Mondi plc (MNDI) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome and thank you for joining the to the Mondi plc trading update conference call. [Operator Instructions] At this time, I would like to turn the conference over to Andrew King, Group CEO. Please go ahead, sir.

Thank you very much, and Good morning to everyone, and welcome to this call to discuss Mondi's trading update. I'm Andrew King, our group's CEO; and with me is Mike Powell, our CFO. I'll just spend a couple of minutes summarizing the announcement before we'll obviously welcome to take your questions. I'm pleased to report that we delivered very strongly in the first quarter of 2022. Demand was good across the business, supported by a broad range of innovative, sustainable packaging paper solutions, product quality and, of course, our clear customer service. We continued to experience cost pressures, notably in energy, resins, transport, wood and chemicals. However, with the higher average selling prices, these more than offset these effects. As a consequence, underlying EBITDA for the first quarter was EUR 574 million, up 63% compared to the prior year period and up 41% on a sequential basis. This performance is a testament to the continued dedication of our people. And again, I would like to express my thanks in these volatile times to all our people, our strong customer relationships and the strength of our integrated business model. In the current context, as we mentioned in the release, it's appropriate I think to report the underlying EBITDA for the first quarter, excluding the Russian operations. This amounted to approximately EUR 460 million, up 70% compared to the prior year period. Importantly, we made great progress on our expansionary capital investment program. As you know, the program is designed to capture growth across our packaging businesses in structurally growing markets, underpinned by demand for eCommerce and sustainable packaging solutions. As previously outlined, our pipeline includes around EUR 1 billion of expansionary projects already approved under advanced evaluation, which we anticipate will generate mid-teen returns when in full operation. We continue to actively consider further capital investment opportunities. Sale of our PCC business, which will simplify our portfolio and deliver greater focus, remains on track for completion in the second half of the year. At the end of March 2022, given the strong performance, our group net debt to underlying EBITDA was approximately 1x. If I turn into updates on our Russian businesses. Mondi, of course, remains profoundly concerned about the war in Ukraine and is shocked by the humanitarian impact. We've expressed our deeper sympathy to all those affected by the ongoing hostilities, reiterating our call for urgent cessation and a peaceful resolution. Since the announcement we made on the 10th of March in this regard, we have assessed all options for the group's interest in Russia. In recognizing our corporate values and stakeholder responsibility, the Board has decided to divest the group's Russian assets. The divestment process for these significant assets is operationally and structurally complex and is, of course, being undertaken in an evolving political and regulatory environment. Accordingly, there can be no certainty when a transaction will be completed or as to the structure of this possible transaction. Mentioned at as at 31st of December 2021, the net asset value of the Russian operations was EUR 687 million. The Russian have to date, managed supply chain constraints. However, the situation does remain extremely fluid as interruptions to pulp and paper production possible going forward. All significant capital expenditure projects in Russia have been suspended. Turning briefly then to the outlook. As you can see, we delivered very strongly in the first quarter of 2022. While we do expect to realize the full benefits of the price increases implemented in 2021 and 2022 as we go through the second quarter, we do also anticipate continued inflationary pressures on our cost base. Clearly, the full year will benefit from shorter planned maintenance shuts compared to 2021 and the contribution from our capital investment program. While it is early in the year and significant geopolitical and macroeconomic uncertainties do remain, the group expects to deliver a year of good progress. Mondi remains very well placed to deliver sustainably into the future. With that, I thank you and very happy now to turn to questions.

[Operator Instructions] The first question is from Lars Kjellberg with Credit Suisse.

So just want to come back to Russia a bit. I appreciate this is complicated. And I really sincerely appreciate that you provided a comparable, i.e. ex Russia. Is that something that you will do going forward? And/or should you account for this as discontinued operations now? Could I just get some clarity on that? And if you could indeed provide comparables for '21, that would be helpful. In the corrugated business, you talked about normalized demand. I'd say it would be of some interest to sense what that really means that a 2%, 3%, 4% number that you're talking about? Or what does that really mean in the context? And then finally, your sort of wording has changed from expect to make progress to good progress. Is it all about the strong Q1 delivery that is making that directional change to that guidance? Or is it cost inflation that -- I'm not saying that it's abating, but incremental cost inflation may be not necessarily adding incremental burden? Those are my questions.

