Smurfit WestRock PLC

Good day and thank you for standing by. Welcome to the Smurfit WestRock 2026 Q2 Results Webcast and Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ciaran Potts, Smurfit WestRock Group VP Investor Relations. Please go ahead.

Thank you, Sharon. As a reminder, statements in today's press release and presentation and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the earnings release and in our SEC filings as well as those discussed in our investor update presentation on our median term plan. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures where applicable reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the accompanying presentation. which are available at investors.smurfitwestrock.com. In addition, today's remarks include statements about Smurfit WestRock's medium term financial goals and capital allocation priorities. These goals are aspirational and actual performance may differ, possibly materially, and no guarantees are made that these goals will be met. I'll now hand you over to Tony Smurfit, CEO of Smurfit WestRock.

Thanks, Ciaran. I'm happy to be joined today by Ken Bowles, our EVP and CFO. Our second quarter results demonstrate the continued progress we have made in Smurfit WestRock with an adjusted EBITDA of $1.14 billion and an adjusted EBITDA margin of 14.2%. This is especially impressive when set against the very significant input costs we have absorbed with only early stage momentum on price recovery. Cost increases, especially in freight, have been a feature of the quarter and as a result we have raised container board prices. These will be recovered through our converting operations as we progress through this year and into next. Market conditions for practically all paper grades remain as tight as I can remember. Our focus remains on being the most innovative packaging partner, delivering superior quality and service for our customers and the go-to sustainable packaging partner of choice. And as such, we remain committed to improving all aspects of our business. We're also relentless in our approach to cost takeout, which we have again demonstrated through asset optimization with a number of closures in both our North American and EMAA and APAC regions. We have also continued focus on our owner-operator model which I'm happy to report is showing considerable progress as we develop the new Smurfit WestRock culture. Turning to the regions and firstly to North America where I'm happy to report progress and development across practically all areas. Most importantly, Our full team for the future is now in place and delivering both cultural and operational change. Nearly all our paper mill system is fully booked and no commercial downtime is anticipated for the remainder of the year. We have implemented pricing initiatives in both domestic and overseas markets and shortage of supply is the current issue surrounding this business area. In our corrugated box operations, I'm delighted to report continued progress as we adopt our business model. A number of recurring loss makers has considerably reduced and our focus on innovation and customer service is attracting significant new business. Our quality and service metrics continue to improve. For example, year to date, our quality metric has improved by over 25%. In our consumer business, we have also made significant progress with new investments coming online, which will improve both productivity and our cost position. Importantly, we've also won new business because of our great agnostic approach that we have adopted. In our EMA and APAC region, I'm very proud of the outperformance this region continues to deliver. The region consistently offers customers the most innovative and sustainable packaging as customers navigate a complex environment. A recent innovation event intended by over 200 customers demonstrated the depth of knowledge that we offer across all paper-based substrates. In our fully integrated mill system, similar to North America, we're fully booked and we expect to remain in this position. Our corrugated business remains very solid with a better performance forecast for the second half as we recover input costs with the normal lag period. Our consumer business is now fully integrated and there are many cross-selling and development opportunities that we're developing across Europe and Asia. Turning to LATAM region, we continue to see a strong performance across most countries in which we operate with two larger countries, Brazil and Colombia performing very well. Our approach to innovation across the region is a significant differentiator and our market positions give us opportunities for growth. This region is an attractive region for both internal investment and acquisitions as we look to the future. I'll now turn you over to Ken to take you through some financials.

