Mondi plc (MNDI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this Mondi Q1 trading update. Just to let you know: We do have captions today on this call. And these can be switched on and off within your Zoom settings, but please be aware they are automated and can sometimes contain errors. [Operator Instructions] I'm now going to hand you over to Andrew King. Andrew, please go ahead.

Good morning, everyone, and thank you for joining us to discuss today's trading update. I'm Andrew King, your group CEO. And with me is Mike Powell, our CFO. I'm sure you've all seen the announcement, so I'm just going to pick up on a few points before we'll welcome any questions. The first quarter of the year was characterized by higher sales volumes, good cost control and fewer planned maintenance shuts. These offset lower average selling prices when compared to the fourth quarter of 2024. Underlying EBITDA for the quarter was reported at EUR 290 million. Importantly, we continued to make good progress ramping up production at our capacity expansion projects. Our new kraft paper machine at Štetí, which we started up in December last year, is showing excellent results in terms of both quality -- paper quality and production volumes. We're also delighted that our newly converted paper machine at Duino in Italy successfully started up on time and on budget in April. We were also pleased to welcome our 2,200 new colleagues from Schumacher to Mondi, and we look forward to working with them to drive sales and provide our customers with an enhanced range of solutions. Well, before handing over to take questions, just a quick point on the tariffs. As we said in our statement, the direct impact on our operations is limited, with under 3% of our revenue involving export sales to the U.S. However, we remain mindful of the potential second-order impacts that could affect trade flows, consumer confidence and supply chains. With that short introduction, I'm happy to hand over to questions, so it's back to the operator.

All right, we do have a variety of raised hands. So we're going to start with Cole from Jefferies.

If I could just start on any changes in cost inflation that you're seeing, be it wood costs. And then I'd just like your commentary on the waste paper costs have obviously moved higher into the second quarter. And I'm just wondering how Mondi is positioned with waste paper costs and majority of your costs being from the wood side. Secondly, on the Schumacher acquisition. You've had the business now for 30 days. I'd just like initial thoughts on how that acquisition is progressing.

Cole, it's Mike here. Let me take input costs and costs. And then Andrew can talk about PFR into Q2, how it relates to the market; and probably touch on Schumacher. Input costs, I would still guide as I did at the full year results. I would say input costs are fairly flat overall and still give that guidance for the full year. Clearly, within quarters, you're seeing some movements, so actually, Q1, Q4, for example, we actually saw on average lower PFR costs. Clearly they accelerated into the Q2, but that was offset by higher energy. As we move into Q2, those are probably flipping around, but again, in the scale of a business the size of ours, input costs flat is still very good guidance. And then on discretionary costs, clearly we're working those hard and, in the current environment, being very careful and reducing discretionary costs where we can. So no change to guidance, a bit of movement up and down within the quarters, but in the scale of a big business, Cole, it's sort of a few ups and a few downs leave us flat. Andrew, do you want to touch PFR and Schumacher?

Yes. Mike has kindly given me the job of trying to predict the PFR prices.

They've gone up.

