Mondi Aktie

Hello, everyone, and welcome to this Mondi Q1 event. [Operator Instructions] I'm now going to hand you over to Andrew King, CEO. Andrew, please unmute and go ahead.

Good morning, everyone, and thank you for joining our call today. I'm Andrew King, Group CEO. And with me is Mike Powell, our CFO. I'll apologize in advance for the slightly croaky voice as it seems like both Mike and I have managed to pick up a change of season sniffles, but I'm sure we can be heard.

I'm sure you've all seen the announcement today. So I'm just going to pick up a few points before we go to questions. Market conditions in the first quarter of 2026 did remain challenging with underlying EBITDA for the quarter of EUR 212 million, broadly in line with the fourth quarter of 2025. On a sequential basis, sales volumes increased across our range of paper grades. There was also no planned maintenance shuts in the quarter. These volume increases were offset by lower average selling prices and towards the end of the quarter, higher energy-related input costs.

With our converting operations, Corrugated Solutions and Paper Bags experienced some margin pressure, while Consumer Flexibles delivered a broadly stable performance, supported by resilient end markets.

Geopolitical tensions in the Middle East increased volatility in an already complex operating environment. Across the business, we have seen higher energy, raw material and logistics costs, and we have responded with pricing actions. While there is an inherent time lag, we do expect these measures to take full effect by the third quarter. Despite the uncertain outlook, we continue to focus on what we can control and deliver great products and services to our customers.

With that, Mike and I are now happy to take your questions.

[Operator Instructions]

Our first question comes from James from Prescient Securities.

Could I just ask 2 questions? Firstly, there were energy credits that were quite substantial last year. Could you talk about what the difference is in that on a quarter-on-quarter basis and a year-on-year basis in the quarter? And secondly, you've increased your cost-cutting progress from what I can see. Before, you were saying the cumulative impact was offsetting cost increases. So I'm wondering whether there's now more than that or whether it's now simply offsetting the higher cost increases that we've now seen because of what's been going on in the world?

Yes. Let me start, James, and then Andrew can add in. Just energy credits, I was pretty clear at the year-end. That would be about a EUR 60 million adverse, if you like, year-on-year. It's probably -- you could probably average that over the quarters very simply.

So -- and then on costs, just to be clear, when we were saying we were taking a number of actions, which we continue to take and you see we've closed -- the announced closure of another 3 converting sites since we last spoke, that's very much to control, if you like, the fixed cost, the overheads in the business. That's not really direct materials or input materials, which is clearly the cost increases you alluded to.

So we do continue to work very hard on our fixed costs. We take advantage of scale in plants and production efficiencies and that allows us to move less sustainable converting plants into the more efficient ones. And that's something that as Mondi we've done over the years. You've seen us accelerate that a little bit in this economic decline, but that really allows us to hold our fixed cost base flat, which is the guidance I gave at the full year and I'll hold by that today. Clearly, on input cost, that's a different story.

I think that's really important, James. I think obviously, at the beginning of the year, the outlook for the cost base for the year was somewhat different to what it is today, simply driven by the effects of the war in the Gulf. I think we can, I'm sure go on to talk about it a bit. But of course, as Mike said, the input cost dynamic has changed materially from the beginning of the year because we had started the year assuming a relatively benign input cost environment. But of course, it has changed quite materially since then with the sharp rise in energy costs and the feed through to all the other aspects.

And that is why, obviously, our big focus is obviously in part mitigating that in part ensuring security of supply, which is critical in the current environment and of course, driving the necessary price increases.

Our next questions come from Detlef Winckelmann from JPMorgan.

Maybe first one, just on demand. You kind of called out that demand was relatively stable, maybe potentially slightly higher, but that is helped by a little the capacity expansions. I'm just curious to what extent you guys are seeing this as a restock or prebuy. We are seeing, obviously, testliner prices up, call it, EUR 100 cumulatively, normally see some prebuying activity. Just curious what you see as underlying and what is not?

No. I think you are painting our volumes with industry demand there. So our volumes were up, obviously driven in part by the investments we made over the course of the last few years, which we are in the process of ramping up. Undoubtedly, we gained some share in certain markets as a consequence of the increased capacity and obviously, the offering we have into the wider markets that we serve. So first things first, our volumes were up because of those effects.

In terms of the market demand as we see it, I mean, if you look the year started quite softly. Undoubtedly January into February was pretty soft year-on-year. If you look at the industry stats, and that's across most of the markets. But it has improved sequentially as the months have gone on. If I look at our order books now, typically in the Paper business, in the paper grades, our order books are strong. I think there's a confluence of factors in that. As you say, there probably is a bit of prebuying because undoubtedly price increases are coming through.

But I think there's also been some supply side effects. For example, I think there's been less exports from the U.S. into Europe as a consequence of the U.S. containerboard market in particular, with capacity rationalization taking place there. And of course, exports were marginal for them. So that has probably tightened things up. And simply put, the stock levels in containerboard have come off quite materially. I think that's also a function of the fact that -- as we've been saying for some time now, people simply can't make money at these price levels.

And there's been, I think, quite a lot of industry downtime across the piece, which has reduced stock levels and frankly, is supporting these price increases we're seeing coming through at the moment in addition to the impetus that's been brought through by the significant cost inflation we've seen since the start of the war in the Gulf. So it's really a confluence of those things which have tightened up. The markets tightened out. Certainly, our order books are strong at the moment. That's the reason we're going for price increases at the moment.

Cool. And then maybe if I can do one more. Just regarding -- I mean, normally, testliner prices go up, and I think you even called out there's normally a lag that we should have to wait for. And normally, I think about box lags of, call it, 3 to 6 months. Is there any chance of those lags moving a bit sooner given how fast and how aggressive the cost inflation has been? I think we saw something very similar during Russia-Ukraine period, maybe cost inflation not as severe as that, but just curious on if there's any room to shorten those lags?

Yes. I think that is a big focus across the piece. I mean it varies again, you mentioned particularly the boxes, but obviously, across the business, we're seeing different levels of cost inflation. Probably, frankly, the most severe is in, as you could imagine, the resin-based applications where we're seeing significant cost inflation. There undoubtedly, call it, the normal lag is going to be shortened. It has to be because of the significance of these increases. And I think our customers respect that and acknowledging of that.

So you are seeing a shorter time period, I think, from the cost input going up through to the selling prices going up. In terms of boxes specifically, there's still quite a lot of index business, which does take time, but it does happen invariably. I often say a big paper -- price increase is easier to get through the boxes than a small one. And clearly, we're seeing some pretty significant paper price increases going through at the moment in addition to the other cost items because, of course, in converting businesses, of course, paper is the single biggest input, but there is also energy, transport logistics and other cost items that are also being affected at the moment.

So yes, I think net-net, it is realistic to assume that the lag effect would be probably a bit shorter in this environment where we are seeing pretty sharp cost inflation.

Our next one comes from Lewis of Goodbody.

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

Sure. Thanks, Lewis. The on energy, again, we have a very good natural hedge in the use of biomass across large parts of our energy needs. So our gas consumption, I guess, relative to the industry is super low, which puts us in a good place.

In terms of the specifics, I guess, in Europe, we probably spend about EUR 100 million on gas in Europe. So if energy is in March, it doubled, but it's a bit less than that today. That sort of gives you the scale of the gas. The rest, as I say, is biomass.

The other category you mentioned, I think, is sort of plastic resins. I mean that's moved materially. Again, a lot of that is index based. But I mean resins are 40%, 50%, 60%. But again, these price through mechanisms and that whole industry, frankly, is having to pass those on. So whilst those are large increases, there are mechanisms and those are already being passed through relatively well.

And I think you touched on availability as well, which I think is a good point. At the moment, we're seeing clearly no availability issues, frankly, across all the categories. We're keeping an eye on that because obviously, we're in a pretty volatile world across about everything right now. But at the moment, no availability issues. We have really good relationships, both on the customer side and on the supplier side. And at times like this, those become super important because that just gives you extra flexibility in a world where you need to be really agile. So super pleased with how both our sales side and our procurement side are responding to that, but no availability issues or something.

Our next question comes from Brian of RMB and Stanley.

Just actually quite an easy one. Just if you could just update us on where we stand with maintenance. There was no maintenance in the first quarter. What are you expecting for the second quarter and maybe into the second half of the year?

I was worried, but easy ones, Brian. [indiscernible]. So no maintenance shut. Again, there's no maintenance first quarter. We guided pretty similar year-on-year. That means it's about EUR 100 million as we sit here today. I'd expect about EUR 20 million in quarter 2 and therefore, EUR 80 million in the second half. I hope that gives you what you need.

Our next question comes from Cole of Jefferies.

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

Yes. So let me -- I mean, Andrew can talk about price versus cost because I think cost is such a significant input in a material cost increases, it's the net that obviously matters. And we can touch about that price development versus cost in Q2, but more importantly, through the year because as you know, this isn't a quarterly game.

On your specific on fair value, the price of wood chips in South Africa has declined. That means we need to value the asset on a spot basis. For the full year, I'd expect 0. If I just sort of step back up a bit, we normally -- the average I've always said for fair value is EUR 4 million to EUR 6 million a year. That's normally growth with little price. So if you think of growth [indiscernible] is the sort of norm and price at [indiscernible] recognizing price goes up and down.

You saw the EUR 10 million roughly fair value in the first quarter, I think it was EUR 8 million to be precise. That's the growth. You'll see that in quarter 2, quarter 3 and quarter 4. So you'll get roughly EUR 10 million a quarter of the growth. The issues is obviously the price. That will hit us all immediately in Q2. So I'd expect that to be a sort of the price element to be about minus EUR 40 million in Q2. And then, of course, it will depend what happens in the future.

But if you put in for Q3 and Q4, what that means is you've got for Q2, EUR 10 million growth, minus EUR 40 million on price, giving you minus EUR 30 million for fair value. And then in Q3 and Q4, it comes back at us for growth. That adds up to for the year. I would just mention, of course, the world is pretty volatile. That's our best guidance today is for the full year. But obviously, with that negative in Q2 being the price effect [indiscernible]. Does that help on fair value, Cole, just before we get back on to the [indiscernible] business?

Yes, that's very clear.

As Mike said, in terms of bridging into Q2 and beyond, it's very dangerous, I think, just to look at one side of the equation. Undoubtedly, costs are going up. And to a degree, we didn't foresee at the beginning of the year. But at the same time, we are now clearly seeing pricing momentum. So one has to recognize that call it, January, February was pricing at its lowest point. I mean we saw generally pricing coming off through the back end of last year. As you will recall, we spoke about at the full year results announcement. And that meant that we came into the year with, call it, low pricing levels.

We pre-war, should we say, there were already some price increase initiatives that were being successfully implemented. We were starting to see some movements in the recycled containerboard grade. We're starting to some movement in the fine paper markets with some price recovery there, obviously, also supported by some modest increases in the pulp prices. And we were starting to look at price increases also in the kraft paper and virgin containerboard grades.

Clearly, what then happened was we got the one-off of the sudden shock of energy price inflation and all the knock-on effects. So clearly, March was particularly badly affected by that because obviously, there was not yet a price response and yet we've seen almost immediately a big spike in gas, which, of course, hits us immediately to the extent we are -- we do buy some on the open market, as Michael already referred to. And there was immediately surcharges on transport, et cetera, from certain regions of the world.

So that was quite an immediate cost effect. Obviously, we've been continuing to work on the pricing side, which has been added impetus now for obvious reasons given the significant cost inflation. So that is why, a, we're very confident of getting price increases because there is cost support. But in addition to that, as I've already alluded to, our order books are strong. I think it has been supported by improvements in the relative trade flows, as I say, on the virgin containerboard grades, kraft paper grades, even though industrial bags, Europe is relatively flattish to slightly softer into the start of the year, now recovering. And we're also seeing lots of good demand from what I refer to as nontraditional sources for kraft paper and the likes of the e-commerce markets, demand is coming through strongly.

So these are tightening up those markets. And hence, the reason we are pushing price increases across all our main paper grades, which undoubtedly then feed through into the converted products. So undoubtedly, we're seeing, should I say, the worst of it right now. But as we see these price increases, we're confident we can restore and improve certainly the margins from where we are today.

So there is undoubtedly something of a lag effect, and we see it. I mean that's what we're experiencing right now. That's what we experienced in March into April as we saw the worst of this cost inflation and again -- but we are now starting to see the prices move, which will take effect through Q2 and into Q3. So if I try and summarize that in terms of quarter-on-quarter effect, I do expect to see on an underlying basis, ignoring the noise around fair value and things like that, an improved margin environment in Q2 and then obviously, better still, all else being equal.

I mean who knows what happens next on the cost side if peace breaks out tomorrow and you have some settling down in the costs, but we are certainly not predicting that. I think the forward [indiscernible] is going to be higher for longer even if we have some resolution on the Gulf for long. So that is certainly what we are planning for and we are working towards in terms of [indiscernible] actions.

Andrew, can I follow up on that last point? Because I mean, how do you see the cost curve for the industry over the next, let's say, 2 years? Because even if we do see resolution tomorrow, which we all want because it will come back for demand and you'll see the benefit, hopefully, for construction, et cetera. But gas prices, chemical prices, logistics costs, are you of the view that those costs probably don't come down for a while and that steepens the cost curve over the next 2 years? And how is Mondi relatively positioned as that? I mean, is this ultimately good for you that this probably steepens the cost curve even if the war was to end tomorrow?

I mean in terms of the relative positioning, as you say, I mean, given that we make so much of our own energy and it's biomass based and yes, biomass prices have historically also had some impact -- to some degree being impacted by energy, it's not nearly on a one-to-one basis. So undoubtedly, we have a call it, natural hedge when the energy prices go up and particularly gas relative to -- especially our competitors, especially those who are obviously much more predominantly sort of recycled based. Because almost by definition, the recycled containerboard producers are not backward integrated into their own energy production, they would be buying a fossil fuel typically to make that energy.

So you do see, yes -- the whole cost curve goes up and undoubtedly to be clear, our costs also go up, but not nearly to the same extent as you rightly say, more exposed producers that are buying fossil fuel. So that is what's happened already. I mean the cost curve for containerboard has gone up and has steepened materially. Those players who were underwater, should we say, at the beginning of the year and a certain cost dynamic are under even more pressure today. Even with the type of cost increases -- sorry, price increases we see going through the market at the moment, it is not enough, should I say, rescue the top end of the cost curve.

And it's very clear that there's a lot of producers are simply not producing in the current environment. As I said to an earlier comment, the stock levels for recycled containerboard are actually at -- quite significantly below average levels for this time of year. And I think that is a clear function of the fact that simply put, there is no margin for a lot of the high-cost producers to be producing into this market. And these price increases are not necessarily supporting a material change to the margin dynamic for those producers.

Of course, if you've got less cost pressures, you don't see quite the same margin squeeze. Similarly, I think we also have to recognize in our kraft paper business, obviously there is still cost inflation around undoubtedly. It's again less exposed. But I would say there, it's also a strong demand side dynamic that's taking place, as I say, even though, call it, the traditional industrial uses in Europe, it's a bit flattish. Outside of Europe, demand is good into our export markets, and that's everywhere from Latin America to Southeast Asia. Obviously, the Middle East by definition right now is volatile, but it's still holding up.

But as I say, we're also getting good demand from nontraditional sources, e-commerce in particular, which is really tightening up that market and hence, the reason we're also pushing some meaningful price increases in our flexible paper output.

Our next one comes from Kevin of Deutsche.

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

Yes. If I look from -- as I say the business that's experiencing the greatest cost pressures at the moment are our resin-based businesses. There, for all intents and purposes, just about all the business on what we call our consumer flexibles is indexed. And as I said in my earlier remarks, the challenge now for our teams is to move the pricing in advance of index linked, call it, calculations simply because of the magnitude of this cost inflation, and as we have been very successful in that because our customers understand the dynamic with these really significant cost increases. So it's a bit of a lag, but it will be -- I firmly believe very well contained.

In the paper businesses, our bags, there is a lot of index linked. I mean it's significant index-linked business there. The question is when is the repricing event. Some of it is on a quarterly or half yearly basis. So there is that delayed effect. That's why we say by the third quarter, both the paper price increases will be through, but also the bag prices should have adjusted by then. And of course, we are talking to our customers right now about bag price increases because of the significant cost inflation, not just from paper, but all the other [indiscernible] as well.

And then the boxes, yes, the traditional rule of thumb is kind of 3 to 6 months for the boxes to react to price increases. As I say, with the magnitude of these price increases going through on the paper side, I think that will be a shorter time period before you get full pass-through depends on the region of the customer base, et cetera. But obviously, I think it's in every interest to move those prices faster than the traditional timeframe. [indiscernible].

Our next question comes from Gabriel Goldman Sachs.

So the first one would be on the kraftliner side. So kraftliner is better positioned, as you were mentioning in this scenario, but the gap between the prices of kraftliner and testliner is elevated what you consider historicals, right? So although it's better positioned, would you expect that grade to also capture the full benefit of the higher costs and the potentially higher prices for testliner that we should see ahead? So that's the first question.

And on -- my second question would be on the -- if you could give us an update on the ramp-up of the new capacity and your expectations for 2026 specifically, on how you would expect that to reach the market? And if you see like given the whole demand environment, if you could see other capacity being taken offline to -- and actually being replaced by the new capacity?

Yes. On the question of virgin versus recycled, yes, the virgin has been trading at a premium to sort of at the higher end of its traditional range versus the recycled. I think that's perfectly understandable. All the supply side additions are coming in the recycled side, all the easy wins in terms of substituting virgin by recycled have taken place. The supply side on the virgin is much more constrained. And as I mentioned, it's probably even more constrained because of business coming in from the U.S.

And so that's tightened. The virgin market is -- virgin demand looks good. The order books look strong. And of course, if you get these price increases through on the recycled side, that then supports the ability to move prices on the virgin side because on the margin where that substitution risk exists, it's obviously mitigated by price increases on the recycled side.

So in short, of course, these price increases in virgin are predicated primarily on the fact that there's a strong order book and the supply/demand is tight, supported in turn by the fact that you're starting to see it on the recycled side and so the risk of substitution gets reduced.

In terms of capacity ramp-up, et cetera, so as I mentioned, we saw volumes grow year-on-year and also on a sequential basis. That's obviously partly due to the ramp-up of the capacity that we are bringing into the market, primarily on the paper side, it is some on the recycled side from our mill. And obviously, we've also been ramping up the optimized capacity on the virgin side, both the semi-chemical fluting and the [indiscernible], which we expanded capacity there last year. So all of that is coming into the market as we produce it.

In terms of does it require closures, I mean, I think that talks to the overall supply-demand dynamic in the market. Undoubtedly, as I think we've all been saying for some time now on the recycled containerboard side, we undoubtedly need capacity closures in the market to properly balance this market. There's been some closures, but I think we're all scratching our head as to why it's taking so long because undoubtedly, there's every incentive for closures.

As I said in my earlier comments, everything tells us that the capacity that's out there is running well below capacity. And that is extremely expensive because, of course, you've got a fixed cost base with no revenue when you're doing that. And I can't understand how that can sustain for a lot longer, but I guess people are saying that because it's been a while now, but the economics will come through in due course. And we will watch that to understand how it happens.

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

We have one final question from Pallav of Barclays.

Two of them. So firstly, how does the current market environment impact your Duino optimization, if at all? And should we expect it to be loss-making in 2026 still because I think that is what you had highlighted at the full year results?

And then secondly, I appreciate all the detailed commentary earlier. But simplistically, given higher input costs due to the conflict and recent price increases around EUR 100 on testliner, is it enough to offset the cost increase? Or is it over -- is it just enough to offset that increase? Or is it over and above and it could lead to margin expansion in the second half?

Thanks, Pallav. I guess the 2 questions are very much interlinked because Duino, of course, is a pure recycled containerboard producer. I mean, clearly, Duino is still in ramp-up. And obviously, every day that you produce and sell more products, your unit costs go down, and that's a process underway. And of course, we work very hard on improving the mix effect and markets we sell into, et cetera, for Duino. So that is still a work in progress.

Of course, Duino has been in the eye of the storm when it comes to the gas price increase -- the gas cost increases that we've only just recently seen because, of course, Italian gas costs, which Duino is exposed to have gone up. And that is a headwind that they now face, which we certainly didn't see at the beginning of this year.