Thank you, Tony. Overall, this is a strong second quarter performance for the group. And as a reminder, we've included detailed adjusted EBITDA bridges in the appendix for those who want to understand the quarter in more detail. At a high level, freight costs globally represented a significant headwind driven largely by higher fuel costs and shipping rates due to the ongoing conflict in the Middle East. and higher domestic transportation costs in both Europe and North America. Despite that, our teams across all regions did an excellent job mitigating those cost pressures through operational execution, pricing initiatives and disciplined cost management. In North America, we continue to make significant operational and commercial progress. While corrugated volumes are down 4.8% on the same day basis or 4.5% on an absolute basis, This is very much in line with our expectations as we continue to execute on our value over volume strategy. Importantly, we are seeing further improvement as planned with good order books and a strong pipeline of new corrugated business moving through August and into September. We remain focused on improving the quality of our customer portfolio, winning business where a decentralized operating model provides real value, while exiting lower margin business that does not meet our return requirements. Selling price remained a headwind in the quarter due to a small pass-through impact of weaker container board index pricing in February and also coming before higher index pricing was realized in some of our paper board grades which came this month. As mentioned, the region also absorbed a substantial portion of the group's freight inflation, yet still delivered a very resilient performance. Our mill system remains generally full, order books are healthy, and commercial momentum continues to strengthen. In our EMEA and APAC region, Smurfit WestRock continues to outperform through disciplined commercial execution, strong cost management, and an unwavering focus on customer service, quality, and innovation. Corrugated volumes were up 1.9% on an absolute basis, or 1.5% on a same-day basis. Our mill system operated at full capacity, and the integrated nature of our business continues to be a significant source of competitive advantage. Despite ongoing freight and energy cost inflation in the region, which has led to near-term margin compression, the team delivered another strong result supported by positive volume growth and continued productivity, procurement and footprint optimization initiatives. Latin America again delivered another excellent quarter. Demand remained healthy across our key markets as corrugated volumes continued to grow. The region continues to benefit from its strong market positions and the operational improvements delivered through recent investment programs. As a result, Latin America continues to generate attractive margins and strong returns while also presenting significant opportunities for future growth. Our approach to capital allocation remains unchanged. We have a business with strong cash generation, strong balance sheet and a significant opportunity to create value through disciplined investment and execution. As a team with deep industry experience, we continue to view internally deployed capital as the lowest risk and highest quality use of capital. An approach that remains central to the future success of our business. Fundamentally, that is a returns-focused approach. Our balanced capital expenditure program is focused on improving our asset base, increasing efficiency, and supporting growth in attractive markets. As a reminder, the average annual capex across our plan is approximately $2.5 billion a year, with an average project spend of approximately $4 million, and no project of scale in any one year. We currently expect to spend between 2.4 and 2.5 billion in total in capex this year, which is well in excess of maintenance capital and in line with our DNA. As we outlined earlier this year, we also see substantial free cash regeneration over the coming years, and I would note that again today we announced a quarterly dividend of 45.23 cents per ordinary share. Underlying all of this is a balance sheet with significant strength and flexibility. As profitability and returns improve, We believe we are well positioned to continue to invest behind growth and cost take out opportunities while at the same time increasing returns to shareholders. We are committed to maintaining a strong investment grade credit rating and are firmly positioned in that space with BAA2 rating and positive outlook from Moody's, BBB with stable outlook from S&P and BBB plus with stable outlook from Fitch. So the message is a simple one, disciplined investment, disciplined capital allocation and a clear focus on creating long term value for shareholders. Now as we look to the rest of the year, the main change in our full year outlook is indeed the higher freight cost environment. As we've discussed, events outside of control have resulted in significantly higher freight costs across the group, and this remains the most significant headwind we face in 2026. While we have implemented pricing initiatives to recover costs, there is naturally a lag before those actions are fully reflected in realized pricing and earnings. As a result, the cost impact is being felt immediately while the recovery comes through over time. Current energy costs are broadly in line with the assumptions we highlighted previously, while lower economic downtime in the region of 100 million alongside continued operational execution and significant cost takeover programs across the group are helping to offset some of that freight and other cost pressures. However, as I'm sure you can appreciate, that inflationary cost environment is not showing signs of abatement and we will continue to evaluate all options available to us as we progress through the remainder of this year. taking all of that into account, we now expect fuller adjusted EBITDA to be in the range of 4.9 billion to 5.1 billion. However, demand remains healthy across practically all paper grades and we remain confident in the long-term earnings potential of the group. And with that, I'll hand you back to Tony for some concluding remarks.

