Mondi plc

Hello everyone and welcome to this MomD half-year results for 2026. Captions are enabled on Zoom, however these are automatic and can sometimes contain errors. If you would like to ask a question as part of our Q&A later, you can use the raised hand function and we will invite you through to ask your question in person. I will now hand over to Andrew King, CEO.

Good morning, everyone, and welcome to Monday's 2026 half year results presentation. I'm Andrew King, your group CEO, and I'm joined this morning by our CFO, Mike Powell. I'll begin with some key messages from the period under review and then Mike will take you through the financial performance in more detail. I'll return to provide an update on the performance of our business units and discuss some of the current market dynamics before taking you through various of the actions we are taking to strengthen our competitive advantage in what remains a volatile market backdrop. After that, Mike and I look forward to taking your questions. In the first half of 2026 we delivered underlying EBITDA of 379 million euros down on the prior year due mainly to margin pressure from lower average selling prices and higher input costs. We were able to partially mitigate these pressures through higher sales volumes, strong cost control and proactive pricing actions through the period. We remain focused on taking decisive action on those areas we can control. Tight control of working capital mitigated the fall in earnings, allowing us to generate cash from operations of 347 million in the period, while lower capital expenditure also contributed to a stable net debt position. We continue to take actions on cost, operational excellence and portfolio optimization while ensuring we are well positioned to serve our customers with our broad range of innovative, sustainable solutions. Together with the significant competitive advantage we continue to enjoy as a business, ensure that Bondi is strongly positioned both to withstand the current market pressures and capture the upside as market conditions improve. With that, let me hand you over to Mike for more comment on the financial performance.

Thank you Andrew and good morning everybody, thanks for joining. Now let me take you through the group's financial results. And starting with the main movements in underlying EBITDA for the first half of 2026 when compared to the first half of 2025. We achieved higher sales volumes across most of our packaging businesses driven by the ongoing ramp up of our major capacity expansion projects and an improvement in order books Sales prices were on average below the prior year. Pricing across all paper grades declined in the second half of 2025 and into early 2026, resulting in the groups starting the year at lower levels. Although price increases were implemented during the first half and with some initial benefits realised in the period, average prices for the half remained below the prior year. We expect to achieve the full effect of these price increases in the third quarter. Turning now to input costs which increased with higher wood costs in Central and Eastern Europe as well as the impact of higher energy and other categories due to the conflict in the Middle East. As we enter the third quarter, input costs do remain volatile and based on current spot remain above average input cost levels seen in the first half. Once you can see and follow the energy indexes publicly for yourself, there are costs which are firming and maybe a little counter-intuitive compared to the economic environment. As the demand for items such as furniture and European wood exports into the Middle East decline, we are seeing less harvesting volumes. Therefore, there's less storm activity resulting in lower wood supply and wood chips into the market. Alongside that, unlike Scandinavian markets where there is currently a degree of calamity wood, Central Eastern Europe has little calamity wood. These factors result in the cost of wood increasing in our Central Eastern European region and will continue to do so in the second half. These inter-European fluctuations are not untypical of what we see in regional markets from time to time. For forestry fair value, we recognise the loss in the period of £35 million compared to a gain of £18 million last year and that results in the £53 million delta that you see. This loss was mainly the result of a reduction in local wood prices in South Africa during the period and while the year end valuation will be based on prevailing prices at the time, Thank you very much. Thank you very much. Fixed costs we worked hard on were flat year-on-year, excluding the required shoe market cost base, which reflects the continued focus on cost control and driving efficiency improvements to offset inflationary cost pressures. And we'll touch more on some of these initiatives later in the presentation. The euro was mainly attributable to the weaker US dollar versus the euro, and hence was the year-on-year headwind. The dollar has largely been steady actually since the second half of 2025 and even recently shown a little bit of strengthening. Adding all that up results in an underlying EBITDA of the 379 million euros that you see on the right hand side of the page. Now looking now at cash flow movements during the period and our teams have worked really hard to mitigate the impact of lower earnings. What I've done here is I've simplified the cash flow because us accountants tend to make it rather complicated in the statutory format these days. So I'll start off with underlying EBITDA that you can see at the top of the slide and adjusting for the non-cash forestry fair value that I've just taken you through. Then as expected we had a working capital outflow in the period which we generally do experience in half year one due to seasonality effects as well as the impact of higher prices at the end of the period. Pleasingly, this movement was less than the equivalent period last year. And whilst not shown on the slide, when you do get a chance to look at the balance sheet, you'll see that our absolute total working income is €122 million lower than the balance at 30 June 2025. So really a real good testament to the strong focus on working capital management. The tax interest paid was higher, mainly driven by the timing of Eurobond coupon payments. That's only a timing issue. Investment in property, plants and equipment was around £140 million lower than the prior year, and we continue to apply rigorous discipline to new CAPEX approvals. Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire So somewhat lower than previous guidance and well below last year's 690 million. I do want to be clear on this, we're not storing up an issue for the future here or risking safety or growth and the reductions are spread across a broad portfolio of smaller projects. Taking all that into account, while earnings were down on the prior year, versus the 18-hour outflow of last year shows that our cash movement generated from the business was largely unchanged. Dividend payments reflect the return of the full year dividend within cover range and taking all of the items into account including the acquisition of Schumacher in 2025, net debt was unchanged at £2.6 billion at 30 June 2026. While leverage is higher at 3.2 times at the end of the period, as can be seen at the bottom of the page, this is really driven by the lower 12 month trailing EBITDA, which does include a fair value loss for both of the periods shown. Moving forward, we expect leverage to reduce, supported by both the ongoing focus on cash management and the improving trading momentum. I now want to set out our robust financial position. We successfully refinanced our €1 billion RCF facility during this period. We also repaid the remaining balance of the Eurobond that matured in April 2026, which we'd already refinanced in October last year. The only notable debt maturity in the near term is the €750 million Eurobond due to mature in April 2028. So we remain strongly positioned with liquidity totalling €1.15 billion, an investment grade credit rating and a reminder we have no financial covenants. As you would have seen from our release this morning, we've recognised the €320 million of pre-tax special item charges in the period. This compromised a non-cash impairment charge of €296 million and cash restructuring and closure costs of €24 million, which we expect to flow out as cash. Impairment charges compromised 206 million euros at Arduino Mill in Italy and whilst Arduino continues to ramp up volumes in line with the plan and we remain confident in its long-term future the current outlook indicates a lower returns profile than previously anticipated with returns highly sensitive to energy import costs and selling price assumptions both of which are proving to be highly volatile in the current world. The remaining €90 million in payment charge was split between our noisy uncoated fine paper operations in Austria, the Schwarzenberg solid mill in Germany and the Stambolinski mill in Bulgaria that ceased operations in 2024. And lastly, technical guidance for 2026. After a normal review of the useful lives of our assets, we've reduced the expected depreciation and amortisation guidance for the year to approximately €475 million, which reflects our well-invested and well-maintained asset base. We've also reduced the guidance for the full-year impact of maintenance shuts from €100 million to €80 million, this reduction all attributable to the second half. So to draw to a close, we have and continue to take a number of actions to deliver earnings and cash resilience in the short term, whilst continuing to enhance leverage to the upside as markets improve.