At the same time, as you rightly said, Pallav, there are meaningful price increases going through at the moment. Obviously, it's not fully implemented as yet, and we'll have to see exactly how much of the price increases go through. But there's, I think every reason to believe a significant price increase will go through. Obviously, that will then in turn determine the overall profitability of Duino into the second half. So right now it is loss-making, obviously, compounded by the recent gas inflation. And undoubtedly, we need price increases to mitigate that. That is that work in progress, which as I say, I'm very confident we'll see coming through into the second half of the year.

Very good. But on that note, I really appreciate your interest as always. As we've said, clearly, we are seeing an uncertain outlook. At the same time, we are driving hard on all the controllables. We are seeing very importantly, good pricing momentum and equally importantly, it is on the back of solid foundations with really strong order situation. And of course, we are only too aware of the cost inflation that is impacting the market more generally.

So with that, we are confident that while Q1 was difficult, we are starting to see some improvement into Q2 on an underlying basis and certainly into Q3 and beyond as we see the full effects of these price increases, which we're very confident in, we will see an improvement in the underlying operating profitability. So with that, really appreciate your interest, and thank you very much.

Welcome to the Mondi Full Year Results 2025.

[Operator Instructions]

I'm now going to hand you over to Andrew King. Andrew, please go ahead.

Good morning, everyone, and welcome to Mondi's 2025 Full Year Results Presentation. I'm Andrew King, your Group CEO, and I'm joined this morning by our CFO, Mike Powell. As usual, I'll begin with some highlights for the year. Mike will then take you through the financial performance in more detail.

I will then return to provide an update on our business units, discussing at the same time the current trading environment and then take you through why we believe Mondi is strongly positioned to capture the upside as markets improve.

After that, Mike and I look forward to taking your questions. So as you'll see on the first slide, in terms of our full year performance, I believe we did deliver a resilient outcome, EUR 1 billion of underlying EBITDA, marginally down on the prior year.

Pleasingly, cash generated from operations of EUR 1.07 billion was up on the prior year. As Mike will explain in more detail, we were also able to reduce CapEx below previously guided levels, which further supported our cash flow and balance sheet.

As I mentioned, this is a resilient performance in the context of what remain challenging market conditions and reflects both the strength of our integrated asset base, the value of our unique product offering, and the impact of the self-help measures we have taken.

While we remain confident in the structural drivers underpinning through-cycle growth in our sustainable packaging solutions, we're equally cognizant of the impact of the current downturn and the impact it's having on our near-term performance.

In response, we have taken deliberate and decisive actions across the group, intensifying our focus on cost discipline, on operational excellence, on proactively optimizing our production footprint and on cash generation, while at the same time, continuing to focus on delivering a great value proposition to our customers.

These actions together with the significant competitive advantages we continue to enjoy as a business, ensure that Mondi is strongly positioned to capture the upside as market conditions improve.

With that, I'll hand you over to Mike for more color on the 2025 financial performance.

Thanks, Andrew. Good morning, everybody. Thank you for joining. On to our 2025 results, which demonstrate a resilient performance against a backdrop of the prolonged cyclical downturn that our industry continues to face. Underlying EBITDA of EUR 1 billion saw continued margin pressure associated with the challenging trading conditions, the makeup of which I'll come on to on the next slide.

During the year, we successfully completed the build and start-up phase of a number of major capacity expansion projects into our core markets. These investments, together with the Schumacher acquisition, position us strongly to capture the upside as market conditions improve.

They have, however, led to a higher capital base. And as a result, you see an increase in depreciation and finance costs, which reduces the group's basic underlying EPS and return on capital in the year. And on the right-hand side, I'm pleased with the stronger cash generation from operations increasing to EUR 1.072 billion through strong working capital management.

So let me take you through the main movements in underlying EBITDA when compared to the prior year of EUR 1,049 million that you can see on the left-hand side of the chart. As you can see, the performance was resilient in an environment of macroeconomic uncertainty and geopolitical tensions with only small movements year-on-year, which is a testament to the strength of the cost advantaged and integrated assets, the quality product offering and the targeted actions taken. Sales volumes were up on the prior year, which included additional volumes from ramping up the new capacity.

With respect to selling prices, this is mostly comprised of higher containerboard selling prices, which were more than offset by significantly lower uncoated fine paper and pulp selling prices, and Andrew will provide a little more color on that in a couple of minutes.

The cost increase is mainly in relation to labor inflation with other costs well controlled. Input costs were overall flat year-on-year against a muted economic backdrop. In the first quarter of 2026, we are seeing overall input costs remaining flat on 2025 despite some sizable headwinds related to lower energy-related income and emission credits.

And lastly, the forestry fair value gain, EUR 32 million higher in the year when compared to prior year, all that adding up to the results of an underlying EBITDA of over EUR 1 million for the year.

As Andrew said, we're cognizant of the impact from the current downturn and its effect on our near-term performance. So I wanted to spend some time outlining the actions we're taking to proactively manage the fixed cost base. Andrew will touch on operational excellence and productivity later.

We execute targeted cost-out initiatives to drive efficiency, eliminate nonessential activities and strengthen the core revenue-generating areas of the business. It is what we continuously do to improve. Whilst we do have targeted incremental costs in growth areas, whether that's due to new capacity or customer demand, we have reduced headcount over the last 12 months elsewhere by approximately 1,000 heads, driven from greater efficiency in our operations, plant closures and about a 13% reduction in our group services offices.

We've also recently announced 3 further plant closures, which will reduce headcount by approximately another 200 in the coming year. We combined our Corrugated Packaging and Uncoated Fine Paper businesses into a single business unit, and that facilitates a more streamlined organization, supporting faster decision-making, cost takeout and delivery of operational synergies across our pulp and paper mills whilst retaining our customer-focused value chain orientation. And therefore, for the 2026 year, I expect these actions to offset labor and other cost inflation.

Let me now take you through the movement in net debt. We started the year with EUR 1.7 billion. You can see the EBITDA contribution I've taken you through of the EUR 1 billion. In terms of working capital, I'm really pleased with our delivery since the half year. As you'll remember, at the half, we outflowed about EUR 100 million in the first 6 months, which tells you we drove around a EUR 200 million inflow in the second half of the year to leave the total inflow that you see on the chart of EUR 83 million. Including interest, tax and other items, the net result of these 3 items was cash delivered of EUR 767 million, and you see that highlighted in the box on the slide.

The next 3 columns shows how we've allocated capital in the year. We invested EUR 673 million in property, plant and equipment, lower than the previously guided EUR 750 million to EUR 850 million, driven by our ongoing focus on cash management.

Dividends paid totaled EUR 352 million. And lastly, we completed the acquisition of Schumacher, which expands our geographic reach, drives greater optimization across our plant footprint and unlocks efficiencies that support long-term growth. Integration remains on track. We're confident in the delivery of the EUR 32 million cost synergies over the 3 years from completion, and that's an increase from the EUR 22 million that we initially envisaged.

So to conclude, all of that leaves the group with a net debt balance at the end of the year, EUR 2.6 billion, which is 2.6x levered. I also want to set out our robust financial position. We have investment-grade credit ratings. Our available liquidity totals around EUR 1.3 billion and places us strongly to protect value in the short term and capture opportunities in the long term as they arise.

We've refinanced short-term debt maturities in the year and have no further debt maturities until 2028. And as a reminder, we have no financial covenants. Let me now take you through some capital allocation points, starting on Slide 9. So the group has a well-invested and cost-advantaged asset base in structurally growing packaging markets.

Over the past few years, we've invested in a number of major capacity expansion projects, and we're very proud of the teams for completing the build and start-up phase of these projects on time and on budget. Our focus is now on delivering full productivity ramp-up, executing our commercial strategy, driving cash generation and delivering strong returns.

In addition to these growth projects, we invest through the cycle in our asset base to maintain competitive advantage. And you can see here in the gray bars that exclude those growth projects that this has averaged 107% of depreciation over the past 5 years. Our cash capital expenditure for 2026 is expected to be approximately EUR 550 million, lower than the EUR 650 million previously guided.

Within the EUR 550 million is approximately EUR 50 million of cash still to flow for the growth projects, leaving a base of around EUR 500 million. This spend will focus on maintenance and targeted cost optimization opportunities, including enhancing energy efficiency, improving productivity and strengthening the resilience of our asset base.

On to dividend, the Board does recognize the importance of dividends to our shareholders. Over the last 2 years, we have consciously recommended dividends in excess of our policy on each occasion carefully reviewing expectations for the coming period.

Notwithstanding our continued confidence in the resilience and competitiveness of our business, consistent with our objective of retaining financial flexibility, the Board has recommended a total ordinary dividend of EUR 0.2825 per share for 2025, reflecting a return to the group's stated dividend cover policy of 2 to 3x underlying earnings on average through cycle.

And lastly, the technical guidance slide for 2026, hopefully, all relatively self-intuitive. With that, let me hand back to Andrew. Thank you.

Many thanks, Mike. I'll now take you through the review of the business unit performance and some thoughts on the current market dynamics before coming back to our competitive positioning.

Before we get into the segmental review, I remind you that in Q4 2025, we combined the Corrugated Packaging and Uncoated Fine Paper businesses to form an enlarged Corrugated Packaging business unit.

So the segmental numbers are all based on the new reporting structure. But to help comparability in the appendix to these slides, we have provided unaudited numbers on the old basis of segmental reporting.

So coming first to Corrugated Packaging. A highlight was very much the good volume development achieved across all segments. Containerboard volumes were up around 15% year-on-year against the backdrop of a flat European market demand, supported by increased export sales and the ramp-up of completed expansion projects in our Swiecie, Kuopio and Duino mills.

In Corrugated Solutions, we achieved like-for-like volume growth, excluding the Schumacher acquisition of around 2%, in line with overall European market growth. In UFP, we were able to hold volumes stable despite market demand declines of around 5% in each of our key regional markets of Europe and Southern Africa, testament to our cost competitiveness and the quality and reliability of our products and services.

The margin squeeze you see came through price. In containerboard, average prices were moderately higher than the prior year, although this does mask a tale of 2 halves, where prices were moving up through the first half, followed by declines through the second half.

In Corrugated Solutions, margins were squeezed as higher input costs were not fully passed on to customers due to intense competition in all key markets. In Uncoated Fine Paper markets, prices came under significant pressure through the year as industry moves to reduce capacity were not sufficient to mitigate the impact of significant demand side weakness.

This was exacerbated by lower pulp prices, which gave some breathing room to the higher cost unintegrated producers. Our South African business, which I remind you is a net seller of pulp was further impacted by the unusually strong rand, which negatively impacted the rand price achieved for export pulp sales.

It is nevertheless encouraging to see some modest pickup in pulp prices over recent months, and we are currently implementing price increases in certain uncoated fine paper grades in Europe on stronger order books and ongoing cost support. If I look back at where we are today in the corrugated packaging markets, margins remain under pressure due to the lingering supply-demand imbalance.

Demand has clearly been impacted by the prolonged economic downturn seen in our core markets, lasting now the better part of 3.5 years. That said, it is encouraging to see that even against a soft macroeconomic backdrop, box demand in Europe was still up around 2% last year.

And in fact, if you look at the size of the European box market, it has still grown by around 7% since 2019, the year before COVID for a compound annual growth -- average growth rate slightly above 1%.

While clearly below historic growth rates of nearer 2% per annum, it is nonetheless still growing and I believe reflects the structural support we see from demand drivers such as e-commerce and sustainability. With a healthier macroeconomic backdrop, one would certainly expect these markets to return to trend growth rates of around 2% per annum.

What has clearly been a major contributor to the overhang is the supply side response. Containerboard capacity over the same period since 2019 has expanded by around 15%. In the short term, this overhang will continue to hold back margins in the industry in the absence of meaningful capacity rationalization and/or stronger demand side recovery.

In this regard, there's clearly ample incentive for capacity closures with a significant portion of the industry cost curve currently loss-making. As for ourselves, we'll continue to focus on the controllables that we know will serve to strengthen and reinforce our advantaged competitive positioning in these markets, leveraging our market leadership positions, cost advantaged asset base and integration strengths, and I'll come on to more of that a bit later.

If we move then to the Flexible Packaging business, I'm very encouraged by the strong volume growth we achieved in our global paper bags business with good contributions from all key markets that we serve. Pleasingly, in addition to the steady performance from traditional industrial end users, we are seeing an acceleration in demand growth for e-commerce solutions in both Europe and the U.S.

We continue to invest behind these important growth markets that we are very well positioned to serve. Similarly, our Consumer Flexibles and Functional Paper and Film segments continue to display their defensive qualities as we drive product mix improvements, supported by recent investments and ongoing innovation centered around sustainable packaging solutions.

As noted on the slide, volumes in kraft paper were moderately down year-on-year as we responded to a generally softer demand environment with production downtime, particularly in the second half. While there is seemingly something of a disconnect between the strong volume growth in our bags business and the relatively softer kraft paper markets, our analysis suggests this is due to a combination of industry stocking and destocking effects and product mix impacts.

On the back of the softer demand, kraft paper prices came under pressure over the second half of the year and into early 2026, following modest increases through the first half of 2025.

With the ongoing good demand picture in bags now seemingly translating into better order intake for our key sack kraft grades, we are currently implementing price increases across our range of sack kraft grades, reversing the declines we saw in late 2025 and early '26.

Again, if I step back briefly to understand how our industry dynamics are playing out in the context of the current challenging macroeconomic environment. Unlike in the corrugated markets, we see the current margin pressure in this segment as being very much a cyclical demand side story. I remind you that sales in flexibles are split roughly 50-50 between more cyclically impacted industrial end users and the more defensive consumer end markets.

On the industrial side, if I take, for example, European industrial bag demand from 2019 until today, it is off around 7%, heavily impacted by the slowdown in cyclically sensitive markets like cement and building materials. Over the same period, European sack kraft capacity has actually remained relatively flat. This is clearly a cyclical demand side challenge.

As already mentioned, encouragingly, industry demand is improving, albeit modestly from the lows seen in 2023. European industrial bag demand was up around 2% in 2024 and a further 2.5% in 2025. This also excludes new applications for our bags in nonindustrial applications like retail and e-commerce and consumer markets, which are also adding to demand sources and contributed to the 5% growth we achieved in our bags business.

With this backdrop, we will continue to support the growth of our global leading paper bags franchise, supported by our strong backward integration into kraft paper and our complementary offering in functional papers.

We are not waiting for the cyclical recovery, but rather continuing to develop new markets for our products while also driving our operational excellence and cost optimization programs to enhance our competitiveness.

Coming then to our competitive advantages, I just want to discuss briefly how we see Mondi positioned in these markets and reminding you of the significant advantage we have to deliver resilience in the most challenging of market conditions and similarly capture the upside as market conditions improve.

I'll talk to each of these points over the next few slides. Our scale and market positions are a major strategic advantage. In corrugated, we enjoy market leadership positions in the niche virgin grades where we also enjoy significant cost advantage. In emerging Europe, which typically enjoys higher growth rates, we are the leading integrated box producer.

As you know, through the Schumacher acquisition last year, we have now extended our geographic reach across Northern Europe, so that we can be a genuine option for regional key account customers, while at the same time, leveraging our paper integration strengths.

In Fine Paper, we are the #2 player across Europe with real strength in our core regional market of Central Europe, while we are the clear market leader in our other core market of Southern Africa.

In flexibles, we are the clear global market leader in both upstream kraft paper and downstream paper bags with an unmatched global reach and integration strength. Similarly, we enjoy real strength in niche consumer flexibles markets in Europe with, for example, the leading position in the high-growth and highly demanding pet food market.

These positions matter. They underpin our customer relationships, supply chain relevance and cost competitiveness. As I've already mentioned, packaging demand is heavily influenced by macroeconomic growth in the short term. While there are many defensive end markets such as food and beverage and other consumer nondurables, there's always an element of cyclicality in demand, even in the most defensive of markets.

This is accentuated in our industrial exposures, as already noted, most notably in construction and related markets like cement and building materials. This has clearly been the dominant theme over the past 3 years as the fallout from COVID, wars in Ukraine and the Middle East and the more recent trade wars have all served to undermine consumer confidence, particularly in our core European markets.

However, as I've already mentioned, it is pleasing to see that despite this very difficult macroeconomic backdrop, we are starting to see some growth coming back into these markets, albeit off a low base.

Most importantly, we remain confident that the structural growth drivers in packaging are very much intact. Key among these are the increasing importance of e-commerce and the drive for sustainable packaging solutions. We are extremely well positioned to leverage these trends. As I'll show you shortly, we offer a one-stop shop for all paper-based e-commerce solutions, while I firmly believe our expertise across different flexible packaging substrates and our vertical integration strengths gives real advantage when developing sustainable packaging solutions for our customers.

You'll see on the right-hand side of the slide, we show an example of how new applications, largely driven by sustainability requirements are driving demand for our specialty kraft paper products with a significant increase in applications across e-commerce, nonfood and industrial. A trend we expect to see continue and likely accelerate driven by both regulation and consumer preferences.

We continue to seek ways to bring this differentiated product offering to our customers in a way that delivers the best value proposition for them. Last year, we combined our e-commerce sales team from across corrugated and flexible packaging to provide a single point of entry for customers. Similarly, we continue to drive innovation across our broad portfolio of packaging solutions.

I was delighted that we recently won Nine WorldStar Packaging awards for innovation, following a long tradition of success in developing innovative packaging solutions in partnership with our customers.

This is, of course, all underpinned by our ongoing focus on operational excellence, which focuses on delivering right first-time performance, reducing lead times and providing customers with the agility and flexibility that they expect from us.

You'll see on the right-hand side of the slide how our product breadth supports 2 of the most important end-use segments, FMCG and e-commerce, which together make up about half of our packaging portfolio.

For each, we offer a full suite of corrugated and flexible solutions that are genuinely complementary and designed around our customer needs. This is what customers value, One Mondi, comprehensive solutions and consistent quality.

Our integrated model is a fundamental competitive strength. And here, we need to differentiate between what I refer to as our bulk and niche packaging grades. We firmly believe that in the bulk grades, strength in integration is key. From the paper perspective, it provides security of offtake, allowing us to run our mills as efficiently as possible while also allowing us to optimize logistics into our converting operations.

Similarly, from the converters perspective, it offers security of supply, logistics benefits and innovation opportunities using the combined knowledge and expertise of the whole value chain.

As you can see from the charts on the left-hand side of the slide, we are highly integrated in these grades. By contrast, in the niche virgin containerboard and specialty kraft grades, we are very comfortable with our strong open market positions.

These products are sold on a global basis to a wide number of different customers, many of whom are other integrated producers who do not have these products in their portfolios. Key here is cost competitiveness, quality, reliability and innovation, where we are again very well placed to outperform.

Coming to our cost competitiveness, which is particularly important in our upstream paper businesses. This chart illustrates that around 3/4 of our production is in the lower half of the relevant cost curves, a key determinant of long-term outperformance in these markets. We have achieved this by having the right assets in the right places to secure access to cost competitive raw materials.

We have then built on this natural cost advantage through judicious investment in the assets on a through-cycle basis. In addition to the scale benefits that come with the capacity expansion, these investments also deliver efficiency and cost optimization through increased energy self sufficiency and raw material efficiencies.

A culture of continuous improvement, delivering operational excellence is then key to extracting the full value from these privileged assets. On the topic of operational excellence, as Mike says, this is a continuous program and embedded in our culture.

We are very proud of our long track record of continuous improvement, as you can see from the example of what has been achieved at one of our flagship operations, Swiecie in Poland over the past 10 years on the right-hand side of the slide.

However, we are always striving for more. And in early 2025, we initiated a multiyear program, aimed at taking us to the next level of operational excellence through a zero loss mindset, embedding standardized processes and ensuring the sharing of best practice, facilitated by empowering our people and strengthening our leadership teams.

While I'm being constantly reminded by colleagues that this is a long-term program, and I shouldn't be expecting significant quick wins, I am nevertheless delighted by the initial results from the pilot projects. In Swiecie, for example, this has already led to strong efficiency gains and reduced downtime on the machines.

We are very excited by what this program can do for all of our operations as we systematically roll it out across the group. Our converting operations also have a proud track record of driving efficiency gains.

Over the past 10 years, we have closed 22 plants while at the same time growing volumes. As our larger plants get increasingly efficient, we are able to successfully transfer volumes from smaller operations, which in turn drives further efficiencies.

