Mondi Stock

Hello, everyone, and welcome to this Mondi Half Year Results for 2026. [Operator Instructions] I will now hand over to Andrew King, CEO.

Good morning, everyone, and welcome to Mondi's 2026 Half Year Results Presentation. I'm Andrew King, Group CEO, and I'm joined this morning by our CFO, Mike Powell. I'll begin with some key messages from the period under review, and then Mike will take you through the financial performance in more detail. I'll return to provide an update on the performance of our business units and discuss some of the current market dynamics before taking you through various of the actions we are taking to strengthen our competitive advantage in what remains a volatile market backdrop. After that, Mike and I look forward to taking your questions.

In the first half of 2026, we delivered underlying EBITDA of EUR 379 million, down on the prior year due mainly to margin pressure from lower average selling prices and higher input costs. We were able to partially mitigate these pressures through higher sales volumes, strong cost control and proactive pricing actions through the period. We remain focused on taking decisive action on those areas we can control. Tight control of working capital mitigated the fall in earnings, allowing us to generate cash from operations of EUR 347 million in the period, while lower capital expenditure also contributed to a stable net debt position.

We continue to take actions on cost, operational excellence and portfolio optimization while ensuring we are well positioned to serve our customers with our broad range of innovative, sustainable solutions. These actions, together with the significant competitive advantage we continue to enjoy as a business, ensure that Mondi is strongly positioned both to withstand the current market pressures and capture the upside as market conditions improve.

With that, let me hand you over to Mike for more color on the financial performance.

Thank you, Andrew, and good morning, everybody. Thanks for joining. Now let me take you through the group's financial results and starting with the main movements in underlying EBITDA for the first half of 2026 when compared to the first half of 2025. We achieved higher sales volumes across most of our packaging businesses, driven by the ongoing ramp-up of our major capacity expansion projects and an improvement in order books, along with a resilient performance in our converting businesses.

Sales prices were on average below the prior year. Pricing across our paper grades declined in the second half of 2025 and into early 2026, resulting in the group starting the year at lower levels. Although price increases were implemented during the first half and with some initial benefits realized in the period, average prices for the half remained below the prior year. We expect to achieve the full effect of these price increases in the third quarter.

Turning now to input costs, which increased with higher wood costs in Central and Eastern Europe as well as the impact of higher energy and other categories due to the conflict in the Middle East. As we entered the third quarter, input costs do remain volatile and based on current spot remain above average input cost levels seen in the first half. Whilst you can see and follow the energy indexes publicly for yourself, let me give you a little more color on Central and Eastern European wood costs, which are firming and may be a little counterintuitive compared to the economic environment.

As the demand for items such as furniture and European wood exports into the Middle East decline, we are seeing less harvested volumes. Therefore, there's less sawmill activity, resulting in lower wood supply and wood chips into the market. Alongside that, unlike Scandinavian markets where there is currently a degree of calamity wood, Central, Eastern Europe has little calamity wood. These factors result in the cost of wood increasing in our Central Eastern European region and will continue to do so in the second half. These inter-European fluctuations are not untypical of what we see in regional markets from time to time.

For forestry fair value, we recognized a loss in the period of EUR 35 million compared to a gain of EUR 18 million last year, and that results in the EUR 53 million delta that you see. This loss was mainly a result of a reduction in local wood prices in South Africa during the period. And while the year-end valuation will be based on prevailing prices at the time and reliance on a number of market input factors in South Africa, such as the export price of wood chips, the exchange rate and the South African diesel price, which, of course, is linked to the oil price, absent any significant changes to the current market environment, I would expect a fair value gain in the second half.

Fixed costs, we worked hard on, were flat year-on-year, excluding the acquired Schumacher cost base, which reflects the continued focus on cost control and driving efficiency improvements to offset inflationary cost pressures. Andrew will touch more on some of these initiatives later in the presentation. Lastly, FX and other totaled EUR 42 million and was mainly attributable to the weaker U.S. dollar versus the euro and hence, was a year-on-year headwind. The dollar has largely been steady actually since the second half of 2025 and even recently shown a little bit of strengthening. Adding all that up results in an underlying EBITDA of the EUR 379 million that you see on the right-hand side of the page.

Now looking now at cash flow movements during the period. And our teams have worked really hard to mitigate the impact of lower earnings. What I've done here is I've simplified the cash flow because as accountants tend to make it rather complicated in the statutory format these days. So I'll start off with underlying EBITDA that you can see at the top of the slide and adjusting for the noncash forestry fair value that I've just taken you through. Then as expected, we had a working capital outflow in the period, which we generally do experience in half year 1 due to seasonality effects as well as the impact of higher prices at the end of the period. Pleasingly, this movement was less than the equivalent period last year. And whilst not shown on the slide, when you do get a chance to look at the balance sheet, you'll see that our absolute total working capital balance at 30th of June 2026 was EUR 122 million lower than the balance at 30th of June 2025. So really a real good testament to the strong focus on working capital management.

Tax and interest paid was higher, mainly driven by the timing of Eurobond coupon payments. That's only a timing issue. Investment in property, plant and equipment was around EUR 140 million lower than the prior year. And we continue to apply rigorous discipline to new CapEx approvals, leveraging our well-invested and well-maintained asset base whilst ensuring we continue to prioritize safety and asset integrity. For the full year, we expect CapEx to be around the EUR 500 million mark. Previously, we guided to EUR 550 million, so somewhat lower than previous guidance and well below last year's EUR 690 million.

I do want to be clear on this. We are not storing up an issue for the future here or risking safety or growth and the reductions are spread across a broad portfolio of smaller projects. Taking all that into account, while earnings were down on the prior year, you can see about halfway down the slide, the EUR 5 million inflow versus the EUR 18 million outflow of last year shows our cash movement generated from the business was largely unchanged.