Thanks, Mike. I'll now take you through a review of the business unit performance and thoughts on current market dynamics before again coming back to the actions we are taking to strengthen our competitive advantage. If I move then to corrugated packaging, as you'll see a highlight was the good volume development across our key segments. Container board volumes were up around 12%, supported by the ramp up of the recent capital investment projects at both Duino and Cupia mills. While in the box business, we delivered 2% volume growth on a like for like basis. In boxes, we continue to see quite divergent regional growth rates. with the Polish and surrounding emerging European markets in continued good growth and Turkey recovering, albeit volatile, while Germany and Benelux continue to struggle. Despite the generally low growth markets, we are encouraged by the pipeline of opportunities in our portfolio, supported by the broader geographic coverage we now offer across Northern Europe as a consequence of the integration of the Chubacca business last year. In uncoated fine paper, volumes were again stable despite market demand declines estimated at around 3% in Europe, as we continue to gain share at the expense of weaker competitors. Margin pressure came from a combination of the lower average selling prices across all key paper grades and the significant input cost inflation. Prices came off through the second half of 2025, as Mike explained, and into Q1 2026, on the back of both the sluggish demand cycle of container board and uncoated fine paper. In response to the sharp uptick in input costs as a consequence of the Middle East war, we have been successful in implementing a series of price increases across all key grades during a period. Although not sufficient to fully offset the impact of the cost increases in Q2, we do see further benefits from these price increases into the second half. While largely cost-driven, it is encouraging to see that the price increases are also supported by strong order books going into the second half, particularly in the virgin container board grades. The focus has rightly been on the continued oversupply and recycled container board, However, I note that the supply-side dynamics in the niche virgin grades, which is our largest exposure, are very different. There is no significant new capacity in Europe, and the large capacity reductions in the U.S. have served to reduce exports to Europe, traditionally an important export market for the U.S. produce, significantly tightening up the virgin container board markets. We're currently engaging with our customers on further price increases across our range of container board grades supported by both the tight supply demand balance in the virgin grades and of course the ongoing cost pressures we are seeing in recycled container board. Margins in our corrugated solutions business were pressurized by the lag effect in passing on the rising in container board prices through the period and the intense competitive pressures in what remains sluggish growth markets. We also saw weak performance from small solid board businesses acquired as part of the Schumacher acquisition, which Mike referred to in the earlier discussion on impairments. Turning to flexible packaging, we delivered a resilient performance with solid results from our converting businesses, mitigating the squeeze in craft paper margins. Pleasingly, we were able to deliver good volume growth in improving Thank you very much. Industry volumes for industrial bags in our core European markets remain relatively flat and we still haven't seen marked cyclical recovery of the lows of recent years, impacted of course by the subdued household construction activity. The business saw significant input cost pressures during the period, as higher oil and gas prices filtered through to other inputs, most notably logistics, chemicals and wood, as highlighted by Mike. Through very proactive management, our commercial teams were able to limit the lag effect in passing on these costs in our converting businesses. We also implemented paper price increases during the quarter and early into Q3, supported by both a generally higher cost environment and, importantly, good demand driven by the increasing use of craft paper in e-commerce applications and steady demand for traditional industrial uses. I'll come back to developments in the e-commerce market later in more detail. While these prices increases had some effect on the Q2 performance, we expect the full impact again to come through in the third quarter. Similarly though, we do expect a further uptick in economy to arise and recent events in the oil and gas markets point to further general input cost inflation. Noting of course that the outlook here is changing on an almost weekly basis depending on events in the Middle East. We will continue to monitor closely the impact on the cost base and look to respond with pricing actions where appropriate. In the context of the prolonged industry downturn we have been experiencing, I want to spend a few minutes highlighting the various actions we are taking to both ensure resilience in the short term and support long term value creation for our shareholders. As a group, we do benefit from operating some of the most productive and low-cost pulp and paper mills in Europe. Coupled with our strength in integration and diversified portfolio of packaging solutions serving structurally great markets, we are well positioned for the future. However, we are focused on doing more to strengthen performance, cash generation and competitiveness through a combination of plant network optimization, strong capital discipline, operational excellence and commercial execution. Our ongoing actions around plant network optimisation are tailored to create a stronger, more scalable platform to support growth, drive productivity and cost optimisation, and improve returns. We've announced the closure of six converting plants over the last six months. Of these, two plants are now closed, with the remaining four plants expected to close over the remainder of this year. I remind you that these plans were profitable so the upside comes in successfully transferring the volumes to larger more efficient sites to improve asset utilization and reduce fixed costs while of course ensuring we maintain service continuity. To put this challenge into context, it requires the transfer of around 800 customers supported by careful qualification and transition planning. We are relocating 30 major items of equipment and the six closures involve a reduction in headcount of around 580 by year-end. We continue to optimize our operational footprint to support long-term value creation and will not hesitate to take further action on our portfolio if required. As Mike has already alluded to, the major capital expenditure projects we have been developing over the past four years are now largely complete. Our priority is now to drive cash returns from these investments through both operational and commercial optimization. While we recognise that we are not where we want to be with certain of these projects, as Mike has already discussed in the context