The chart on the right-hand side of the slide illustrates the track record of productivity gains over the past 10 years in our Corrugated Solutions and paper bags plants, respectively.

After a short period of slower rates of improvement, I'm delighted by the significant productivity gains achieved in the last 12 months of 4% to 5%, reflecting a renewed focus on driving this key performance indicator. The Schumacher acquisition has further strengthened our Corrugated Solutions network, enabling further optimization across our footprint and unlocking efficiencies that support our long-term growth.

As Mike mentioned, we recently announced 3 further plant closures, again, with the intention of transferring the volumes to other nearby plants in our network. While we fully acknowledge the challenges for those valued colleagues directly impacted by these decisions, we also recognize the critical importance of driving the ongoing optimization of our plant network.

We will not hesitate to take the tough decisions on plant or mill closures when required. So let me then finish where I started. In the context of a prolonged cyclical downturn, we have delivered a resilient performance. We have taken and will continue to take decisive actions to drive value. We remain strongly positioned to deliver in the short term and capture the upside as markets improve.

Our conviction is driven by our belief in the structural growth drivers underpinning growth in our packaging businesses, our leading market positions, our well-invested and highly cost competitive assets, our compelling customer value proposition and most importantly, our committed and highly capable people who live and drive our culture of excellence and continuous improvement.

In this context, I'd like to finish by extending my sincere thanks to all our people for their great commitment and energy in navigating the current challenging market conditions and remaining steadfast in pursuing our goal of delivering sustainable long-term value for all our stakeholders.

With that, I thank you very much for your attention, and Mike and I are now delighted to take your questions.

[Operator Instructions]

Our first question comes from Reinhardt of Bank of America.

I just want to go to one of your comments. You mentioned that you won't hesitate to take tough decisions on plant closures. I think you mentioned that a lot of your assets are in the bottom half of the cost curve, but some of them are obviously not. So if we think about rationalizing supply here on the Mondi side, where do you think that incremental closure could potentially come from?

Yes. I think, Reinhardt, -- I mean, as I said, we've got a track record of taking those decisions in order to continue to facilitate the drive for more efficiency. Now typically, historically, a lot of that has been facilitated by our existing plants getting increasingly efficient.

And so we are able to continue to serve our customer with a smaller fixed cost base. And that's something we've continued to do, and we won't hesitate to where the opportunity arises.

And as I mentioned, we've just recently announced and are in the process of closing a further 3 plants that are plants in Hungary, Germany and Turkey. And if the opportunity arises to drive further efficiencies while making sure we look after our customers, is something we'll continue to do.

So the plant network is obviously extensive and it lends itself to those. I think your reference is specifically to the paper mills. Clearly, the most important value driver in the paper mills is your cost position, that's why you see us -- talk so much about the relative cost positioning.

Now those cost curves are not precise. It's -- we take the industry cost curves from the various consultants to get a sense of where we are in that space. Quite a lot of -- because people always point to the 25%, as you, I think, have alluded to that is not in this lower half of the cost curve.

Some of that one has to acknowledge is pretty much in the sort of specialty camp, which in some ways, it's not appropriate to look at it on the simple cost curve analysis. And certainly the margins that we see in those businesses are not necessarily the case.

Clearly, the one asset of ours, which is currently loss-making is the Duino mill in Italy for 2 reasons. One is it hasn't been optimized yet. It only started this year. So we are not yet in a fully optimized position because, of course, as you grow -- as the capacity ramps up, so the unit costs go down and also your input costs get optimized.

So we are in the process of doing that. But undoubtedly, there's also the market dynamic that's at play there. And as I mentioned, swaves of industry capacity are currently loss-making.

The big challenge in that regard is, of course, you would logically see that the more marginal assets should go first. That's at the moment happening to some degree, but one expects more to happen, frankly, if the current paradigm continues.

Duino is a mid-cost producer by the time we are fully optimized on it. And importantly, we also require the security of supply that comes with having some recycled containerboard in our portfolio.

As I pointed out in that slide on the integrated system, we actually remain short of recycled containerboard as a business. While it might not feel like it at the moment, given the oversupply in the recycled containerboard market over -- through the cycle, it is important to have some of your own recycled capacity for security of supply reasons into your box business.

So there's always that strategic element as well. But suffice to say that all the rest of our paper mills are extremely well placed and extremely cost competitive.

That's very clear, Andrew. Maybe if I just flip that question on its head and ask about your capacity at the box level, the box plants. You're driving efficiency, that seems to be a focus right now. But how do you think about maybe some countercyclical consolidation investments? I mean, dividend is down now, CapEx you're pulling back. So there seems to be some balance sheet capacity in the next few years. How are you thinking about countercyclical investments at the box plant level?

Yes. I won't even ask Mike to comment on the balance sheet capacity because I know his answer at 2.6x leverage. I think we're very conscious that we're at the top of where we were comfortable in terms of leverage. And so our focus is very much on driving those self-help actions that we spoke about and being as well placed as we can to serve our customers in the current dynamic.

And we've invested heavily in the business. We know that. And we have the capacity now. We have all the weapons in our armory to compete very effectively in the markets. That's the job to do right now with the assets that we invested in and the portfolio that we have. That is the focus.

Our next question comes from Detlef of JP Morgan.

Just a quick one on your CapEx. If I look at 2025 coming in roughly good EUR 130 million below midpoint of guide, putting down '26 by EUR 100 million. Can you run us through kind of what you've paid back, any specific projects? And has anything kind of been kicked to 2027? Or is this kind of EUR 550-ish roughly okay, ex any growth projects?

Short answer is, yes, we're very comfortable with that number. Clearly, in the current low growth market environment, one, it's not a difficult trade-off to cut back on anything of a significant expansionary nature. That said, there are some pockets of growth that we are still continuing to support, but they're very small and they're within that overall number.

The primary focus at the moment is on in terms of the CapEx program going forward is investing and to make sure the asset integrity is not impeded and, of course, that we do retain the exposure to the upside.

But having invested significantly over the last few years, we're very confident that we can pull back on the CapEx spend without prejudicing the asset integrity and similarly, without prejudicing the exposure to the upside.

In terms of what we might have prioritized or deprioritized, that is always that constant work being done to prioritize your CapEx programs and the like. But we are very confident that there's nothing we're doing now that, as I say, either prejudices asset integrity or indeed limits our exposure to the upside in the near term.

Clearly, if we see markets starting to show real recovery in terms of -- from the demand side, there might be some other opportunities. And we have a great asset base that we continue to leverage if the opportunities are there, but we're very comfortable operating in this sort of envelope for an extended period of time. We've always said maintenance CapEx, and that's not just -- not just sort of holding on to what we got, but adding some opportunity is in the sort of 100% to 110% of depreciation. So that's what we're operating with this year.

Yes, Detlef, just to be explicit on your 2027 question, we're not stoking an issue for 2027. As Andrew said, we can operate at this 110%. We've got capacity that we've put on the ground that isn't yet full. And in this environment, I think we're very comfortable. We've got well-invested assets and now we need to generate the cash and fill those assets.

Our next question comes from Lars of Stifel.

I'll just start with the big question in terms of where your margins are today, they're obviously down quite a bit on the cyclical pressures and of course, you reinvested in your business with headwinds from starting up, et cetera, et cetera. Where do you think considering what seems to be somewhat structurally higher wood costs that your margins could -- where they should be in some sort of normalized environment?

And just on the short-term comments, you did say kraft paper order books are starting to improve and you're reversing the sort of couple of quarters on price declines. What are you seeing containerboard when it comes to demand trends? And of course, you have spoken to and many others, of course, and it's reality there's been a distress here for a long time. Are you seeing any real signs of this cracking?

I think on the first question, I'm not going to -- I know it's flavor of the month, but I'm not going to give long-term forecasts. But I think Lars, yes, European wood costs are structurally higher than they were pre-Ukraine for obvious reasons because of the restriction or the prohibition of supply out of Russia and Belarus, which, of course, caused prices to go up -- and yes, they've come down to some extent from the peak levels in 2022, but they're still above pre-Ukraine levels.

So I think that is a structural change. At the same time, it clearly affects all players in Europe to a greater or lesser degree, but clearly, everyone is impacted. So the whole cost -- industry cost base has gone up. That's particularly relevant for, for example, the sack kraft grades, which are primarily made, as you well know, in Northern and Central Europe.

And so the relative positioning hasn't materially changed on that. Clearly, where it has changed on a global basis is in, for example, pulp, where as a globally traded commodity, you are competing with other continents where maybe you haven't seen that same level of input cost pressure.

From our perspective, we are -- we are not a pulp player. I mean the only place we make open market pulp of any significance is in South Africa. And of course, there, the wood cost situation is actually relatively improved versus the European cost base.

Clearly, that was the other reason that attracted us to Canada, where, again, in our Hinton mill, the wood costs are extremely favorable compared to Europe. So I think it's in that sort of market where you might have seen a relatively less competitive dynamic. In the kraft liner market, which is the other big grade of virgin product that we make, again all the European competitors have seen similar input cost inflation.

I guess, on a relative basis, people like the LatAm producers have enjoyed a relative advantage. But as you know, they produce their kraftliner out of virgin hardwood grades. You can't add things like recycled content into those grades, which the Europeans and ourselves, in particular, are able to benefit from. So we can offset some of those cost disadvantages on the wood front with the PFR content and the like.

So I think to your point, Lars, it is a relevant consideration on a global basis, but then you have to look grade by grade where you are -- have to compete on a global basis versus what are more regional markets. The question on containerboard, I think you mentioned it was basically twin question on pricing and sort of where is the supply-demand picture, which, of course, are linked.

Yes, I mean, right now, margins across the industry are heavily squeezed. Clearly, the big capacity problem is in recycled containerboard. It's not on the virgin grades. But at the same time, we're the first to acknowledge that the overhang in the recycled grades is putting a cap on the ability to push pricing on the virgin grades because on the margin, there is substitution.

So the question is how fast -- how quickly this overcapacity can be -- can be absorbed into the market. I firmly believe it has to come through a combination of factors. Clearly, the demand side, albeit we're starting to see some okay demand last year, bag, I think the box -- Europe -- box volumes were up around 2 percentage points.

If you look at the industry statistics, that's okay in a normal environment. Of course, it's off a low base because we saw a sharp decline in sort of 2023 into '24, and now it's only rebuilding now.

So you have seen on a trend basis, a low trend growth for the last 5 years. At the same time, the capacity has been coming in on historic trend rates, if you look at it. So that has caused this oversupply.

I do believe it will require further capacity closures to balance. I don't think we can assume that demand in itself is going to do all the heavy lifting here. But as I said in my opening remarks, there's every incentive for that.

Now we are starting to see some movement on that front. It's not these big ticket sort of headline grabbing moves, but you are starting to see closures take place. I firmly believe, as I say, there's every incentive for more closures. There must be huge pain at the high end of the cost curve.

And simply put, the current margins are not sustainable. So if you believe in a structurally growing market, which we do, the current incentive price is not there certainly for new capacity and the incentive is for closures and you've got to believe something is going to -- something is going to change on that front. I hope that answers your questions, Lars.

It does.

Our next question comes from Cole of Jefferies.

I appreciate the actions taken on the cost front, and Mondi has never, like many of your peers, announced separate kind of cost initiatives, but 1,000 headcount, group services pulled back, that's all ultimately helpful for 2026.

I'd just like a little bit more color on the message on costs. You're talking about stable costs '26 versus '25. I'd just like some moving parts there. And then after the input costs, can you give any color on what would be the potential contribution from the Schumacher acquisition and the EUR 32 million synergies that you're trying to achieve in 2026?

And also a difficult one is the contributions from the CapEx projects. I know prices are low and the market is still challenging, but the contribution from the major CapEx projects would be helpful.

Sure. Let me start, Cole, and with the first couple, and then the last one sort of relates to wider market issues, which Andrew can comment on.

Just in terms of costs, just so we're clear, if I take what some would call overheads, we call them fixed costs, we have taken those actions. We continue to take actions on overheads. Large part for us is people costs, some maintenance of equipment, but clearly, that's around assets. Those people actions that we have taken, plus those other efficiencies that will drive through our overhead base will offset, as I said in my words, will offset any inflationary pressures.

So we still have -- we like to pay our workforce that are precious to us, inflation increases, the work we have done will offset that. So I'd expect our fixed cost overhead base to be flat given the actions that we've taken.

I think you also touched on input costs, so above the line direct materials, others might call it.

Again, within that, it's early in the year. I would guide to flat if I was sat here today. Clearly, that will change as the year goes on. But as of today, we're seeing it flat on 2025. Why is that? We're seeing some headwinds. There's less energy emission credits in various forms from governments. I think you've heard the rest of the peer group talk about those.

For us, that's about EUR 60 million headwind on energy. We'll work hard to offset that. We've got some other cost categories coming down still, which I think reflects sort of a pretty lackluster economy, things like chemicals are still coming down.

And then within wood, we've got some ups and downs. We've got Scandi Wood coming down, Central Eastern European wood going up. I would say the ups and downs are much smaller than they've been. I know we're in a much more volatile world. So I don't want to diminish a sort of 20% up and 30% down, but those movements are much smaller ups and downs than they were 2 years ago or frankly, that they would be if economies recover.

So I think what the puts and takes to give me confidence to guide to flat is the puts and takes are probably a bit either way, and we're working hard internally to offset those energy grants from governments in various forms. So best guidance is flat on input costs [ goal ]. I hope that's a bit of color within the categories that you're after. And Andrew, in terms of markets and volumes.

Yes. So I think just adding to the cost story, I frankly prefer our procurement guys to be struggling a bit more because it generally means an economic pickup, which puts more pressure also on input costs, but that's a far more favorable environment than sadly the one we continue to struggle with the geopolitical and macroeconomic backdrop that we see.

But still -- but coming back to, call it, the self-help [ goal ], which is very much also linked to the CapEx program. I guess it can be divided into 2 parts. The one is what is within our control and the other, which is clearly the market dynamic that we're selling into. And of course, the 2 are somewhat interlinked. But if I look at it in broad terms, on the big upstream capacity expansion, we've probably got another 300,000 tonnes to come this year from ramping up the projects.

Now about half of that is Duino, which I think I've already explained to you. Clearly, in the current paradigm with the current recycled containerboard price, you're not seeing a big contribution on those extra tonnes at the moment. But as I said, it's -- the focus there is very much driving the productivity improvement.

And of course, that also has benefits on cost optimization and the like. For the rest, it's obviously very valuable tonnes even in the current difficult environment because it's expanding both the virgin capacity out of Swiecie and Kuopio and also the sack kraft production out of the PM10 in Steti. And I remind you, last year, we took down the Stambolijski mill.

So this incremental capacity for the market is really absorbable. And again, we're excited by the underlying growth we see in our bags and other applications for our kraft paper. So very confident that, that can be placed into good markets. So that's where a lot of it comes from.

In terms of the absolute contribution, the big challenge here is what is your pricing assumption, particularly on the paper grades, which is what we're saying is this is going to support our volume growth in 2026.

We think we can for all of those reasons grow above market. The absolute pricing will obviously determine exactly what the contribution is from that. But this is good low-cost tonnage that we are bringing into the market.

And similarly in the converting businesses, again, there is always a much closer interplay with the market dynamics and the capacity -- putting up the capacity is the easy, but getting it into the market at the right price is something which obviously is also a function of the overall market conditions.

Again, though, I think we've got all the tools to be able to grow above market in the key markets where we've increased capacity, and that includes the Schumacher acquisition, which as we said at the time, also comes with effectively some latent capacity, which it's incumbent on us to grow into the market, and we're very confident we can continue to do that. I think a very exciting area for us is that e-commerce area where, as I said in my opening remarks, we do have a fantastic and unparalleled breadth of portfolio there that is genuinely what our e-commerce customers are buying from us across the platform.

I think I've got an example of the protective mailer behind us and the like. These are all products which are combining expertise in our Corrugated and our Flexibles business, which is fantastic. And that's why we brought together the sales team that can talk as one voice for all our offering across our Flexibles and Corrugated business.

And then just as a follow-up, bringing the CapEx down to EUR 550 million is -- it's a strong effort considering you had commitments for the major projects as well as the recovery boilers. Could you just break down that EUR 550 million CapEx number because reducing it to that level, I know must have involved a lot of work.

Yes. I mean just to be clear, we're not making any -- we're not investing in a new recovery boiler at the moment. Those things are properly expensive. We've got a few -- I think you're referring to just biomass boilers. Firstly, just to be very clear, those are all in the numbers. So there's nothing on top or anything like that.

No, I mean, as I said earlier, we feel confident we can do this. Yes, I mean as you rightly say, when you work across the organization, it's always a challenge because everyone's got essential CapEx, et cetera, and great -- growth opportunities and the like. But we are extremely confident that we are managing this CapEx at a level which doesn't impair the integrity of the asset base, it doesn't store up a problem for later because we're not believers in that.

We believers in building a long-term sustainable business. But at the same end similarly doesn't prejudice the upside as and when it happens. So yes, in short, we are very confident. It does still allow us to make those important investments in, for example, these biomass boilers, which are very important, both in terms of -- because there is a stand business element, some of these -- the existing capacity is end of life. But as importantly as that, it also gives us upside in terms of cost opportunity and importantly, CO2 reductions and things, which are very important for our customers.

Our Scope 1 and 2 emissions is our customer Scope 3. They are very focused on that. It is a genuine selling point and a very important value for them. So these are very important steps and -- but that's all included in the numbers we guide to.

Our next question comes from Andrew of UBS.

So yes. You have some relatively encouraging comments about the kraft paper market. Can you just point to like which pockets of demand are sort of starting to come up at the moment?

Are you seeing more growth in export markets? Is it specific customer segments within Europe? Like what's the moving parts? And how much do you put down to kind of a restocking dynamic after last year's destock versus like a fundamental underlying improvement in trend?

And how do you see the rest of the year, given we've obviously got some infrastructure investments coming through on the cement side and things like that? Can you just talk through that dynamic, if that's okay?

Yes. As I said in my remarks, it is a bit confusing this seeming disconnect between bag growth because bags use sack kraft and relatively soft picture in the kraft paper markets in 2025.

Actually, if you recall, 2024, it was a bit of a reverse. It was the other way around as the kraft paper markets were stronger relative to the underlying bags. But to me, first and foremost, you look at the end users, which is the bag demand, and it is encouraging that last year, as I said, we grew 5%.

If you look just at the European market, the industry numbers tell us that it was about a 2.5% growth market in Europe. North America seems to have starting to show some growth as well now, which is encouraging.

Again, we were growing strongly in North America or the Americas, but it's mainly North America for us, it's Mexico and the U.S.

And then, of course, important markets for us are also Middle East, North Africa, which always some volatility in those markets in individual pockets of that, but if you take it as a whole, again, some good growth.

So, when I look at last year's contribution to the bags growth, it was everywhere contributed. On top of that, we obviously, as I mentioned, got these new sources of demand for the likes of -- I mentioned again, the e-commerce mailer bags and things like that, a nice extra area of growth. I mean, the core of that business remains in the industrial space, but these sort of applications are coming through which both support the growth of our converting business, but also, of course, demand for the paper grades.

So that is -- that has been a picture of 2025, and it's certainly continued into '26 in terms of a decent looking demand environment for our bags. It seems as though having, as I say, having been a bit softer into the second half of the year with the kraft paper volumes.

We did see that in our order books into the Q4. I think we cautioned about that in Q3 numbers. And certainly, that did continue into January, we shouldn't -- we generally not saying it's sort of 1st of January, suddenly, things changed. But certainly now, we are starting to see that good position in bags, translating into a certainly stronger order position in the kraft paper business.

Yes. And on the back of that, we're in currently in the market for price increases. I hesitate to say -- remind you that this is very much recovering the pricing erosion we saw Q4 into early Q1 this year.

Yes. That's clear. And just a second question on the ramp-up of projects. I mean, I remember when you acquired Schumacher, it was running at roughly 50% utilization after a large plant came on. Can you give an update as to sort of broadly where that is and maybe also where Duino is running at just so we can understand how that kind of movement in board versus sort of board demand internally sort of evolves as we go through this year?

Yes. Duino is easy because it's much easier to measure capacity in the paper machines. I think I said earlier, we could expect another 150-odd tonnes production -- incremental production this year out of Duino if we run full.

In terms of the Schumacher market capacity, I mean, again, it is also a function of the overall market. So clearly, we are confident we can grow above market because I say we've got a very strong base on which to believe that in terms of the asset base that we have, we've obviously invested now in growing the commercial infrastructure to support the growth of that business in that Northern European region.