Thank you, Ken. When we set out our medium-term plan in February, we presented a program of self-improvement led by operating excellence and disciplined capital allocation. We're also driving a much sharper commercial focus delivering quality, value and innovation for our customers. I'm very happy to report that we continue to make progress towards these objectives. Firstly, the performance-led culture of Smurfit WestRock is accelerating with the right people, with the right skills and the right motivation to meet our objectives. The company is also progressing the transfer of best practice, knowledge and innovation across our regions as we roll out our experience centers to ensure our customers have access to the worldwide knowledge of our over 2,000 designers globally. As a company, we have always been and will always be committed towards having well-invested world-class assets in a capital efficient way. We know that this is the secret to ensuring to give our shareholders, which include many within Smurfit WestRock, longer term market leading returns. And I think we're well on our way to this objective. Global paper markets today are as strong as I have seen in my lifetime within this industry. What we previously characterized as a generally better industry environment is now a significantly stronger and better operating environment. This provides us with a stronger fundamental backdrop to deliver on our medium term plan. Our mills provide security of supply to our world class converting operations, which in turn deliver quality service and innovation for our customers. Smurfit WestRock's converting operations are networked to and connected with our over 30 innovation hubs across the continents and regions. This drives the continuous transfer of knowledge, application, and innovation, enabling Smurfit WestRock to provide our customers future packaging needs today. As we enter the second half of 2026, we've set a strong platform for the recovery of input costs and enhancement of our returns. This is especially true as we look into 2027, as we continue to execute on our strategic plan across all regions and fully implement all pricing initiatives. As we set out in February in a progressive step-by-step manner, we're building a stronger, better and more resilient Smurfit WestRock as we progress towards our medium and longer term objectives. I'm very confident in our team. I'm very confident in our offering to the marketplace. I'm very confident in our ability to execute and I'm very confident in the long-term future of our globally integrated platform that will deliver value for all stakeholders. And with that, thank you for taking the time to listen to us. I will hand it over back to the operator, Sharon, to get questions to us.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to our first question. One moment, please. And your first question today comes from the line of Gabe Heide from Wells Fargo. Please go ahead.

Gabe Heide from Wells Fargo Tony, Ken, good morning. Thanks for taking the question and all the detail. I wanted to ask Ken, I'm looking at the bridges in North America and I think year to date, I'm just kind of going, like I said, from the bridges, you're kind of neutral-ish on gross price. I'm curious if you'd help us posit how much draft price or what you would expect sort of realization from just what's been recognized in RSEI in North America?

I suppose, Gabe, it's probably slightly more New on picture than that, given where pricing went. I mean, a lot of that kind of pricing offset from the recovery would have seemed true because corrugated pricing in the first last number of months was probably on the paper board side. If you remember, the likes of SPS came down, which is negatively impacting the positive sentiment around that kind of pricing column. So we are absolutely beginning to see the benefits of the pricing initiatives that are true back in the quarter one into quarter two in corrugated pricing. But just for this particular quarter, Given where SBS went here and your other paper board grades too, but principally SBS, you're getting a kind of natural negative offset within the total price for the overall group. So I think the simplest way to think about it is yes, progress continues and the recovery happens on the corrugated side, which you'll see more in quarter three, quarter four. But for this quarter, you're seeing the impact of paper board prices lower year on year and the impact of that.

Yeah, I think, Gabe, you understand, and the same in Europe, that there is always a lag period as container board prices come in. And that can be depending on the customer to one month to up to six months, again, depending on the customer and depending on the region. And so container board prices really rose, actually fell in 20 euros in the first quarter and then came back up by 120 in the second quarter. So the full effect of that is going to be felt in quarter three and quarter four and any other pricing initiatives will be felt either very late quarter four or into quarter one of next year.

Okay, just maybe a point of clarification. I think from the disclosures you guys have given us, it's eight and a half million tons in North America of total container board. Okay, and then on the volume cadence, I mean, it seemed like things within six weeks tightened up pretty quick. I'm curious from your system perspective, I know you guys have been busy at work and I think you've mentioned winning over 500 new customers that should be commercializing in the back half. Maybe just a little bit finer point on, you know, would you expect, assuming the bottom doesn't fall out in volumes, that you should inflect positive at some point in the second half in your own corrugated system? And then any particular markets that you're seeing strengthen, Thank you.

You know, our expectation, Gabe, is that either in the third or fourth quarter we will be better in volumes than last year. And certainly in talking to the folks in North America, we would expect to see positive months coming up in August and maybe even September. So our expectation The acquisition of new business has continued to pace during the second quarter. Obviously, it takes a little while to get that in. And then we're starting to lap easier comparisons because all of the large e-commerce customers that we didn't continue with, we're not doing that. So therefore, that will make it a relatively easier comparison as we go into the second half of the year. You know, so I think we're pretty optimistic about either later part of the third quarter or fourth quarter being able to be positive versus last year. Thank you. Thanks, Gabe.

Thank you. Our next question today comes from the line of Mike Roxland from Tourist Securities. Please go ahead.

Thank you, Tony, Ken, Ciaran, and team for taking my questions and congrats on the progress. Thanks, Mike. First question, I just want to follow up on what Gabe said. In terms of, you know, you mentioned good order books in August and as you move through September, any way to quantify or provide some more color around what that means? Where do order books stand relative to, let's say, historical norms?