They've gone up, yes. So you're right, Cole. And then obviously our exposure on a relative basis to some of our, call it, corrugated peers isn't quite as much because of the -- our bias towards virgin-based products, but I'll remind you we still -- pre Duino, we're buying about 1 million tonnes a year of PFR. And clearly, with the ramp-up in Duino, we'll be consuming an extra 400,000, 450,000 tonnes of PFR, so it's not a substantial spend for us. As everyone knows, the PFR prices have been going up quite rapidly over the course of Q1 and into Q2. They started the year somewhere around EUR 100 a tonne; and up to, what, about EUR 160-odd now; always a very difficult price to predict. It's always volatile. We know that. And of course, it's driven by not direct supply, demand impacts because it's almost a by-product of other processes. So in the short term, clearly what it's doing is driving up the whole recycled containerboard cost curve. As we discussed at the full year results, I mean, the recycled market is under a huge pressure already. There was a modest price increase in Q1, but that's basically all been eaten up by this PFR increase. So from a margin perspective, the market is back to where it was at the beginning of the year, which was in a very strained situation. And so there are further price increase initiatives out at the moment, supported by -- clearly by a rising cost base driven by this PFR dynamic. So in short: The market remains under huge pressure, the top of the cost curve clearly under massive pressure, compounded more recently by the PFR increases. Clearly, on the back of that, we're also seeing some price increases in the virgin grades. That is more about margin expansion in our case because clearly, as Mike just said, most other costs are fairly benign at the moment. Maybe then on Schumacher first impressions. I think it's really confirmed what we were hoping. We certainly see a strong synergy opportunity. Clearly, as a buyer of paper, right now it's that buying power is very useful for us as -- for one thing, but more importantly, everything we had hoped around making -- giving our customers a better geographic offering, also obviously adding that solid board exposure, which is a very interesting niche for us as well. We really think that, that does open up bigger opportunities for us, so we're very excited by that. The initial engagement with the combined customer base, I think, has been very positive, very positively received. And equally important, our rapid engagement with our new colleagues from Schumacher has been, I think -- gone extremely well. So we are currently working very hard on the hard work around integration and making sure we really bring the best of both together and drive the synergies, so we are very -- remain extremely confident in the synergy optimization opportunities. And we certainly believe the combination will be able to drive that commercial offering, which is all important in this deal for us, and remain very excited by the opportunities that it brings us.

And then maybe just as a follow-up, could you give any commentary around your order books? I understand it might be too early to see any indirect impacts from U.S. trade tariffs, but we're in a situation where we're seeing differing commentary out of the U.S. versus Europe. In the U.S. you've got corrugated volumes down 2%. In Europe, I imagine they were probably plus 3% to 4% in Q1, so I'm just wondering. After a good order book in Q1, what are you seeing into the second quarter?

Yes, thanks, Cole. I think, as you say, it's -- I mean in Q1 it is obviously not really a tariff story because it only really started to become a topic into Q2. In Q1, orders -- I mean, volumes in Europe, we see we haven't got the full industry stats as yet because they haven't been published, but I mean it was a fairly good quarter, I think, from a volume perspective across the industry. And certainly our Central European business enjoyed good volume growth in Q1. Turkey is another issue. Turkey had a very difficult quarter. I mean, as you well know, the geopolitical issues there are disturbing. And that has created a lot of uncertainty in that particular market, but that's a different story to the tariff issues. Clearly the tariffs discussions only really started to take place into Q2. As you say, it's really too -- it's really early days in that. I think it is fair to say that there's a general unease around. I mean it is the topic every time you talk to your customers these days. It is a big topic for everyone, more in terms of simply the uncertainty that it creates, so everyone is speculating as to what might or might not happen. And as a consequence, as we all know, uncertainty is the enemy of good commerce. And it's -- it just creates a more unstable environment, should I say. So it's not particularly evident, frankly, to date, in our, call it, European order books. Is -- but at the same time, I think we shouldn't be complacent around this at all because undoubtedly it is a big topic for our customers and their customers in turn. And everyone is pondering what it might mean for them. And you'll -- clearly we -- none of us know what the rules of the game will be, anyway, around this. And I guess that, in an uncertain environment, everyone takes somewhat of a risk-off approach. So I think we are no -- by no means complacent about this, but it's not particularly evident, so far, in our order books. Where we do see a -- pockets of genuine weakness, I suppose, is in exposure to China. So we do sell product into China, which is fairly limited, in our case, but we do sell some pulp, as you know, into China both from South Africa and from Canada. And there you can see a weakness in the order situation. And I think that again China is clearly really in the crosshairs of the whole tariff discussion. And I think that is evident in a deep sense of uncertainty within China. Again I'm not sure if it's driven by actual underlying demand-side declines or just the uncertainty that prevails. And so people are looking to hunker down and not carry stocks and the like, which is a typical sort of risk-off behavior.

Our next question comes from -- let me just check. It comes from Lars of Stifel.

