Earnings call transcript: Mondi Q3 2025 sees stable packaging amid challenges

Mondi PLC reported its third-quarter financial results, highlighting a stable performance in its packaging converting operations despite subdued market demand and declining pulp and paper prices. The company, with a market capitalization of approximately $5 billion and revenue growth of 5.54% over the last twelve months, saw its stock increase by 0.5%. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculations, presenting a potential opportunity for value investors.

Key Takeaways

• Stable performance in packaging converting operations.
• Additional €10 million in cost synergies identified from Schumacher acquisition.
• Capacity expansion projects expected to contribute €30 million to 2025 EBITDA.

Company Performance

Mondi PLC faced a challenging third quarter as subdued market demand impacted sales volumes, and pulp and paper prices declined across most grades. Despite these hurdles, the company’s packaging converting operations maintained stability, supported by strategic focus on operational efficiency and cost control.

Financial Highlights

• Revenue and earnings specifics were not disclosed.
• Additional cost synergies from Schumacher acquisition: €10 million.
• Expected net incremental contribution to 2025 EBITDA from capacity expansion: €30 million.

Market Reaction

The stock price of Mondi PLC increased by 4.2 points, reflecting a 0.5% rise. Currently trading at $11.29, near its 52-week low of $11.03, the modest stock movement indicates cautious optimism among investors. InvestingPro data shows the stock’s RSI suggests oversold territory, while the company maintains a strong Altman Z-Score of 7.0, indicating robust financial health despite market challenges.

Outlook & Guidance

Mondi maintains a cautious short-term outlook due to macroeconomic conditions, anticipating continued market softness in the fourth quarter. The company is focusing on cost control and productivity improvements while expecting potential consumer confidence recovery. With a P/E ratio of 22.58 and strong fundamentals, detailed in the comprehensive Pro Research Report available on InvestingPro, the company appears well-positioned to navigate current market challenges.

Executive Commentary

Andrew King, Group CEO, emphasized the company’s focus on margin management and cost optimization, stating, "We remain relentlessly focused on margin management, on cost optimization." He also expressed confidence in the medium-term growth dynamics of the packaging businesses.

Risks and Challenges

• Subdued market demand impacting sales volumes.
• Declining pulp and paper prices across most grades.
• Prolonged cyclical downturn in packaging and paper markets.
• Intense competition in shrinking markets.
• Potential industry capacity closures, especially in recycled containerboard.

Q&A

During the earnings call, analysts inquired about potential price dynamics in kraftliner and testliner and the rationale for business unit reorganization. The company addressed capacity ramp-up challenges in the current market environment and confirmed a forestry fair value gain expectation of around €60 million for the full year.

Full transcript - Mondi PLC (MNDI) Q3 2025:

Andrew King, Group CEO: Good morning, everyone, and thank you for joining today’s call at short notice. As said, I’m Andrew King, Group CEO, and with me is Mike Powell, our Group CFO. As you all 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 million for the quarter. Across the period, we saw subdued market demand impacting sales volumes in the upstream pulp and paper businesses in particular.

And since we last reported results at the 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 NOK10 million of cost synergies, taking the total identified synergies to €32,000,000 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 organised into two business units in large corrugated packaging and flexible packaging, which remains unchanged. All our capacity expansion projects are ramping up and we remain confident 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 heavily influenced by prevailing market conditions, meaning the net incremental contribution to full year 2025 EBITDA is now expected to be around €30,000,000 We are ensuring that all ongoing capital expenditure is focused on stay in business CapEx 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 it back to the operator.

Thank you.

Call Operator/Moderator: Thank you. Just to remind our audience please, if you wish to ask a question, Our first question for you comes from Charlie Muir Sounds. Charlie, please unmute and go ahead and ask your question.

Charlie Muir Sounds, Analyst: Good morning, guys. Can you hear me okay?

Mike Powell, Group CFO: We can. Thank you, Charlie.

Analyst: Great. Yes. Thank you very much for taking my questions. So I had two, please. Firstly, you talk about increased focus on costs and actions in that regard.

I just wondered at this stage whether you had any particular program in mind, 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 a element of destocking amongst your customer base going on?