Well, thanks. Yes, now listen, on Russia we'll continue to give helpful information as we move forward as hopefully we have this time. The accounting is yet to be sourced. It was only yesterday clearly the Board discussed and made the intention to divest that you've seen yesterday evening. So there's lots to be sorted out, including the accounting. So depending on how the journey unfolds, the accounting will match that. But we'll do the right thing first and clearly the accounting will follow.

And then last, just on the second few questions. On the corrugated market, what does normalized mean? I think clearly one saw last year an extremely strong demand environment. I think if you look at the full year on an industry-wide basis, corrugated demand is up something like 8%. I think I mentioned at the time I don't see this as an 8% compound growth sort of industry. And that was an exceptional period for all sorts of reasons, both the recovery post pandemic and also the ongoing extremely strong eCommerce picture that one we're seeing. I think all we're saying is if one looks at the first quarter, and of course, we don't have enough industry-wide data yet for the first quarter, but it's very clear that the demand has come off from those sort of levels, but we know we stress it's demand growth. So the rate of growth has slowed down. So I would guess that we'll see the first quarter is probably on an industry-wide basis of 2%, 3% demand growth, which is hopefully still very good in a historic context. It's simply not as strong as it was this time last year, but the market remains in good shape. As we mentioned, the containerboard prices momentum continues upward, and the market is still in a very good position. It's simply not quite as hot as it was over the course of last year, particularly on the demand side. I think that's really what would implying there. In terms of your subtleties of progress versus good progress, clearly the first quarter was, I think you would all agree, a very strong quarter. I think that is testament to both good market conditions, the ability to probably get pricing through faster than one might have anticipated a few months ago, which has gone to offset the inflationary pressures we see everywhere. So I think that expectation has -- that has been very strongly fulfilled. Most importantly, in my view, we've been able to deliver into these strong markets. And that in the current world is an extremely strong achievement because as I'm sure you hear from everyone and across different industries, the supply chain issues, logistics, both inbound and outbound and all the like remains a big challenge both for us and our customers in a number of sectors as well. And I think the fact that our teams have been able to deliver in what is an extremely volatile operating environment is a fantastic achievement, and that gives me every confidence that we'll continue to do well here. And the structural drivers that we continue to talk about around eCommerce, around sustainability, that unique platform we have, particularly across our flexibles offering supplemented also with our fantastic corrugated offering and the supply chain certainty that we bring because of our integrated position, all of these things give me confidence that we remain in a very strong position, delivering into these markets. With the necessary overlay that, of course, as we allude to the macroeconomic situation, I don't think I need to remind everyone here is extremely uncertain. And of course, we're watching that, but we are very well placed within that as I think evidenced by the first quarter results.

If I could hurry, just a very quick follow-up. On the notion of bottlenecks and transportation issues, has that sort of incrementally worsened as you're heading to Q2? And also is there any reason considering recent price increases that price over cost will not continue to be a positive contributor in the near term?

I think it's very difficult to generalize on the logistics issue. I mean things literally change almost on a daily basis, as I'm sure you know. For example, the impact of Shanghai ports opened or closed, if any one time can reverberate across different markets. Clearly, the whole Russian situation is also complicated things on top of what it was already a complicated situation driven by the COVID effects. So I think, Lars, I would hate to generalize and say it's getting better or worse from a kind of trend perspective. It literally can change very rapidly on a daily or weekly basis. So I think all I could say is that it remains complicated and it's certainly hasn't gotten any easier. And I apologize, I didn't pick up on the second part.

No. I mean, you had, of course, very strong price realization and well ahead of cost in the first quarter. Is any reason to expect that to change, i.e., you've got incremental price increases coming through into the second quarter? And cost from my vantage point does not necessarily seem to continue to escalate. It's obviously a very high level. But should we not expect that to continue an incremental positive price over cost?