Yeah, I would say, are you talking about paper or are you talking about corrugated?

Actually, if you don't mind, Tony, both.

Okay, well, as I said to you in my narrative, you know, our paper markets, Mike, are as strong as I've ever seen. We are in a basically, with the exception of one small grade that we produce a little bit of, which is CRB, we're basically sold out in all paper grades and our In fact, one of the reasons why, if you look into the fourth quarter, we are very late in deliveries on our export orders. So we're in very much catch-up mode in our system as we look through the remainder of this year and even into the first part of the next year on all brown paper grades. There are also some things happening on... The bag and sack paper markets with relation to e-commerce that are causing those markets to be very tight as well. So when you look at the brown grades, we are really sold out for the foreseeable future. And that's obviously very encouraging. When you look at, as I say, the consumer grades, our CUK business has been very strong and is in its and many more. So paper, and then that's in the North American market. In the European market, same situation is essentially true. We've tightened up over the summer and really all paper grades are sold out till the end of the year. And then in our Latin American business, again, similar scenario in our paper markets, we're short of capacity. So very strong... Thank you very much. We could spend a long time talking about the nuances of different markets, but I would say if you just take it broadly speaking, Latin America is positive in general. I would say that Europe, with the exception of one or two markets, is positive or very positive. And then in North America, depending on the region, is basically flat to slightly positive for us as we look forward. But As I say, a lot of the things that we're doing, Mike, are self-initiative. We have done a lot of heavy lifting, but we still have a lot of heavy lifting to do. We still have loss-making corrugated box plants, many of which are our own fault, and we will turn those around in time. If I had a magic wand to be able to turn them around, I would. Thank you very much. You look at our business, we've a very strong market position across all of the countries. And, you know, we've absorbed all the input costs during the first and second quarter of this year. And now we're about to get it back. And clearly, if there are more paper-led initiatives, then the benefit of those will be into 2027 across all three regions, actually.

That's great, Collin. Thank you. Just one quick follow-up. You mentioned having a little bit of slack in CRB. And I think, excuse me, that you mentioned last quarter that you're not making enough return on some of your CRB assets. So does the shift of business away from CRB to SBS-CUK afford you the ability to improve your CRB asset base? Or alternatively, does it help you evaluate your current CRB footprint?

Yeah, I mean, I think we're, I would say, Mike, as you know us, we continually evaluate our footprint. We've just closed down a longstanding asset in the UK, which is producing over 200,000 tons of recycle board because it came to the end of life, so to speak. And, you know, it was either invest or in a suboptimal scenario. But that asset stayed alive for a long period of time. And, you know, I would say the CRB business we continue to evaluate the mill system that we have and you know they're all very cash or they're mostly all very cash generative and produce decent enough quality into our integrated system so we're going to continue to work with them but obviously we keep them under evaluation as we do all of our assets and we'll see what the future holds but you know clearly you know they're earning cash and they're They're in the marketplace providing the quality and service that we need, and they're not in any drag on us. So I think, as I say, we want to offer our customers the full suite of products, which is CRB, SBS, CUK. And that approach has worked really well, as we've looked at over the last six months, giving our customers what they need. And at the end of the day, that approach has worked really well for us and we've seen some switches out of CRB into SBS, out of saving for the customer and also a benefit for us.

And if you remember, Mike, as well, this time last year we were closing St. Paul, that CRB mill to kind of optimize and tighten that system anyway internally.

Got it. Thanks very much, guys. Thanks, Mike.

Thank you. Your next question comes from the line of Philip from Jefferies. Please go ahead.

Hey guys, thanks for all the great color. Tony, I apologize. I had some technical issues so I may have missed some of this. I guess big picture when you think about North America and you've always kind of opined on your business being packaging at its core and certainly supply demand is very tight right now. We're seeing good price momentum. How do you kind of balance that two out, right? I mean the industry is taking price and supply demand is very tight. There's elements in terms of packaging and Does this attract more capacity? From a philosophy standpoint, how are you thinking about this bigger picture in the longer term?