Or are they exposed to end markets, which are different to only converting operations and therefore there’s sort of uneven weakness out there? Thank you.

Andrew King, Group CEO: Thanks, Charlie. On the first question, clearly we have a philosophy around continuous improvement. That being said, clearly at times like this one looks to accelerate wherever possible around, call it, the cost takeout initiatives. We are working through a number of programs, some of which are very much, call it, shop floor led. A part of the rationale, we’ll talk about it around the reorganization of our business units, is about driving very much a shop floor efficiency and and productivity excellence initiative.

And simply put, it’s easier to run all 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. 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 Okay. On your question, the demand side softness, I think it I think it can’t all be subscribed to a destocking. So you’re right in that the underlying sorry, the converting businesses held up pretty well from a profitability perspective. But undoubtedly, you know, there’s a fight for share in in those markets where demand, you know, it’s not it’s not I hesitate to say, 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 are not in any kind of rebound phase at this stage on the demand side in the at the at the underlying converting level. And where we are seeing softness, of course, is that translates across the value chain and and up into the paper businesses. So we have been taking some downtime in our paper businesses, which, of course, has big profit implications because we’re carrying a big fixed cost base.

But that is a necessary response to what what remains a very subdued land side environment and clearly coupled in certain cases by by oversupply problems with with big capacity expansions, particularly in the recycled containerboard spaces 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 throughout the value chain.

Analyst: Many thanks.

Call Operator/Moderator: Thank you. Our next question is from Lars Kjellberg at Stifel. Lars, please unmute and go ahead and ask your question.

Lars Kjellberg, Analyst, Stifel: Yeah, thank you for taking my 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 a sense of, call it, the maintenance costs in the quarter and what we expect to have in the balance of the year? Also FX, does that play a role here? There’s been some significant movements of course and the dollar has been particularly weak. Does that play a role? And the final question is about the restructuring that you talked about of merging the fine paper business with the sort of corrugated packaging business.

I guess there is some overlap at Resembrolk and Richards Bay, but from the outside, of course, that reduces the visibility in the earnings space. So what what are the real benefits from bringing those two businesses together?

Mike Powell, Group CFO: 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 $40,000,000 in Q3 and $40,000,000 in Q4. We took about $50,000,000 in Q3, and I’d expect the same roughly number in Q4.

So maintenance shuts up 10 in both quarters. In terms of FX, yeah, the dollar continues, as you say. It’s probably, again, in the round, probably $5,000,000 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 5,000,000 impact.

As I say, it’s quite a difficult number to really pin down, but is of that order, Lars. Andrew?

Andrew King, Group CEO: Yeah. And I’ll just add on the the currency story, Lars. I mean, clearly, it has a a a bigger impact in a softer environment 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, you know, has has negative mix effects. So it’s it’s it’s it’s it is an important driver in that context, probably more so than than in the the straight transactional exposures that referred to.

Just in terms of your first question on the demand side weakness, is it how much does it look sequentially? I mean, firstly, very clear, as you could imagine, it’s it’s only just the 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 and the like have been moving over this period. I don’t suggest it’s got materially worse, particularly in the, you know, in the packaging side. It just hasn’t got better.

And, you know, 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 I don’t think we’ve got August and September. Look. They haven’t been published. So, you know, 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, you hasn’t got worse, just hasn’t got better. Fine paper, maybe I think I mean, you you saw a sharp decline in 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 and integrated producers, and that is now translating into margin pressures with, you know, both both pulp prices having come down when we exposed directly to that on the with the long pulp position, but also the impact it’s having on paper prices. And then in in in kraft paper, again, if you look at the underlying bag demand, it’s it’s it’s okay.

Kraft paper product demand in the first half was quite weak, and I think that’s continued into the second half. And again, that is now putting pressure on pricing, and that’s probably is going to new news relative to what we have seen at the half year. 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, you know, we report as we run the business.

We’ve we’ve run on a value chain basis, and we think that that’s appropriate because that gives the necessary customer focus, 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 business 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 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, Suicci being a flagship there, Adreno, Cupira, and 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 our businesses to the next level of operational excellence. So that is the motivation behind it. Obviously, that also allows some streamlining of of the corporate overhead and assuring that we’re ready to get faster and more agile than than we’ve ever been before.