Well, I think as you rightly say, we've got good price momentum going into the second half, but -- our second quarter, but I wouldn't suggest that costs are flattening out at all. I mean clearly, in addition to the inflationary pressures we've seen across the piece impacted in a large way by the energy issues and, of course, the knock-on effect into just about every cost category of that. But of course, we're also seeing things like wood costs needing to adjust to a new paradigm given the normal access to Russian and Belarusian wood baskets from Europe. I think that's only starting to play out in terms of the overall effect on the European markets. I mean we are not particularly exposed directly on that front. But I would imagine that might have an impact going forward on wood costs, and overall wood costs have been going up. But there's probably more to come I would suspect on that front. Clearly, energy and all the derivatives of energy is anyone's guess, frankly, from one period to the next. I mean, actually, Q1 versus Q4 was relatively benign in that front, that because -- simply because Q4 has already gone up to such an extent. But I think that's impossible to predict, frankly. But that's one, one has to continue to watch. And I would argue also that I think we've done extremely well to keep the fixed cost base under control. But of course, as time goes by and inflation becomes embedded in the system, then I suspect there will also be ongoing pressures on the fixed cost base. But I don't disagree with you that at this stage, we have good pricing momentum. And certainly, as I look into Q2, I remain confident we can offset this cost inflation.

The next question is from Cole Hathorn with Jefferies.

I've got 2, one on the flexible packaging business underlying and then a second one on Russia. I'll take them separately. So on the flexible packaging side, I'd just like to hear your view on the wider sack and specialty kraft paper markets. I mean it seems very tight and demand continues to be strong. If we look forward on what supply is coming into the market, I'd just like to hear your thoughts because Segezha is probably going to be impacted exporting to Europe. And the Belarusian player that was going to add capacity is -- we don't quite know what's going to happen to that capacity. So it looks like your potential EUR 350 million new capacity project looks more appealing sitting today. So I'd just like to hear how you're thinking about supply going forward and when we could hear an investment decision on that project?

I think, yes, more broadly, the sack and specialty kraft markets remains very tight. I mean you focus on the supply side, but I think the demand side still remains very good, both in terms of the near term. But as we keep emphasizing, I think there's some fantastic structural growth drivers there, which really have arisen over the last year or 2, particularly around the whole sustainability agenda. We've got numerous examples of new demand sources that I think we've done a great job in creating for these products. I mean, most recently, we've obviously expanded in the Czech Republic already on that the product for paper bags for shopper bags because of the regulatory changes and the like. I mean that product is sold out, and we're doing -- we're trying to do as much as we can from a production perspective because the demand is supply constrained rather than anything else. And I think there's numerous other fantastic solutions, which we've been developing, which employ the sort of specialty kraft products, which is basically increasing the overall demand for the cross paper products from SAC across to the specialties. So I think one firstly shouldn't ignore the demand side, which is extremely strong. On the supply side, yes, I'd agree with you that clearly when you look at the supply side, there has been -- there's very limited new supply partly because it's a difficult product to make, and you need a particular type of pulp and hence, wood. But this is a product that requires real know-how. We are in a fortunate position of being, as you know, the global market leader in this, and we have deep expertise across both the production and importantly, the sales infrastructure in this area. So I think we're extremely well positioned to be continuing the expansion of this portfolio. As you rightly say, the Russian situation has exacerbated the tightness because clearly Segezha has been a big exporter of product into Europe. It's early days in that as to how this then unfolds. But clearly, it's going to be -- well, they can't sell into Europe anymore for sanctioning reasons. I suspect some of that volume will go to other parts of the world, and we'll have to see how that plays out in terms of the total landscape. But obviously, we're working extremely hard to try and support our customers as best we can with our production profile, which is all within Europe. And we are accelerate -- well, we're not accelerating, we were really working as hard as we could to be in a position to hopefully approved and proceed with that expansion project that we mentioned at the full year results. I mean the very fact that the markets are even tighter today than they were when we spoke 6 weeks ago doesn't unfortunately change the timetable. That's a function of the engineering processes and things like that that we are working extremely hard. But we knew it was a good project when we last spoke. I'm equally convinced now we invest for the long term, not necessarily for the short-term dynamic. But everything points to a very favorable project which we are very keen to accelerate as fast as possible, but we also need to do these things in an orderly disciplined way to make sure that project execution is done perfectly.