Philip, as you know, we are a company committed to profit centers in all aspects of our business. Our box plants have to absorb... First of all, we as a company have to absorb all the cost inputs that we're getting. Then we have to pass those cost inputs into our paper system and ultimately into our box system. And each one has to make a return. Each of our systems have to make a return because otherwise they're not economically viable. And, you know, I always look at it like this. If you're an independent box maker and there are plenty out there, there's obviously not as many, it depends on the market you're in. But if you're an independent box maker, you must make a return on the paper price that's in the market. And so, you know, the same holds true for our box facilities. If the paper price goes up because of, Thank you very much. Thank you very much. and that's what we continue to offer to our customer base globally and that's what's worked that's why if you look at our European system you know yes we're in the low period right now because we've absorbed cost we're starting to push through paper prices and then ultimately we get into box prices and we have effectively if everything stood still we'd have two profitable systems you know offering innovative packaging for our customers. And that's our business model and that's what's worked for us over 90 plus years.

Yeah, Phil, I think within there, I think I heard that the idea that, you know, the latest round of kind of price increases and the price environment might lead to incremental capacity entering the market. I think I sort of go back to, you know, that sort of basic point around returns and return on capital because, you know, as you know, on average, the cost of doing anything in North America has increased significantly over the last number of years. So, If you do decide to bring capacity into the market, it's going to be at higher cost, you might think, and takes time. In reality, you can't bring in capacity today or tomorrow. It takes two, three years to get towards a meaningful kind of ramp-up phase. So I think, yes, the current price environment could be attractive for people, but I'd equally say that's got to be balanced about the amount of capital that you need to put into the market to kind of achieve a return that's acceptable over the longer term.

That's a really helpful color, and it's a perfect segue, guys. I think from a supply-demand pricing on the paper side, clearly there's industry data. We've seen price momentum. I think, Tony, coming in when you guys acquired WestRock out of the gates, the real opportunity was getting a proper return, as you kind of alluded just now, on the box side and converting side and bottom slicing your less profitable business. Can you kind of give us some perspective as we look out to 2017? Where are you in that transition in terms of innings, at least from a baseball analogy, in terms of getting your returns, margins, pricing on the converting side in good spot and your mix of customers? Because I think you start flipping perhaps a richer mix as we kind of exit this year. But just give us a little update on where you kind of shake out on that front.

Yes, I actually like to use the baseball analogy. I'd say we're somewhere between first and second base. I think, you know, we're off first base and we're heading towards second and we'll get to second and then we'll be safe on second and then we'll move on to third and then fourth in the next couple of years. I think it's amazing to me to see the considerable progress we've made in many of our facilities. I think we're down to, you know, again, it's a little bit It's a little bit difficult to say how many loss makers we are because of the movements in paper prices. But if you said what's the number of loss makers that we have that we're still worried about, it's probably around 20, of which for sure we're going to solve 10 of them. And then the other five, we'll just have to see how they do over the next period of time, depending on the market, depending on the mix. So we've come down from 40 plus, how many? Maybe 80. and many more. We're really doing well, but then getting to break even is one thing and then going from break even to 8% or 9% is another. It's a journey, and as I say, somewhere between first and second, but I'm really happy with the teams and how they're embracing the new culture and the leadership But, you know, it's not perfect everywhere, obviously. And, you know, we continue to bring in new people. And what I'm happy, one of the things I'm really happy about is we're continuing to attract, you know, real talent into the business, which is, you know, the sign of a winning team, not a losing team.

And just from a contact standpoint, you could solve for 10 to maybe like 5 to 10 of those customers are lost making. What's your total basis? Is it 100? Is it 90? Or 200, I guess, just to make sure we understand. What part of your business potentially could still be a little more challenged in your broader portfolio?

Oh, it's 10 out of 100.

Okay.

All right. That's helpful. You know, in Europe, we have three or four that we look at. And then in consumer, there's one or two. And in Latin America, there's practically none. So, you know, that's on the converting side. But that doesn't mean... Thank you. Thank you.

Your next question comes from the line of George Staffos from Bank of America. Please go ahead.

Hi, everyone. Good morning. Thanks for the details. Hi, George. How are you doing? Actually, I wanted to pick up on that last line of questioning from Phil. To the extent that you can comment, when we look at the margin in North America, it was 13.3%, 1Q. It was 14.8% and 2Q. So, you know, good progress there. How much of that extent you can share was improvement in margin in the North American box system margin? Said differently, if we go back to the baseball discussion, you just rounded first base, you're trying to get to high single digits. Would North American box be somewhere around three, four percent margin at the present time? And then I had a quick follow on.

Yeah, you're entirely right. We're around 3%, somewhere between. On a static basis without paper incoming in, we've turned it from being heavily loss-making to small EBITDA positive, somewhere in the 3% to 4% range, depending on the month. But that obviously will change as we move forward. So yeah, you're about right.