So for all of those reasons that we are combining those two businesses into a in this reorganization, when you’ve got all the history of the two businesses, simply put, if you add those two numbers together that you get you get the combined the combined business, so it’s it’s very easy to compare historic performance versus what you’ll be what we’ll 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 that those are the reasons we we did it. I appreciate that has a reporting implication, but no doubt Mike and Fiona will help you understand the respective numbers there.

Mike Powell, Group CFO: Thank you, Lars. Operator?

Call Operator/Moderator: Thank you. Our next raise hand is from Brian Morgan at RMB Morgan Stanley. Brian, please unmute and go ahead.

Charlie Muir Sounds, Analyst: Hi, guys. Thanks very much for the time. 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?

Andrew King, Group CEO: Yes or no. So they definitely as you say, there’s there typically is some kraftliner coming from The US 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, you know, the positive on that side is really the closures in The US, I think, have tightened up The US market. And, rightly, I think most of The US producers saw exports as not being where you should sort of structurally position yourself. And so I I suspect a lot of the capacity reductions have targeted reducing their reliance on on exports, And that’s probably manifesting in the fact that despite the weaker dollar, you’re not raising a big surge of imports that you might have expected in a different world.

Charlie Muir Sounds, Analyst: 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 on the Revere Marina.

Is the dividend from last year still intact? Or should we be thinking about a lower dividend year on year?

Mike Powell, Group CFO: No, Brian. I mean, I think you said at the half year, 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 gonna 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, I think, three to four years. You know, 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 we’ll we’ll have a look where the economy is towards the end of middle of February probably.

Charlie Muir Sounds, Analyst: Thanks, Mike.

Andrew King, Group CEO: Very importantly, as Mike says, on the CapEx, we we, in a way, have the luxury of being able to pull back without mortgaging the the upside that that we are confident will come. But clearly, in the here and now, the focus is very much on on on same business CapEx, cost optimization, but clearly, you know, the capacity is in it’s now about fully utilizing it.

Charlie Muir Sounds, Analyst: Very good. Thank you.

Call Operator/Moderator: Thank you. Our next question is from Cole Hathorn at Jefferies. Cole, please unmute and go ahead.

Cole Hathorn, Analyst, Jefferies: Good morning. Thanks for taking the question. Can I just follow-up on the major CapEx projects? The guidance now moving down to €30,000,000 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? And what will be the sequential contributors to EBITDA for 2026 from here? Thank you.

Mike Powell, Group CFO: Karl, 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’ve got to in terms of the build and the ramp up. Clearly, the commercial and the pricing is is the issue. That’s the issue across the whole of the business.

And, of course, those projects are probably, you know, 20% of the capital employed of the group. So they get affected just as the rest of the group does. So it’ll depend on the on the dynamics into 2026, what that number pans out to be. Andrew, do you wanna touch on thoughts around next year?

Andrew King, Group CEO: Yeah. I think, Cole, it’s it’s I mean, we we’re in a world which is extremely difficult to predict at the moment. Know, 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 We’re seeing it in in, frankly, the volume dynamic as well.

And what gives me, you know, confidence is 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, you know, Europe in particular remains very muted. I think the big question is 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 quite quickly. But that that is clearly the single biggest driver in terms of relative profitability from one third 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 a very a very prolonged downturn, and one traces this downturn back to kind of ’21 into the 2022 when when when demand side started to soften, and and really, we’ve been in a a a very protracted period now of of slowdown. So, you know, clearly, that is the single biggest driver behind what might impact with year on year profitability. You know, we caution that going into q four, we’re not seeing anything on that front at the moment. And so hence, one, we have to be cautious about the the short term outlook. But, we are very confident in the medium term growth dynamic in the packaging businesses that we are well invested in and and have exposure to the upside.

In the short term, clearly, job is to make sure we we 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 because we will when the world does recover. Clearly, in terms of the long term bridges, it’s 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 cover as we ramp these things up. The likes of Adreno, 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 benefits of the the volumes coming through.