And Mike, I'm just wondering if you could give me a little bit more color on Russia. Just trying to work out, is there any guidance that you're giving on free cash flow or free cash flow conversion we can think about that business that we can strip it out as well as from our EBITDA and our free cash flow numbers going forward. And then I just wanted to ask, in the divestment decision of the Board, I mean it is a very good, high-margin assets. But it is predominantly domestic Russian office paper. Was a factor of the decision that's you're probably not going to be able to be in a position to allocate capital into Russia for the next number of years considering the dynamics there? And therefore, while the high margin, it's almost pseudo ex growth. You wouldn't be able to do much conversion from graphic paper into packaging. Just wondering if there was -- that factored into the decision at all?

Yes, Cole, I'll maybe take the second question first, and then Mike can come back to you on the disclosure question I think you raised. I mean the decision that we arrived at yesterday, which we announced yesterday evening, took into account numerous different factors. I mean, clearly, there isn't any one factor that is paramount in that we have to consider, firstly, all our stakeholder requirements. Clearly, we -- as we said in the announcement, we considered our decision in light of our corporate values and as we best understand how the situation may evolve. So I wouldn't want to pick up any one issue, which was decisive in that decision. It's a combination of all those factors, which one comes to, but I'm convinced that this is the right path to take and we will be pursuing it aggressively from today. But maybe, Mike, you can add something on the disclosure question.

Yes. I mean we'll continue to give disclosures or so. We really custom made the decision yesterday, Cole. So we've clearly got quite a lot of work to do. I mean, as a guide, and again, it varies. CapEx for us is about 100, to try to be helpful. But again, my worry with sort of giving any numbers is those numbers vary. And then everybody is trying to make this into a precise science. It isn't and we'll clearly get to that the correct and helpful disclosure at the time. But I guess if you wanted a rough idea for Russia, it's about 100 of CapEx.

And clearly that will all need to be considered in the light of the fact that we have now suspended all significant CapEx projects in Russia. So I'm not sure what the real number will be once we've worked through all of that. So I think anything we'd give you right now has taken the necessary caveats around it. But we will be trying to be as preferred helpful as we can be making sure we give the disclosure which is appropriate for the circumstances.

The next question is from Joffrey Meller with Bank of America.

My first question will be around Russia again. I was wondering how demand in Russia is holding at this stage. Can you discuss the exit rate you saw in Russia during the March month? And then I have a second question around demand. How are you seeing eCommerce growth in the first quarter or in the beginning of the year across the relevant businesses?

Yes, Joffrey, I think we said we're not going to give that level of detail in terms of the thing because I think the one thing taking one-month numbers is potentially misleading. I think we -- as we emphasized, I mean, the Russian business clearly did well in the first quarter, but the situation is extremely fluid and literally from one month to the next or one week to the next, one continues to assess all the implications around the effect of sanctions, the effect of the logistics challenges that continue to mount. And of course, the changing customer profile, given the fact that obviously we're not exporting to Europe anymore from Russia and we're effectively domesticating the business, all of these factors need to be considered. So I think we're just warning that it is a very fluid situation. Clearly, there are daily challenges from an operating perspective and one cannot rule out operating -- increasing the operating disruptions going forward. But right now, it continues to upward. On the eCommerce front, again, I think like I said earlier, with the whole -- with the corrugated sort of demand picture more broadly, things have come off from the high demand that we saw last demand growth that you saw last year again. I mean, the eCommerce demand is still good, but it's not quite what it was last year when, as I say, we were coming out of the pandemic. But at the same time, you saw a huge amount of online business. So I think it's natural that it would slow down from the extreme rates of growth that we were seeing, particularly over the last couple of years, but it's still a healthy demand picture.

The next question is from Justin Jordan with Exane.