of the Duino investment, we are in a position now where we can drive growth from existing installed capacity without the need for further major expansionary capex. We can reduce capital expenditure without prejudicing asset quality or mortgaging future upstart. Full year capex of around 500 million euros reduced from our previous guidance of 550 million euros. Our investment program is focused on safety, assets integrity and cost optimization with only highly selected growth capex in core markets. A large component of the current cash out is linked to the biomass boiler projects in South Africa, Slovakia and the Czech Republic aimed at driving cost optimization, energy efficiencies and reducing our exposure to the volatile fossil fuel markets. Again, I want to emphasize, as Mike did, that the reduction in capex guidance is not about pushing out urgent need and maintenance capex. We are confident we can run the business with the lower capex levels, given the well-invested nature of our asset base. Operational excellence and continuous improvement is part of the DNA of the group. It is core to how we seek to drive competitive advantage and unlock value from our asset base. At our flagship of Container Board Mill in Swiecie, Poland, for example, paper production has increased by 18% over the past 10 years on the same machine footprint. On converting, our industrial bags business has achieved a compound annual growth in productivity of 5% over the same period. Building on this legacy, we are now accelerating the rollout of our 1D management system, or MMS as we call it, across our mill network and extending it into our converting operations. This follows successful pilot projects in various of our key mills. I mentioned this initiative at the full year results, but just to remind you, it is a multi-year program aimed at taking us to the next level of operational excellence through a zero-loss mindset, embedding standardized processes and ensuring that by empowering our people and strengthening our leadership teams. It focuses on right first-time performance, waste reduction, reliability, operator capability and improved run rates. This is not about quick wins, it's a long-term program designed to embed consistent execution and strengthen leadership capability across our operations. Very excited that early adopter sites are already reducing unplanned downtime and improving operating efficiency, reinforcing our confidence that we can drive operational excellence to the next level, improving competitiveness and cash returns. Again, by way of example, the sweet tea mill achieved 4.3% productivity gains over the last 12 months, with production output on selected machines up 11%. While of course not all due to MMS, this is clearly a major contributor. While market growth remains subdued, we are confident that the structural growth drivers for sustainable packaging solutions remain firmly in place. Customers increasingly need partners who combine both broad product choice, innovation, sustainability, secure supply, and reliable execution. We are well positioned and attractive in markets such as FMCG and e-commerce where customers do remain focused on reducing plastic when not required and improving packaging sustainability. In this market, achieving growth is not simply about pushing products, it is about customer partnerships, technical collaboration and innovation. Great examples in our collaboration with our leading Ecuadorian banana exporter to develop a corrugated solution using our smart craft brown and fresco flute container board. While you'll see from the picture it's not immediately obvious, the design is around 10% lighter while maintaining the strength needed for a demanding export supply chain. Another example you can see in the top left of these images is where we have supported the transition to a recyclable monomaterial solution, which is an industry first for a shelf-to-table tuner product. These examples and many more we have show how product offering, technical expertise and customer partnerships help us to win customers and capture growth, whatever the market conditions. We do have a particular strength in a strongly growing segment of e-commerce, and I just want to spend a couple of minutes around this. Here we can support customers across the complete range of fiber-based packaging. Traditionally, e-commerce has primarily been a box business, with significant growth seen over the past 20 odd years. It is now a major component of demand, estimated to account for roughly 15% of the European box market. While demand here continues to grow, it is undoubtedly slowing as the e-commerce market matures and the major players look to optimize their packaging. We have strongly focused on supporting our customers in this journey, developing products such as the paper protector mailer, which you see in the pictures, in conjunction with a major e-commerce customer. As the leading incumbent producer of craft paper and paper bags, we have also been at the forefront of supporting our customers' transition to the use of fully recyclable, lightweight and flexible paper bag solutions. More recently again, e-commerce customers have looked for increased efficiency suppliers and customers to develop automated packaging lines that use our packaging materials such as craft or functional barrier paper. It is in these craft paper and bag applications that we are seeing stronger rates of growth currently and a key reason why craft paper demand is positive going into the second half of the year. Last year, as you know, we combined our e-commerce sales teams across corrugated and flexible packaging, creating a simpler, more coordinated proposition for customers across all applications and markets. Our broad fiber-based e-commerce range is supported by integrated production, technical expertise, and recent investments in Shetty, Switchy, Coupio, and our North American Bag Network, helping us support existing customers and Win New Business in these fast-growing applications. Mondi is indeed the home of e-commerce packaging. In summary then, we are well positioned to deliver short-term resilience and sustainable long-term shareholder value as a leader in sustainable packaging solutions with exposure to attractive, structurally growing markets. This is supported by a well-invested, cost-advantaged and integrated asset base. We remain focused on disciplined capital allocation and retaining a robust balance sheet. Importantly, we are taking decisive actions today to drive performance and strengthen our competitive advantage for long term value creation. I'll then just finish with the outlook for the remainder of this year. We have seen trading momentum gradually improving through the first half and we enter the second half of the year with higher packaging prices supported by very good order books. That said, we do see headwinds with volatile energy-related input costs and higher wood costs across Central and Eastern Europe. Of course, we are also mindful of the ongoing geopolitical turbulence in the world. With that, I will take you back to Q&A and Mike and I will be happy to answer your questions. Thank you very much.