Dividend payments reflect the return of the full year dividend within cover range. And taking all other items into account, including the acquisition of Schumacher in 2025, net debt was unchanged at EUR 2.6 billion at 30th of June 2026. While leverage is higher at 3.2x at the end of the period, as can be seen at the bottom of the page, this is really driven by the lower 12-month trailing EBITDA, which does include a fair value loss for both of the periods shown. Moving forward, we expect leverage to reduce, supported by both the ongoing focus on cash management and the improving trading momentum.

I now want to set out our robust financial position. We successfully refinanced our EUR 1 billion RCF facility during the period. We also repaid the remaining balance of the Eurobond that matured in April 2026, which we'd already refinanced in October last year. The only notable debt maturity in the near term is the EUR 750 million Eurobond due to mature in April 2028. So we remain strongly positioned with liquidity totaling EUR 1.15 billion, an investment-grade credit rating. And a reminder, we have no financial covenants.

As you would have seen from our release this morning, we've recognized a EUR 320 million of pretax special item charges in the period. This compromised a noncash impairment charge of EUR 296 million and cash restructuring and closure costs of EUR 24 million, which we expect to flow out as cash in the second half of the year. Impairment charges compromised EUR 206 million at our Duino mill in Italy. And whilst Duino continues to ramp up volumes in line with plan, and we remain confident in its long-term future, the current outlook indicates a lower returns profile than previously anticipated with returns highly sensitive to energy input costs and selling price assumptions, both of which are proving to be highly volatile in the current world.

The remaining EUR 90 million impairment charge was split between our Neusiedler uncoated fine paper operations in Austria, the Schwarzenberg solid mill in Germany and the Stambolijski mill in Bulgaria that ceased operations in 2024.

And lastly, technical guidance for 2026. After a normal review of the useful lives of our assets, we've reduced the expected depreciation and amortization guidance for the year to approximately EUR 475 million, which reflects our well-invested and well-maintained asset base. We've also reduced the guidance for the full year impact of maintenance shuts from EUR 100 million to EUR 80 million. This reduction all attributable to the second half.

So to draw to a close, we have and continue to take a number of actions to deliver earnings and cash resilience in the short term whilst continuing to enhance leverage to the upside as markets improve.

With that, Andrew, I hand back to you.

Thanks, Mike. I'll now take you through a review of the business unit performance and thoughts on current market dynamics before again coming back to the actions we are taking to strengthen our competitive advantage.

If I move then to Corrugated Packaging, as you'll see, a highlight was the good volume development across our key segments. Containerboard volumes were up around 12%, supported by the ramp-up of the recent capital investment projects at both Duino and Kuopio mills. While in the box business, we delivered 2% volume growth on a like-for-like basis. In boxes, we continue to see quite divergent regional growth rates with the Polish and surrounding emerging European markets seeing continued good growth and Turkey recovering, albeit volatile, while Germany and Benelux continue to struggle. Despite the generally low growth market, we are encouraged by the pipeline of opportunities in our portfolio, supported by the broader geographic coverage we now offer across Northern Europe as a consequence of the integration of the Schumacher business last year.

In Uncoated Fine Paper, volumes were again stable despite market demand declines estimated at around 3% in Europe as we continue to gain share at the expense of weaker competitors. Margin pressure came from a combination of the lower average selling prices across all key paper grades and the significant input cost inflation. Prices came off through the second half of 2025, as Mike explained, and into Q1 2026 on the back of both the sluggish demand and the ongoing overcapacity in some of the bulk grades of recycled containerboard and uncoated fine paper. In response to the sharp uptick in input costs as a consequence of the Middle East war, we have been successful in implementing a series of price increases across all key grades during the period. Although not sufficient to fully offset the impact of the cost increases in Q2, we do see further benefits from these price increases into the second half.

While largely cost driven, it is encouraging to see that the price increases are also supported by strong order books going into the second half, particularly in the virgin containerboard grades. The focus has rightly been on the continued oversupply in recycled containerboard. However, I note that the supply side dynamics in the niche virgin grades, which is our largest exposure, are very different. There is no significant new capacity in Europe and the large capacity reductions in the U.S. have served to reduce exports to Europe, traditionally an important export market for the U.S. producers.

Steady demand, this has served to significantly tighten up the virgin containerboard markets. We are currently engaging with our customers on further price increases across our range of containerboard grades, supported by both the tight supply-demand balance in the virgin grades and, of course, the ongoing cost pressures we are seeing in recycled containerboard.

Margins in our Corrugated Solutions business were pressurized by the lag effect in passing on the rising containerboard prices through the period and the intense competitive pressures in what remains sluggish growth markets. We also saw a weak performance from the small solid board business acquired as part of the Schumacher acquisition, which Mike referred to in the earlier discussion on impairments.

Turning to Flexible Packaging. We delivered a resilient performance with solid results from our converting businesses, mitigating the squeeze in kraft paper margins. Pleasingly, we were able to deliver good volume growth in improving but still generally low growth markets. Kraft paper volume growth was supported by the optimization of recent investments and resilient export demand. While in paper bags, we saw ongoing good growth in e-commerce applications in both Europe and North America and regional strength in industrial bags in Central America.

Industry volumes for industrial bags in our core European markets remain relatively flat, and we still haven't seen a marked cyclical recovery of the lows of recent years, impacted, of course, by the subdued household construction activity. The business saw significant input cost pressures during the period as higher oil and gas prices filtered through to other inputs, most notably logistics, chemicals and wood, as highlighted by Mike. Through very proactive management, our commercial teams were able to limit the lag effect in passing on these costs in our converting businesses. We also implemented paper price increases during the quarter and early into Q3, supported by both the generally higher cost environment and, importantly, good demand driven by the increasing use of kraft paper and e-commerce applications and steady demand from traditional industrial uses. I'll come back to developments in the e-commerce market later in more detail.