So we still have to to to optimize all of those sort of investments from a from a ramp up perspective. And then, of course, we also are doing all the work on Schumacher integration. You saw we have the synergy and the card cost synergy number. That is the primary the big focus at the moment in addition to the commercial ramp up, which is critical. And, yeah, and then going forward, obviously, things like Wilmington shuts, etcetera.

As Mike’s already said, we extended some of those shuts this year. Maybe in a better market environment, you wouldn’t do that. And you and but off the top of my head, I don’t think I can point to any material change in our planning around the actual technical shaft component. So so, yeah, in short term, call, I know it’s a difficult one, but it is a function also of of what one sees around the macroeconomic backdrop.

Cole Hathorn, Analyst, Jefferies: Andrew, Mike, and then maybe I’ll just ask on costs. Is there anything that you’re calling out from kind of a cost bucket or would or anything like that, that you can highlight? And then I know demand is something that you can’t control, but we have across the industry including all the Nordics players, you’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?

Mike Powell, Group CFO: Yes. I think was your question on input costs, Karl? I think it was.

Cole Hathorn, Analyst, Jefferies: Yes. Input costs first. Sorry,

Mike Powell, Group CFO: I know that’s a sort of monday terminology. Yes. So 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, 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 the the second half is panning out as we thought, small positives. But, frankly, we’ll take those right now. We just need to work hard on it, Andrew.

Andrew King, Group CEO: Yeah. And on the capacity closures, I I mean, absolutely, there’s huge pressure right now and and and, frankly, every you know, the industry profitability levels more broadly are such that there’s every incentive for closures. Clearly, one that gets most visibility is is recycled containerboard. I I know everyone has their own calculations, but, you know, you can easily see 40% of the industry right now is cash cash negative, I would say, in terms of if you look at the cost curve, that is clearly not a sustainable position. We are 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. You know, as you would expect, we always look at our own portfolio in that regard, but, you know, I stress that our our operations are well well positioned on the cost curve. And and, you know, they will also we have a big virgin position, which is a different dynamic. It’s not really a cost dynamic, but sorry. Supply side dynamic other than the knock on effect of the the the overcapacity and recycled containerable.

So there’s huge incentive for closures. There’s every reason to believe there should be four more closures. And the longer the situation currently prevails, the greater the pressure there is for for for those closures to take place. And in other sectors, would say, in the 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 than than typical consumer applications.

And so there, I see it almost purely a demand side cyclicality issue. At the same time, you know, if it’s incumbent on us to manage based on what the market is currently doing, you know, we all, as I said, doubling down our efforts around cost of up productivity and and the like as you would expect and and and responding to the market conditions in, you know, the most agile way. So so and then maybe finally, on the fine paper side, clearly, as I said earlier, the the cost curve in Europe has flattened out given the given the decline in pulp prices. That is still a big factor in your ability to to drive margins in the fine paper business in in Europe because when pulp prices go down, the high cost unintegrated producers get some some relief. But, unfortunately, at the moment, all that that means is there’s a competition for, to say, the 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 would be more more closures on that front as well. So

Cole Hathorn, Analyst, Jefferies: Thank you.

Andrew King, Group CEO: Yeah. I think that’s in a nutshell where where we see

Mike Powell, Group CFO: it. Thanks, Carl.

Call Operator/Moderator: Thank you. Our next raise hand is from Pallav Mital at Barclays. Pallav, please unmute and go ahead.

Pallav Mital, Analyst, Barclays: 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 DC indices, kraftliner actually has been more stable than testliner over the last few months and has not declined as much. But today, you’re talking about declining selling prices. So are you saying that these indices are not capturing the actual and are 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 60,000,000, the long term average for the full year? Is that fair?

Mike Powell, Group CFO: Yeah. Thanks, Palad. Yeah. On the fair value, I mean, that’s my best guess today. Know, we booked 20 in q three.

I would expect about 20. It it is a a variable number, I have to say. Depends on growth rates, oil prices, etcetera. So it’s a as we know from history, it’s a pretty volatile number. But but sat here today, if everything doesn’t change, which in this world is quite a difficult thing to say, I’d expect another 20.

But it is it is a a best guess, and it’s a volatile number depending on the number of factors, which which occur at balance sheet to date. So it’s a it’s a a spot calculation of the balance sheet. But if you wanna plug a number and plug that in, but it’s but it’s a variable number. Andrew?