I've got 3 quick questions, if I may. Firstly, on clearly a very, very strong pricing versus cost inflation result in Q1 and commended more than that. Across your 3 main divisions in Corrugated, Flexible and Uncoated Fine, we can see benchmarking. Obviously pricing has moved higher in Corrugated and Uncoated Fine in April and possibly even in May as well. In Flexible packaging, you commented at the full year results in early March of Q1, customer kraft paper price is up some 20% to 25% year-over-year. Can you give us some indication, because that's quite an opaque market for external people to look at, what sort of price increases may be possible in Q2 because you're talking in terms of further price increases across the business this morning? Secondly, on the demand side, ex Russia, I want to put that major caveat in, clearly Mondi serves a variety of consumer and industrial markets globally. We're in an extremely nervous market where investors are really second guessing what may or may happen macroeconomically going forward. But can you give us any indications of what you're seeing on the ground in terms of its end market demand in -- for the latter half of Q2 as it were? Have you seen any pockets of slowdown in industrial areas, like automotive for example? And thirdly, in Russia I guess, I appreciate the clarity that the Board has given yesterday, and I'm not trying to second guess what the process and timelines will be from here. But just operationally on the ground, March 10, you talked about challenges regarding input process materials, such as chemicals and spare parts. What are you seeing on the ground regarding those challenges? Have you been able to replace externally European source materials with domestic resource Russian materials? And in terms of underlying Uncoated Fine Paper demand in Russia, I assume volume demand is down year-over-year because of clearly the macro situation domestically in Russia?

Thanks. I'll let myself take the Russian question first, and then Andrew can take the others. No, I mean the demand which I think was your last part of your question, domestic demand remains robust in Russia. The demand for paper is still good in UFP. In terms of spare parts, sure, there are Russian businesses springing up to account to the Western sanctions. So there is a churn of supply and demand going on, and new industries are starting up in Russia as opposed to importing product. That's clearly a direct effect of sanctions and the Russian response. So -- but that is all being worked so it's quite hard to generalize because clearly, you need every part and every widget to continue to operate. But generally, no, there are new industries being born for sure. And we're working through that clearly with our Russian colleagues and so far successful. But as Andrew said, the environment remains very difficult and somewhat unpredictable. So -- but so far, we continue to operate that. Andrew?

Yes. Thanks, Justin. On the -- your first question on the kraft paper increases, I'm certainly not going to be discussing with you increases that we are currently discussing with our customers. But I think it's safe to say that it is an extremely tight market. We are working extremely hard to try and fulfill all our customer requirements. At the same time, the cost pressures are there. So there will be further price increases that we are looking at, but I can't quantify them now because it's incumbent on us to be talking to our customers first about us. In terms of end market demand question, I think this is a question we're all asking ourselves. And we try and understand, as you say, maybe the sort of canary in the cage as regards macroeconomic slowdown. I think it's maybe in some ways too early, but we are -- if I look at the subcategories, probably there are some industrial applications in the corrugated space, which would appear to be slightly softer on a relative basis to some of the other categories. I'm not sure if that is a genuine end demand problem or if it's more a supply chain problem that our customers are experiencing because as I alluded to earlier, I think everyone across all industries are battling the supply chain issues. So is it that we're not making -- the outcome of our customers are not making more product to sell because they don't have an end market or because they are challenged by their own supply chain problems, it's difficult to distinguish that at different times. But I would say there is a bit of -- is a bit softer on call it the business-to-business industrial applications as opposed to the consumer applications and the like that that I think I wouldn't read a lot into that at this stage. One has to sort of keep a watch over it. But outside of that, as I say, I think the demand picture is still good. Our flexibles range, the demand is extremely good. And there's no particular evidence of slowdown there at this stage. And I think, that was that. Thanks.

The next question is from Mikael Doepel with UBS.

A couple of questions here from my side. First of all, on the sack paper or kraft paper market. Still wondering if you could tell us what's the size of the brown sack paper market in particular in Europe? And what kind of a share of Russia typically has been supplying into that market? I hear that you're talking about an extremely tight market. So I was wondering if you'd be able to quantify a bit the impact of no Russian supply into the brown sack paper market in particular in Europe. And the second question is on the containerboard market dynamics. Now we talked about the demand trends still growing, but the growth seems to be normalizing. But what do you see in terms of inventory levels currently across the value chain? What do you see in terms of trade flows? And there, I'm in particular thinking about kraft liner imports from the U.S., Russian exports to Europe, as well as European recycled exports outside of the region. Anything that you could add on that would be helpful.