Okay, thank you for that, Tony. And then my follow-on, you might have mentioned it earlier, but I also had some technical difficulties coming in. How much pricing is assumed in your guidance for the year? The $100 per ton that you've announced, is any of that in your numbers for 2026, or is that more of a 2017? Thank you, and I'll turn it over.

Hey, George. Ken here. No, none of that 100 is assumed in the 26 number because by the time it gets implemented, works through the indices and everything else, there's not a lot left to 26. To be honest with you, it very much kind of sets a platform foundation for 2027. Okay.

Very good. I'll turn it over, to be fair. Have a good one. Thank you. Thanks, George.

Thank you. Your next question today comes from the line of Hilary Cacanando from Deutsche Bank. Please go ahead.

Thank you. Thank you for taking my questions. So just going back to the $100 per ton price increase that was announced yesterday, I'm just trying to understand why your competitors, so one of your competitors has announced $140,000, Another one announced $80 per ton. Could you just help us understand whether the differences in pricing reflect a different view of market conditions or a different customer mix or simply different market strategy?

Hilary, obviously we're not going to talk about what our competitors are doing. We just have to consider what we do. We have been thinking for the previous couple of weeks that We would be going for an increase and we did at the net level that we thought was correct. But Ken, do you want to say something?

Yeah, Hilary, I think it's really it's about an inward look where we see cost inflation in our system, where we see the need to kind of restore margin that we might have given up over that kind of cost inflation, particularly freight across rest of the year and energy. So really, it's an inward looking model that takes everything we're doing, balance against cost takeout and all the programs and the capital we've injected, That says that broadly where we think we need to be is at that $100 a ton in terms of output pricing to kind of get us back to where we need to be.

Okay, got it. Thank you for that. And then as a follow up, you know, obviously the container board market looks like it's getting really tight and the pricing, you know, momentum is building. But we also saw a price increase in the SBS market in July. And I think you also announced the price increase effective August. So are those prices in the SPS market, you know, driven by, you know, more from rising input costs or are you seeing underlying SPS market conditions, you know, improve as well through, you know, higher demand or customer conversion or industry rationalization?

The SPS market is much better than it was at this time last year. A lot of the work that we've done over the last 18 months in attracting new business into our SPS system is working, and there are some quite exciting new grades that we're bringing into SPS, as well as, as I've discussed before, our agnostic approach to grades, so we're able to offer customers SPS instead of CRB or sometimes instead of CUK. But basically, Thank you very much. Thanks, Hilary.

Thank you. Your next question today comes from the line of Mark Feintraub from Seaport Research Partners. Please go ahead.

Thank you. First, just one quick clarification on SBS on the increase. I think you sent out July 10th. So that was before Pulp and Paper Week had reflected anything. But I assume that is a second increase. I just wanted to confirm that first.

Yes, Mark, it is, yeah. Okay. So it's not reflected in Pulp and Paper Week yet.

Yes.

So obviously, Mark, given the generally longer lag periods for those grades, it really won't be effective. Assuming that Pulp and Paper puts it in, it really won't be effective until the start of next year. Totally understand. Into our end customers.

Right. And then just second on that, EMEA and where we are in terms of passing through higher container board prices into boxes. Because whereas we saw the nice progress in North America, 1Q to 2Q, EMEA, we were actually down on the margins because, as you said, the costs hit up first. If we were to kind of hold things static where they are today, but have those prices roll through into boxes? Can you give us a flavor as to where the EMEA margin would be coming out, you know, say towards the end of this year, early next year?

Well, obviously a lot of it depends on the cost, Mark, but let me just say that we have announced an 80 euro a ton increase to our customers and recycle board, you know, over the last couple of days. So we expect to see that implemented as we go through September. And that reflects the significant higher energy costs and other costs that we've had in the European sphere over the last two or three months. But maybe I just put it into the context that our European business is a tremendously good business with and many other people who've been through this kind of cycle before. And if you look at the last cycle where we are a better company today than we were then because of their investments, because of our efficiency, our margins were in the 18 plus percent level and there's no reason why, given a static state, that we won't get back to those levels at some future date, whether that's first quarter, second quarter, of next year, I don't know, but clearly our opportunity is to grow from these relatively low margins that we have, albeit that they are way outperforming the industry from what we've seen, that we believe that those are the kind of margins that we can get back to.

Perfect. Appreciate that. And just wanted to confirm that we also have the first 100 euro increase that hasn't really flowed through into boxes yet in Europe very much as well. Is that correct? That's correct, yeah.

