still holding up but as I say we're also getting good demand from non-traditional sources e-commerce in particular which is really tightening up that market and hence the reason we've in our flexible paper offerings.

Thank you. Thanks, Cole. Thank you for your question, Cole. Our next one comes from Kevin of Deutsche. Kevin, if you'd like to unmute and go ahead, please.

Great. Thanks very much. Morning all. Just on the pricing dynamics point, just can you remind us how much of the business is indexed across the various segments or does that become less of an issue at the minute, just given the sort of scale of price increases and the urgency to get these through? Just thinking about how quickly these price increases will impact as we sort of kick through second and third quarters, so any clarity you can give on that would be great.

Yeah, I work from, as I say, the business that's experiencing the greatest cost pressures at the moment are our resin-based businesses. They're, for all intents and purposes, just about all the business on consumer flexibles is indexed. And as I said in my earlier remarks, the challenge now for our teams is to move the pricing in advance of index linked calculations simply because of the magnitude of these consequences. very well contained. In the paper businesses, our bags, there is a lot of index linked, I mean it's significant index linked business there. The question is when is the repricing event? Some of it is on a quarterly or half yearly basis and there is that delayed effect. That's why we say in the minor third quarter both paper price increases will be The traditional rule of thumb is three to six months for the boxes to react to price increases. As I say, with the magnitude of these price increases going from the paper side, I think that will be a shorter time period before you get full pass through. I think it's in everyone's interest to move those prices faster than in the traditional time period. So it will probably shorten that use.

Great. Okay, thanks for the clarity. Thank you very much.

Thank you, Kevin. Our next question comes from Gabrielle Goldenfax. Gabrielle, please unmute and go ahead. Hey.

Hi, Gabrielle. How are you?

I'm sorry, you can Sorry about that. Thank you for taking my question. So the first one would be on the Craftliner side. So Craftliner is better positioned, as you were mentioning in this scenario, but the gap between the prices of Craftliner and Testliner is elevated when you consider historicals, right? So although it's better positioned, would you expect that grade to also capture the full benefit of the higher costs and the potentially higher prices for Testliner that we should see ahead? So that's the first question. And my second question would be if you could give us an update on the ramp-up of the new capacity and your expectations for 2036 specifically on how you would expect that to reach the market. And if you see, like, given the whole demand environment, if you could see other capacity being taken offline and actually being replaced by the new capacity. Thank you.

Other question of Virgin versus Recycled. Yes, the Virgin has been trading at the premium, sort of at the higher end of its traditional range versus the Recycled. I think that's perfectly understandable. All the supply side additions are coming in the Recycled side. All the easy wins in terms of substituting Virgin by Recycled have taken place. The supply side on the Virgin is much more constrained, and as I train these days because there is less coming in from the US. And so that's tight. The version market is a version...demand looks good, the order books look strong, and of course if you get these price increases through on the recycle side, it supports the ability to move prices by price increases on the recycle side. So, you know, in short, of course, these price increases in the version of predicated primarily on the fact that there's a strong order book and the supply-demand is tight, supported in turn by the fact that you're starting to see improvements on the recycle side and so the risk of substitution gets reduced. In terms of capacity, ramp-up, etc., as I mentioned, we saw volumes grow year-on-year and also on a sequential basis. That's obviously partly due to the ramp-up of the capacity that we are bringing into the market. Primarily on the paper side, it is some of the recycled side from Arduino build. Obviously we've also been ramping up the optimised capacity on the Virgin side, both the semi-channel switching and the product data switching, which we expanded capacity there last year. So all of that is coming into the market as we produce it. In terms of does it require closures, I mean I think that's... that talks to the overall supply-demand dynamic in the market. Undoubtedly, as I think we've all been saying for some time now, on the recycled container board side, you undoubtedly need capacity closures in the market to properly balance this market. It's been some closures, but we're all scratching our heads as to why it's taking so long because undoubtedly there's every incentive for closures. As I said in my earlier comments, everything tells us that the capacity that's out there is running well below capacity and that is extremely expensive because of course you've got fixed cost space, there's no revenue when you're doing that and I can't understand how that can a lot longer, but I guess people are bored of us saying that because it's been a while now, but the economics will come through in due course. We will watch that to understand how it happens.

Thank you. We have one.

We have time for one more because we're going to have to go to our AGM and talk to the channels.

Yes, no problem. We have one final question from Pallav of Barclays. Pallav, if you'd like to unmute and go ahead.

Hi. Good morning. Can you hear me?

We can, Pallav. Good morning.

Thanks for taking my questions. Two of them. So, firstly, how does the current market environment impact your Arduino optimization, if at all, and should we expect it to be loss-making in 2026 still? Because I think that is what you had highlighted at the full year results. And then secondly, appreciate all the detailed commentary earlier, but simplistically, given higher input costs due to the conflict and recent price increases around 100 euros on test liner, is it enough to offset the cost increase or is it over, is it just enough to offset that increase or is it over and above and it could lead to margin expansion in the second half?

Thanks, Philip. I guess those two questions are very much interlinked because Duino, of course, is a pure recycled container board producer. I mean, clearly Duino is still in ramp-up and obviously every day that you produce and sell more products, your unit costs go down and that's a process down the way. And, of course, we work very hard on improving the mix effect and markets we sell into, et cetera, for Duino. So that is a solar work approach. Of course, we know as being in the eye of the storm when it comes to the gas price increase, the gas cost increases that we've only just recently seen. because of course Italian gas costs, which we know is exposed to, have gone up and that is a headwind that they now face, which we certainly didn't see at the beginning of this year. At the same time, as you rightly said, there are meaningful price increases going through at the moment. Obviously it's not fully implemented as yet and we'll have to see exactly how much the price through. Obviously that will then in turn determine the overall profitability of the reno into the second half. So right now it is loss making, obviously compounded by the recent gas inflation and undoubtedly we need price increases to mitigate that. That is that work in progress which is to say I'm very confident we'll see chemistry into the second half of the year.

Thank you.

Very good. But on that note, I really appreciate your interest as always. As we've said, clearly we are seeing an uncertain outlook at the same time. We are driving hard on all the controllables. We are seeing, very importantly, good So with that, you know, we are confident that while Q1 was difficult, we are starting to see some improvement into Q2 on an underlying basis and certainly into Q3 and beyond as we see the full effects of these price increases, which we're very confident in. We will see an improvement in the underlying operating profitability. So with that, really appreciate your interest and thank you very much.