But we have to also acknowledge, when I mentioned that box demand growth across Europe was 2-ish percent. That does mask quite different regional growth rates. Clearly, Southern Europe, Spain was the a star performer, where unfortunately, we don't have direct box exposure.

We do obviously sell containerboard into that, so that's helpful, but it's not direct exposure. Our direct exposure in the box business from a European perspective is very much Northern Europe -- and Northern and Central Europe.

Clearly, Germany, I think box demand was probably 0.5 percentage points or something growth last year. The overall market remains slow and we are working in that context.

So we have to be realistic about what we can do in the short term because what we don't want to do is chase volume at the expense of margin that would be stupid in a very short term -- shortsighted because we're here for the long term, so we must do it in a structured and systematic way, but we're very confident in the capability we have there to continue to grow above market. So that is the primary focus in terms of how we grow out and fully utilize, as you say, the underutilized capacity we acquired as part of that acquisition.

I think we've got time for one more, and we're probably over time, but I'm happy to take one more.

Yes, we'll take our final question from Kevin of Deutsche.

If I could sneak in 2, if I could. The first was on your guidance for downtime and the impact on EBITDA this year. I just presumably, that's weighted very much towards the Corrugated Packaging segment, but I just wondered if you could sort of help us think about the sort of weighting by segment and cadence we might expect during the year?

And just if I could sneak in a second quick one. There's clearly a number of elements in the numbers today addressing capital allocation decisions. And I think you signaled in your piece earlier, Mike, that it's your leverage is sort of the higher end of where you're comfortable with, I guess.

I just wondered what you're trying to signal today in terms of the time frame you might get that leverage to a bit more of a comfortable -- a more comfortable position for you guys. So any color on those 2 would be great.

Sure. On maintenance, to keep it simple, it's about the same as last year. We've guided to about EUR 100 million, EUR 20 million first half, EUR 80 million, 2nd half. I think you should assume the same split. Yes, on leverage, listen, I don't think you should use the phrase uncomfortable with where we are. I think it's at the top end of where we'd like to be to have that financial flexibility.

And you've seen a number of measures that we continue to take through last year and into this year around working capital, around cash generation of the assets, around spend on CapEx.

I think that's just prudent financial management in the current economic environment. How quick we delever. It depends on 2 things. One is the net debt. I don't want to be sort of flippant. That's the one that we can control to an extent in terms of the cash that we consume and the cash that we choose to spend as a business.

And then the other one is EBITDA, which actually on a math basis is much more powerful in reducing your leverage that, as Andrew has said, will be a function of both the actions we take, but also how the market operates, over the coming period.

Clearly, if price moves, you deleverage very, very quickly. We're not waiting for the markets to move. We're taking control of our own actions there. And I think you've seen that today. I think you'll continue to see it, as I said earlier, it is what Mondi does. Hopefully, that answers your question.

Yes. That's really helpful. Apologies for the difference in wording, I guess, but you get that.

No, no, not at all. I just want you to understand.

Very good. And with that, we've taken up more than, more than -- a lot of time. So I really appreciate the interest, as always, Fiona and team are available for any follow-up questions. And for those of you we look forward to seeing you in -- on the road shows over the next few weeks. So again, really appreciate the interest.

I think in summary, we know the world is difficult out there. We are not standing still in that environment. We are seeing good growth in some of our core businesses. We're supporting that with the right actions to make sure we're extremely competitive in any environment and was really good positioning for the upside when it comes. So I really appreciate your interest, and thank you very much for your attention today, and goodbye from us.

Thank you.

Good morning, everyone, and thank you for joining today's call at short notice. As I said, I'm Andrew King, Group CEO; and with me is Mike Powell, our Group CFO.

As you will have seen from our statement, the challenging market environment we spoke about at our half year results in July has continued through the third quarter. This resulted in an underlying EBITDA of EUR 223 million for the quarter. Across the period, we saw subdued market demand impacting sales volume in the upstream pulp and paper businesses in particular. And since we last reported results look at results at end of July, we've also seen further pulp and paper price declines across most grades. Our packaging converting operations delivered a stable performance when compared to the prior quarter.

Despite this difficult backdrop, challenging trading conditions are expected to persist for the remainder of this year as demand side confidence remains fragile. Furthermore, key markets remain in oversupply and current selling prices are lower than the third quarter averages.

While we remain confident in the structural drivers underpinning through cycle growth in our packaging solutions, we are equally cognizant of the impact of the current prolonged cyclical downturn on near-term performance. In response, we have intensified our focus on operational efficiency, cost control and cash generation, mitigating the impact of the current softer markets while ensuring we are well positioned to capture growth and deliver enhanced returns when favorable conditions return.

In this context, in the six months since completing the acquisition of Schumacher, we have identified an additional EUR 10 million of cost synergies, taking the total identified synergies to EUR 32 million.

As a further step to streamline our organization, facilitate cost takeout and drive synergies across our pulp and paper businesses, in particular, we are combining our Uncoated Fine Paper business with our Corrugated Packaging business unit. Going forward then, we will be organized into two business units, enlarged Corrugated Packaging and Flexible Packaging, which remains unchanged.

All our capacity expansion projects are ramping up, and we remain confident that we -- that they are cost competitive, deliver significant integration benefits and once fully optimized, will deliver mid-teen mid-cycle returns. However, near-term profitability is influenced by prevailing market conditions, meaning the net incremental contribution to full year 2025 EBITDA is now expected to be around EUR 30 million.

We are ensuring that all ongoing capital expenditure is focused on stay in business and cost optimization opportunities. As you will know, the remaining major capacity expansion project we have been working on is the new sack kraft paper machine at our Hinton mill in Canada. We have decided to put this project on hold, but we retain the full optionality to invest when market conditions improve.

We are confident these steps will enable us to navigate current headwinds, build a stronger, more efficient operating platform and drive free cash flow. This will protect value today and enhance returns when market conditions improve.

With that short introduction, I'm happy to take questions. Mike and I are both here to take questions. So we'll hand back to the operator. Thank you.

[Operator Instructions] Our next question is from Charlie Muir-Sands. Charlie, please unmute and go ahead, ask you question.

Can you hear me okay?

We can. Thank you Charlie.

Great. So, I had two, please. Firstly, you talked about increased focus on costs and actions in that regard. I just wondered at this stage, whether you had any particular program in mind and whether there was going to be any specific quantum of additional cost savings that you would be aiming to target and if there would be any kind of onetime charges in order to implement those changes.

And then the second question relates to the weakness of demand. I think you said demand in your packaging operations was stable. But so it sounds like it's weakness in -- you obviously mentioned pulp and paper, but also sort of packaging materials, packaging papers themselves. So do you get the sense that there was an element of destocking amongst your customer base going on or they exposed to end markets which are different to own converting operations and therefore, there's uneven weakness out there?

Thanks, Charlie. On the first question, so, I mean, clearly, we have a philosophy around continuous improvement. That being said, clearly, at times like this one looks to accelerate wherever possible around the cost takeout initiatives. We are working through a number of programs, some of which are very much call it shop floor led. Part of the rationale, and we'll talk about it around the reorganization of our business units is about driving very much a shop floor, and efficiency and productivity excellence initiative. And simply put, it's easier to run those sort of things out under one umbrella.

So we are doing those sort of programs, which, of course, are somewhat longer term in nature, but we are very confident will continue to take us to the next level of operational efficiency. I think we are good at it, we can get even better. It doesn't per se mean any one-off costs associated with that. Really to the extent we look at any further cost takeout opportunities, there might be some one-off costs involved, but those are difficult to quantify at this stage, and we are working through those programs at the moment.

On your question on the demand side softness, and I think it can't all be subscribed to a destocking. So you're right in that the underlying -- sorry, the converting business has held up pretty well from a profitability perspective. But undoubtedly, there's a fight for share in those markets where demand -- it's not -- it's not falling off a cliff or anything like that. It's just been grinding along in a very subdued manner. And that has caused intense competition. And of course, that has impacts on margins, but volumes are okay, but certainly not in any kind of rebound phase at this stage on the demand side at the underlying converting level.

Where we are seeing softness, of course, is that translates across the value chain and up into the paper businesses. So we have been taking some downtime in our paper businesses, which, of course, has profit implications because you're carrying a big, fixed cost base. But that is a necessary response to what remains a very subdued demand-side environment and clearly coupled in certain cases by oversupply problems with the capacity expansions, particularly in the recycled containerboard space as everyone is well aware. So it's really that combination, but I wouldn't put it down to a destocking effect. I think it is a general market softness throughout the value chain.

Our next question is from Lars Kjellberg at Stifel. Lars, please unmute and go ahead, ask you question.

I just want to come back a bit just to understand what you said about demand. Did you see a sequential weakening market in the third quarter versus Q2?

Second question is about the maintenance shuts you talked about extending them. But can you give us any sense of, call it, the maintenance costs in the quarter and what you expect to have on the balance of the year?

Also FX, does that play a role here? There's been some significant movements, of course, the dollar has been particularly weak. Does that play a role?

And the final question is about the restructuring that you talked about merging the Fine Paper business with the sort of Corrugated Packaging business. I guess there is some overlap in Ružomberok and Richards Bay, but from the outside, of course, that reduces the visibility in your earnings base. So what are the real benefits from bringing those two businesses together?

Thanks, Lars. Let me start with your second and third question on maintenance and FX. So, on maintenance, we have extended the shuts due to the subdued demand situation. At the half year, I guided there would be about EUR 40 million in Q3 and EUR 40 million in Q4. We took about EUR 50 million in Q3, and I would expect the same roughly number in Q4. So maintenance shuts up EUR 10 million in both quarters.

In terms of FX, yes, the dollar continues, as you say. It's probably, again, in around probably EUR 5 million. It's always a difficult number because we sell in a number of currencies that sort of dollar pegged. So the bigger issue is the wider economic impact of the dollar and the economic policies behind it. But in the quarter, it's probably a EUR 5 million impact. As I say, it's quite a difficult number to really pin down, but it's of that order, Lars. Andrew?

Yes. And I'll just add on the currency story, Lars. I mean, clearly, it has a bigger impact in a softer demand environment because invariably, what happens is to the extent your core home markets are softer, that invariably means you typically export a bit more. And of course, exporting into a weaker dollar pricing has negative mix effects. So it is an important driver in that context, probably more so than the straight transactional exposures that Mike referred to.

Just in terms of your first question on the demand side weakness and is it -- how much does look sequentially? I mean, firstly, very clearly, as you can imagine, it's only just the beginning of October. We don't have all the industry numbers. So it's always dangerous to just quote our numbers in isolation because, of course, we don't know how the market shares and the like have been moving over this period. I don't suggest it's got materially worse, particularly in the packaging side. It just hasn't got better. And I think July was a relatively weak month for the industry. If you look at the industry stats, as I said, I don't think we've got August and September, they haven't been published. So, simply put, we don't know exactly what the industry numbers look like. But I would just suggest that there's been this continued weakness on the corrugated side, which that hasn't got worse, just hasn't got better.

Fine Paper, I think, I mean, you saw a sharp decline in demand over the first half. That certainly hasn't recovered into the second half. And frankly, there's an intense fight for share in a shrinking market that's taking place at the moment, exacerbated by the weak pulp price because, of course, the weak pulp price flattens out the cost curve, gives more oxygen to the higher cost unintegrated producers, and that is now translating into margin pressures as pulp prices having come down and they exposed directly to that on the long pulp position, but also the impact on paper prices.

In kraft paper, again, if you look at the underlying bag demand, it's okay. Kraft paper demand in the first half was quite weak, and I think that's continued in the second half. And again, that is now putting pressure on pricing and that probably is new news relative to what we have seen at the half year.

And, sorry, and then your last point on the reorganization of the business units. I appreciate there's the external reporting issues there. But very clearly, we report as we run the business. We've run on a value chain basis, and we think that, that's appropriate because that gives the necessary customer focus the necessary speed and response of innovation and development, and we've got a lot of exciting work that we are doing in that regard and we'll continue to do. But at the same time, we recognize that having our pulp and paper operations in three different business units adds a degree of complexity. And the reality is the two biggest operations in uncoated fine paper are mixed-use mills. It's Ružomberok in Slovakia, which produces both containerboard and fine paper and it's Richards Bay in South Africa, which is actually not even a fine paper mill, it's pulp and containerboard.

Frankly, it makes sense to run those under one system with combined with the big containerboard operations, obviously, Swiecie being a flagship there, Duino, Kuopio and the others. So it really facilitates, frankly, from an operational perspective, driving best practice across our pulp and paper mills. As I say, we are implementing at the moment a shop floor operating system. And I think that exercise in itself showed up some of the additional complexities we had by having, as I say, those mills in different business units, and this simply allows us to be much more efficient in driving those processes, driving also -- and driving our businesses to the next level of operational excellence. So that is the motivation behind it. Obviously, that also allows some streamlining of the corporate overhead and assuring that we're ready to faster and more agile than we've been before.

So it's for all of those reasons that we are combining those two businesses into this reorganization. And you've got all the history of the two businesses, simply put, if you add those two numbers together that you get the combined business. So it's very easy to compare historic performance versus what we will be reporting on going forward.

And just to add finally to that, clearly, the direction of travel for our growth is in our packaging businesses, and that's where we invest in for growth, and that's where we'll continue to do so. So those are the reasons we did it. I appreciate that has a reporting implication, but no doubt Mike and Fiona will help you understand the respective numbers there.

Thank you, Lars. Operator?

Our next raise hand is from Brian Morgan at RMB Morgan Stanley.

Two questions, if I may. Andrew, in the past, we've spoken about kraftliner imports coming in from the U.S. typically when the dollar is weaker. Are you seeing that this time?

Yes. So, definitely, as you said, there typically is some kraftliner coming from the U.S. most of the time. You would have expected maybe more with the current dollar weakness. But in a sense, I think that is not happening simply because the positive on that side is really the closures in the U.S., I think, have tightened up the U.S. market. And rightly, I think most of the U.S. producers saw exports as not being where you should sort of structurally position yourself.

And so I suspect a lot of the capacity reductions have targeted reducing their reliance on exports, and that's probably manifesting in the fact that despite the weaker dollar, you're not really seeing a big surge of imports that you might have expected in a different world.

That's good. Thank you, Andrew. And then the question is on dividend, if I may. So quite a bad free cash flow negative situation this year, obviously, with all the projects that you spent on, and I suppose they're all in the rearview mirror now. Is the dividend from last year still intact? Or should we be thinking about a lower dividend year-on-year?

No, Brian, I mean, I think you said at the half year, and we always look at the dividend at the end of the year. As a Board, we'll do that again. Clearly, you've seen in the release and Andrew's commented about the focus on cash. The CapEx number for FY '26, at least the guidance I've given out, and you've also heard us talk about Hinton today, which clearly means that, that cash that might have been penciled in for FY '27 isn't going to flow out now. And clearly, the internal focus is very much around cash delivery.

So I think we'll look at it in the round as we always do. We've got a good balance sheet still. Clearly, the net debt is controllable to some extent. And the EBITDA moves around as we've seen over the last, frankly, three to four years. Our job is to, as you say, focus on that free cash and the capital allocation within it. And for the dividend, we'll have a look at it at the end of the year. It's an important part of our capital stack, but we'll clearly, yes, we'll have a look where the economy is towards the end of middle of February probably.

Very importantly, as Mike says, on the CapEx, we, in a way, have the luxury of being able to pull back without mortgaging the upside that we are confident will come. But clearly, here and now, the focus is very much on stay in business CapEx, cost optimization. But clearly, the capacity is in. It's now about fully utilizing that.

Our next question is from Cole Hathorn at Jefferies.

Can I just follow up on the major CapEx projects, the guidance now moving down to EUR 30 million contribution. Is there any color you can give on to 2026?

And then similarly, I know it's early, but I'm sure you're starting to think about the 2026 year. Could you start talking about some of the positive moving parts in what will be the sequential contributors to EBITDA for 2026 from here?

Yes. Cole, it's Mike. Just on the first one, I mean it's pretty difficult, because of course, it relates to the second part of your question. I mean, very simply put, if you think of the projects, we're very sort of pleased to where we got to in terms of the build and the ramp-up. Clearly, the commercial and the pricing is the issue. That's the issue across the whole of the business. And of course, those projects are probably 20% of the capital employed of the group. So they get affected just as the rest of the group does. So it will depend on the dynamics into 2026, what that number pans out to be.

Andrew, do you want to touch on thoughts around next year?

Yes. I think, Cole, it's -- I mean we're in a world which is extremely difficult to predict at the moment. I think everyone felt that at the beginning of this year, there was some upward momentum. I mean we were certainly seeing it in the pricing dynamic. We were seeing it in frankly, the volume dynamic as well.

What gives me confidence is we are still seeing good volume growth in our converting businesses, albeit not what we were anticipating earlier this year. And clearly, as always, packaging consumption is a function of the macroeconomic backdrop and Europe, in particular, remains very muted.

I think the big question is what changes in that regard. And clearly, if one started to see some consumer confidence returning, some manufacturing confidence returning, that can change things quite quickly. But that is clearly the single biggest driver in terms of relative profitability from one to the next. We are extremely confident that the structural growth dynamics that underpin our packaging offerings remain very much intact. And we're simply in the middle of what is really a very prolonged downturn and one traces this downturn back to kind of end of '21 into the middle of 2022 when the demand side started to soften. And really we've been in a very protracted period now of slowdown.

So, clearly, that is the single biggest driver behind what might impact the year-on-year profitability. We caution that going into Q4, we're not seeing anything on that front at the moment. And so hence, we have to be cautious about the short-term outlook. But again, we are very confident in the medium-term growth dynamic in the packaging businesses that we are well invested in and have exposure to the upside. In the short term, clearly, our job is to make sure we do all the things we've been talking about around controlling what we can in terms of the driving costs down, driving productivity and ensuring we are best placed when the world does recover.

Clearly, in terms of the near-term bridges, it's very difficult to say at this point. But obviously, as Mike already said, on the CapEx front, it is a function of how the market develops in addition to the self-help, which will always naturally come as we ramp these things up. The likes of Duino, in particular, is very much still in ramp-up with all the costs associated with that. You get a big, fixed cost base before you get the full benefit of the volumes coming through. So we still have to optimize all of those sort of investments from a ramp-up perspective.

And then, of course, we also are doing all the work on the Schumacher integration. You saw the synergy -- the hard cost synergy number. That is the primary. The big focus at the moment in addition to the commercial ramp-up, which is critical.

And yes, and then going forward, obviously, things like shuts, et cetera, as Mike already said, we extended some of those shuts this year where in a better market environment, you wouldn't do that. And off the top of my head, I don't think I can point to any material change in our planning around the actual technical shut component.

So, yes, in short term, Cole, I know it's a difficult one, but it is a function also of what one sees around the macroeconomic spectrum.

And then maybe I'll just ask on costs. Is there anything that you're calling out from kind of a cost bucket or wood or anything like that, that you can highlight? And then I know demand is something that you can't control, but we have seen across the industry, including all the Nordics players, we've seen some of the smaller guys also extend and take commercial downtime in a lot of their facilities. Do you think we're finally at a point now where the industry just has to close capacity?

Yes. But, I think -- was your question on input costs, I think it was.

Yes, input costs, first.

Sorry, I know that's a sort of Mondi terminology. Yes, on our input costs, it's played out as I expected at the half year. The environment is pretty benign. So pretty flat on input costs, which I think, again, gives you some sign that the economy, particularly around Europe is flat. We have seen some relief obviously, on PFR. And I also said at the half that our own initiatives, if you like, to be more competitive and buy better than the competition are coming through.

So the second half is panning out as we thought small positives, but frankly, we'll take those right now. Because we need to work on it. Andrew?

Yes. And on the capacity closures, I mean, absolutely, there's huge pressure right now. And frankly, every -- the industry profitability levels more broadly are such that there's every incentive for closures. Clearly, the one that gets most visibility is recycled containerboard. I know everyone has their own calculations, but you can easily see 30%, 40% of the industry right now is cash negative, I would say, in terms of if you look at the cost curve. That is clearly not a sustainable position.