While these price increases had some effect on the Q2 performance, we expect the full impact again to come through in the third quarter. Similarly, though, we do expect a further uptick in the cost base as Central and Eastern European wood costs continue to rise and recent events in the oil and gas markets point to further general input cost inflation, noting, of course, that the outlook here is changing on an almost weekly basis depending on events in the Middle East. We will continue to monitor closely the impact on the cost base and look to respond with pricing actions where appropriate.

In the context of the prolonged industry downturn we have been experiencing, I want to spend a few minutes highlighting the various actions we are taking to both ensure resilience in the short term and support long-term value creation for our shareholders. As a group, we do benefit from operating some of the most productive and lowest cost pulp and paper mills in Europe. Coupled with our strength in integration and diversified portfolio of packaging solutions serving structurally growing markets, we are well positioned for the future. However, we are focused on doing more to strengthen performance, cash generation and competitiveness through a combination of plant network optimization, strong capital discipline, operational excellence and commercial execution.

Our ongoing actions around plant network optimization are tailored to create a stronger, more scalable platform to support growth, drive productivity and cost optimization and improve returns. We've announced the closure of 6 converting plants over the last 6 months. Of these, 2 plants are now closed with the remaining 4 plants expected to close over the remainder of this year. I'll remind you that these plants were profitable, so the upside comes in successfully transferring the volumes to larger, more efficient sites to improve asset utilization and reduce fixed costs while, of course, ensuring we maintain service continuity.

To put this challenge into context, it requires a transfer of around 800 customers supported by careful qualification and transition planning. We are relocating 30 major items of equipment and the 6 closures involve a reduction in head count of around 580 by year-end. We continue to look to optimize our operational footprint to support long-term value creation and will not hesitate to take further action on our portfolio if required.

As Mike has already alluded to, the major capital expenditure projects we have been developing over the past 4 years are now largely complete. Our priority is now to drive cash returns from these investments through both operational and commercial optimization. While we recognize that we are not where we want to be with certain of these projects, as Mike has already discussed in the context of the Duino investment, we are in a position now where we can drive growth from existing installed capacity without the need for further major expansionary CapEx. We can reduce capital expenditure without prejudicing asset quality or mortgaging future upside. As Mike mentioned, for 2026, we are now planning for full year CapEx of around EUR 500 million, reduced from our previous guidance of EUR 550 million.

Our investment program is focused on safety, asset integrity and cost optimization with only highly selected growth CapEx in core markets. A large component of the current cash out is linked to the biomass boiler projects in South Africa, Slovakia and the Czech Republic, aimed at driving cost optimization, energy efficiencies and reducing our exposure to the volatile fossil fuel markets. Again, I want to emphasize, as Mike did, that the reduction in CapEx guidance is not about pushing out urgently needed maintenance CapEx. We are confident that we can run the business with the lower CapEx levels given the well-invested nature of our asset base.

Operational excellence and continuous improvement is part of the DNA of the group. It is core to how we seek to drive competitive advantage and unlock value from our asset base. At our flagship containerboard mill in Swiecie, Poland, for example, paper production has increased by 18% over the past 10 years on the same machine footprint. While in converting, our industrial bags business has achieved a compound annual growth in productivity of 5% over the same period.

Building on this legacy, we are now accelerating the rollout of our Mondi Management System, or MMS, as we call it, across our mill network and extending it into our converting operations. This follows successful pilot projects in various of our key mills. I mentioned this initiative at the full year results, but just to remind you, it is a 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. It focuses on right first-time performance, waste reduction, reliability, operator capability and improved run rates. This is not about quick wins. It's a long-term program designed to embed consistent execution and strengthen leadership capability across our operations.

I'm very excited that early adopter sites are already reducing unplanned downtime and improving operating efficiency, reinforcing our confidence that we can drive operational excellence to the next level, improving competitiveness and cash returns. Again, by way of example, the Swiecie mill achieved 4.3% productivity gains over the last 12 months with production output on selected machines up 11%. While, of course, not all due to MMS, this is clearly a major contributor.

While market growth remains subdued, we are confident that the structural growth drivers for sustainable packaging solutions remain firmly in place. Customers increasingly need partners who combine both broad product choice, innovation, sustainability, secure supply and reliable execution. We are well positioned in attractive end markets such as FMCG and e-commerce, where customers do remain focused on reducing plastic when not required and improving packaging sustainability.

In this market, achieving growth is not simply about pushing products, it is about customer partnerships, technical collaboration and innovation. Some great examples in our collaboration with our leading -- is in our collaboration with a leading Ecuadorian banana exporter to develop a corrugated solution using our smart kraft brown and Frescoflute containerboard. While you'll see from the picture, it's not immediately obvious. The design is around 10% lighter while maintaining the strength needed for demanding export supply chain.

Another example you can see in the top left of these images is where we have supported the transition to a recyclable mono-material solution, which is an industry first for our shelf-to-table tuna product. These examples, and the many more we have, show how our product offering, technical expertise and customer partnerships help us to win customers and capture growth whatever the market conditions.

We do have a particular strength in the strongly growing segment of e-commerce, and I just want to spend a couple of minutes around this. Here, we can support customers across the complete range of fiber-based packaging. Traditionally, e-commerce has primarily been a box business with significant growth seen over the past 20-odd years. It is now a major component of demand estimated to account for roughly 15% of the European box market. While demand here continues to grow, it is undoubtedly slowing as the e-commerce market matures and the major players look to optimize their packaging.

We have strongly focused on supporting our customers in this journey, developing products such as the paper protective mailer, which you see in the pictures in conjunction with a major e-commerce customer. As the leading incumbent producer of kraft paper and paper bags, we have also been at the forefront of supporting our customers' transition to the use of fully recyclable, lightweight and flexible paper bag solutions. More recently, again, as e-commerce customers look for increased efficiencies in their packaging processes, we have been working with machine suppliers and customers to develop automated packing lines that use our packaging materials such as kraft or functional barrier paper. It is in these kraft paper and bag applications that we are seeing the strongest rates of growth currently and a key reason why kraft paper demand is positive going into the second half of the year.