Andrew King, Group CEO: 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, you know, 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 90 a ton of ish. Text line of price declines, kraft liners in the order of kind of €30 on and I stress that’s the benchmark pricing.

I mean, we’re not going to obviously give our own pricing. So so, yes, Kraftliner has 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 the supply overhang in testliner has had some impact on the test kraftliner prices, albeit they are more resilient. So that’s really the dynamic that’s played out in the short term on the on the the testliner kraftliner spread. Okay.

Mike Powell, Group CFO: Thank you. Thanks, color. Operator?

Call Operator/Moderator: Thank you. Our next question is from James Twyman at Prescient Securities. James, please unmute and go ahead.

James Twyman, Analyst, Prescient Securities: Yeah. 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 q three.

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 q four factor. Could 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’s, you know, it is significant for q four? Thanks.

Andrew King, Group CEO: Thanks, James. Yeah. I mean, there’s as you know, Zach, the indices only come out kind of once a quarter, so you don’t see the real price, real live pricing for the better term. There has been some price erosion through through q three. Again, one has to be careful to to generalize because, obviously, different markets are differently impacted.

But but there 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 q three and then getting into q four as well. From from peak to now, it’s kind of 30 to €50, that order of magnitude, price price declines. But, obviously, the peak was only there for a short period of time. So the those indices, you know, they they look most make the market look more stable than it is, but that’s particularly in the current environment where where clearly pricing is much more dynamic than than the typically more stable operating environment.

James Twyman, Analyst, Prescient Securities: Thank thank you very much. If if I could just quickly follow-up regarding the merger of these two divisions. Well, what’s what’s sort of there there must be a, you know, obviously, a reason for it, which must be reducing costs. What sort of scale of costs are you thinking? I mean, my impression must be that it’s pretty marginal, you know, looking at the assets there.

Andrew King, Group CEO: Yes. Yeah. I think, you know, James, we spoke hopefully at length about what 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 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 who have been stuff are saying this, but 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 their respective different customer bases. But importantly, I think there’s an opportunity for us to simplify the structures to drive further improvements in our operational excellence, which is maybe the lifeblood of particularly the pulp and paper mills.

James Twyman, Analyst, Prescient Securities: Thank you very much.

Call Operator/Moderator: Thank you. We now take our final question from Lewis Roxborough at Goodbody. Lewis, please unmute and go ahead.

Lewis Roxborough, Analyst, Goodbody: Morning, guys. Just two questions for me. Just on the capacity ramp up, just as 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 there 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? Thanks.

Andrew King, Group CEO: Yes, Lewis, just on the capacity, no, I mean, sort of technical builds are behind us. Clearly, it always takes, I mean, in the best of worlds, two, three years to optimize the ramp up of production. Clearly, it comes to profit optimizing, call it, the commercials around that, it’s that much harder in in a difficult market environment. By that, I mean, maybe you you introduce volumes into markets which are maybe further away than your 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, you know, 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 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 that takes place. But that’s you know, we focus here very much on the paper machines in the converting businesses where, as you know, we’ve also invested. Again, you know, we’re very confident in technical capacity and and the like.

Again, it’s about making sure you bring that volume into the markets in a sustainable and and and disciplined way, and that is what we are currently working on at the moment. But, you know, very clearly, we make no bones about the fact that this is a particular challenge in what is this current long downturn, and hence, the reason we we pulled down the expectation in this year at least for for the earnings contributions from those projects. And then finally, you know, this is a 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 actually flat half on I mean, sorry, quarter on quarter on a sequential basis, which I think that the current environment is actually or or correct for achieving that.

At the same time, you know, 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, you know, we are aware of the structural challenges and, of course, the current economic downturn is only exacerbated in fact in the short term. There is intense competition that is putting pressure and coupled with the pulp prices, which which came off, I don’t know what it is, somewhere around €200 a tonne over the last couple of few months.

Now there is it seems as though there’s a bit of a floor play forming there. And as you 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 gives some some color. Very good. Well, I 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 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 get team number available throughout the day. So thank you very much and we’ll close the call then.

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