If you have a question, please use the raised hand function in Zoom. If you are dialing in to Zoom via your phone, please use star nine to raise your hand and star six to unmute when prompted. Our first question comes from Cole Haythorn, of Jefferies. Cole if you could please unmute, go ahead and ask your question.

Good morning, thanks for taking the question. Mike, I'd just like to follow up on your comments on Central Eastern European wood costs. Would you mind giving us some context of how big the wood cost bucket is and a headwind maybe from a quantum perspective that you see today into the second half and are you comfortable that the price actions so far are more than offsetting the cost increases?

Thanks, Carl. Yeah, I think I've described sort of the economics of the situation. Central Eastern European Wood, second half on first half, best guess today and pretty likely to happen because you tend to contract forward a little bit. It's probably on its own about 30, 35 million headwind, half two, half one, if that's what you're after. Again, first half was up probably 25 million on second half last year. So I'd probably expect, you know, year on year, Central Eastern European would be sort of 60 million, something like that. So hopefully that's clear. Second half of the first half of about £35 million. Overall, a bigger number. Yes, I mean, price sections have been taken and But it does moderate the margin improvement if you like, so we will get some You know q3 benefit of those prices coming through, but obviously we have got those wood costs coming through Before any sort of other energy related.

Thank you Maybe one from your side on the price action, just to confirm, is one of the outworths The price increases across Container Board and Sackcroft like further increases to the ones that you've already achieved and I'm just wondering is this you know how comfortable do you feel about those price increases you know is it nicely supported by order books and maybe following up from that with Duino that's very challenged but you know one of the reasons That you originally did, Bruno, was you were going to export volumes into Turkey, and Turkey had safeguard measures put against Europe, but Europe doesn't have any safeguard measures against Turkey. When is the time that the industry takes the gloves off and pushes back on some of the Turkey volumes that are coming into Europe on recycled container board, and would that be something that you pursued?