You, of course, have a lot of internal things that you're doing right now with Štetí, Duino and Schumacher coming onboard. I just wanted to clarify if you're -- have been taken any sort of start-up costs above the line or these sort of costs are capitalized [ as you ramp them up ], and if you can comment on what sort of contribution you would expect from these assets in the current environment. I appreciate the high uncertainty, but nevertheless, it would be interesting to hear your comment on that. And on Schumacher specifically, of course, it is a sort of a challenging market, but it seems as if Germany is strengthening a bit. Are you seeing that? And what sort of contribution in this environment, again, would you expect to get from Schumacher? If I start there and kind of see if there's any follow-ups.

Okay, very good, Lars. So in terms of start-up costs, yes, there's always start-up costs, but those are -- a lot were taken as above-the-line costs. That's just as a cost of doing business, so it's partly reflected in -- when we talk about maintenance shuts. Clearly, for example, when you're commissioning a new machine -- I mean Duino is a slightly different topic, but for example, the Štetí machine, when you take down certain operations in order to commission the new machine, it's part of that maintenance cost. So for example, at the moment, we're doing some work in -- up in Dynäs in Sweden. Maybe you can go and visit it, Lars, but they are down at the moment on a big project. So that will be incorporated in our guidance around that annual maintenance charge. And that's -- so it's a downtime, effectively, while you're commissioning. And of course, when you start a new machine in particular, there are some start-up losses because you're running with a fixed-cost base. And of course, you haven't got full saleable production, et cetera. And it takes -- I mean it takes 2 to 3 years for a machine to be fully optimized both from a production perspective and quality perspective; and as importantly, from a commercial perspective, i.e., bringing it into the markets that you want to serve in the long term. So that -- but that's all in our numbers, if that makes sense. We don't separate that out and we certainly don't take any of that stuff below the line. The only thing we allowed to take below the line is the direct -- well, not even that. We take some direct transaction costs linked to acquisitions. So Schumacher, there will be some transaction costs, but those are the direct transaction costs. When it comes to then, for example, the integration costs, the costs to deliver synergies, et cetera, those are all incorporated in our trading profits. So yes, there are some -- there is some initial drag when you start up these machines. So for example, Duino will be initially loss making as we ramp it up, for obvious reasons, because until you have a certain level of production, you've got a big fixed-cost base that you can't cover yet, but that's -- we just incorporate that all in our full guidance. It's not -- it shouldn't be seen as a separate cost category, but in short, though, we're very happy with where we are with those projects, from a project execution perspective. These are big projects. And we're not unaware of all of the execution risks that come with big projects, but I am delighted as to -- and a huge credit to our technical teams and the operating teams at each of these operations that have been able to bring these big projects on, on time, on budget, and are now ramping them up in line with our business plan. In terms of the overall contribution from projects. As we keep stressing, obviously when you're bringing on new capacity, the one big line item that you don't know at any one time as your selling price. What we do know is we can manage the market risk very nicely. As you -- remind you PM 10 in Štetí. It's 200,000 tonnes of sack kraft, but roughly speaking, by the time we optimize everything, net exposure will bring extra 100,000 tonnes of sack kraft. And I'll remind you we lost 100,000 tonnes of sack kraft in Stamboliyski last year, back end of last year, so it's essentially replacing that now. And then you've got 100,000 tonnes of the specialty kraft papers, which you're all invited next week to our teach-in on flexibles. And we'll tell you about all the exciting markets that we are selling into and the big increases in demand that we are seeing driven by the whole sustainable packaging dynamic, so we're very excited about that. And we certainly see the market risk has been manageable. Obviously the ultimate -- the profit contribution in next quarter will be a function of the selling prices, and that's also a reflection of the overall market dynamics. Duino, similarly, yes, we bring on 400,000 tonnes of recycled containerboard. And I appreciate everyone is very nervous about the overhanging capacity in the recycled markets, but again I'll remind you we are short of recycled containerboard in our operations. And obviously that's been -- I don't want to say exacerbated because it's a nice problem to have at the moment -- but been increased by the Schumacher acquisition. So it's a great combination, frankly, bringing on Duino and having Schumacher at the same time, because it allows us to drive that integration strategy. And so the market exposure in terms of finding markets for this volume is really limited in our case. Obviously, again, I stress that the exact margin -- earnings contribution in year 1 is always a function of the overall market price. Maybe I'm -- short-circuit things. I think Mike [ sent, at the full year ], guidance on contribution -- net contribution from all our expansionary projects in this year was EUR 50 million to EUR 100 million. We stand by that guidance. So...