So I think if I get that right, your first question was how important is Russia and the European sack kraft markets. Roughly speaking, Europe is around 1 million tonnes sort of market and we understand Russia was probably -- there was probably around 100,000 tonnes of exports on an annual basis. So kind of 10% of supply, that order of magnitude. So clearly important in what is the tight market. I think your question on inventory levels. Clearly, we don't have exact sort of transparency across the value chain. I don't sense that there's a big industry -- inventory build taking place. I mean, the big challenge for some time now and of course, it's different from -- for each category, certainly in the product we've just been talking about in kraft paper and the like. I don't believe that's the case at all because the challenges is securing supply right now. So I certainly don't believe people are building inventory. Similarly, on the containerboard front, I don't sense that there's been a big inventory build at all. This is more driven largely by our true underlying demand. And I think you can see that in the corrugated numbers, which is, of course, the end use demand indicator. And in as regards exports and imports, I think clearly the situation is very fluid last year. You saw much less imports into Europe and similarly, fewer exports from Europe, particularly in containerboard, which is the main grade where you see a lot of intercontinental trade flows. I think this year, we've seen a bit more volume from the U.S., which is normal and frankly required in Europe still because Europe is in short supply, particularly the virgin containerboard grades. But it's early days in the year. I don't believe this is a clear trend one way or the other, but one would anticipate over time that there would be an increase in some of the import of kraftliner into the European markets. But of course, it also depends on the currencies and the like, and with the strong dollar, it makes it pretty unattractive for the U.S. players and the U.S. market as we understand it remains in good shape. And of course, it's always better to sell domestically for any producer. So in short, I think there has been a bit more imports into Europe from particularly North America in the first half -- first quarter then by comparisons at this time last year, but it's not particularly meaningful at this stage. And I think over time, what will be also apparent is that Europe will restart exporting because last year was very much a year of repatriating all volume into Europe simply because Europe was just short of paper. I suspect over time that we might see a bit more export volume increasing because there's plenty of opportunity for export. So I suspect that will be the likely trend going forward.

Yes. I mean I would just add, Mikael, I think the day-to-day challenge at the moment is not around inventory build. It's around supply chain, both in port materials and output materials. Did they turn up when they're supposed to and can we dispatch when we're supposed to? And then do they go from A to B as they're supposed to? That's the environment we're still in, and I think will be for some time, along with other industries.

The next question is from David O'Brien with Goodbody.

Firstly, just on the pace of pricing, you know that you realized pricing quicker than anticipated, I guess, through Q1. But we think about corrugated, we've seen containerboard price increase go to in April. How quickly do you think that will be fully realized in the box given the dynamics should be in play at the moment? And then flexible, similarly, I think 1/3 of contracts typically were annually priced at. Have you moved people away from them to get a more dynamic pass-through on pricing? Or could you just help us unpack that pace of price realization, please? Secondly, just on the capital plan, we touched about every on supply chain issues. Are you getting the capital away in the year-to-date as you planned? Or how much should we be expecting to be spent for 2022. And then finally, a little bit more longer term in terms of the corrugated division. I guess what is the vision for the division now going forward? How can -- what are the opportunities to materially outgrow market growth? Are you looking to do more vertically integrated? Can you put down fresh capacity? Just an update please on what the vision is?

I mean maybe I'll take the price pass-through questions and the vision for corrugated and Mike can talk about the CapEx. On the pass-through, as we said, we've been successfully passing on price increases through both the bag and the box. I think there continues to be very strong support for these price increases, partly because simply put it easier to pass-through big increases on the paper side than small ones and the pricing environment in side remains strong. And I suspect these price increases will go through. We normally sort of give the rule of thumb or 3 months to 6 months, I think, in the current environment, at the shorter end of that range, very definitively and in some ways, the same with applies to bag, as you rightly say, the Bags business, there is more fixed price contract business, but that has become more fluid over time simply because the markets are so, so much more volatile now than we have typically -- I think we have increase the, call it, the shorter-dated pricing around that. There's more index business now. So we certainly expect to see a fairly rapid pass-through of some of these paper price increases because simply put the converters cannot absorb the sort of levels of price increases that we're seeing on the paper side. So that is going through maybe faster than it would have been historically. On the, call it, the future of our corrugated business. I think we have a fantastic platform there. Clearly, I think as the numbers demonstrate, we're a world-class operator in terms of both the upstream production where we are underpinned by fantastic low-cost production and with a strong vertical integration into our corrugated box network. Clearly, the corrugated box position is very much centered around where we have strength in paper being both in the Central Eastern European market. In Turkey, we are short of paper and we have an extremely strong corrugated position having been bolstered by the acquisition we made at the beginning of last year, which has gone extremely well with the mix on integration. We're delighted with the business. We're delighted with the colleagues that have joined us from Olmuksan and it's been a fantastic acquisition for us and opens up further opportunities for growth in the region. I think future growth opportunities come, both from backward and forward integration. Does that make sense both in terms of paper production and corrugated production, both organically where we see ongoing opportunity to invest the most recent investment is the 95-odd million that we're investing in our world-class Swiecie operation to continue to debottleneck because every time we know we make out of Swiecie a fantastic sic value add for us. We also investing heavily in continuing to expand and support the organic growth that we see in our corrugated converting businesses, both in that Central Eastern European region into Turkey and the like. And I think we continue to look on the M&A front to see whether there's opportunity to bolster that platform further, but it's clearly has to be things that we believe add to the quality of our offering to the customer value proposition that we have and of course, comes at a price that's it makes sense for both parties. So I think there's a lot more we're doing already, and we have to get on with from an organic perspective. And if we can supplement that selected inorganic opportunities, then we'll continue to do that. I think Europe and the surrounds Europe and adjacent markets is our heartland, and that will continue to be so. And -- and we've got a lot of opportunity on that Canvas.