We, as you know, there are some -- there have been some movements in that regard. I suspect there needs to be more and there's every incentive for more capacity closures on that front. As you would expect, we always look at our own portfolio in that regard, but that are well positioned on the cost curve. And also, we have a big virgin position, which is a different dynamic. It's not really a cost dynamic -- sorry, a supply side dynamic other than the knock-on effect of the overcapacity in recycled containerboard. So there's huge incentive for closures. There's every reason to believe there should be more closures and the longer the situation currently prevails, pressure there is for those closures to take place.

And in other sectors, I would say, in this kraft paper, it's a different dynamic. Clearly, that's a market where you do have the big industrial exposures, which clearly have more cyclical pressures than typical consumer applications. And so there, I see it far more as clearly a demand side cyclicality issue. At the same time, it's incumbent on us to manage based on what the market is currently doing, we are, as I say, doubling down our efforts around cost and productivity and the like, as you would expect. And responding to the market conditions in the most agile way.

So, and then maybe finally on the Fine Paper side, clearly, as I said earlier, the cost curve in Europe has flattened out given the decline in pulp prices. That is still a big factor in your ability to drive margins in the Fine Paper business in Europe because when pulp prices go down, the high-cost unintegrated producers get some relief. But unfortunately, at the moment, all that means is there's a competition for, say, the smaller market that now exists given the demand side pressures. So, that is also, I think, causing a lot of -- it is undoubtedly causing a lot of margin pressure across the industry, and I wouldn't be surprised to see if there will be more on that front as well. So, yes, I think that's in a nutshell where we see this.

Our next raise is from Pallav Mittal at Barclays. Pallav, please unmute and go ahead.

So a couple of questions. If I recall correctly, at the half year results, you were saying we could potentially see the spread between kraftliner and testliner widening. And if I look at the indices, kraftliner actually has been more stable than testliner over the last few months and has not declined as much. But you're talking about declining selling prices. So are you saying that these indices are not capturing the actuals and are lagging behind? So that's the first question.

And then secondly, just if you could confirm on your forestry fair value gain for the full year. Do you still expect around 60 million, the long-term average for the full year?

Yes. Thanks, Pallav. The fair value, I mean that's my best guess today. We booked EUR 20 million in Q3. I would expect about EUR 20 million. It is a variable number, I have to say, depends on growth rates, oil prices, et cetera. So it's -- as we know from history, it's a pretty volatile number. But here today, if everything doesn't change, which is quite, I expect another EUR 20 million. But it is a best guess, and it's a volatile number depending on a number of factors, which at balance sheet date. So it's a calculation of the balance sheet. But if you want to plug a number and plug that in, but it's a variable number.

Yes. And on the kraftliner, testliner spread, I didn't follow the exact end of the question, but I think the question was very much in the face of the testliner declines, what's been happening with kraftliner. Yes, the fact is the spread has widened. But at the same time, kraftliner prices have been coming off.

I think if you look at the kind of index data and things like that, you're probably looking at over the last three months, something like EUR 90 a tonne of-ish testliner price declines, kraftliner in the order of kind of EUR 30, and I stress that's the benchmark pricing. I mean we're not going to obviously give our own pricing.

So, yes, kraftliner held up better than testliner as one would expect given the supply side dynamics that exist in the two different markets. But at the same time, there is, call it, substitution between the two on the margin and the supply overhang in testliner has had some impact on the kraftliner prices, albeit they are more resilient. And so that's really the dynamic that's played out in the short-term on the tin kraftliner spread.

Thanks, Pallav. Operator?

Our next question is from James Twyman of Prescient Securities.

Thank you very much for the call. Can I just focus a little on the sack paper business. Prices have been holding up very well. It looks like they were flat in Q3. So I think the new information you're coming out with today seems to be about sack paper prices now starting to fall, which would imply that's more of a Q4 factor. Could you talk around that and whether the fall is sort of marginal as you're seeing in some of the other paper grades or whether it is significant for Q4?

Thanks, James. Yes, I mean the -- as you know, sack indices only come out kind of once a quarter, so you don't see the real price, real live pricing, for lack of a better term. There has been some price erosion through Q3. Again, one has to be careful to generalize because obviously, different markets are differently impacted. But there has been some price erosion I mean, if you look at it from the peak and as you well know, prices were going up through the first half of the year, and then they've been coming down a little bit in Q3 and then getting into Q4 as well. From peak to now, it's kind of EUR 30 to EUR 50, that order of magnitude price declines. But obviously, the peak was only there for a short period of time.

So those indices, they look more -- make the market look more stable than it is, particularly in the current environment where clearly pricing is much more dynamic than a typically more stable operating environment.

If I could just quickly follow up. Regarding the merger of these two divisions, what sort of -- there must be obviously a reason for it, which must be reducing costs. What sort of scale of cost are you thinking? I mean my impression must be that it's pretty marginal looking at the assets there.

Yes. Yes, I think, James, I spoke hopefully at length about the rationale for that reorganization. It's not simply a headline cost takeout thing. It's about driving the operational efficiencies across particularly the pulp and paper operations.

As I said, we have the two biggest operations in Fine Paper are actually mixed use. They essentially report into both business units and simply put, it's much easier for us to run it in a single business unit and drive all the important initiatives around, as I say, shop floor, operational excellence programs and the like, where clearly, there's huge commonality across those different pulp mills because the papermakers would hate me stuff for saying this they're taking wood in one end and they produce a paper out. The other one of them is white the other is brown. I don't want to belittle that because, of course, then when you sell it, it's sold into very different channels. And of course, we fully respect that, and we will be continuing to optimize our sales channels into the respective different customer bases.

But importantly, I think there's an opportunity for us to simplify the structures to drive further improvement in our operational excellence, which is the lifeblood of particularly the pulp and paper mills.

We now take our final question from Lewis Roxburgh at Goodbody. Lewis, please unmute and go ahead.

Just two questions for me. Just on the capacity ramp-up, just is everything progressing as planned in terms of getting those assets fully operational. Just wondering if you're starting to see the efficiencies come through there? Are the costs as expected and maybe some of the benefits of going through this investment under weaker market conditions?

And then just secondly, just on the moving parts in Q3, just breaking out the performance of corrugated and flexible packaging and whether that changes anything from a long-term standpoint, particularly in light of the dynamic of oversupply?

Yes, Lewis, just on the capacity, no, I mean, the sort of technical builds are behind us. Clearly, it always takes, I think, in the best of world, two, three years to optimize the ramp-up of production. Clearly, when it comes to optimizing, call it, the commercials around that, it's that much harder in a difficult market environment.

By that, I mean, you introduce volumes into markets which are maybe further away than your core markets, and that has an impact on net delivered price over and above whatever the benchmark price is doing in the local markets and further to those discussions we had earlier about the FX effect, those sort of things also play into it. So that's very much the focus. And of course, then the cost structure itself needs to be optimized over time because, again, you don't just turn these things on and all the costs are fully optimized. So we are working on those. At the moment, we're working on obviously developing out the commercial offering alongside the technical ramp-up that takes place.

So, that's we focus very much on the paper machines in the converting businesses where, as you know, we've also invested. Again, we're very confident in the technical capacity and the like. Again, it's about making sure you bring that volume into the markets in a sustainable and disciplined way, and that is what we are currently working at the moment. But very clearly, we make bones about the fact that, that is a particular challenge in what is this current long downturn, and hence, the reason we pull down the expectation in this year at least for the earnings contributions from those projects.

And then finally, this is a trading update. We're not going to give explicit sort of breakdowns by business segments in terms of the profitability. But having said all that, I mean, as we said, the packaging businesses, the converting businesses were actually flat half -- I mean, sorry, quarter-on-quarter on a sequential basis, which I think in the current environment is actually all credit for achieving that. At the same time, the paper business is, yes -- sorry, the packaging paper business is not where they should be. But at the same time, one fully understands it in the context of a very difficult market environment.

Fine Paper, we are aware of the structural challenges. And of course, the current economic downturn has only exacerbated that in the short term, there is intense competition that is putting pressure and coupled with the pulp prices, which came off it is somewhere around EUR 200 a tonne over the last couple of few months.

Now there is -- it seems as though there's a bit of a floor there. And as I'm sure you've seen some of the bigger Brazilian producers are pushing price increases at the moment, and we'll see how that unfolds over the coming months. So I hope that gives some color.

Very good. Well, I think we've taken enough of everyone's time. I just wanted to finish by saying, clearly, in this current world, we remain relentlessly focused on margin management, on cost optimization and these continuous improvement initiatives to protect our value today. But importantly, I also want to stress we do remain well positioned to benefit when conditions improve. We have a low-cost asset base, very well invested and broad product offering and with our fully integrated business model, this continues to provide resilience even in the current environment and opportunity in the long term.

So, with that, we remain extremely confident in the long-term sustainable growth fundamentals of our packaging businesses and our ability to deliver for shareholders.

So, with that, I thank you very much for your attention. If there's any other questions during the day, please feel free to reach out to the team who are available throughout the day. So, thank you very much, and we'll close the call then.

Good day, and thank you for joining us Mondi, a leader in sustainable Packaging and Paper Solutions results for the 6 months ended 30th of June 2025, presented by Andrew King and Mike Powell. [Operator Instructions]

I'll now hand over to host today, Andrew King. Andrew, over to you, please.

Good morning all, and welcome to Mondi's results presentation. I'm Andrew King, our Group CEO; and I'm joined by Mike Powell, our CFO. I'll be providing some highlights before I pass on to Mike for an overview of the financial performance. I'll then finish with a progress update on some of the important strategic initiatives we are taking to drive sustainable value creation. After that, Mike and I look forward to taking your questions.

In summary, I think we believe we delivered a solid performance in the period in what are and will continue to be, in our view, challenging market conditions. Ongoing geopolitical and macroeconomic uncertainties continue to undermine consumer and business confidence, impact trade flows and effect relative competitiveness.

In this context, it was pleasing to see that we could achieve volume gains in key categories, supported by our recent investment program and some modest price gains in our packaging paper grades over the course of the first half. Our focus on margin management, cost containment and productivity gains helped to mitigate ongoing labor cost pressures and currency headwinds, largely related to U.S. dollar weakness.

Pleasingly, cash generation was strong, a reflection of the inherent resilience of the business and our focus on tight cash flow management. We will continue to prioritize these initiatives in the second half in the face of the anticipated continuation of challenging trading conditions.

Importantly, while ensuring we focus on the near-term controllables, we remain intent on positioning the business for long-term value accretive growth. In this regard, I'm very happy with the progress we have made on our key strategic initiatives. All our major capacity expansion projects are operational. [indiscernible] recycled containerboard mill being the most recent start-up in April as planned. The focus is now very much on ramping up and optimizing production and sales to ensure we deliver the promised performance.

The acquisition of Schumacher completed in March, and we were pleased to welcome our new colleagues from sites across Germany, the Netherlands and the U.K. While early in the process, integration is well on track. The trading environment is currently dominated by cyclical headwinds. However, I remain very excited by the long-term structural growth drivers in the packaging markets that we serve with our great market positions, long-standing customer relationships, and high-quality integrated and well-invested asset base, we remain very well placed to deliver value-accretive growth for our stakeholders.

I'll now hand over to Michael who will provide more color on the 2025 financial performance to date.

Thanks, Andrew. Good morning, everybody, and let me take you through the group's financial results. Our Half 1 2025 results reflect a solid performance in a challenging macroeconomic environment. Underlying EBITDA of EUR 564 million was in line with Half 1 2024, but with increased cash generation supported by good cash flow management. The group's ROCE was impacted by the startup of our major capacity expansion projects, with a larger capital employed base and higher depreciation, more than offsetting the earnings generated from these projects as they are in ramp-up phase.

Basic underlying earnings per share were also lower than the last year due to the associated higher depreciation charges, along with higher net finance costs. The Board has declared an interim dividend per share of EUR 23.33. This is in line with last year's interim dividend and equates to our usual practice being 1/3 of last year's total ordinary dividend.

Underlying EBITDA was comparable with that prior year. Sales volume and sales prices were both up compared to Half 1 2024. However, the movement seen across each business unit do vary, and I'll come on to that on the next slide.

But before I do so, just on costs and other items, they were a touch higher, shown by the GBP 11 million that you see on the chart. This includes some expected start-up costs with the commissioning of the paper machine at our [indiscernible] mill in Italy, which we were pleased to successfully start up in April this year.

On fixed costs, we demonstrated really good cost control to drive operating expenses lower, which offset the impact of labor cost inflation. Input costs were broadly stable overall compared to the prior year, supported by our cost-saving initiatives. And as we enter the second half of the year, I would expect some modest input cost relief as we continue to drive efficient procurement practices across the group.

From a currency perspective, you'll recall that we had a one-off loss in Half 1 2024 from the devaluation of the Egyptian pound. The nonrecurrence of this in 2025 was partially offset by currency headwinds. Our largest non-euro currency exposure is the U.S. dollar, and that weakened during the second quarter and into the third.

And lastly, the forestry fair value gain was lower this year, the absolute and half of EUR 18 million compared to the EUR 49 million of last year, giving you the delta that you see on the chart of EUR 31 million. Adding all that up, results in an underlying EBITDA of EUR 564 million for Half 1 2025.

If I now look at each of the business performances in turn, Corrugated Packaging delivered an improved performance underlying EBITDA up 42% to EUR 203 million. This included a small contribution from Schumacher in the second quarter. In containerboard, the business delivered strong volume growth, supported by the ramp-up of capacity from recently completed projects. This includes the debottlenecking project at Swiecie in Poland, the modernization project at Kuopio in Finland and most recently, as I mentioned, Duino in Italy.

On pricing, containerboard selling prices were higher than Half 1 2024 average pricing following the implementation of price increases during the period. These increases largely reversed the price erosion that we saw at the back end of 2024 and were partly driven by top support from increasing paper for recycling prices in the period. Since June, we have started to see some pricing pressure on our recycled grades with cost support diminishing as paper for recycling prices reduce.

In Corrugated Solutions, box volumes, excluding Schumacher, were up on the prior year, driven by our customer relationships and improved demand for sustainable packaging solutions for consumer and e-commerce end-use applications.

Turning to flexibles. Flexible Packaging business delivered an EBITDA of EUR 302 million, which was in line with Half 1 2024 after you take account the prior periods, one-off loss from the devaluation of the Egyptian pound recorded last year.

Kraft paper sales volumes were lower year-on-year as the volumes produced at our new paper machine at Steti did not fully replace the previously produced volumes at the Stamboliyski mill, which we closed in the second half of 2024. On pricing, kraft paper prices were higher on average compared to the prior year. The year started with reduced prices following some erosion at the back end of 2024. This was followed by the implementation of price increases during the half year in Europe, while pricing in other regions was relatively stable.

In paper bags, we achieved good sales volume growth across all regions, supported by the growing demand for traditional building material and cement applications as well as increasing demand for e-commerce solutions. And in uncoated fine paper on the right-hand side, although market conditions remain muted, we do continue to gain market share supported by our strong customer offering, delivering stable sales volumes in the period compared to the prior year.

Uncoated fine paper selling prices were lower compared to the prior period due to a combination of entering the year at reduced levels following price erosion over the second half of 2024, coupled with further price reductions in Half 1 2025. These reductions were due to softer market demand and weakened cost support from pulp price movements which increased modestly during the period before reducing towards the end of the half year period.

And lastly, as previously mentioned and separated out here, the business recorded a lower forestry fair value gain compared to Half 1 2024.

Let me now take you through the movements in net debt. We started the year with net debt of EUR 1,732 million. Cash generated from ops is made up of the an extra items you see. That's the EBITDA contribution I've just taken you through of GBP 564 million together with GBP 130 million investment into working capital, which was mainly a result of higher trade receivable balances at 30th of June following those price increases achieved during the period. I'd expect working capital inflow in the second half of the year, supported by our tight working capital management.

We continue to invest through the cycle, nearly EUR 350 million of capital expenditure in the period. This includes the investment into our major expansionary capacity projects alongside investing to enhance the competitive advantage of our operations, and Andrew will touch on this a little later.

Interest, tax and ordinary dividend payments, GBP 167 million and GBP 202 million, respectively, as you see on the slide. And lastly, we completed the acquisition of Schumacher on 31st March 2025. Really excited by this opportunity it brings to the group. And although we've only owned the business for a few months now, we already see the benefits of being able to offer our customers a broader product portfolio as well as increased integration across the value chain.

So to conclude, all of this leaves the group with a net debt balance at the end of the half year of around GBP 2.6 billion, leverage at 2.5x. The expected business performance and cash generation in the second half should lead us to a lower leverage by the end of this financial year.

On capital allocation, framework has not changed. Discipline has not changed. We maintain a strong and flexible balance sheet. We continue to generate cash, enabling the group to invest in the business alongside paying ordinary dividends to shareholders. And as evidenced by the recent acquisition of Schumacher, we always evaluate M&A. Our focus now is very much on delivery from our current asset base.

And my last slide on technical guidance. Where relevant, we've updated the technical guidance of 2025, reflecting the inclusion of Schumacher. As you'll recall, our previous guidance published in February excluded that effect as we had not acquired the Schumacher business at the time.

Our capital expenditure expectation for 2025 remains at EUR 750 million to EUR 850 million as we can cope with any Schumacher spend within the previously guided range. The depreciation and amortization range has increased by EUR 25 million to EUR 475 million to EUR 500 million, and our effective tax rate is unchanged at around 23%.

Net finance costs expected to be higher due to higher debt levels post the debt-funded M&A. We previously guided to the incremental EBITDA contribution from major capacity expansion projects to be in the range of EUR 50 million to EUR 100 million in 2025 with the upper end of the range representing mid-cycle pricing levels. Based on current prevailing prices and the fact that we're halfway through the year already, I would now guide to EUR 50 million to EUR 75 million for the year. About 1/3 of that has already been delivered in the first half year numbers. There is clearly no change in our confidence that these major expansion capacity projects when fully ramped, will deliver mid-teen returns on capital through cycle.

With that, let me hand you back to Andrew. Thank you.

Very good. Thanks, Mike. I'd like to just now quickly update you on the progress we're making on certain of our key strategic initiatives. As Mike has already mentioned, when we look at our free cash flow priorities, investing in our business has and always will remain a priority. We are firm believers in the merits of investing on a through-cycle basis with the objective of providing a great value proposition to our customers and ensuring long-term competitive advantage.

As you all know, we have made a number of significant investments over the last few years in expanding production capacity with expenditure totaling around EUR 1.2 billion. The phasing of the cash out for this program, you can see is reflected in blue in the chart on the slide. Similarly, the recent Schumacher acquisition for over EUR 600 million, both extends our geographic reach and add significant capacity in our Corrugated Solutions business.

Our attention now turns to delivering the expected returns from these investments through optimizing the commercial and operational ramp-up. While we acknowledge this is not easy in the current trading environment, we are nonetheless very confident that we have invested our shareholders' money in the right assets serving the right markets.

Given this well-invested asset base with sufficient capacity to support the next phase of growth, we are now able to pull back capital expenditure over the coming years without prejudicing the upside we expect to come as markets recover. We will do this while ensuring our business remains highly cost competitive by continuing to invest appropriately in driving cost advantage. The focus of our capital expenditure in the short term has very much turns to enhancing cost competitiveness, resilience and environmental performance.

This next slide provides more detail on what our recently completed expansion in capital expenditure program does bring to us. The first thing to note is that the combined EUR 1.8 billion of expansionary CapEx and acquisition spend is all in our growing corrugated and flexibles markets, which are supported by the ongoing growth in e-commerce and sustainable packaging solutions.

As I mentioned in my opening remarks, while growth has been impacted in the short term by current macroeconomic events. We remain convinced that the long-term growth drivers are very much intact. This is supported by the ongoing dialogue we are having with our customers where the drive for sustainable packaging solutions remains front of mind.

As you can see on this page from these investments, we've also strengthened our geographic footprint, most notably, as already mentioned, with the Schumacher acquisition, which has extended our reach in corrugated solutions across Northern Europe, complementing our existing strengths in Central and Eastern Europe. We've increased our levels of integration, notably with the new paper machines in [indiscernible] and Steti, which ensure security of supply to our growing converting operations and allows us to reduce costs through supply chain optimization.

Similarly, the expansion of capacity for the production of virgin paper grades, at our flagship operations in the Czech Republic and Poland, together with the expansion of a new semichemical grade at Kuopio, Finland bring both highly cost competitive capacity and a broadening of our product offering.

Importantly, we've also invested in expanding our innovation capabilities. We now have dedicated innovation hubs for our packaging offerings in the Czech Republic and Germany, with a third site currently in development in Poland.