Yeah, so firstly calling the pricing actions to be explicit. We are engaging with our customers at the moment on price increases across our container board grades. As I said in my comments, clearly in the virgin grades, we are seeing a very tight supply-demand dynamic driven by Conflux of practices, as I mentioned there's reduced supply out of the US for obvious reasons, I mean there's huge capacity reductions in the US and export, it's more marginal business for the US producers so it's natural that when they shut capacity in the US the first The European market that they stopped serving is exports and of course that's probably exacerbated now by the significant price increases we are seeing being implemented in the US so that's made Europe progressively less attractive and of course The marginally stronger dollar over the last quarter or so has probably also supported that, but that hasn't moved particularly much. But one also has to recognize that has been a big topic is this weak dollar more generally. So any strengthening of the dollar does undoubtedly support European pricing dynamics as well. So, yes, it's across our grades. On the recycle side, I mean, it goes without saying, but it is more cost-driven. Everyone knows about those supply issues on the recycle side. But as I think we've said on a number of occasions, there simply isn't the margin to play with in the industry at the moment, particularly given the elevated costs, input costs at the moment. as you know the recycled cost curve is particularly exposed to external energy to gas and other forms of external energy and with these elevated gas prices the whole cost curve has moved up margins are under enormous pressure across the cost curve and that is simply the main driver there but as I said on the Virgin side and across the piece our order books are very good. You mentioned like craft paper, we are not out with the price increase of craft paper at the moment, albeit we are very encouraged by again a strong order position, as I said stable demand out of traditional industrial sources of demand Europe is okay, it's still not kicking on from the cyclical lows we've been seeing. It's not hard to understand given the ongoing geopolitical issues and the impact that it has on consumer confidence. People are not building that extension to their house. and a number of other people who are investing in a new kitchen or something like that that uses the bags for our products to the extent they were. I mean, it's still OK. Export markets are decent and that's encouraging. And as I say, we are seeing quite strong demand from non-traditional uses of craft paper, most notably the e-commerce, which is what I was discussing in terms of some of the movements in the e-commerce market, Our craft paper applications and our coated products and the like, which is very encouraging. It's tightening up those markets. So we go into the second half with a very strong order position there. And maybe just your last question on Duvino specifically. You're right in that one of the logics behind Duvino in the first place was we are short of container board in our Turkish operations. We saw this as an opportunity to have leverage into the Turkish markets because Duvino is well placed logistically to supply into Turkey. But as you rightly say, they've been significant safeguarding I think it's a bigger political question as to when the gloves might or might come off. I think it's a topic more broadly for Europe in that, you know, as industry we often feel like we're fighting with one hand tied behind our back. Not that we need safeguards per se, but of course when others play that game then it is difficult. Thank you very much. So yeah, I think it's a broader topic and of course as an industry we discuss these matters and certainly we would encourage anything that provides something of a more level. Thank you. I trust that answered your question, Col.

Thanks, Col. Thank you very much, Col, for your question. Our next question comes from Brian Morgan of RMB and Stanley. Brian, if you could please unmute, go ahead and ask your question.

Hi, Mike and Andrew. Can you hear me? There we go. The question on Germany, you called out that it's still quite weak. Eastern Europe is pretty strong. Michael Andrew Powell, Chris Gurney, Marita Erler, Thomas Ott, Vivien McMenamin, Kerry Crandon Cooper, Jennifer Louise Hampshire

That's a good question, Brian. If you look, and you're referring specifically to the comments I made on the corrugated business, where obviously you look pretty much on a regional basis, and so in order of magnitude, I think first off, the industry numbers suggest Germany was still flat to even slightly backwards, whereas see Poland, for example, is 4-5% type of growth rates. But as you rightly say, it does look like some of the macro indicators are turning somewhat more positive. And it is fair to say our order books into June, July did start to show quite a Thank you very much. I concur that what we see on the ground does seem to reflect an improving environment relative to where we've been, but clearly early days yet, but at least... Is it too soon to start thinking about capex?

If you've cut capex to maintenance capex, is it too soon to start thinking about the next level of growth?

Yes, in short, we're very conscious, we've spent a lot of our shareholders' money in expanding our capacity. We do have capacity to allow us to grow into growing markets and support growth in these markets through a combination. I mean, essentially, when we bought Schumacher, we knew there was a lot of latent capacity there. That was part of that logic. And so we're very confident. Of course, there's always smaller debottlenecking things that might make some sense, but that's very much in that bigger program that we talk about. So there's no need for us to make significant investments on the capacity side in order to be able to support the growth that we see going into the market. Where we do spend a bit of expansionary capex at the moment is for example we've done some work in our North American bag market business where we've consolidated into a single plant a lot of our e-commerce business because there's a very strong growth in e-commerce demand for bags at the moment in the US market and we're adjusting to that but these are very selective smaller capexes We are very confident we can work within the CapEx industry and still facilitate the growth that we hopefully can start to see in the markets.

That's cool. Thank you very much.

Thank you, Brian, for your question. Our next question comes from Detlef Winkelmann of JPMorgan. Detlef, if you could please unmute, go ahead and ask your question.

Yeah, morning everyone. Maybe to start, I mean, we're hearing a lot of news regarding, you know, test line of price increases going ahead. I fully understand that it's cost driven. I want to get a sense on the kind of supply-demand dynamics downstream at the box level and whether we're struggling to implement all those test line of price increases downstream or not. And then maybe my second question would just be, you know, maybe an update on where we are with Twino right now. I mean, If I think about it, Italian electricity or energy prices are extremely high in H1, presumably still in the ramp-up phase. I'm just curious how we should be seeing that progress, and if you're willing to share maybe like an EBITDA number, but EBITDA kind of qualitative assessment, I suppose, going forward. Thanks so much.