Yes. No change, yes.

And just one follow-up, if I may. You called out that this is part of your maintenance costs, in a way, so what are you looking at, full year maintenance cost? Just to help us out to understand that. I think, last year, you had about 100 million. Is that number now going to be materially higher?

No. The full year results I guided this year would be about the same. We'll clearly firm that up for the half year. Quarter 1 has had nothing because we don't have maintenance shuts in quarter 1, similar to last year. I'd expect probably, call it -- I'd expect that 100 million to be split 20-80. That again is in line with what I said probably 8, 10 weeks ago. So therefore, there'll probably be about 20 million in Q2, about 80 million in the second half. If there's any difference to that, I can update at the half year, Lars.

Very good.

And just to remind you in terms of timing. We did take some big shuts last year as well.

Yes.

And for example, that PM 10 commissioning was a last year event. So as it so happens, that was also impacted by, call it, project-related shuts over and above the normal shuts -- and then sorry, Lars. You asked also about Germany and Schumacher. And I mean we're hopeful around Germany. I mean I'm a firm believer in Germany in the long run. I mean that's why Schumacher was also very interesting for us. And it's a very important corrugated market. And more importantly, we think we're extremely well positioned within that market, but I think it is fair to say that it -- in the last few years, it's been a very difficult market. [ When it was ] 2024, it remained difficult. '25, yes, if you look at the industry volumes, they look a little bit better in Germany than they have been, but it's still not strong, I would say. But I agree with you, Lars. Obviously, if one believes that the commitment to this additional spend from the federal government -- if they can -- the political situation can be resolved and the like must be a strong stimulus for growth from an economic perspective more broadly. And undoubtedly, we will benefit from that. So I think it's early days in that. It's fair to say it's still a challenging market environment, but I -- like you, I also have strong hopes that we'll see a stronger environment going forward from a trading perspective. But most importantly for us as well, we think there's a lot of self-help we can do in driving our synergy opportunity and driving that combined commercial offering, where we have access to customers, simply put, that we didn't been able -- weren't able to access previously because we didn't have the necessary geographic coverage in our box business.

We're now going to go to Charlie from BNP Paribas Exane.

Just related to the start-up costs specifically again, but I guess, obviously, Duino wasn't contributing at all in Q1. But were there any particular costs for that or other projects that you were incurring with Q1 that didn't have any kind of offsetting revenues or profit contribution? And on the project contributions you're expecting for the year, the EUR 50 million to EUR 100 million, I just wanted to clarify. I assume that excludes the contribution you're expecting from Schumacher. I just wondered if -- where your expectation is for how much Schumacher might contribute [ in the year now ].

Yes, Charlie. So I appreciate -- I mean the good and the bad thing is there are lots of moving parts around all of those projects.

Yes. [indiscernible].

And we see it as kind of normal business, to be bringing on projects as and when they come. And all the costs associated with them are in the numbers, so I can only reiterate that. So yes, there were some start-up costs in Q1 linked to Duino because clearly we started having to -- we can't capitalize everything, so there are some operational costs that we were incurring and we didn't have any revenues, but it's pretty small.

Yes. [indiscernible].

And it's not particularly material to the overall group number. And just as we were incurring costs there, obviously we started to see more revenues, for example, come out of the PM 10 ramp-up and the like. So I can just reiterate these are all in the numbers. There's always a bit of noise associated with projects as you bring them on, as you ramp them up, et cetera, but to us that's normal business. And most importantly, we expect to see a year-on-year incremental contribution in the EUR 50 million to EUR 100 million range, depending on exact pricing over the course of the year. And that's an all-in number including all associated start-up costs, et cetera.