On the topic of innovation, we are very excited by the ongoing potential we see to innovate with our customers. By bringing pilot lines, testing capabilities and co-creation spaces together under 1 roof in our innovation hubs, we can reduce time to market for new packaging and paper solutions.

On this slide, you can see a picture of the newly opened innovation and customer experience center in [indiscernible], Germany, which complements the corrugated special focused center in Bupak in Czech Republic. We have a unique capability to be truly material agnostic when it comes to providing advice on packaging solutions to our customers.

As you'll see on the slide there, we use this capability together with our expertise in sustainability and the relative relevant legislative frameworks to support our customers in developing packaging concepts that are right for them. Importantly, these ideas they need to be brought to life through rigorous product development and commercialization where we have proven capabilities to support our customers.

As always, an important objective of our through-cycle investment program has and will remain to ensure we've maintained cost advantaged assets in our upstream pulp and paper mill. These ensure we remain strongly cash generative through cycle, provide security of supply to our customers and allows us to plan for the long term with further investments that provide both growth opportunities and further cost optimization, something that more marginal producers simply do not have.

Of course, judicious investment in the right assets is not enough in itself. They also need to be run well. Here, our culture of continuous improvement is critical. We are always looking at ways to improve and drive operational excellence. As you would expect in the current downturn, we are redoubling efforts around productivity and cost optimization.

To summarize then, we fully acknowledge the ongoing challenges posed by a very uncertain macroeconomic environment. In this context, we delivered a solid performance in the period. And going into the second half of the year, we are very focused on our near-term deliverables, which include the successful ramp-up and optimization of our expansion projects and the Schumacher acquisition integration, ongoing proactive margin management, an intense focus on cost control and productivity and cash flow optimization, which includes tight working capital management, working capital management and focusing our capital investment program on essential [indiscernible] CapEx and high-return cost optimization opportunities.

But similarly, we remain very confident in the long-term value creation potential of the business. We have a unique platform, offering a broad range of sustainable paper and packaging solutions with leading positions in structurally growing markets. We have a well-invested cost advantaged asset base putting us in the ideal position to support growing customer demand. With our strong balance sheet and proven track record of execution we believe we are well positioned for sustainable, long-term value accretive growth.

With that, I thank you for your attention, and I'll hand back to the host for the Q&A.

[Operator Instructions] Cole Hathorn, can you please unmute and ask your question.

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

Just took a little time to join there. Can I start off with the cost dynamics, Mike, you mentioned that input costs are broadly stable with some relief into the second half driven by procurement initiatives. Just like some more context of what are the key input cost buckets doing here? And what gives you confidence in the relief into the second half?

And then, Andrew, I'm hoping you can give some context on how we've seen order books or the business change over July because a lot of your peers talked about kind of a softer June and in the U.S., in particular, we saw some recovery in July. So I'm just wondering if you're seeing any changes from customers and order books kind of weaker June and then stabilization into July?

And then finally, a question on your CapEx slide or your major CapEx slide. You talked about the EUR 1.2 billion of major CapEx, but the underlying maintenance CapEx, we should still think about that as in line with depreciation because on the chart, you do have -- I assume the Ruzomberok and Richards Bay recovery boiler kind of cost-focused investment. So just thinking about the underlying level of CapEx per annum should be broadly in line with depreciation?

Cole, thank you. Let me start. I've never been so pleased to hear your voice, Cole, because you always worry about technical glitches on days like this. So very pleased to hear you come through. Just on procurement, in terms of the big buckets, what are we seeing? I think first, it is self-help. So there's some really good initiatives going on with our suppliers that the team have been working through in partnership to drive efficiencies and share wins. So the sort of the internal help because then the economy is still pretty flat, as Andrew has talked about, and that allows some price downs on procurement. That's not necessarily good overall for all of us or the economy. But we are seeing some price weakness still in some of the major categories.

If I think of energy, that's coming down [indiscernible] is coming down. There's obviously a counter to that, which we can come on to in the RCB prices. And we're seeing some softness across other categories as I say, that we're working hard. So it's a little bit everywhere, Cole, in terms of the initiatives. But when numbers are weak, these numbers start to add up a little bit, and they're very useful when certainly you're looking at half-on-half bridges.

Andrew?

Yes. I think just to add to that, I know wood is always a big topic. But Mike rightly didn't raise it simply because it's pretty benign. I mean, if we look wood costs are generally fairly flattish. There's a little bit of rolling over in our Scandinavian mills, I think, but otherwise pretty flattish, which -- so in some ways, remarkably unremarkable. Just on the order book situation, I think it's always dangerous to sort of quote literally one month to the next. I think it is fair to say that not so much reflected in order books per se, but clearly, Q2 was a bit weaker in the corrugated industry more broadly than Q1.

If you look at the European delivery stats and the like. So we definitely saw a bit of a slowdown, probably most profound in kind of April, May, June was a little bit better. And certainly, when we look at our order situation, it's decent. I would hesitate to say it's strong, but it's also certainly not weak or anything like that. So I think it's wrong to call it from literally one month to the next but it's not bad at all. It's not -- but at the same time, we're not seeing a very strong upward momentum that one would hope in a kind of recovery phase.

Similarly on the -- in the Bags business, which is obviously a nice forward lead indicator for that value chain. As you saw from our numbers, roughly 5% volume growth in H1, which is a decent number. And I think it's also reflective -- I think we're a bit ahead of the industry as a total. But within Europe, you saw the industry numbers also up quite nicely. Again, when we'd have to say the first quarter was stronger and then it slowed down a bit in the second quarter.

But having said that, the June numbers were a bit better again, and certainly, again, our order books are decent on that side as well as they are on the kraft paper deliveries which are more global in nature.

And I think finally, the U.S. there is a bit flatter year-on-year, but certainly not weak. But I think it does mask some volatility that we've seen through the period. Undoubtedly, everyone alludes to the various trade discussions and the tariff discussions that go back and forth. Undoubtedly, for example, during the half, we saw a rapid drop-off in orders out of China for obvious reasons when there was at the height of the tensions around the trade tariffs, that came back again. So -- but it's obviously affected, for example, the pulp deliveries out of our Hinton mill, which -- a lot of which goes into Asia. Similarly, I think the global pulp prices have also been impacted in the short term by those disruptions.

Hopefully, as being stabilized and everyone understands the rules of the game, and they settle down, some confidence can come back into those markets and we can see those develop.

And maybe if I -- Mike can give you the detail CapEx, but in short, yes, I think we agree that depreciation is the best guide for [indiscernible] business. You mentioned those boilers, there's always a combination of factors in there. There is an element of stay in business in those boilers, obviously, because we are replacing old boilers. But of course, there is an expansionary element as well, not in terms of new capacity, but in terms of cost optimization because we are effectively, for example, in South Africa, replacing a coal-fired boiler with a much more efficient biomass boiler, which brings huge environmental benefits, but also cost benefits to us likewise in Slovakia, where we're increasing the biomass energy capacity and efficiencies. So that brings us margin enhancement in addition to the [indiscernible] business element. And clearly, we're always looking at those sort of opportunities. But in short, same business CapEx, we still guide to roughly depreciation [indiscernible].

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

And next raised hand is from Charlie Muir-Sands.

Can you hear me okay?

We can, Charlie.

So obviously, you alluded to some softening in recycled containerboard prices towards the end of H1 and looking into H2. I just wondered, obviously, all the new supply coming into the European market is on the recycled side. You've got quite a lot of exposure on the [indiscernible] side and within that into niche premium grades. I just wondered what your view was in terms of the chances that there can be quite good resilience on the kraftliner side, given that there isn't really any capacity coming in there?

Secondly, just on the kraft paper volumes, I think you said down in the first half, but you obviously alluded to some good leading indicators around the actual paper bags. Was that just the phasing of the ramp-up of the steady capacity not yet meeting the retired capacity from Stamboliyski? Or is that a reflection of where demand was for your external customers?

And then the last question also on the flexibles business. I just wondered if you could give a bit of color around the performance of Cflex versus the paper value chain?

No, very good. I think there's a few there. So firstly, in terms of, call it, the containerboard pricing dynamics, as you say, and Mike mentioned it clearly, the recycled containerboard is where all the new suppliers, as you rightly say, that is where the market is in oversupply. And as a consequence, pricing right now is frankly being driven by the cost curve. So we saw PFR prices go up and recycled containerboard prices followed that. Simply, there's no margin for the higher-cost producers.

But likewise, as soon as the PFR price started to come off that gave relief to the higher end of the cost curve, and that was properly passed on because of the intense competition in that market. It is clearly a somewhat different dynamic on the virgin grades, as you rightly say, and even more so in those niche virgin grades where we have a big exposure. The supply side is much more constrained. There's a little bit of new capacity coming on, particularly in the sort of unbleached kraftliner but it's really clearly limited, and it is a more consolidated market more generally. And I think that is reflected in the pricing dynamics.

So we did see some modest price increases on the virgin side particularly in unbleached kraft space, less so on the white top, and that is often the case because the white top products, typically, if you look in the long term, the pricing is typically a bit more stable. And those that's held into the second half in spite of, as you rightly say, the recycled prices coming off. And there's good reason for that, as I said, because of the supply side dynamics being so totally different.

So can one see the virgin to recycle spread widening and staying wider? I think there's every reason to believe that, that can be the case. Will it ever totally decouple? As I always say, that's not likely to happen because, of course, you will drive aggressive substitution, you would use heavier and heavier basis weight of the recycled side, for example, to substitute for the stronger version if the pricing got too far out of kilter. But a lot of the easy wins there have already taken place. So yes, I mean, the [indiscernible] is holding up well in that context. And clearly, is more resilient with a much better supply side dynamic.

To your second question on the kraft paper and the volumes down and what it does it relate to you. Clearly, in our world, it is partly related to, as Mike said, we were down and -- we had a full first half contribution from Stamboliyski last year, which is clearly out of our business now. and we were just ramping up that PM10 through the half.

But it's safe to say, it wasn't all that because of that, there's also a market dynamic at place in place, as you rightly say, the underlying bag demand was decent, but there seem to be something of decoupling between bag demand and craft paper deliveries in the half. I say [indiscernible] because we can't fully explain it ourselves. But if you look at the industry delivery stats on the kraft paper market, it was down year-on-year into Europe. I'm saying, well, the bags were growing. And funny enough, this was an exact reverse of what happened in the first half of last year [indiscernible] in some ways, you couldn't explain the reverse situation where kraft paper deliveries are much stronger than the underlying bags.

In some ways, I'd much rather have it this way around because the underlying bag demand is what really is the true underlying demand picture, and it's encouraging that is going off of the lowest pace that we saw from the previous couple of years. But nonetheless, I'm showing solid growth. I think there's always the sort of destocking effect that takes place in this sort of dynamic and no doubt that has contributed somewhat to the slight discrepancy. But we are confident that we continue to see a good underlying bag demand.

More importantly -- as importantly, on a global basis, the demand picture is pretty decent clearly in our export business in kraft paper. A lot of it is exposed to the cement industry and cement in emerging markets, which is a big exposure there seems to be reasonable, but still not rampant. Again, I don't like to keep coming back to it. But if we start to see a settling in terms of the rules of the game around the trade dynamics, I think that could be very helpful.

And maybe another point to mention in this business, obviously, it is also one where we have some dollar exposure because we are exporting into countries which are effectively either dollar priced or certainly, we're competing gas dollar-based competitors and this is where the recent dollar weakness is a headwind into those markets.

And then sorry, last point on the CFlex performance, solid. It is -- it is -- as we keep saying, very defensive in nature -- by nature of this business, it's mainly food, beverage, other consumer [indiscernible]. It is evident that in the current world, the European consumer is still anxious about life and probably trading down a bit still they still buy their pet food, but maybe not quite as exclusive of [indiscernible] food as they used to. In better times, and that does have some implications, but nonetheless, very robust earnings out of that business. So I hope that answers your question, Charlie.

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

Yes, it's more of the latter. I mean, we are -- I think, as we've been saying, we're working on the feasibility right now, which is more the technical the permitting and everything else like that. I think as we've said before, realistically, the first call won't be able to make on that as early next year. And even if we push the button, then the actual cash out in the year 2026 would be fairly minimal. So you can say it's wrapped up in there. But clearly, in the current [indiscernible], we also will be looking closely at how those markets develop and of course, how the trade situation develops as well because [indiscernible] might be a deal with the EU. As you well know, there's a lot of other uncertainties that still exist around the trade impacts of dealing with the U.S. in particular.

And the next raised hand is from Brian Morgan.

Two questions from my side. There are a couple of moving parts this period in terms of operations. So you've had [indiscernible] coming in, you've got [indiscernible] volumes coming in. You've lost Stamboliyski, as you said. So just trying to get a sense of maybe like a like-for-like volumes evolution for corrugated and for flexibles. Are you able to provide that?

I mean, CapEx, we don't think -- I mean when you think like-for-like, you think M&A activities, and we can say, if we exclude the Schumacher volumes, which only affects our Corrugated Solutions business, we were up I think, [indiscernible] in volumes. So I call it organic growth in corrugated would be about 1% to 2%, I think. Otherwise, everything else as the numbers show, so they're not affected. But I don't think it's right to sort of start doing like-for-like comps on CapEx. CapEx is part of your organic growth, I believe.

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

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

The important thing is the relative competitiveness. And of course, if you have a euro and/or Polish zloty, Czech krona type of dollar production base, and you -- some of your businesses into export markets or imports can be attracted into your market because of the relative strength of the euro, and then that's the bigger effect. So if you look at on the margin, you do a bit of export business and it becomes less attractive if you're selling it to, call it, a weaker dollar markets.

So I think as Mike says, that's the bigger effect of the, call it, weaker dollar environment than the direct impact the direct impact, probably, frankly, most profound in our flexibles business because we do have a U.S. business there, which on translation means less euro profits but also we sell some kraft paper on a global basis. And even when you're selling into Egypt, for example, it's de facto a dollar market.

The next raised hand is from Lars Kjellberg.

A couple from me left. So looking at the flexible business, we're quite a lot weaker than I had expected for various reasons, you mentioned some of them. But you didn't mention any start-up related costs to Steti, which I would assume would not be insignificant. So if you can clarify a bit on that.

The other point there, I suppose, you talked about in about 1/3 of the contribution expected for the current year was realized in H1. And I think in the last time we spoke around the Q1 trading statement, you said the 50 to 100 at the time was a net number, net of start-up costs. So -- but that doesn't necessarily make a great deal of sense to me. But -- so if you can clarify start-up costs versus -- is this sort of 1/3 of the 50 to 75 now? Is that a net number, net cost start-ups? So that's really -- I just wanted to get some clarity on that.

Schumacher, you did mention a small contribution. And of course, it's kind of an interesting and good acquisition for you. But can you help us understand what sort of run rate you are and what sort of contribution we should expect in H2 from Schumacher? Of course, we know the '23 numbers and '24, you haven't been able to share in the past, that would be helpful.

Final question from me. And I should know this, but I don't, your share of kraft paper and the export share of your total output would be helpful.

Okay. Should I start and we'll dip in. Steti was positive so we don't start up costs are part of the process and Steti was making money and contributing into that 50 to 75 in the first half. So I don't know how you define start-up costs, but it wasn't negative if that's your question. The one that did carry some costs, which I called out was Duino. That's because it started up in April and you have those start-up costs. That was probably the order of 10 in the quarter. So if you sort of fuss about sort of start-up costs, I mean, we tend to look at the whole year and that whole year contribution is net of everything. That's the 50 to 75. But if you said what was the Duino's startup cost, it's about 10 in the quarter.

Obviously, as the year goes on, that will turn into profitability, and that forms part of the 50 to 75. So hopefully, that wraps up your sort of first and second point.

Schumacher, we've said the guidance for this year is about EUR 30 million for this year, there's probably about 1/4 of that delivered in quarter 2. So therefore, obviously, 3 quarters to come in the second half of the year. We've clearly only just got the business, the synergies within that, probably a net nil this year. That's in line with our expectations. So we've got some synergies, but we've got some costs to deliver those. We remain very confident of the EUR 22 million of synergies. As we move forward, those will obviously come in '26 and '27. And clearly, the run rate, the synergy is only one part of the story. And Andrew, you might want to touch on the integration. The second part, of course, is the volume ramp-up to increase the run rate of the EBITDA and the volume through the factories.

Yes. I think just quickly on Schumacher. I mean, clearly, it is [indiscernible] there are 3 parts. There's the, call it, base business as it is, then there's the synergies, the cost synergies, which we referred to, which we extremely confident on. And clearly, we're looking to beat that number if we can find the opportunities, and I feel we should be able to, but we're not yet confident enough to be talking about that.

And then there's the, call it, capacity optimization opportunities, which we're working hard to achieve. And as I said in my opening remarks, clearly difficult in the current environments, I mean, box volumes in Germany, if you take the industry numbers were kind of flat year-on-year. So it shows the market still struggling, albeit there are some signs of life if we're looking to see some bigger government expenditure, which has obviously been promised and hopefully now with some clarity around tariffs and that can also drive some more confidence in both amongst local consumers, but also amongst local businesses. And I think that can all go to contribute to getting Germany back on the front foot in terms of growth. And of course, we are well positioned to benefit from that.

Just on the kraft paper, I'm not going to give you specifics on export positions in kraft paper itself that is clearly, as you can imagine, quite commercially sensitive. But in broad terms, if you take our kraft paper and bags, value chain, probably these days around -- it's around 50% Europe, 50%, call it, non-European business, which obviously includes both the bags, operations on a global basis where they are located in the markets that they serve, but also obviously, the paper that we export largely a lot into our own bag production. And of course, we also sell into the open market on the export business.

If I can just squeeze in one more.

[indiscernible] you got anything else.

Just one more, just rarely speak about this because it's obviously not really focused on. But the [indiscernible] paper business, we don't have any market statistics anymore to look at. But can you sort of talk us through what's going on in that market and how you see going into H2, the underlying markets [indiscernible]?

Yes. I mean obviously, we serve 2 different markets. We serve the local South African market out of [indiscernible], and we serve Central Europe part of [indiscernible], even within that, there's some particularities, particularly around [indiscernible] we do a lot of specialties. But if you take European market, which I think is the one you're referring to, if you look at it from a deliveries perspective, Europe was roughly 7% down year-on-year, taking the industry as a whole which is obviously a big number. Now it must be remembered that Q1 last year, particularly was actually relatively strong. I think there was a bit of a restocking effect and the like. So you have to interpret these numbers quite carefully. But nonetheless, whichever way you look at it, the market declined year-on-year.

In that context, we were pretty -- we were basically flat on volumes, both in -- across our business which again reflects the fact that we gain share as weaker players have dropped out. And of course, there has been some capacity takeout in that market. Clearly, we believe it's likely that there should be more to come at the moment the unintegrated producers are getting a bit of cost relief because the pulp prices, as you all know, has come off but that, in turn, has been passed on essentially. And so there's still a huge margin pressure in that space, and I suspect there will be more closures in due course simply because the current margin levels [indiscernible].

Our next raised hand is from Reinhardt van der Walt.

Can you hear me?

Yes.

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

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

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

Yes. I mean, clearly, we don't have full transparency in the supply chain, but I suspect there is -- people are not sitting on a huge amount of inventory. And so as I mentioned, there seemed to be a bit of a disconnect in the first half between bag volume growth and kraft paper. But the good news is, yes, inventory drawdown is going to only happen once. I've got -- you've got to believe that if we start to see some continued growth on the bag side, that will tighten up the supply side even or the supply-demand dynamics in kraft paper, even more. And then clearly, that gives opportunity. Of course, in a more flattish demand environment and the opposite is true.

And I think just maybe an extra comment in terms of some color on that demand. If you look at the European bag demand the growth has largely come from what I call the nonconstruction-related activities. So food, feed, chemicals, that sort of thing. Construction-related end uses have been actually quite flat which is not surprising. I mean, it remains pretty muted to construction sector in Europe. But hopefully, if one starts to see some cyclical recovery in that, then of course, that can be beneficial for our bags [indiscernible] in the first place, and you would hope that then translates into both demand side improvement on the craft paper side, but obviously also the internal pricing. But I hesitate to say we're not seeing that at the moment. It's hopefully an opportunity if and when we start to see some cyclical tailwinds.

Our next raised hand is from James Perry.