Last year, as you know, we combined our e-commerce sales teams across corrugated and flexible packaging, creating a simpler, more coordinated proposition for customers across all applications and markets. Our broad fiber-based e-commerce range is supported by integrated production, technical expertise and recent investments in Steti, Swiecie, Kuopio and our North American bag network, helping us support existing customers and win new business in these fast-growing applications. Mondi is indeed the home of e-commerce packaging.

In summary then, we are well positioned to deliver short-term resilience and sustainable long-term shareholder value as a leader in sustainable packaging solutions with exposure to attractive structurally growing markets. This is supported by a well-invested, cost-advantaged and integrated asset base. We remain focused on disciplined capital allocation and retaining a robust balance sheet. Importantly, we are taking decisive actions today to drive performance and strengthen our competitive advantage for long-term value creation.

I'll then just finish with the outlook for the remainder of this year. We have seen trading momentum gradually improving through the first half, and we enter the second half of the year with higher packaging prices supported by very good order books. That said, we do see headwinds with volatile energy-related input costs and higher wood costs across Central and Eastern Europe. Of course, we are also mindful of the ongoing geopolitical turbulence in the world.

With that, I would take you back to Q&A, and Mike and I would be happy to answer your questions.

[Operator Instructions] Our first question comes from Cole Hathorn of Jefferies.

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

Thanks, Cole. Yes, I think I've described sort of the economics of the situation. Central Eastern European wood second half on first half, best guess today and pretty likely to happen because you tend to contract forward a little bit. It's probably on its own about a EUR 30 million, EUR 35 million headwind, half 2, half 1, if that's what you're after. Again, first half was up probably EUR 25 million on second half last year. So I'd probably expect year-on-year Central Eastern European wood to be sort of EUR 60 million, something like that.

So hopefully, that's clear. Second half on first half, about EUR 35 million and overall a bigger number. Yes, I mean, price actions have been taken and -- but it does moderate the margin improvement, if you like. So we will get some Q3 benefit of those prices coming through. But obviously, we have got those wood costs coming through before any sort of other energy, energy related. But yes is an answer to your question.

And then, Andrew, maybe one from your side on the pricing actions. Just to confirm, is Mondi out with price increases across containerboard and sack kraft, like further increases to the ones that you've already achieved? And I'm just wondering, is this -- how comfortable do you feel about those price increases? Is it nicely supported by order books?

And maybe following up from that with Duino, given the impairments, I realize the recycled containerboard market is very challenged. But one of the reasons that you originally did Duino was you were going to export volumes into Turkey and Turkey had safeguard measures put against Europe, but Europe doesn't have any safeguard measures against Turkey. When is the time that the industry kind of takes the gloves off and pushes back on some of the Turkey volumes that are coming into Europe on recycled containerboard? And would that be something that you would pursue?

Yes. So firstly, Cole, on the pricing actions, just to be explicit, we are engaged with our customers at the moment on price increases across our containerboard grades. As I said in my comments, clearly, in the virgin grades, we are seeing a very tight supply-demand dynamic driven by a confluence of factors. As I mentioned, there's reduced supply out of the U.S. for obvious reasons. I mean there's huge capacity reductions in the U.S. and export business has never been particularly lucrative. It's more marginal business for the U.S. producers. So it's natural that when they shut capacity in the U.S., the first market that they stop serving is exports.

And of course, that's probably exacerbated now by the significant price increases we are seeing being implemented in the U.S. So that's made Europe progressively less attractive. And of course, the marginally stronger dollar over the last quarter or so has probably also supported that, but that hasn't moved particularly much. But one also has to recognize that has been a big topic is the sort of weak dollar more generally. But -- so any strengthening of the dollar does undoubtedly support European pricing dynamics as well. So yes, it's across our grades.

On the recycled side, I mean, it goes without saying that it is more cost driven. Everyone knows about the oversupply issues on the recycled side. But as I think we've said on a number of occasions, there simply isn't the margin to play within the industry at the moment, particularly given the elevated input costs at the moment. As you know, the recycled cost curve is particularly exposed to external energy, to gas and other forms of external energy. And with these elevated gas prices, the whole cost curve has moved up. Margins are under enormous pressure across the cost curve. And that is simply the main driver there. But as I say, on the virgin side, and across the piece, our order books are very good.

You mentioned about kraft paper, we are not out with the price increase on kraft paper at the moment, albeit we are very encouraged by, again, a strong order position, as I said, stable demand out of, call it, the traditional industrial sources of demand. Europe is okay. It's still not kicking on from the cyclical lows we've been seeing, but that is not hard to understand given the ongoing geopolitical issues and the impact that has on consumer confidence that people are not building that extension to their house or investing in a new kitchen or something like that, that uses the bags for our products.

To the extent they were, I mean, it's still okay. Export markets are decent, and that's encouraging. And as I say, we are seeing quite strong demand from nontraditional uses of kraft paper, most notably the e-commerce, which is what I was discussing in terms of some of the movements in the e-commerce market, which is driving demand for our kraft paper applications and our coated products and the like, which is very encouraging. It's tightening up those markets. So we go into the second half with a very strong order position there.

And maybe just your last question on Duino specifically, you're right in that one of the logics behind Duino in the first place was we are short of containerboard in our Turkish operations. We saw this as an opportunity to have leverage into the Turkish markets because Duino is well placed logistically to supply into Turkey. But as you rightly say, there have been significant safeguarding measures put in place that effectively make it prohibitive to export containerboard into the Turkish markets from Europe.