Sure. um so firstly in terms of you know the the box supply demand i mean as just just for those comments with brian um we're seeing different rates of growth in different regional markets throughout europe i think if you take europe as a whole it's sort of been a one you know one to one and a half percent growth year to date um if if you see the industry numbers i think there was a lot a little out of date but they in that that order Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Lars Mallasch, Chris Gurney, Marita Erler, Thomas Ott, Michael Andrew Powell, Jennifer Louise Hampshire So, you know, it's a work in progress, frankly, in terms of implementing the price increases that have been coming through the box, sorry, in the container board, pushing it through into the box business. There is, you know, There is a lot of competition out there, that's undoubtedly the case, but it is encouraging that we are starting to see a better demand picture and of course that all helps in terms of pushing the containable prices through, which need to happen because the box market can't absorb these sort of price increases. Maybe then just, sorry, on your question on Duino. Yes, I mean, obviously, Duino is very much still in ramp up, which has a few effects. Clearly, every time you produce, you're getting lower unit cost of production because you've got an immediate fixed cost base that you then have to leverage off. We would estimate that this year we probably, it's a 420,000 tonne nameplate capacity machine. I think we'd probably end up doing around depending on market conditions etc as well but probably around 300,000 tonnes this year plus minus out of that machine. So clearly next year we'll see the further step up and certainly by the end of, well the second half of next year you should be at, call it full active. Very important though when you bring this sort of volume into the market you do it in a coherent way and so we're working very hard with our customers to bring it in and supply the right customer base and so the mix effect changes over time and that we're working on continuing to optimise. But of course, as Mike said in his comments, the ultimate returns here are the two huge variables at the moment. One is input gas prices and the other is, of course, the selling price. The selling price is something one always knows is volatile. Of course, there's gas. It's relatively unprecedented. The European context for obvious reasons why the gas price is particularly volatile and of course Italy is exposed to that and this middle in particular is exposed. So we had to factor that all in when thinking about kind of the return profile in the short term. but nonetheless you know our focus there is driving it to full production that gets you much further down the cost curve and it could be a resilient long-term player there and then at the cost levels with optimized and an important part of the integrated system thank you thank you very much

Our next question comes from Gabriel Stimos of Goldman Sachs. Gabriel, if you could please unmute, go ahead and ask your question.

Hi, Andrew, Mike, thank you very much for taking my questions. So my first one will be on the fires that we're having in Southern Europe at this point. So we just saw news that Smurfit Westrop was shutting down a craft liner plant, and I wanted to get your views on the impact that that would have in the supply and demand and in prices for Craftliner and also the impact that you're seeing on wood costs in that region and if any impact Tomondi in particular because of these fires. So the second question would be on the capacity that we see coming online for test liner at the end of this year, beginning of next year. Just wanted to pick your brains on how you're seeing this additional capacity progressing and if you see more potential for new spring conversions still given the recent announcement that we had from one of your competitors now. I understand that the solution for this market would be potentially capacity shutdowns given the amount of capacity that is coming online to the test liner market. So we saw Smurfit shutting down in the UK, but just wanted to see if you guys see more moves starting to happen there from a supply adjustment perspective. Thank you very much.

Yeah, we can address those. So firstly, on the flyers, our first thoughts are obviously with all the people directly impacted by this and our thoughts and best wishes go to everyone in these regions impacted by these horrific events and of course also to our Our industry colleagues in Smurfit and the Smurfit Fracture Mill as I think what you're referring to there. We wish them all the best in managing an extremely difficult situation, no doubt. So I think it's first and foremost to remember all the real people involved in managing these situations. In terms of the impact on the industry, I don't know what the prognosis is right now. Clearly in the short term it must cause supply-side disruptions. So we'll have to see how long that is for or not. But this is a big market and obviously there are The different supply-side dynamics taking place all the time so I wouldn't want to overplay it and we'll have to understand from a market perspective and also from a customer perspective because we want to look after the customers here how this might impact them and obviously where we can help will certainly be available. In terms of the impact on wood costs, so firstly obviously it's not a woodbasket that we are exposed to at all. Woodbaskets that we operate in is very much Central Eastern Europe and also Scandinavia and then of course South Africa and Canada. So we don't have any particular insights, frankly, into the impact or otherwise on the wood supply situations in Southern Europe. So again, I think there are other people who would be better qualified to answer that question for you. So I'm afraid I just don't have any particular insights. Certainly we're not seeing any Thank you very much. In terms of RCP capacity additions, yeah, I mean, you know, this market is in oversupply and in a new capacity only exacerbates that in the short term. everyone's got their own rationale for adding this sort of capacity and I doubt it makes sense for the player involved but of course it does exacerbate the market oversupply more broadly if it comes on indeed at the time frame etc as indicated I mean what we are seeing with a number of these big projects is that they seem to have been pushed out or delayed for a variety of different reasons So, yeah, I mean, it's obviously the UK market which will be directly impacted because, of course, there are two big machines coming on in the UK. But, of course, it has an effect throughout the European market. So we'll have to see, as I've said already, and the reason why there's pricing momentum at the moment is people simply aren't delivering into these sort of price levels. industry stock levels are actually in pretty good shape at the moment which is maybe counterintuitive given the supply but it's a reflection of the fact that there is simply no margin to play with at the higher end of the cost curve so you see that play out so we'll have to obviously watch like we always do with the supply side what's happening and how that might impact markets in the medium term But I think to your point, it does highlight the need for probably further capacity rationalisation at the higher end of the cost curve and undoubtedly there's a lot of smaller higher cost mills which will become under even more pressure if this oversupply continues to lead to the larger squeeze we're seeing at the moment. You've asked the question, are there any more newsprint machines? I mean, there are the newsprint machines around. I don't want to say the uniqueness of this one, but one of the opportunities that this one has, which again, I don't know the machine directly myself, but I know enough about it, is it was obviously a recycling capacity already on site, which obviously has to be adapted and the like for a different grade, but you're not starting from square one. A lot of the newsprint machines historically were also based on virgin pulp, which is a totally different setup for the mill and the likes, probably not as conducive to conversion as maybe this one was.