Yes. And Charlie, that EUR 50 million to EUR 100 million is the organic expansion, so that's on the EUR 1.2 billion growth program. That guidance hasn't changed and we still feel good about that guidance. And as Andrew said, those projects have been brought on time and on budgets as well from a CapEx guidance perspective; therefore no change. You asked about Schumacher contribution: That is outside of that EUR 50 million to EUR 100 million. So it is on top of that. And I think Cole said, "You've only had the business for 4 weeks." That's quite correct. So we're still in German GAAP and we still -- we're very pleased with the acquisition. The fit is as good as we expected. And the opportunities, as Andrew said, are exciting, ahead of us. The best guidance I can probably give, and we have only owned it for 4 weeks, is -- we've previously said a couple of things. One is, in FY '23, our best guess of IFRS was that it made EUR 66 million. We said that publicly. And we've also said that it will be, in the first full year of ownership, EPS accretive. There's no change to that EPS accretive guidance. I think probably, if you wanted to plug a number in for 9 months, net of transaction costs because we've got to spend some things to deliver synergies, probably [ 30 ] for the 9 months. I wouldn't take that necessarily as a run rate because I think we're quite excited about the opportunities, but I think if you wanted a number for this year for your model, which I guess [ is kind of your ] question, best guess today, 4 weeks in, net of transaction costs and -- sorry, net of synergy costs, [ 30 ] is probably not -- around [ 30 ] is probably not a bad guide.

We're now going to go to Patrick from Bank of America.

Maybe just a little bit of a longer-term question. We've spoken about us being below mid-cycle and the projects contributing below mid-cycle. And all of your commentary seems to be suggesting the price increases are largely being pushed around by costs. I mean, thinking longer term, what do you think we need to see for sort of a return to a pricing environment or market environment where you can price for margin and sort of recover to that mid-cycle level that we've seen, yes, in the past? Is it working through the excess capacity? Is it a return to demand? Is it the high end of the cost curve falling off? Yes, maybe if you could just give us your thoughts around that and how that could play out.