I mean, our business is always on the way up and way down a lag business. Our box business depends on the customer you have, but, you know, very few, but some customers are year-to-year contracts. Some customers are six months. We have been shortening contracts to be three months, but by the time, you know, By the time it gets published and then three months, it's really four months for most of the larger index customers. But equally, when the prices move down, especially for a grade that's as volatile as recycled paper, then clearly you hold on to the margin that you've recovered. And also, it's important to note that when the paper price moves, it's most of the time not just paper price. There's some inflationary costs driven into that as well.

Right. And maybe one just last one. And so up until now, I think the contention has been, you know, the price increases in Europe have largely been cost reactive. Is that how we should be interpreting these increases too? Or is there something like in North America, it's certainly supply demand as well. In Europe, is any of that being introduced into this equation or is it still really cost reactive?

It depends on the grade, but I would say that in recycled paper, it's more related to cost. When it's related to Craftliner, it's related to supply, demand, and cost.

Thank you.

Did you announce on Craftliner as well or just recycled? We did not. Not yet. Thank you.

Thank you. Your next question today. Pletler Finkelman, JP Morgan

How should we be thinking about, you know, supply demand, what's driving prices in that other, call it two, two and a half million tons, that's Mexican slash export volumes, please?

Definitely, as well as that, you have some sack paper in there and you have some bag paper in there. So those are all, you know, they're all going up as well as the craft liner and container board piece of our business. So, you know, One of the things that we have to get out of is some of the export tons that we have taken. So we're behind delivering on those. But by the end of this year, hopefully, we'll have finished all of our, let's call it, low-priced tonnage. And we will be applying to the export markets the same metrics that we see in the domestic markets, obviously, depending on the market. Thank you for joining us.

Presumably, in the next 12-18 months, your box volumes are hopefully going to grow above market. I think you mentioned the back end of Q3, the whole of Q4 growing above market. Can I then assume that export volumes probably shrink and you use more of that capacity internally, domestically to supply your own box plants and that kind of mix changes going forward?

Yes, that's 100% true. The local domestic price is higher than the export price at this moment in time, but we have to keep evaluating that. But yes, as a fundamental rule, we believe in integration in our own system to ensure that we use our own tonnage within our system. But obviously, the system that we've inherited is much bigger than just that, so we continue to Thank you very much. Thank you. Thank you. Your next question comes from the line of Anthony Petanari from Citi. Please go ahead. Good morning. Hey, Anthony. Tony,

Hey, I was wondering if you could talk about your internal inventory levels, given the mill system is sold out. Is there any tightness or risk there? Do you need to build inventories in any region or grade? And then just as we look at underlying demand for 2Q, did you see any pre-buy in 2Q in container board or box board, given there are some hikes in the market?

Our inventory level is a very good question. You know, we sometimes have inventory in the wrong place and we sometimes have inventory of the wrong grade. We're still very early into this, Anthony. And so our whole logistics system is still under a rate of change. And yes, the answer to your question is we do have some inefficiencies still because our stock levels are not necessarily where we want them to be. because we don't necessarily have all the right grades in the grade optimization program that in a couple of years from now will be, I would say, much, much better because clearly a lot of what we bring to the party is making sure that we have the right SKUs in our system and making sure that the paper mills run the right grades of paper that suit those grades of paper and the box plants convert those grades. So there's still a lot of work to do and as such, There are some inventory issues that we have to use the wrong papers from time to time. But so far so good. Talking to the team as recently as yesterday, we are managing with some issues, but we are managing. So far so good. With regard to pre-buying, I would say that there was very little pre-buying. In fact, I would say maybe the opposite. I would say that people did not expect for the market to change so rapidly. And that is why a lot of export orders are unfulfilled still. People were keeping their levels of stock pretty low because they could get paper pretty well when they needed it. And if you remember back to the first quarter, we had a very poor first quarter because of The freezes and all the issues that were happening. And I think it's been a bit of a surprise how quickly the effects of the supply demand have been felt in the second quarter. And as such, nobody would have been pre-buying, or to any great extent, nobody would be pre-buying prior to that. So no pre-buying, some logistical issues because of the tightness of the market, but we're managing through it.

I think Anthony as well, just from a general point, I think total industry levels across North America are probably still in the range of 2.5, 2.6 million tonnes. So, you know, I think that would have been about 2.8, 2.9 as you exit the first quarter. So you can see if there are issues, it's coming out of inventories rather than kind of getting down towards low levels of inventories, still fairly well stocked.