Thank you very much. Thank you, Gabriel, for your question. Our next question comes from James Twyman of Prescience Securities. James, if you could please unmute, go ahead and ask your question.

Yes, thank you very much and congratulations on Very good results in extremely difficult circumstances in Q2. My first question is just on SAC paper, obviously this is your biggest business, you're not talking about price increases but I suppose we can still hope that there will be some later in the quarter because it is a quarterly price increase but could you give us some quantification of how much of your SAC paper is produced in Eastern Europe where Thank you very much. Thank you. You did call out the fact that you're improving it substantially, so given that it's a seasonal increase normally and you've had these cost increases, where would you see working capital for the year? Could you get it down for the year given the improvements that you've made? Thank you very much and well done again.

Thank you, James. We'll take any compliments going. But you're right in the sense that I should again emphasize what a huge effort it's been for our teams to drive these pricing actions that we did need in very short order given the huge Thank you very much. Just on the questions you've just raised, so firstly on the craft paper prices, I mean I would just remind you we have been implementing craft paper prices, so I think the question was are we currently in the market with a further price increase? So just to be clear, we implemented some price increases in Q2 and into the beginning of Q3, and as you say there's a lot of kind of I think the question was is there a further increase in train and the answer is no at the moment but as I emphasise the order situation is tight and we'll continue to assess what the next step should be. In terms of that question on the sea-Scandia split, we have one mill in Scandinavia in this particular segment, which is in Sweden. All the rest of the production is in that central European wood basket, essentially, so it's primarily Stettin and Franschach mills. It's the majority. So undoubtedly, yes, this segment is being impacted, of course, by this wood cost inflation. I'm not going to break it down for you, but the total wood cost effect is of the order that Mike referred to. Thank you very much. Maybe, Mike, you could comment on the energy freight and working capital.

Yeah, I mean, if I take energy, if the answer changes, if you'd have asked me two weeks ago today, we tend to look at gas as the indicator. and we tend to look at you know cost per megawatt hour index which a couple of weeks ago was at 45 today's at 60 and that's probably where the conflict occurs so it's pretty volatile in terms of the if it's stuck at spot today I call it 60 half two half one just doing some quick maths is probably 20 to 30 million but whilst I'm pretty confident on the wood increase unfortunately I would say there's a range on gas so you know it can drop quite quickly because it's gone up quite quickly so the range is probably somewhere between a nought to 30 million headwinds Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire Thank you very much. and I guess that's partly from a competitor's results that talk quite a lot about freight. I think we're managing our freight costs very well, but if I can sort of broaden it to oil and oil related costs, put some risk into that number for the second half, and they could knock onto other things. We haven't seen that yet. Call it in the month of July forward. But again, that's pretty volatile right now. And then the last question I think was on working capital. working capital um i always say if the business is growing and prices are going up you have more expensive inventory and more expensive uh trade factors that's a good thing um so we normally have an inflow in the second half and if i'm wrong Michael Andrew Powell, Jennifer Louise Hampshire Thank you very much.

Very good.

I appreciate we've already taken a lot of your morning, but I think there are a couple more questions. Very happy to take those if everyone bears with us.

Absolutely. Our next question comes from Timber Conde of Excelsior. Timber, if you could please unmute.

Hi, good morning. Can you guys hear me? Good morning Mike and Andrew. I just have two questions actually. Regarding the capacity reductions in Tesla in the US and the reduced EU imports, I just want to know how much of that, how many tons of test liner used to come in because I'm just trying to get a gauge of, you know, how much of the price increases are due to that and how much are due to the cost, the input cost pressure that you guys are facing. And then the second question would be Just regarding the converting plant closures, so how much sort of cost are you taking out and how much are you saving because of that?