Yes. Thanks, Patrick. I think, the first comment I would make, that issue around, call it, pricing or -- driven by cost is purely in one particular segment, which is the recycled containerboard sort of market, which yes, it's important, but it's certainly not the only market we serve. I mean, for example, in our Flexible Packaging business, it is -- there is no real sort of, call it, supply-side concern. Sack kraft, which is the major product within that market, the only new supply coming on is our own. And as I mentioned already, net-net, it's actually a fairly limited incremental because of the unfortunate situation we had with Stamboliyski back end of last year. So it's I would hesitate to say -- there's no real supply-side concern, should I say, on, in -- on our flexibles business. There it's driven a lot by the cycle and normal sort of supply-demand dynamics in a cyclical downturn, of course, the more the industrial exposures get more impacted, but the supply side is actually in very good shape, I will say. And so I -- on that particular business, to me, on the industrial base, it's just industrial exposures. It's simply a question of the cycle and the cycle turns. And we have seen an improving order situation in, for example, what we call our overseas business, which is very cement exposed and the like. The cement industry in emerging markets has looked a bit better. I caveat that by saying, of course, with the tariff stories, everyone is a little bit uneasy right now, but that will be resolved one way or the other going forward. So that's very much a, call it -- I firmly believe, more a sort of cyclical demand-side issue. And similarly, in our consumer-facing businesses: in flexibles, very robust, frankly, on the demand side even in a more difficult world. And the supply side, yes, there's a bit of new specialty kraft coming on from different players, but I'm very excited by the structural growth we see in those markets going forward. And I think that will contribute to onward strengthening both from a margin perspective and a volumes perspective in, as you say, the longer term. The one market -- coming back to that corrugated business, which is, as you say, the one where we are faced with this overcapacity story. And you can't call it price for margin. As you were saying, it's more about trying to push on the costs. Firstly, I am a believer that this is a long-term structurally growing market. I think, over time, the world needs more boxes, driven by everything from the e-commerce dynamic, through to the fact that there is no obvious substitute. It is the most environmentally friendly solution when it comes to moving goods around in a protective packaging, so that long-term growth dynamic, I firmly believe, remains in place. In the short term, we've had the issue of a coinciding demand-side softness driven by the cycle, combined with, of course, the capacity expansions, coming into a downturn. And that's what's caused the short-term indigestion in the market. I think -- what can resolve that? In the long term, you need an incentive price for new capacity. That might sound odd at the moment, but in due course, the world will be short of the stuff again if the price doesn't get to a level that incentivizes new capacity. What needs to happen to get to that point? Clearly some genuine demand-side and sustained demand-side recovery can take a big chunk out of the excess capacity. And I think we all believe that there has to be further capacity closures. There have been some closures. I mean there's a lot of downtime being taken in the market that is extremely expensive. And I'm not sure how people can carry on doing that without being pushed to permanent closures. And I would expect to see some permanent closures in this market. Clearly we're in a different situation because we have very low-cost production in this product. And we can still make money even in these very difficult times, but undoubtedly there must be some very -- a lot of pain at the higher end of the cost curve, so one would assume that, that would drive some closures. Always takes longer than one expects, and of course, it's always somewhat frustrating, but I suspect it will be a combination of those. And maybe the last point. We're living in a world right now where exports from Europe have severely reduced. Clearly, if export markets improve, that can also be something of a [ safety glove ], but I wouldn't rely on that in the long term because I think, as we've seen, in the U.S. there's a realization that this is a product that doesn't travel particularly well. It's always better to sell it as close to home as possible.

We're now going to go to Brian of RMB M Stanley.

Andrew and Mike, a quick question on Duino and PM 10 at Štetí. First question, on Duino, if I may. How are you marketing the product? Are you sending that material to Turkey as originally planned? Or...

Yes, Brian, we lost you there, but we certainly heard the first part of that question. Can you still hear us? Are you able to...

Brian has dropped off...

It looks like Brian has dropped off...

Can you hear me now?

Very good.

Okay.

We can, Brian.

Sorry. I don't know what happened there.

[indiscernible]

The second question was on the ramp-up profile for both, for PM 10 and for Duino. Is it just a question of volume ramp-up, or is there a question of quality ramp-up too?

Yes. So thanks for that. So firstly, in terms of a specific question around Duino. Obviously we're not going to give specifics on sort of commercially sensitive issues around where and when we're selling our product, but it is fair to say that, as I said earlier, clearly the dynamic has shifted a bit since the acquisition of our Schumacher business. That gives us a natural outlet for paper from Duino either directly into those -- into our broader converting network as we have now in Central Europe; or through what we call swap deals, which is a fairly common thing in the industry where you swap with other producers to optimize logistics and the like into your respective plants. So there is a lot of volume going in. It will be targeted because we're still ramping it up, as we'll come on to, but a lot of the new volume is targeted into those, through either directly or indirectly through swaps, into our own converting operations. Clearly there is some volume targeted particularly into the -- what we call the open market in Italy itself. To your question on Turkey: less attractive, frankly, right now than we had perceived at the time we made the original investment decision. Because as you know that -- in Turkey, they had put tariffs on containerboard imports some time ago, so we readjusted some of our thinking there, but having said that, there are still price points at which it makes sense to exports -- to Turkey. And it's certainly an option for us because, as you know, we ourselves, again, are short of paper in Turkey as well. So we do still have the option to sell some of it into Turkey and if the pricing is more favorable relative to buying it directly in Turkey itself. So it's a combination of those, but as I say, we are still net short of recycled containerboards in the group. And so we're in a very strong position to place that volume into both our own captive, call it, customer base and the market. And in terms of the ramp-up profile, as I said earlier, it takes 2 to 3 years to get full optimization of these machines. Why is that? Partly it's because there's a technical ramp-up. So you get quite a lot of volume upfront. You can get to 60%, 70% output for it on a bit -- in rough terms, quite quickly, but then to get that last 20%, 30% of the production, which is obviously really the hugely sort of profitable business, the incremental volumes that you can squeeze out at the end, that does take a period of time to optimize both in terms of the actual production output and also, call it, the quality parameters. Now with PM 10, I think we alluded to it in the literature: We're delighted with the quality, and so is -- so are our customers. I mean we're already producing a very high-quality product there. Now it's about ramping that up to full capacity over a period of time, in terms of optimizing the full mill. I mean, frankly, in that operation, it's around optimizing the whole mill infrastructure, which is part of the project which we are in the process of doing. And then you've got the commercial optimization, where again you don't necessarily sell the first volume straight into the -- your long-term market. You may sell it into a broader market and then develop over time the markets that you want to serve and optimize in the long run. And that does also take a period of time, but again these -- all of these nuances that I've just been referring to are built into our modeling, our planning and the kind of guidance we give you in terms of contribution. But it does take up to 3 years before you've got full optimization, full contribution from these -- particularly these big paper machine investments.