Thanks, Andrew. Yes. On the CapEx side I mean, we guided 700 to 800. There's no sort of change in any ambition or anything on that. I think the opportunities, as Andrew has just outlined continue to present themselves. And that said, I think we're probably -- if I was to have to guess, I think we'll be at the lower end of that -- that's really purely just getting hold of parts, managing and executing the projects properly. There's a bit less in for Russia now as you might expect. So I mean, I think 700 to 800 is still valid, but I think here today is probably towards the lower end. But again, I wouldn't want to think of an annual cash flow reflecting the ambition. There's no change to the CapEx program or ambition. And in fact, the opportunities continue to present.

The next question is from Brian Morgan with Morgan Stanley.

Can I just ask a bit about Segezha and long-term strategy and optionality, et cetera. Segezha you've really spoken about that there's been a key part of your long-term option set long-term strategy. It's got a long pulp position. You've got a big unceded find at of business that could eventually be converted in packaging. So it's always been this very long-term option set available to you. Would you be looking to replace that now with something else? Do you think that there's enough in the group to keep you busy for the next 10 years to 15 years?

Brian, absolutely, the short answer. I mean, as we alluded -- as we mentioned at the full year results, we've got the EUR 1 billion CapEx pipeline. None of that is impacted by the retinal discussions. If anything, as some of it has become even more imperative that we get on with it. All of that is building on a fantastic platform we have in our business. I think there's a huge amount of opportunities to continue to reinforce and grow our business. We across the piece, as I've just we've just been speaking about, the corrugated business and the opportunities there. And I would also emphasize on the flexibles offering, we do have this unique platform, where we offer everything from the upstream card paper and all the upgrades within that, the specialty products. We have this fantastic coating business where we can add functionality to that, and we continue to invest and up expand that because of all the sustainable packaging solutions that hopefully you're now seeing on the supermarket shelf, made out of paper, but with a functionality added to it. And of course, we have this great platform of converting opportunity businesses where we can be genuinely agnostic as to the substrate we use depending on what our customer wants. And I think all of that gives us huge opportunity. So we are continuing to invest hard -- our biggest challenge is for, frankly, finding our project managers are not exhausting them because we have so many things to get on with. And as I'm sure you've seen from the first quarter results, it's emphasized in there that we have extremely strong and profitable business outside of Russia and we'll continue that allows us the luxury of continuing to invest for the long term through the cycle on these businesses. So yes, we have plenty to get on with, and we believe that a very exciting future. And I think that's probably a fantastic way to end because we do have our AGM this morning. So unfortunately, Mike and I are going to have to excuse ourselves and get prepared for that. But if we haven't been able to get to any other questions, obviously, Clara is available at all times and similarly, Mike and I can also make ourselves available again. But we do thank you for your interest, as always. And those of you who might turn up at the AGM, we look forward to seeing you there. Otherwise, we will motto keep in touch. But, thank you again for your interest, and maybe I'll hand back to the operator.

Thank you. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.