Let me say the second one first, Tamber. We said in the past and it continues to hold, those closures, the sites collectively are profitable. So what we're actually doing is moving volumes to larger scale, more efficient plants. So it's really important to transfer the customers successfully so we continue to service the customer. But these aren't loss-making plants, so you don't You don't gain profitability, you gain efficiency and productivity at the new plants. That's something we always do, we've done a bit more of it recently for obvious reasons, but it really just helps us in things like e-commerce, we can continue to empower people which actually are super important to us to retain their skills and knowledge. So it helps us really offset cost inflation. It's the way to think about it. You actually saw that Q2 as well. I mean, the numbers were good because we made some really good controls around our cost base. But it really contributes to that. So what you shouldn't do, for example, is take the number of heads and multiply that by the salary because, of course, you have to transfer the gross profit to the other side too. So it really just helps us keep control and keep our costs flat. Michael Andrew Powell, Jennifer Louise Hampshire

Michael Andrew Powell, Jennifer Louise Hampshire So the point being it's quite, you know, it's relevant in what, you know, the Virgin Container Board market is six, seven million tons. That sort of order of magnitude depends on how you define it exactly in Europe. So that scale, you know, is called one pretty decent sized machine. So in what is a relatively small niche market. And one also has to remember we sell a bunch of different container board grades. It's not all a homogenous thing. It's unbleached craft liner, we have what we call hybrid products, we have semi-chem products, we have white top products, all of which have their own dynamics to some extent. So it's always a bit dangerous to look at it holistically, but in simple terms, it's relevant volumes which have reduced, but I emphasize that's one component of it. The demand side is decent. No capacity additions in Europe. If anything, there's been some sort of production interruptions and things which have tightened up imports from the US and if anything, probably the export markets from Europe have become a bit more attractive as well. You know, for example, we sell into Latin America and the like, and the US guys are probably a bit reduced into those markets as well. That's attractive for us, and particularly if the dollar strengthens, it becomes more attractive. So it's a whole confluence of factors. I wouldn't focus on any one of those, but undoubtedly this US exports, and that's a structural thing, you know. Thank you very much. Thank you. Our last question comes from Andrew Jones

Andrew, please go ahead and unmute and ask your question.

Sure, thanks James. Just to follow up on that theme about containable pricing, to give us some data points, how much do you think costs have gone up per tonne of Tesla year-to-date as we stand now with gas and OCC where it is? I'm trying to contextualise. Michael Andrew Powell, Lars Mallasch, Jennifer Louise Hampshire How extreme is that cost pressure would be the first question.

It's hard to know where you start and where you finish on these calculations. If I guess the question is, from the beginning of the year to Q3, are we seeing some margin expansion? If you take the both sides of the equation, the price increases versus the cost of inflation, yes, we are seeing some margin. We should see some margin expansion, but that's off an extremely low basis, I keep reminding you, because Q1 We've seen the worst of these price declines into the first quarter and then it's been building back off of that. It would be wrong of us to kind of throw out a cost per tonne number because the other problem is that every mill has different exposures and the like. Clearly in Switzerland for example where we make a recycled container board it's a very different exposure to Duino because We know it's gas. Switchy is an integrated fuel producing a lot of biomass energy and the like. But in simple terms, yes, we see a bit of margin expansion right now, but it's off a terribly low base. And in my humble opinion, it's not enough to really Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire Michael Andrew Powell, Jennifer Louise Hampshire

A, you know, is that current spread sustainable? Does it have to contract further? And, I mean, how much of a headwind do you see from, you know, returning US capacity? I guess, back in the year, some of those export-orientated mills was a bit of, I mean, I don't know, there's quite a few bearish factors there. I mean, how do you sum those up? And, you know, what is the sustainable spread for a final test in your view?

Yeah, I don't think there's a magic number. I mean, we've been saying for some time now it's logical that the spread widens simply because the supply-side dynamics on the virgin grades is materially different on the recycled. It's simply that much more difficult to bring in cost-competitive virgin, whereas on the recycled side, I mean, and that's where all new capacity has been coming in both to Europe and the US. and it's fairly logical. At the same time, in Europe, you know, the transition, the easy wins in using recycled over virgin have pretty much taken place. Of course, if the price premium gets too extreme product and So you're never going to see a decoupling of the two because on the margin you can substitute but there's a clear logic as to why that price premium should be bigger than it was historically I remind you that if anything over the course of the first half of the year that premium has narrowed somewhat because the price increases in recycled have been greater than on the virgin side so you've seen a narrowing if anything So, in short, I don't know what the magic number is in terms of a sustainable price premium, but I do know that it's very clear why it should be bigger than it was historically. As I said, the easy wins in terms of substitution have taken place, but I need to be aware that you cannot continue to drive pricing on the Virgin side unless you also see the recycled side over time improve.

That's clear. Thank you.

Very good. We've taken far more of your time than we'd asked for originally, so do appreciate your patience in staying with us. Appreciate, as always, the interest. If there's anything to follow up on, Fiona and Tina and myself and Mike are available, so please come back to us. But just in case Michael Andrew Powell, Lars Mallasch, Jennifer Louise Hampshire When we say things are volatile we mean volatile goes up and down and we don't know simply put because I don't think anyone has any great insights in that regard other than you know we can point to certain cost items that are going up but nonetheless you know very encouraging in terms of improved trading environment and we are certainly well positioned Thank you very much for your interest and we will keep in touch. Thank you.