Thanks for the presentation. I think most of my questions just have been asked, but just one about flexible packaging pricing. Would you be able to comment a bit more on the dynamics here into H2? Obviously, we've seen the test liner prices start to inflect downwards [indiscernible] any similar pressure to in second kraft with a lag? Or is the H2 average still likely to be higher following the earlier increases?

Yes, I think the 2 are quite different and new dynamics at the moment, as we've already said, the containerboard space and that test line in particular, has a supply side challenge on the flexible side, the supply side is much more constrained [indiscernible] we say, I mean, clearly, we are bringing on new supply. At the same time, as we've always said, it's probably more cyclically impacted from a demand side perspective. So while first half demand was okay, it also -- it was also a bit slower into Q2 versus Q1. So I think we'll have to just watch how that demand develops, call it, the underlying bag demand into the second half. And clearly, that will have a major impact on the pricing environment in the kraft paper space more so than what is happening on the containerboard side.

Our next raised hand is from Andrew Jones.

You have [indiscernible] my question [indiscernible] as well. But just one point of clarification from the feedback from some of the other producers, it sounds like sort of packaging demand in general sort of tailed off sort of towards the end of the quarter. At least that was my kind of impression, obviously, with the some price momentum that shifted at the end of the quarter. In corrugated, you were saying earlier that sort of April, May were weaker, June stronger, was that consistent across like the flexible grades as well? Or were there some dynamics there? I mean how would you talk through how about demand evolved entry and exit through the quarter and the different growth?

Yes, again, I'm hesitant to sort of pick each month as if it's illustrative of the direction of travel because genuinely, I mean, the one thing we know about the current world it's volatile. I think -- I mean, clearly, it is safe to say that Q2 generally was softer than Q1 from a demand perspective. And we saw that in corrugated, particularly more pronounced, I guess, in the bag side also to a degree, albeit -- for example, the June or June numbers and certainly the industry numbers as they start to come through seem to imply a better June. Obviously, too soon to say what's what July looked like from that perspective.

But I think all we could comment on is the fact that, yes, Q2 generally was a bit softer than Q1 from an underlying demand perspective, going into H2 as you said, the month-by-month numbers, I think one has to be interpreting with some degree of caution. But having said that, it's -- nothing is falling off a cliff or anything like that. It was just a bit softer. And certainly, I think the June numbers and bags looked a bit better than April, May numbers is a simple illustration. But let's not get sucked into month-by-month numbers because they can change and you can have -- you can misinterpret them both up and down.

But as industry shuts coming up as well, Andy. So the monthly numbers tend to get messed about with those as well.

Yes, because you have the big maintenance shut season, for example, people buy into that or you build stock into it and things like that can also impact it as Mike rightly said.

Our next raised hand is from James Twyman.

Yes, my question is a little bit longer term. So I've got 3 questions. The first one is the benefits of the projects. You obviously said EUR 50 million to EUR 75 million this year. Can we expect similar for next year as you get the run rate continuing next year? Or is most of it this year? That was my first one. The second one was, could you just talk around these boilers. I know the [indiscernible] one, but I think there's -- I think someone mentioned another one. What the CapEx cost is of those and what the benefits of those are because they're big beasts, they take a while to turn into money? And then the final question was, Mike, I think you mentioned that debt would fall by year-end. I wasn't sure exactly if you said that or not, but those are my questions.

Sure. So let me start with 3 and then I'll take the first one, and then Andrew, you might want to comment on the benefit of the boilers. Yes, in terms of the leverage is likely to fall towards the end of the year, I would hope we generate some cash, so you've got a numerator and denominator. I would hope to both improve, and therefore, what I was saying was that I would expect the leverage to fall towards the end of the year.

In terms of project benefits, one thing we do remain absolutely confident of despite being in a tricky world right now is the benefits of these expansionary projects that we have built and have started up on time and on budget. We guided to mid-teen returns to cycle. We need mid-cycle pricing [indiscernible] that. I think if you do the math on the capital, I've been quite explicit that that's about a EUR 250 million incremental to the group from when we started.

I, therefore, would expect even in this -- even at these pricing levels to have some incremental benefits '26 over '25, absolutely. We've started some machines this year. Some are still ramping up. You get that ramp-up effect into next year. That's obviously a function of 2 things in terms of how much the number is. I don't know what the number is. We -- I can't even guess this year's number properly. Never mind next year.

But it will be a function of 2 things. One is where pricing is and we don't know that. And the second one is, of course, how much we deliver this year because it's an incremental year-on-year. So the more we deliver this year, there'll be less next year and vice versa. So -- but again, James, we should expect some incremental benefits '26 over '25. We'll guide to those once we get a bit closer and have some idea where pricing might settle into the beginning of next year, but it will be meaningful.

And as I say, long term, we're absolutely behind our mid-cycle returns of these assets and the fact that we've deployed capital into the right markets for the right reasons.

Andrew, do you want to touch on the [indiscernible]?

Yes. I mean on the ongoing theme of the big piece. So as Mike says, I mean, these big projects do take time to fully optimize the -- you turn on the machine and it's, a, you need to get the production up and running and in full capacity and at the right qualities, et cetera, but you also have to develop your [indiscernible] commercial opportunities to fully optimize that into the markets that you want to serve in the long term. And that's a period of time, and that's why we guide to these ramp-up periods.

And similarly, on the boilers, the returns are once you turn them on, they are quite quick because it's actually just -- I just -- it's a cost and efficiency optimization. So it's not like you have to develop new markets and develop your commercial sort of offering, it's a pure cost efficiency gain.

And so what are we doing there? In South Africa, we're spending EUR 150 million. This is basically building one big biomass boiler, which will replace 3 existing coal-fired boilers So, a, you get the efficiencies that come with having one boiler over 3 boilers. You obviously have a -- you're changing the raw material mix materially from coal to biomass, that has a couple of benefits. Clearly, there's a huge environmental benefits, which I think is 350,000 tonnes CO2 reduction, but also we have big forestry operations. We collect the trees, and we use most of the tree for pulp, but there's bits of the tree that we don't currently use for pulp. That is essentially a biomass material that we can collect and use and turn into a valuable energy source. So in essence, that's what we're doing.

Similarly in Ruzomberok there is an existing biomass boiler, but it's much smaller and it's an efficient old technology. It's coming to the end of its useful life. This gives us the opportunity to upgrade both the capacity of the boiler and the efficiency of it. And again, we have access to the biomass materials that allow us to make a green energy source. So in round -- and that's -- sorry, that's net EUR 120 million after we get some subsidies on that one.

So what is that EUR 270 million spend? We don't take these decisions lightly. I mean, clearly, that's a lot of money. It will come in. It will go -- it will be 3 -- over 3 years that, that money is spent. But in rough terms, you can say kind of half of it is what you call stay in business. If we hadn't gone for the expansion options, we could have saved half the money. But on the other half, we get a meaningful returns well into double-digit type of returns on those numbers -- on those investments. And it's pretty low risk in terms of -- well, there's no real market risk. And of course, we are very confident in the technical risks around the because you can build them alongside the existing boilers. So it's not like we have to take a huge downtime in order to commission them and the like, which is also very important. So hopefully, that gives you a bit of flavor for what we are doing there.

I think we've got time for one last question, operator.

We have time for one more question. Our final one from Pallav Mittal.

Can you hear me?

Yes.

Couple of questions. First on the previous one, when you say mid-teens returns through cycle on mid-cycle pricing for your new projects. Can you please just quantify what this level of pricing is on the containerboard side and also on the cross paper side? And then secondly, it seems that -- this will be the second consecutive year when free cash flow is not going to be enough to cover your dividend. So I know your policy is 2 to 3x coverage. But how does affect your dividends going forward?

Yes. Maybe -- I mean, on the question of mid-cycle, what I can categorically say is current margins are not mid-cycle. If you look at industry profitability right now, on the simple premise that over time, the world needs more of the products that we make, which I firmly believe they do and will corrugated as a structurally growing market as our flexibles offerings. There's simply no incentive to put new capacity in. In fact, the incentive right now is to close capacity. And you could argue that that's exactly what should be incentivized right now, particularly in the containerboard side where the new -- all the new capacity is coming on.

So that's what the current margins unfortunately reflect is there's an oversupply problem, and capacity needs to be taken out. But of course, in due course, that changes, the markets tighten again and you need an incentive price for [indiscernible]. That is simply not there. And I suspect that's hence why one feel confident that we are far from cycle pricing right now.

On the other -- on the kraft paper, likewise, it's a growing market. It's doing okay in the current environment because the supply side is a bit more constrained, but it's certainly not a price that incentivizes ongoing investment. So exactly what is mid cycle, we're not going to get it because it's not an absolute price discussion, it's a margin question because it's also dependent on what the cost base is doing.

And costs more generally have structurally gone up everywhere. I mean labor inflation was never a thing until the last few years. Labor costs are simply higher than they ever were before. Energy in Europe has gone up. Wood cost even [indiscernible] have come off from the highs are structurally higher than they were historically. So all of these things mean, generally speaking, you need higher pricing than was historically the case in terms of long-term averages and the like.

And then maybe the question, dividends [indiscernible].

Yes. So free cash flow, no, you're correct. Our dividend cover is outside of 2 to 3x. We've been super clear on this. I think people laugh at me when I put up our capital allocation slide every time. The reason I put it up is it's because what we follow, dividends is an important part of our capital stack. The Board recognized that. And of course, we're in the phase where we are spending a lot of money for future earnings to come through and future cash to be generated. Therefore, right now, we're very comfortable under that cover ratio to hold the absolute dividend flat.

Clearly, going forward, we will generate more cash and the earnings will go up when the cycle recovers. And that's why the Board is currently comfortable withholding the absolute dividend and being the lower than the cover range. The cover range is a 3-cycle range very deliberately, 2 to 3x. We're currently under that. We recognize that. Long term, of course, we should not be borrowing debt to pay dividends. But I think we've got confidence in the future earnings of the group, and therefore, it makes sense right now.

As I said earlier, the interim dividend is always 1/3 of the previous year. So it's, call it, [indiscernible]. The Board, of course, every year, look at the dividend, and we'll look at that again as we approach the end of the year and go through that discussion again. So it's always on the Board discussion table. But up to now, we've been comfortable being outside of that dividend range because of the future cash flow of the business that we frankly invested in. Hope that answers your question.

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

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Good afternoon, everyone. I'm Cole Hathorn, the European Paper and Packaging analyst at Jefferies. It's my pleasure to host the CEO of Mondi, Andrew King, today for a facilitated fireside chat as part of the Jefferies Structural Winner series. Andrew King has been the CEO of Mondi since 2020 and prior to that, served as the CFO since 2008. He has over 20 years of experience in the paper and packaging industry and has played a key role in defining Mondi's strategic direction and reshaping the capital structure since listing in 2008.

Mondi is a European and global leader in growing corrugated and flexible packaging markets. We see Mondi as a long-term structural winner given its scale and competitive advantages. It's well-invested and low-cost asset base with 80% of capacity in the first or second cost quartiles and forward integration into converting both boxes and bags. We see Mondi as well positioned to see strong earnings and free cash flow upside when packaging demand and pricing ultimately recovers. Now today, the objective of the call is to discuss why we view Mondi as a structural winner and talk more about the differentiated #1 position in flexible packaging, which accounts for 50% of the group earnings. But just as a reminder, we will not be talking about the current trading with Mondi currently in close period.

Now Andrew, thank you very much for joining us today. I'd like to help those investors that are less familiar with Mondi. Can you give us a brief overview of Mondi's market positions in its 3 divisions? And also, why do these divisions fit together? What is the synergies of these divisions? Maybe I'll just share my screen and put up a slide as a business overview to help.

Thanks very much, Cole, and thanks to everyone for showing interest today. As you can see on Cole's helpful slide, we operate in 3 business segments: Corrugated, Flexibles and Uncoated. Our corrugated packaging business. This is a vertical operating everything from the production of pulp through to the containerboard production and then the converted boxes in the case of corrugated. Very much a European player with very strong positions in niche upstream virgin containerboard production and a strong presence across Central Eastern Europe in our converting businesses. In our flexible packaging business, very clear market leader here, #1 in Europe in kraft paper and bag production. This is traditionally both industrial bags. So think of your average cement bag or building materials and aggregates, that type of exposure and also a growing complement in what we call consumer packaging, which is very much those flexible packaging products you see on the supermarket shelf. You can see on the slide here, an example of a pet food bag on the right middle picture.

And then finally, in our Fine Paper business, this is -- we really have some niche positions in Central Eastern Europe and Southern Africa makes fine paper. This is the stuff you find in a photocopy machine. Clearly a market in overall structural decline as the advent of electronic means of communication have taken away from demand for fine paper. We know that we operate it accordingly, and we optimize that business accordingly. Clearly, the growth being very much in those first 2 verticals. And Cole, you asked how these all fit together. I think first and foremost, from an operational standpoint, essentially, we make paper in each of those 3 businesses. So we take wood and/or old boxes or other forms of old paper, and we make a paper product, which is then converted into the different applications. So in that sense, a lot of operational overlap across those 3 businesses, we share a lot of procurement, a lot of the technical know-how and of course, the operating know-how across the piece from an operational standpoint.

But also increasingly so from a commercial standpoint, we are finding ourselves serving a lot of the similar customers, particularly in the 2 packaging verticals. The most obvious example of that, for example, is in the e-commerce space, where we make boxes for the likes of Amazon, but we're also increasingly making paper bags for Amazons and the other big e-commerce players, which is displacing plastic wrap and the other sorts of traditional use packaging, which -- where you don't need the protection of a box and a lot of other areas, for example, in the FMCG space, where we're also providing solutions that span from the box through to the different flexible packaging solutions. So a lot of excitement there from our side in how we can develop those combined commercial offerings.

Andrew, and then if I look at your business on one of the industry cost curves, I mean, you've got a well-invested lower-cost mills in Europe. And per my view, 80% of your mills are in the first or second cost quartiles. And you've always said you've got a clear strategy to invest in cost-advantaged assets, drive efficiencies along the value chain. And historically, you've actually exited via closures and sales some of your higher-cost mills. So if we're thinking about your upstream corrugated and flexibles mills, what makes Mondi's mill structurally advantaged versus peers in Europe?

Yes. And I think you summarized a lot of the actions we've taken to ensure that ultimately, particularly in what we call the virgin-based products, which is the stuff that's made from trees, access to low-cost fiber is a critical cost differentiator. And then you have to be super efficient in taking that and processing that into the finished products. We've spent a lot of time and energy making sure we're in the right places that do have that sort of privileged access to low-cost fiber resources. And similarly, we've invested well, as you say, in the asset base itself to be as efficient and productive as possible. So the bias of our upstream virgin paper-based production is in Central Eastern Europe, where we do believe there's a preferential access to low-cost timber resources, for example, in Poland, where we have our flagship containerboard operation, Swiecie, which is probably the biggest certainly containerboard mill in Europe, but also with access to well-priced, should we say, fiber resources.

And of course, over many years, we've systematically invested in energy infrastructure and upgrading of the capacity to make it as efficient as possible. And that is really what cements the cost advantage one has there. Likewise, for example, our flagship operation in kraft paper for the flexibles offerings is in Štetí in the Czech Republic, which enjoys many of the same characteristics. Most recently, we continue to expand there with a new paper machine which benefits from the economies of scale that you get with the existing infrastructure. So it's this type of thing which builds over time that cost advantage.

And then maybe just to frame that size advantage. I mean you've got Swiecie at about 1.7 million tonnes, Štetí, 0.6 million to 0.8 million tonnes. Are you kind of 2, 3x the size of the next largest kind of mill system in specialty sack or containerboard?

Yes. Well, certainly, in -- they're really quite different markets. In containerboard, obviously, it's a very big market. So it's a 30-odd million tonne market. There are a lot of players. Clearly, within that, there's the niche virgin grades. Certainly, we are the biggest of the virgin -- we have the biggest single production of virgin containerboard in Swiecie. I'm not sure which would be the next biggest. But yes, we're probably 30%, 40% bigger than the next biggest single facility. In kraft paper, Swiecie itself -- Štetí itself, sorry, is a lot larger than all the other facilities. As you say, it's around 800,000 tonnes now that we've got the incremental expansion. Typically, our competitors in that space are 150,000 to 200,000 tonne type of producers.

But in combination also with our other network of kraft paper offerings, we are, by some distance, the largest producer with about 1.2-odd million, 1.4 million tonnes now with the expanded capacity. And certainly in the European context, the next largest are in the 200,000, 300,000 tonne sort of range.

We're going to come back to the flexible side. But if we start with corrugated packaging, which is 30% to 40% of Mondi's EBITDA, containerboard and boxes, in my view, drives the majority of investor attention just because you compared to listed peers like Smurfit WestRock and International Paper, who are the #1 and #2 box makers in the U.S. and Europe. What makes Mondi's business different to Smurfit and IP in Europe? And maybe as a follow-up on that, why are you comfortable being long virgin containerboard and short or integrated recycled containerboard?

Yes. As you say, this is always the area that's got the most attention because everyone sort of has the infamous read across from what everyone else in the sector has been saying. For us, I mean, very clearly, unlike the 2 big groups that you mentioned, we're very focused regionally in Europe. I believe this is more of a regional type of business and call it transcontinental synergies are fairly limited. This is a product that doesn't travel. And when you make a box, you have to sell it within a 250- to 300-kilometer radius. And similarly, the paper that you use for that -- those boxes, you want to integrate as close to where you make the product as possible with the odd exception, there are certain very specialist niche products, which you sell more on a global basis.

How do we -- how do we differ from the groups you mentioned within the European context in particular. As you say, our primary strength is in the upstream paper production and more specifically in the niche virgin grades. So if you take the whole European market, what is it about a 35 million tonne market for containerboard, around 5 million tonnes, 6 million tonnes of that is the virgin grades. And even within that, there are specialty grades like the semi-chem fluting and white top products that we make. That is where we have a lot of strength. And we enjoy, as we've just discussed, a very strong cost position on those, and we have a distribution network that allows us to distribute really on a global basis.

Where we are, I guess, or more similar is, obviously, we have also the recycled containerboard and the converting box network. We're similar in the sense that we've also run an integrated system. We're different in the sense that, obviously, our focus has been very much more regionally focused in Central Eastern Europe and more recently expanding across Northern Europe. With the Schumacher acquisition that we recently made. But that is really our focus area, whereas obviously, the other players have a broader geographic reach on a pan-European basis and of course, the big U.S. presence as well.

Andrew, and then when I think about the European containerboard market, I mean, it is oversupplied at the moment with operating rates by my estimates in the mid-80s. I think we need about 2 million tonnes or 5% capacity closures to get closer towards the 90% operating rates. And in an ideal world, hopefully, Europe will follow the U.S. example because they've closed 2.2 million, 2.3 million tonnes or 5% of supply this year alone, whereas Europe has only closed 1 million tonnes or closer to 2% over the last 3 years. Now when I think about pricing in this segment, it's probably going to be set by the top of the cost curve, but you're a very low-cost producer.

So when pricing comes back, you're going to see very strong earnings upgrade cycle. So I'd love to hear your view of where do you think we are in the European containerboard cycle? And what does the industry ultimately need to do to see the cycle turn?

No, I think -- I mean, I would agree with you to the extent that the recycled containerboard in particular, is an oversupply. I mean it is a bit different on the virgin grades where, frankly, it's not a supply side problem at all. I mean, to the extent the virgin side has expanded, it's perfectly manageable. But you're exactly right on the recycled side, frankly, there's too much new capacity coming in relative to the current level of demand we're seeing in the markets. I think, firstly, we remain extremely confident that this is a growing market. The demand for corrugated boxes continues to grow. The last few years have seen unprecedented levels of volatility for any number of reasons, obviously, running from COVID through to the Ukraine crisis and now into trade wars and the like, which, of course, has caused a lot of volatility in demand.

But if you look at it on a long-term basis and through cycle and you think about it from a structural perspective, we are very confident that the ongoing demand for box growth is indeed intact. On the supply side, it does happen that every now and again, you get too much new capacity coming on just at the wrong time as you see a slowdown in demand, and that is exactly what's happened more recently. And you can see that in industry margins. I mean they're just terrible at the moment, frankly, and certainly not anywhere near at a level that can -- where the current level of capacity can be sustained. I mean, as you rightly say, operating rates are extremely low at the moment, and that manifests in margins, which are weak. And it's anyone's guess exactly how much of that industry capacity is underwater at the moment, but it's probably easy to say 30%, even 40% at the moment is cash breakeven or loss-making. So that is not a sustainable situation.