I think it's a bigger political question as to when the gloves might come off. I think it's a topic more broadly for Europe in that as an industry, we often feel like we're fighting with one hand tied behind our back, not that we need safeguard per se. But of course, when others play that game, then it is difficult if Europe doesn't respond. But all you really are asking for is a level playing field, and then we think we can compete very confidently in global markets. But at the moment, you're not seeing it. You see it in other sectors from, for example, Asian volumes into the fine paper markets and things like that, not we believe competitive delivered into Europe, but they are bringing some volume in at different times. So yes, I think it's a broader topic. And of course, as an industry, we discuss these matters. And certainly, we would encourage anything that provides something of a more level playing field.

Our next question comes from Brian Morgan of RMB Stanley.

Just a question on Germany. You called out that it's still quite weak. Eastern Europe is pretty strong and you say in Germany, it is pretty weak. We've recently seen PMIs, manufacturing PMIs pop above 52, first time in years that we've seen manufacturing PMIs pop up that high and certainly above 50. Are you starting to see that come through in your business yet?

It's a good question, Brian. If you look -- and you're referring specifically to the comments I made on the corrugated business, where obviously you look very much on a regional basis. And so in order of magnitude, I think first half industry numbers suggest Germany was still flat to even slightly backwards, whereas see Poland, for example, is 4%, 5% type of growth rates. But as you rightly say, I mean, it does look like some of the macro indicators are turning somewhat more positive.

And it is fair to say our order books into sort of June, July did start to show quite an encouraging pickup. But 2 months doesn't make a summer, especially these days in Europe. And so I think we -- one has to be a bit cautious about interpreting that into a general trend. But yes, I would concur that what we're seeing on the ground does seem to reflect an improving environment relative to where we've been, but clearly, early days yet, but at least encouraging, I agree.

Is it too soon to start thinking about CapEx? You've cut CapEx to maintenance CapEx. Is it too soon to start thinking about the next level of growth?

Yes. In short, we're very conscious. We've spent a lot of our shareholders' money in expanding our capacity. We do have, call it, capacity to allow us to grow into growing markets and support growth in these markets through a combination. I mean, essentially, when we bought Schumacher, we knew there was a lot of latent capacity there. That was part of that logic. And so we're very confident. Of course, there's always smaller debottlenecking things that might make some sense, but that's very much in that bigger program that we talk about.

And so it's not -- there's no need for us to make significant investments on the capacity side in order to be able to support the growth that we see going into the market. Where we do spend a bit of, call it, expansionary CapEx at the moment is, for example, we've done some work in our North American bag business, where we essentially consolidated into a single plant in a lot of our e-commerce business because there's a very strong growth in e-commerce demand for paper bags at the moment in the U.S. market, and we're adjusting to that. But these are very selective smaller CapEx. We are very confident we can work within the kind of CapEx quantum that we spoke about in the commentary and still facilitate the growth that we hopefully can start to see in the markets.

Our next question comes from Detlef Winckelmann of JPMorgan.

Maybe to start, I mean, we're hearing a lot of news regarding testliner price increases going ahead. I fully understand that is cost driven. I want to get a sense on the kind of supply-demand dynamics downstream at the box level and whether we're struggling to implement all those testliner price increases downstream or not?

And then maybe my second question would just be maybe an update on where we are with Duino right now. I mean, if I think about Italian electricity or energy price is extremely high in H1, presumably still in the ramp-up phase. Just curious how we should be seeing that progress. And if you're willing to share maybe like an EBITDA number, but EBITDA kind of qualitative assessment, I suppose, going forward.

Sure. So firstly, in terms of the box supply-demand, I mean, just for those comments with Brian, we're seeing different rates of growth in different regional markets throughout Europe. I think if you take Europe as a whole, it's sort of in the 1% to 1.5% growth year-to-date. If you see the industry numbers, I think they were a little out of date, but they -- in that order, which, on one hand, has -- I mean, the very positive thing is it's progressively got better.

I think the May numbers were pretty strong. They just came out the other day. And it just reflects what we feel, which is that there has been a bit of a pickup in momentum over the last couple of months. And as Brian rightly pointed out, the economic indicators feel a bit better in some of those very important markets like Germany for us. And that does feel like it's picking up through the order situation. But it's been difficult in the first half or first quarter really, then it started to improve a bit. Clearly, we have the normal lag effect that comes through when you're getting containerboard price increases. It does take time for that to come through the boxes. It's always the case.

We always say it's a kind of 3- to 6-month lag effect, and that holds true. So it's a work in progress, frankly, in terms of implementing the price increases that have been coming through in the box -- sorry, in the containerboard and pushing it through into the box business. There is a lot of competition out there. That's undoubtedly the case, but it is encouraging that we are starting to see a better demand picture. And of course, that all helps in terms of pushing the containerboard prices through, which need to happen because the box market can't absorb these sort of price increases.

Maybe then just -- sorry, on your question on Duino. Yes, I mean, obviously, Duino is very much still in ramp-up, which has a few effects. Clearly, every tonne you produce, you're getting a lower unit cost of production because you've got an immediate fixed cost base that you then have to leverage off. We would estimate that this year, we probably -- it's 420,000 tonne nameplate capacity machine. I think we'd probably land up doing around depending on market conditions, et cetera, as well, but probably around 300,000 tonnes this year, plus/minus out of that machine. So clearly, next year, we'll see the further step up. And certainly by the end of -- well, second half of next year, you should be at, call it, full run rate, all else being equal from a technical perspective.

Very important, though, when you bring this sort of volume into the market, you do it in a coherent way. And so we're working very hard with our customers to bring it in and supply the right customer base. And so the mix effect changes over time and that we're working on continuing to optimize. But of course, as Mike said in his comments, the ultimate returns here are -- there are 2 huge variables at the moment.