We're next going to go to Sean from Chronux. [Operator Instructions]

Andrew and Mike, can you hear me?

We can, yes. Thanks, Sean.

Excellent. And my first question is just around uncoated woodfree, which is obviously a bit less relevant in the profitability mix at this point, but it does seem like a fair of -- amount of capacity has come out the market which has been ahead of the sort of softness in demand. Maybe if you can share any light on order books and perhaps if [ Mondi has been ] taking any downtime on the nonintegrated assets -- or machines, sorry.

Yes. Thanks, Sean. Yes, I think it's fair to say it's been -- the uncoated fine paper market, if you compare year-on-year, it's a bit more difficult. But reminding you that, this time last year, it was actually very strong. We -- but clearly we always knew there was an element of restocking. The year -- this year, I think, started off in pretty decent shape, but clearly the European market is challenging. We have seen pretty flat to even some declines in pricing. And of course, we are -- there's big debates obviously what -- where next on the pulp price, but one sense is, with China slowing down and the like, it's one would -- has to assume that pulp prices will start to come under pressure. And of course, that in turn reduces the cost support for fine paper pricing in Europe because there still is some unintegrated capacity around. Now obviously, in the short term in our Neusiedler operations, we somewhat benefit from that because we buy-in pulp there. Obviously, in Ružomberok, which is the main profit contributor there, we would suffer if the uncoated fine paper price comes under pressure as a consequence of that, so yes, it's been a bit up and down, I would have to say, in the fine paper markets in Q1. And certainly we're not seeing any real improvement on that, at the moment, going into Q2, so I think it is quite challenging for that business. On that -- having said that, our guys in Ružomberok are doing a great job on cost control. The wood cost situation has got much better over the last couple of years. And that means they're driving good profitability in spite of a challenging market environment. We have also seen imports from the likes -- from Asia. Those do come and go. It's a very spot market for the Asians, but you do see on occasion import pressures and then they alleviate. And it's very mixed -- it's very volatile in that sense. But yes, all in all, pretty muted sort of demand-side environment. Very good cost control from our teams, holding up profitability, I think, is the main message out of European fine paper. South Africa, always a slightly different dynamic, frankly. The biggest profit driver there is the export pulp, where again a weaker-dollar pulp price is clearly a headwind for that business. By the same token, obviously the weakening rand is somewhat supportive, but clearly a challenging export pulp market at the moment, especially if the Asian markets continue to soften.

Perfect, Andrew. And then just a further one on Schumacher. I appreciate the EBITDA guidance for the full year. And I think -- when the deal was first announced, I think you guys -- sort of into the low operating rates between -- I don't know if it was low 40s or 50s. I can't recall. Are you able to shed any light on that evolution at all?