Yeah, and I think if I could just add one point, Anthony, to your important question is that logistics is playing a hell of a role at the moment. You know, there are some, especially in the North American market, there are, you know, very significant ACOS. I mean, we're expecting costs to be 300 million more than we would have anticipated three months ago in North America and Europe. And That's a function not only of the price of diesel, but it's also a function of availability of transportation. And that is creating some issues for delivery on time and things like that. So for sure, logistics is an issue, not only on the cost side, but also on the availability side. And that's something that does create some disruption. But as I say, we're managing through it. with some cost, which obviously none of us like. There's $300 million that we didn't expect, but at the end of the day, it is what it is, and it's the reason why we need further pricing initiatives in our marketplace because we need to recover these and to earn a decent return for our stakeholders.

Okay, that's very helpful. I'll turn it over.

Thanks very much, Anthony.

Thank you. Your next question comes from the line of Iones Mazvulas from Morgan Stanley. Please go ahead.

Hello. Thank you very much for the presentation. Two questions from my side. The first on cost that you already articulated in some detail. So when I look at the update back in April, the energy headwind was around $220 million. You didn't really change that. with today's update, but clearly there's a big ramp up in the freight costs versus the spring update. How much of that is purely a function of timing effects? How much is your conservative assessment on freight at this point versus April? And if you can give us a sense on the split by region, especially on the freight side. Thank you.

Yannis, it's Ken here. I won't do a split by freight by region because we don't really break out the regions forward quarters like that but I think it's fair to say at the back end of April we would have seen freight generally is kind of ahead when they call it 50 million year on year and that was at a place if you think about it where it looked like the Middle East was about to be solved and MOU in place past the piece of being identified and the world seemed to be setting down I think it's interesting if you look at any of the indices that have come out you can see a sharp spike towards the back end of May into June and as we continue into July, primarily on freight, and we clearly saw that heavily through May and June. So, you know, it was very much a changed environment which led to a changed outlook on freight which leaves us now in the position where we kind of see freight at about 300 million headwind year on year. I wouldn't necessarily characterize that as either conservative or not. I think it's our best estimate based on where we see the cost come in. As Tony said, these are costs that we continue to need to recover given that They seem to remain elevated and not abating. On the energy side, I think back then we probably would have said about in a range of 220 to probably 250. It's probably still there or thereabouts. We've seen European TTF for gas go above 60 again last week, back below 58 to 57 this morning. So still very fluid, but we tend to be helped all through this kind of cost backdrop on energy because of our actual hedging policy, which we don't use a lot now given the elevated prices. Thank you very much. with little impact in 26, but more importantly, restore margin as we kind of move through this particular phase.

Perfect. That's very useful. Thanks very much, Ken. And maybe just a second question. On the North American corrugated volumes in Q2, which were somewhat weaker than market expectations, I think on the Q1 call, you talked about April was down 4%, and my understanding is that May was at similar levels. which implies a weaker June run rate. Can you talk about what drove that? And I think you have already articulated the messaging on Q3, Q4, so it's more around understanding any specific effects that impacted June. Thank you.

To be honest with you, Yanis, I don't remember what was anything specific. I mean, we're talking about small deviations. I would say the thing to try and keep a focus on is that our acquisition of new customers continues to pace. Our movement towards having local level responsibility and local level acquisitions of customers continues to pace. We continue to see wins in the marketplace. We actually continue to see customers who've left us want to come back because our quality and service has improved very significantly in just a year. We're starting to apply the metrics that we have always done in Europe, in North America, and we're seeing very good progress on the operational side. So I think given the progress that we're making and a small deviation in a small region for agriculture can make that kind of difference. The overall level of progress is what I see is very positive and I'm sure that Nikki and her team on the sales side are going to deliver significant wins in the future to get us back to where we need to be.

Very clear. Thank you both and all the best. Thanks, Janice.

Thank you. This concludes the Q&A session. I will now hand the call back to Tony for any closing remarks.

Thank you operator and thank you all for joining us today. I would say that overall I'm really happy with how the progress of the integration between Smurfit and WestRock has gone. I think that the company has now got all the teams in place to make this company one of the great companies of the world. We continue to be hit by costs that are non-expected and a significant cost environment that we are in the process of passing through and I have full confidence that we will pass those costs through and we're really setting ourselves up for a better second half and a very good 2027. So thanks for your support, thanks for your interest and we look forward to meeting many of you and talking to many of you in the weeks and days and weeks ahead. Thank you all.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.