One is input gas prices and the other is, of course, the selling price. The selling price is something one always knows is volatile. Of course, there's gas. It's relatively unprecedented in the European context for obvious reasons why the gas price is particularly volatile. And of course, Italy is very exposed to that and this mill in particular is exposed. So we had to factor that all in when thinking about kind of the return profile in the short term. But nonetheless, our focus there is driving it to full production that gets you much further down the cost curve, and it will be a resilient long-term player there. And then at those -- at the cost levels when it's optimized and an important part of the whole integrated system.

Our next question comes from Gabriel Simoes of Goldman Sachs.

So my first one would be on the fires that we're having in Southern Europe at this point. So we just saw news that Smurfit Westrock was shutting down their kraftliner plant. And I wanted to get your views on the impact that, that would have in the supply and demand and in prices for kraftliner. And also the impact that you're seeing on wood costs in that region and if any impact to Mondi in particular because of these fires.

So the second question would be on the capacity that we see coming online for testliner at the end of this year, beginning of next year. So whilst you're still ramping up the sales volumes in Duino, as you just mentioned, so I just wanted to pick your brains on how you're seeing this additional capacity progressing. And if you see more potential for newsprint conversion still given the recent announcement that we had from one of your competitors now. I understand that the solution for this market would be potentially capacity shutdowns given the amount of capacity that is coming online to the testliner market. So we saw Smurfit shutting down plants in the U.K., but just wanted to see if you guys see more moves starting to happen there from a supply adjustment perspective.

Yes. We can address those. So firstly, I mean, on the fires, our first thoughts are obviously with all the people directly impacted by this. And our thoughts and best wishes go to everyone in these regions impacted by these horrific events and of course, also to our industry colleagues in Smurfit and the Smurfit factory or mill, I think what you're referring to there. And we wish them all the best in managing an extremely difficult situation, no doubt.

So I think it's first and foremost to remember all the real people involved in managing these situations. In terms of the impact on the industry, you would have to -- I don't know what the prognosis is right now. Clearly, in the short term, it must cause supply side disruptions. So we'll have to see how long that is for or not. But this is a big market. And obviously, there are different supply side dynamics taking place all the time. So I wouldn't want to overplay it, and we'll have to understand from a market perspective and also from a customer perspective because we all want to look after the customers here, how this might impact them. And obviously, where we can help, we'll certainly be available.

In terms of impact on wood costs, so firstly, obviously, it's not a wood basket that we are exposed to at all. The wood baskets that we operate in is very much Central Eastern Europe and also Scandinavia and then, of course, South Africa and Canada. So we don't have any particular insights, frankly, into the impact or otherwise on the wood supply situations in Southern Europe. So again, I think there are other people who would be better qualified to answer that question for you. So I'm afraid I just don't have any particular insights.

Certainly, we're not seeing any direct impact on the wood markets that we serve at the moment, albeit, frankly, for other reasons, we've seen pressure on wood costs perversely largely as a result of the Middle East wars and the impact on the sawmilling industry as a consequence of that. In terms of RCB capacity additions, yes, I mean, this market is an oversupply and any new capacity only exacerbates that in the short term. Clearly, everyone's got their own rationale for adding this sort of capacity and no doubt it makes sense for the player involved. But of course, it does exacerbate the market oversupply more broadly if it comes on indeed at the time frame, et cetera, as indicated.

I mean what we are seeing with a number of these big projects is that they seem to have been pushed out or delayed for a variety of different reasons. So yes, I mean, it's obviously the U.K. market, which will be directly impacted because, of course, there are 2 big machines coming on in the U.K. But of course, it has a knock-on effect throughout the European market. So we'll have to see how that plays out.

That being said, as I said already and the reason why there's pricing momentum at the moment is people simply aren't delivering into these kind of cost -- into these sort of price levels. Industry stock levels are actually in pretty good shape at the moment, which you would say is maybe counterintuitive given the given the supposed oversupply, but it's a reflection of the fact that there is simply no margin to play with at the higher end of the cost curve. So you're seeing that play out.

So we'll have to obviously watch like we all -- we always do with the supply side, what's happening and how that might impact markets in the medium term. But I think to your point, it does highlight the need for probably further capacity rationalization at the higher end of the cost curve. And undoubtedly, there's a lot of smaller, higher-cost mills, which will become under even more pressure if this oversupply continues to lead to the margin squeeze we're seeing at the moment.

You've asked the question, are there any more newsprint machines? I mean there are other newsprint machines around. I mean the -- I don't want to say the uniqueness of this one, but one of the opportunities that this one has, which, again, I don't know the machine directly myself, but I know enough about it, is it was obviously a recycled-based newsprint machine. So it has recycling capacity already on site, which obviously has to be adapted and the like for a different grade, but you're not starting from square one. A lot of the newsprint machines historically were also based on virgin pulp, which is a totally different setup for the mill and the like. So probably not as conducive to conversion as maybe this one was.

Our next question comes from James Twyman of Prescient Securities.

Congratulations on very good results in extremely difficult circumstances in Q2. My first question is just on sack paper. Obviously, this is your biggest business. You're not talking about price increases, but I suppose we can still hope that there will be some later in the quarter because it is a quarterly price increase. But could you give us some quantification of how much of your sack paper is produced in Eastern Europe where you've got this wood cost issue? And how much is in Scandinavia where you don't have that issue? Just trying to understand whether this is a margin pressure issue over the next 6 months or not?

And secondly, you were very helpful in terms of giving very clear guidance on these wood cost increases in Central and Eastern Europe. And I was wondering whether you might be able to do something similar on energy and freight. And before I go, just very briefly, working capital was up EUR 94 million in the half. You did call out the fact that you're improving it substantially. So given that it's a seasonal increase normally and you've had these cost increases, where would you see working capital for the year? Could you get it down for the year given the improvements that you've made? Well done again.