I suspect what normally brings you out of these cycles is a combination of things, both closures. And one -- every day that goes past, the pressure for closures to happen is only growing, and there is a lot of marginal capacity, as I mentioned. And -- but one shouldn't also forget the long-term demand with demand growth over time, you actually need an incentive price to put in new capacity, not just sort of manage what you have. And that day will come again. But undoubtedly, in the short term, I think what will change the dynamic is clearly a combination of demand side recovery, but also certainly some further closures, which are necessary. Clearly, we always say why are we looking -- we look at ourselves in that regard. As you rightly say, we are in the privileged position of being extremely cost competitive. So it is hard to argue why any of our capacity should be rationalized in this current environment because we can still make money even in a miserable world as we're currently seeing it.

And then maybe expanding on your capital allocation priorities in corrugated because you rightly mentioned that we're probably not at the incentive price to add any greenfield or brownfield capacity at current price levels. So how do you think about corrugated? Are we at kind of a buy versus build point in the cycle where doing some countercyclical M&A might be the right choice? And I know you've just recently done the Schumacher acquisition. So I'd love to also get an update on current trends on that Schumacher acquisition.

Yes. I mean I'd love to be able to always time the cycle as I'm sure we all would be in our various investment decisions. I don't think it's possible to do exactly that. But of course, there are times where there's a -- it feels like it's more of a buyer's market, as you say, than build. I think on the build side, we've always taken the perspective that one has to be prepared to invest on a through-cycle basis. We try and spend the money where, a, we believe there's structural growth that the world needs more of these products and also where we have an inherent advantage where we are the logical producer of the next tonne or units of production. And I'm very confident where we have been spending our money through this down cycle will prove to be value added as the world improves.

But it's clearly in a down cycle, and we undoubtedly are there, as I've said, I mean, the industry operating rates, the industry margins, et cetera, just simply cannot continue in this current paradigm because it's just unsustainable. So I think it's fair to say we're near the bottom than the top of any cycle. As I say, when that changes is always anyone's guess. And of course, packaging is correlated to economic output and growth and consumer confidence and all the like, and that can change quite quickly. In that context of a difficult market environment, yes, there are opportunities invariably that may be not available in a more buoyant market environment.

And as you say, we took the opportunity to make the acquisition of Schumacher, which we think is a great business and allows us the opportunity to expand. So there was a lot of both geographically and increase our levels of integration as a business, and we think there's some good strong synergies and a better customer value proposition as a consequence of the sort of acquisition. So to the extent these things are more available in the downturn, clearly, one should look at it with all the normal parameters around valuation discipline. But that is certainly our focus at the moment. I think we would also comfortably say we have capacity in our system to grow into, and we're certainly not looking at the moment to add new capacity in what is an oversupplied market, and we will be looking to optimize the investments we've already made both organically and more recently inorganically.

Very clear. And then maybe shifting to the Flexible Packaging segment, which is 50% of Mondi's EBITDA. Hopefully, I can put up some slides that might just be a little bit helpful for those less familiar. Now this, in my mind, is your differentiated market position where you are #1. And in your recent teach-in, you talked about the differences between the industrial packaging side and the consumer packaging side. So I'd like to talk about that separately. Would you mind giving your view of the traditional industrial packaging business, 25% of the group. Please can you put into context the scale and competitive advantages of being the #1 player in upstream paper and the benefits of being the #1 in downstream converting or the bags business. And maybe I'll just flip to the next slide to give you a context of that scale.

Yes. No, thank you. I think as you rightly say, if you look at our flexibles business in simple terms, 50% of it goes into industrial applications, 50% into consumer applications. Industrial applications, again, what we are talking about, cement bags, chemicals, building materials, agricultural products being feed and seed and fertilizer and the like, it's that type of thing where you will see, as I say, traditional industrial flexible packaging. What is the differentiator there? It's a super strong, burst-resistant type of paper. If you think of cement, it's being loaded in at a hell of a rate and it's hot and it needs to not burst and it needs to happen every time. I mean cement plant going down because the bags aren't being able to be filled properly would be catastrophic. So it's all about consistency of quality, reliability of supply and the like.

As you say, we have an extremely strong position in this segment. The next slide, that slide shows it. We are by far the biggest producer of sack kraft paper, which is, as I say, super strong resistant quality product, which is made purely from virgin fiber. You can't make it with recycled otherwise, it's not strong enough. And likewise, we are the biggest customer of our bag -- of our sack paper production as the biggest paper bag producer in the world. And you can see there measured by how much paper -- sack paper is consumed, we are by far the largest player. And interestingly, quite a lot of our competitors are one or the other. They're not -- there's only a couple that are properly integrated as well.

So that gives us on the supply side in this industrial space, an extremely strong position. People talk about, for example, the North American corrugated space being well consolidated. I mean this market is -- we're in a far stronger position than anyone on the corrugated side could claim to be. And that -- yes, that gives us a lot of confidence that on a through-cycle basis, we can make good money in this business, even though we do acknowledge on the demand side, you're always going to have a bit more cyclicality in industrial applications, clearly, construction, building materials, these type of things do have a cyclical demand side element. But in spite of that, given the fantastic supply side dynamics, we are very strong on a through-cycle basis in this business.

And then I want to differentiate between the sack and specialty supply and demand dynamics versus containerboard. Sack, it's a small market, 5 million tonnes globally. It's 30x smaller than the large 190-million-tonne containerboard market. And importantly, when I look at the supply/demand in Europe, in particular, I see the sack supply/demand dynamics is quite robust, operating rates around the 90%. So I'd just like to understand how you see the sack paper supply and demand dynamics over the next few years and where we are in the cycle? And also, what do you think drives the upside in this next cycle?

Yes. As you say, I mean, in a way that the relative size of the market is also a barrier to entry because, of course, it's difficult to penetrate when the overall market is that much smaller than, for example, the containerboard space and given our very strong integration as the biggest customer of this product, it makes it very difficult for new entrants to come into that sack kraft area. It doesn't mean to say that people don't on occasion, but it is more difficult.

Also, from a technical perspective, as I said, this is a product where you need a certain type of slow-growing softwood fiber because you need real strength, and that's what -- it's that type of fiber that gives you that. So you need access to those sort of that specific type of timber resource and then the production process itself is somewhat different to, for example, containerboard and a bit more complex in that sense. And that's, again, where we have the capacity and the skill set to be able to bring in this type of production, which is very difficult for others to do.

As a consequence, you can see it in the supply side dynamics. I mean, there is no real new supply other than the capacity we are bringing on. So to remind you, we're bringing on a couple of hundred thousand tonnes as we speak. And in fact, it's already in production and ramping up in Štetí in the Czech Republic as new capacity, albeit -- although in terms of the actual sack kraft impact, about 100,000 tonnes of will be incremental sack kraft production. The rest will be specialty sack kraft, which goes mainly into the consumer products, which I'm sure we'll talk about.

And so yes, a highly well-structured supply side, big barriers to entry, difficult to access. And we -- by the same token as the biggest incumbent with both the strength of integration and the knowledge and actual asset base that we can leverage off are extremely well positioned to be the logical people to bring in any new supply as and when it's required.

And then I suppose what is going to be the trigger to the up cycle in this market? Because you've got about 15% to 20%, I suppose, construction and cement and building materials exposure. Is it ultimately the construction cycle coming back that will really be the positive trigger?

Yes. I mean not just construction, I think it's more generally -- it is correlated to the sort of big macroeconomic drivers. But undoubtedly, in Europe, I mean, if you look in Europe, in rough terms, this was at peak, about a 7 billion unit markets -- unit number of bags. We lost the market demand dropped by over 1 billion bags over the, call it, peak from mid-2022 to probably early 2024. Since then, we started to see a modest recovery, but it's still got some way to go to even get back to those sort of levels. So you have undoubtedly seen the sort of typical cyclical pressure come to bear. But I'm convinced that it is very much cyclical in nature, and we will see the further demand side recovery.

Linked to that, we talk about these consumer applications. This is if it's a totally different industry as it were. A number of the applications -- a number of the qualities we have in the paper that we make for the industrial applications is also being used increasingly in other either nontraditional industrial applications or other consumer applications themselves, everything from pet food packaging through to a stretch wrap that we use to replace shrink wrap. So this leverages off the whole sustainable packaging trend of using paper to displace nonrecyclable plastic solutions. So I think there are also new demand sources for this. So it's not just a cyclical recovery. It's also structural growth that we're seeing coming through.

But yes, undoubtedly, some form of cyclical tailwind rather than the headwinds we've been, I think, facing for some period of time would undoubtedly help. And that can very quickly translate into margin improvement simply because as we discussed, the supply side is constrained. It's not a supply side problem at all.

Andrew, and then maybe you've asked -- well, you've actually answered a bit of it in the last question. But if I think about barriers to entry and competitive moat, one of the challenges with the recycled containerboard market is we saw industry destroy returns by adding capacity in recycled containerboard, which resulted in oversupply. So what are the barriers to entry in sack and specialty? And do you think it's more challenging to convert from your traditional graphic paper into these kind of more niche grades? Is there a much bigger competitive moat and more challenges to convert?

Yes. I mean a lot of the recycled containerboard, as you say, has been as a consequence of conversions of the graphic paper from newsprints from fine paper -- uncoated fine paper, coated fine paper into primarily recycled containerboard because again, just to emphasize the point, the issue in containerboard is on the recycled side. The virgin side is also more difficult to bring in new supply. So it's -- in recycled containerboard, you can access the raw material. It's the old boxes basically, and that's a traded commodity. And then the production process, the paper makers will hate me for saying this isn't that complicated, should we say.

In kraft paper, you not only have the challenge, you have to find the right trees, a very particular type of tree I use as example, for example, we've been looking at further opportunities in due course to expand our capacity in kraft paper, not for the moment, but in due course. And simply put, we were looking everywhere, particularly in North America because we have a lot of converting capacity there. And the best option we had was to acquire the Hinton mill, which produces a certain type of pulp, which would be conducive to this type of production. But it's not easy to find sort of this exact quality of pulp that is required. So there is a technical challenge with that. It is a more complicated product to make, not to say you can't always buy in the expertise, but it's not easy, and it is complicated in that front.

But most importantly, as I say, the open market capacity -- open market that's available for any new entrant to sell into is very limited. We are 40% of the European bag kraft -- sack kraft paper consumption ourselves. It's not a big open market for others to access.

And then I want to focus on the other side of the flexible packaging business, more the consumer packaging, which in your teach-in day, you talked about GDP plus growth opportunities. So if we think about this vertical with e-commerce, the consumer side, Firstly, can you focus on the shift from plastic to paper-based packaging? You're benefiting from some trends of paperization. I know you are materials agnostic, but I'd just love to hear your thoughts of how Mondi is positioned to benefit from paperization medium term? And then secondly, in the short term, are you seeing any delays or cancellations to the shift from plastic to paper just because of cost from some of the consumer staples businesses?

Yes. I think -- so there's a broader trend around sustainable packaging. So clearly, with the consumer focus on this with our -- in turn, our FMCG customers and our e-commerce customers and the like, they want to produce for their customers products that the customer feels confident to be buying. And of course, that is about driving a more sustainable offering, making the packaging fully recyclable, renewable, potentially compostable and the like. And of course, that is twofold in our world. That means making either existing plastic solution fully recyclable as a plastic solution or indeed driving, as you call it, the paperization of the product by making a paper-based solution to displace a plastic-based solution.

We have -- we are somewhat unique in that we produce a spectrum of products. And as you say, we are material agnostic in that sense that when our consumer packaging customers are looking for a solution, we will offer them everything from the pure plastic-based solution to what they call the hybrid solutions, combining the 2 to the pure paper-based solutions. And that gives us a real insight into the different offerings that are available, which is simply not available from other potential suppliers. So I think that gives us a huge competitive advantage when driving this whole sustainable packaging dynamic.

We've been very excited by a number of the initiatives we've undertaken. And you can see on this page some of the examples of the sort of things that we've been introducing into the market over the last number of years, driving for more sustainable solutions. And you can see similarly on the bottom of that page, all of the different e-commerce offerings that we have. We don't, on the e-commerce side, produce any plastic-based solutions because we're very confident our paper-based solutions are displacing the plastics. Those of you in Europe might have noticed that, for example, Amazon no longer produces any -- sends any plastic-based packaging to its customers. It's all either in paper boxes or paper bags, which is -- and of course, we are a major supplier in that context.

So we see this as an ongoing trend. I think it is fair to say that in the short term, I mean, the cycle has probably impacted the rate of take-up of more sustainable solutions because, of course, when everyone is extremely cost conscious and focused, it takes longer to switch products into a new solution because in some cases, you need new machinery, new filling machines and things like that. But when it does happen, it's a very sticky business. And everything we hear from our customers is that they remain highly committed to driving towards these more sustainable solutions, and we are highly engaged with them on a number of different projects. It just takes time. But once it's -- once you made the switch, it's very good and sticky business. And that's -- certainly, we're always in it for the long term. So this is something we continue to drive across our business, and we think it is very exciting for us.

Andrew, on the corrugated side, I always used to make the argument that scale with your friend and the relationship with the consumer goods companies was exceptionally helpful because it's the branded goods that often drive the category shifts from plastic to paper or branding or new product ideas. I'd love to understand how you think about Mondi in the context of flexible packaging because I'm just wondering, given your scale and ability to work with customers and machine suppliers, do you think you've got a competitive advantage to take more share of the kind of plastic to paper growth because you can help innovate and do it importantly at scale and the right cost. I'm just wondering how you think about being able to take more than your fair share of growth.

No, absolutely. I think one of the biggest advantages one has if you know both the plastics and the paper-based business and you're trying to transition customers into maybe a paper solution away from plastics and -- is -- and you have understanding of both the production of the substrate, i.e., the paper itself and the converting is the speed at which you can do these things. As with most innovation, over time, it will get copied and call it commoditized.

What advantage we have is we can really move fast with new solutions and offerings to our customers because we have intimate knowledge both of what the paper itself can do and how we can change the properties, et cetera, and the converted products, both in terms of the paper-based solution, but also the -- maybe the incumbent less sustainable solution, be it a multi-laminate structure or pure plastic structure. So these are -- this gives us a real opportunity to move fast with our customers, offer them something really unique.

I was up -- in fact, we took our Board up a couple of weeks ago to our new customer experience center in Northern Germany. If anyone is interested, we're welcome to take you. You might have to put an order for a few hundred thousand units of some packaging product, but we have a fantastic array of different solutions and can really work very intimately with the customers to develop these different solutions. And that is -- yes, that's an inherent advantage, which is very difficult to replicate and gives us that advantage.

And to give people a feel of kind of the pipeline of products that are kind of waiting implementation, how long does it take to implement something at scale? I mean I was surprised when at your recent Flexibles Day, the Head of Flexibles mentioned that even testing mattress wrapped in paper rather than plastic, the testing time for the shelf life was well over a year before it was implemented at scale. So just wondering how long it takes from kind of idea to implementation?

Yes. I mean there's no hard and fast rule of thumb because it can vary considerably. And of course, it also depends on, call it, how radical the shift is from the customer is implementing. And you mentioned that just it's interesting amusing anecdote, but that is for IKEA wrapping, they sell mattresses in a tight roll. It used to be a plastic thing, and now we made a paper-based solution, again, leveraging our competencies and making super strong, burst-resistant paper because as you can imagine, you wouldn't want the mattress flapping open. But that is -- and that's a non-consumable sort of application. I mean, in food and beverage, as you could imagine, the criteria around everything from hygiene and then shelf life and all the other things that you have to be aware of makes it even more onerous in terms of the certification process.

And simply put, when you're, for example, testing how long something can stay on the shelf before it gets stale, the only way to do that is literally put it in the packaging and wait for the 9 months or whatever to go by to see whether it still remains fresh. So those things do take time. So yes, I mean, some of these products we've been working on 2, 3, 4 years even. And we've got a very strong pipeline of that. And again, it takes -- does take time. And then, of course, the FMCG companies are naturally cautious about introducing new solutions because, of course, they have to go through all their customer testing because I remind you again, unlike a lot of the box business, which is more transport packaging, albeit there is a lot of shelf-ready packaging there as well, but it's predominantly transport packaging. This flexible packaging is typically the primary packaging that you see on the supermarket shelf is helping sell the product itself.

When you look at the pet food packaging on the shelf, that's a big determinant of the buying decision of is what the packaging looks like, its functionality, whether it's got zip locks and handles and all of these things. So it is a very important part of the branding and marketing and customer experience. And hence, obviously, the customers -- our customers being FMCG companies and other consumer products companies are extremely cautious about how they bring these things on. But I emphasize again, it is happening all the time. And hopefully, you'll see on your supermarket shelves, there are more and more of these more sustainable solutions that are coming on to the shelves, and we are helping drive that.

And then Mondi has invested EUR 1.2 billion of growth CapEx over the last few years. It's good to see these projects being delivered on time and budget, unlike many others. But what incremental EBITDA are you expecting from these projects? And given that we are below mid-cycle price levels, how do you see that delivery over the next few years?

Yes. I think we've been very explicit on that, as you said, that EUR 1.2 billion of growth CapEx, which is very much over and above the stay in business, et cetera. We said we're very confident in delivering mid-teen returns on that once fully ramped up and on a through-cycle basis. At the same time, we made it clear that we can't -- we're not in a mid-cycle margin sort of situation at the moment. We were explicit in guiding this year to an incremental EBITDA contribution of EUR 50 million to EUR 100 million, depending on exactly what the sort of pricing cycle is looking like on average through the year, and we remain committed to that. So as you say, we're delighted that most of the execution risk around the actual project builds and things is behind us now. Now we are very much in the optimization, production optimization and commercial optimization phase, which does take a bit of time.

I mean the bigger ones, particularly the big sort of new machines, new paper machines and stuff, it's a 2-, 3-year period that you take to fully optimize these things. But we're now well into that phase, and we're very confident in the technical delivery. We're also very confident that the market is there for these products. In the short term, obviously, the exact returns is a function also where you are in the cycle in terms of the pricing dynamic.

And then I'd like to finish up with capital allocation. What are your capital allocation priorities from here? And I'd just love to understand how you think about the balance sheet, CapEx needs from here, your attractive sustainable dividend and how you think about M&A?

Sure. Yes. I mean we always put maybe somewhat boringly, but we think it's important to remain consistent, a slide up, which reminds you that we think investing in our own business does deliver good returns over time. At the same time, I fully respect that right now, we've gone through a big capital investment program we've got additional capacity to leverage into any kind of upturn that comes. And so the focus right now is very much, as I said, ramping that up, optimizing it, et cetera.

So we're not looking at meaningful new capacity expansions at the moment. That time will come again. But at the moment, it's about optimizing what we've just invested in, and that's the big focus. We'll continue to obviously look at other cost optimization type of initiatives on the CapEx front. But realistically, the CapEx -- the total CapEx spend comes off from the kind of levels that we've been seeing over the last couple of years.

Looking after the dividend is always important to us, always within the context of a dividend cover policy. We've always said it's 2 to 3x covered on average through the cycle, acknowledging that we've actually dipped below that because we also think at the same time, you have to try and protect the dividend even in a downturn. And similarly, we also have confidence in the future as that indicates. And then having a strong balance sheet to give us the optionality to move when maybe others can't. You mentioned about buy versus build in a more difficult environment when others can't move, that's often the time where you could pick up things which could add value if you are able to move yourself. And we think having a strong investment-grade balance sheet gives us that optionality.

At the moment, we're a little bit probably somewhere around 2x, a little bit over 2x leverage at the moment. That's towards the higher end of the type of range we would normally be operating in. So certainly, the near-term focus is probably to bring that down a bit. We're very confident in that because the business does generate a lot of cash even in a difficult market environment as we're seeing. But it's making sure that, that's in a good space as always, that we can then take advantage as and when appropriate.

Particularly when the packaging markets ultimately come back and we see those -- that earnings cycle deliver. Andrew, we've reached the end of the 45 minutes. I'd just like to thank everyone that's joined. If you have any questions on Mondi, please do not hesitate to reach out either to myself, Cole Hathorn at Jefferies or Fiona Lawrence, the Head of Investor Relations at Mondi.

Thank you very much for your time. Thank you, Andrew.

Thank you.