Thank you, James. We'll take any compliments going. But -- but you are right in the sense that I should again emphasize what a huge effort it's been for our teams to drive these pricing actions that we did need in a very short order given the huge input cost inflation we saw in a very short space of time and also all the other cost control measures that the teams have been working feverishly on throughout the organization. So I will pass on your thanks to them. Thank you.

Just on the questions you've just raised. So firstly, on the kraft paper prices, I mean, I would just remind you we have been implementing kraft paper prices. So I think the question was, are we currently in the market with a further price increase. So just to be clear, we implemented some price increases in Q2 and into the beginning of Q3. As you say, there's a lot of kind of contract business, which invariably means you have to wait until the kind of period end to push it.

But we've been -- we did implement increases. I think the question was, is there a further increase in train? And the answer is no at the moment. But as I emphasize, the order situation is tight, and we'll continue to assess what the next step should be.

In terms of that question on the CE Scandi split, we have one mill in Scandinavia in this particular segment, which is Dynas in Sweden. All the rest of the production is in that Central European wood basket essentially. So it's primarily Steti and Frantschach mills. So yes, it's the majority.

So undoubtedly, yes, this segment is being impacted, of course, by the wood cost this wood cost inflation. And we're not going to break it down for you, but it's -- the total wood cost effect is of the order that Mike referred to. If anything, on a proportionate basis, it's probably a little bit more in this business than it is in corrugated, given the corrugated also has exposures in other markets. Of course, we also have Hinton in Canada here. But from an impact, that's not a kraft paper mill that reports into flexible packaging, but it's a market pulp. Maybe, Mike, you could comment on the energy, freight and working capital.

Sure. Yes. No, I mean if I take energy, the answer changes if you'd asked me 2 weeks ago to today, we tend to look at gas as the indicator and we tend to look at cost per megawatt hour index, which a couple of weeks ago was at 45. Today is at 60 and has been probably for the last week. So it spiked up as unfortunately, the conflict occurs. So it's pretty volatile. In terms of the -- if it's stuck at spot today at, call it, 60, half 2, half 1, just doing some quick math, is probably EUR 20 million to EUR 30 million. But it's -- whilst I'm pretty confident on the wood increase, unfortunately, I would say there's a range on gas. So it can drop quite quickly because it's gone up quite quickly. So the range is probably somewhere between EUR 0 million to EUR 30 million headwind half 2 on half 1. Of course, July will have that cost. So again, I'd be quite quick to caution on people getting too excited about Q3 because the cost base in July is a lot higher than the cost base was in June.

As Andrew said, we're agile. We can manage around it. But people are, of course, about quarters-on-quarters. The cost in July will be at the 60-ish number. So about -- to answer your question, James, sort of north of 30 to on energy. It does knock on to other things. So things such as fair value valuations. I don't always enjoy talking about it because it's a complicated thing. But again, we should just be aware that that depends on South African diesel prices, that's linked to oil. So you touched on freight, and I guess that's partly from the competitors' results to talk quite a lot about freight.

I think we're managing our freight costs very well. But if I can sort of broaden it to oil and oil related costs, at the moment, we're not seeing those, but they do knock on to things like fair value, put some risk into that number for the second half, and they could knock on to other things. We haven't seen that yet, call it, in the month of July forward. But again, that's pretty volatile right now.

And then the last question, I think, was on working capital. Working capital, I always say, if the business is growing and prices are going up, you have more expensive inventory and more expensive trade debtors. That's a good thing. So we would normally have an inflow in the second half, and I'd expect that here right now. But of course, if I'm wrong when I sit here in 6 months, it will be for good reason. It will be because the business is growing, there's momentum into 2027, prices are higher and inventories are therefore more expensive in stock, and therefore, you're carrying in absolute terms a higher working capital balance, obviously, lower as a percentage of revenue.

What I will assure though, is we'll continue to make sure that that percentage of revenue continues to fall as we continue those actions. So it sort of depends on the momentum into '27, James, as I'm sure you'll understand. But absent anything else, normally an inflow in the second half. If we don't get it in 6 months, it will be because the momentum has changed and prices and margins are increasing.

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

Our next question comes from [ Temba Condi ] of Excelsior.

I just have 2 questions actually. So regarding the capacity reductions in testliner in the U.S. and the reduced sort of EU imports, I just want to know how much of that -- sort of how many tonnes of testliner used to come in? Because I'm just trying to get a gauge of how much of the price increases are due to that? And how much are due to the cost -- the input cost pressures that you guys are facing? And then the second question would be just regarding the converting plant closures. So how much sort of costs are you taking out? And how much are you saving because of that?

Let me take the second one first, Temba. On the -- we said in the past and it continues to hold, those closures, the sites collectively are profitable. So what we're actually doing is moving volumes to sort of larger scale, more efficient plants. So the -- it's really important to transfer the customer successfully so we continue to service the customer, but these aren't loss-making plants. So you don't gain profitability, you gain efficiency and productivity at the new plants. That's something we always do.

We've done a bit more of it recently for obvious reasons, but it really just helps us offset cost inflation elsewhere so that we can continue to invest in things like e-commerce. We can continue to pay our people, which actually are super important to us to retain their skills and knowledge. So it helps us really offset cost inflation is the way to think about it. You actually saw that Q2 as well. I mean the numbers were good because we made some really good controls around our cost base, but it really contributes to that. So what you shouldn't do, for example, is take the number of heads and multiply it by salary because, of course, you have to transfer the gross profit to the other sites, too. So it really just helps us keep control and keep our costs flat, which going into this year, I said we could do with those closures. I think we've proven in the first half, we've done that. We'll continue to demonstrate that in the second half. Andrew?

Yes. And I think just on the thing, I was just checking my numbers because I couldn't remember the exact statistics. But if you take it historically, the U.S. was probably 500,000, 600,000 tonnes into the European market. Now that's been coming down progressively over the last few years. I think last year it was about 350,000, 400,000 somewhere around there. And we're seeing further quite meaningful reductions this year, and it seems to have accelerated a bit. So the point being it's quite -- it's relevant in what remain -- the virgin containerboard market is 6 million, 7 million tonnes, that sort of order of magnitude depends how you define it exactly in Europe. So that scale is, call it, one pretty decent-sized machine. So in what is a relatively small niche market.

And one also has to remember, we sell a bunch of different containerboard grades. It's not all a homogenous thing. It's unbleached kraftliner. We have what we call our hybrid products. We have the semi-chem products. We have white top products, all of which have their own dynamics to some extent. So it's always a bit dangerous to look at it holistically. But in simple terms, yes, it's relevant volumes which have reduced. But I emphasize that's one component of it. The demand side is decent. No capacity additions in Europe. If anything, there's been some sort of production interruptions and things, which have tightened up the markets.

And as I say, less imports from the U.S. And if anything, probably the export markets from Europe have become a bit more attractive as well. For example, we sell into Latin America and the like and the U.S. guys are probably a bit reduced into those markets as well. that's attractive for us and particularly if the dollar strengthens, it becomes more attractive. So it's a whole confluence of factors, Temba. So I wouldn't focus on any one of those. But undoubtedly, this U.S. exports, and that's a structural thing. Frankly, it never really made sense for them to be so exposed to Europe as an export destination because the pricing is typically not as attractive as you can receive.

You should always try and sell as close to home as possible. And so it's logical that this capacity rationalization in the U.S. has led to probably a disproportionate impact on their export markets. And just to emphasize, it's -- they've closed virgin containerboard capacity, I think you alluded to recycle. It's pretty much all virgin capacity that they've been closing because these are old underinvested virgin mills that then come to an end of life and they have a CapEx call and they choose to close them. But you have to ask others about exactly their rationale for the closures.

Okay. Operator, we'll take the last question, if we can.

Absolutely. Our last question comes from Andrew Jones.

Just to follow up on that theme about containerboard pricing. To give us some data points, how much do you think costs have gone up per ton of testliner year-to-date as we stand now with gas and OCC where it is? I'm trying to contextualize that the price hikes in the context of how much cost inflation we've seen. I mean EUR 80 from Smurfit yesterday seems pretty high to me in a market with a mid-80s operating rate and a load of capacity coming back end of the year. So like how extreme is that cost pressure would be the first question. And then I have a follow-up.

I mean it's difficult -- I mean it's hard to know where you start and where you finish on these sort of calculations. If you -- if I guess the question is, from the beginning of the year to Q3, are we seeing some margin expansion if you take both sides of the equation, the price increases versus the cost inflation, yes, we are seeing some margin -- we should see some margin expansion, but that's off an extremely low base, I keep reminding because Q1, we've seen the worst of these price declines into the first quarter, and then it's been building back off that.

I don't think -- I think it would be wrong of us to kind of throw out a cost per tonne number because the other problem is it's -- every mill has different exposures and the like. Clearly, in Sweet, for example, where we make recycled containerboard is a very different exposure to Duino because Dinos gas, Sweet is an integrated mill producing a lot of biomass energy and the like. So -- but in simple terms, yes, we're seeing a bit of margin expansion right now, but it's off a terribly low base. And in my humble opinion, it's not enough to rescue this industry. We're still seeing massive sways of loss-making capacity out there.

True. And just a follow-up to that, the kraftliner spread over Testliner is pretty high by historical standards now. I mean if Testliner does go down back end of the year as all this capacity materializes, I mean, a, is that current spread sustainable? Does it have to contract further? And I mean, how much of a headwind do you see from returning U.S. capacity? I guess, back end of the year, some of those export-orientated mills was a bit of production coming back after some maintenance. So I mean, there's quite a few bearish factors there. I mean, how do you sum those up? And what is the sustainable spread for kraftliner test in your view?

Yes, I don't think there's a magic number. I mean we've been saying for some time now, it's logical that the spread widens simply because the supply side dynamics on the virgin grades is materially different to on the recycled. It's simply that much more difficult to bring in cost competitive virgin, whereas on the recycled side, I mean, and that's where all the new capacity has been coming in both in Europe and the U.S. and it's fairly logical. At the same time, in Europe, the transition -- the easy wins in using recycled over virgin have pretty much taken place. Of course, if the price premium gets too extreme, you get more and more innovative in using a recycled product. And so you're never going to see a decoupling of the 2. I mean, because on the margin, you can substitute.

But there's a clear logic as to why that price premium should be bigger than it was historically. I remind you that, if anything, over the course of the first half of the year, that premium has narrowed somewhat because the price increases in recycled have been greater than on the virgin side. And so you've seen a narrowing, if anything. So yes, I mean, in short, I don't know what the magic number is in terms of a sustainable price premium, but I do know that it's very clear why it should be bigger than it was historically. And as I say, the easy wins in terms of substitution have taken place. but only to aware that you cannot continue to drive pricing on the virgin side unless you also see the recycled side over time improve.

Very good. We've taken far more of your time than we had asked for originally. So I do appreciate your patience and staying with us. I appreciate, as always, the interest. If there's anything to follow up on, Fiona and team and myself and Mike are available. So please come back to us. But just in summary, we are encouraged by an improving trading environment. Clearly, we've been pushing price increases. We see further opportunity in that regard going into the second half.

Having said that, as we keep reminding you, there is cost inflation around. When we say things are volatile, we mean volatile goes up and down, and we don't know, simply put because I don't think anyone has any great insight in that regard other than we can point to certain cost items that are going up. But nonetheless, very encouraging in terms of the improved trading environment, and we are certainly well positioned to serve our customers in that environment to continue to grow with our customers with our fantastic range of products that you see hopefully on the screen behind us. And we'll continue to manage the business extremely tightly in what remains a volatile but we believe improving environment.

So with that, thank you very much for your interest, and we will no doubt keep in touch. Thank you.

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.