Yes. I mean they remain low as we expected. And again, I mean, just to remind you, these are converting operations. It's very different to paper mill. You have different cost structures. You have a little bit more flexibility on your cost structure, but we were excited at the time by the fact that there was very well-invested asset base, heavily underutilized. And certainly we believe, with the combined sales platform that we now have, we have every opportunity to fully optimize and utilize that capacity. So that -- it remains underutilized. It also comes back to that earlier discussion we had around the trading environment in Germany in particular, which we also sell into Benelux and the U.K., but we are very excited by the conversations we've been having with our customers. I think they see us as a real credible player across that Northern European market now. We do have all the weapons at our disposal now to be highly competitive across that region. And it's now up to our teams to drive the integration and optimize the hard cost synergies and at the same time ensure that we drive the commercial strategy to fill this heavily underutilized capacity with the right volumes. Because that is also very important.

Great. Just last one, just in terms of the reported underlying EBITDA for the quarter and with the benefit of hindsight. Are there any sort of pockets that were maybe better than expected that you guys saw?

Sorry. I missed the first part of the question, Sean.

Mike, in terms of the performance for underlying EBITDA for the quarter and with the benefit of hindsight now that we've obviously closed the quarter, was that pretty much in line with your expectations? Or were there any pockets that were much better than you guys initially anticipated?

Yes, yes. No, pretty much in-line. And I think also the delivery of the projects for the forward business has also gone very well as well. So I mean it's one thing to deliver numbers and look backwards. It's really important that we've delivered these projects, which allow us a great platform going forward too. So I think, yes, it's been -- not that we run the business by quarter, as I always say, Sean, but yes, if I was to talk about the quarter only, in-line both in terms of delivery of projects and numbers.

We're next going to go to James from Prescient Securities.

Yes, 2 questions from me, if I may. Firstly, the sack paper market, as you mentioned, it clearly is in a quite a different position to the corrugated business. There has been a little bit of a price rise, I think, that we've seen in the last few months or so. Is there a price rise, another price rise, underway as you're doing for containerboard? And then secondly, on the Schumacher business: Now you own it. Is there any way you could give us some historic numbers, maybe for last year, what the sales were even or the EBITDA? And just quickly, if I may, just to do the third one. That EUR 50 million to EUR 100 million of benefits from the projects, I assume that's an EBITDA number. And do you have a depreciation number for that? I was assuming around [ 40 ].

Yes, James. Let me start. So the Schumacher, no. I mean we don't give individual details on any of our businesses. And frankly, FY '24 is all still in German GAAP, anyway. I mean we've only owned it for 4 weeks. I'm certainly not going to spend a lot of time and resource retranslating FY '24. Right now we've got a business to integrate, but listen. I've given you good guidance, I think, in terms of our best guess for the EBITDA for this year. And I think you've heard that we're pleased with the combination. And frankly, we're super excited about the opportunity, very much in line with what we said in the past. In terms of the EUR 50 million to EUR 100 million EBITDA, I've already guided to this year's depreciation. So there's no change to that. I think, over time, our depreciation will nudge up. If you think of '26, '27, it will probably nudge up to the EUR 500 million type number as we move forward. But no change to depreciation at this trading update either for this year. Andrew, do you want to take the other one?

Yes. In terms of the bags business -- and I can't, for the life of me, remember what you'd ask...

Is there a second price increase...

Sorry. It's price -- yes. I mean I think it has to be -- I mean they're very different markets, so they operate in different ways. So I appreciate the one [ that's called ] kraft paper [ now is ] kraftliner, but they do operate in very different sort of dynamics and, as I mentioned, very -- the supply side is in good shape. I think, in terms of the demand side, we saw a good volume in our underlying bags -- the bags business, which is where most of the sack kraft goes. Certainly Europe showed a good volume growth in Q1, our export markets. As I mentioned, the cement industry seems to be picking up on -- in, call it, the emerging markets that we serve, so it feels a bit stronger. I think the big caveat to that in the short term, though, is the -- call it, the unease that is around simply driven by the tariff uncertainty and the impact it may or may not have on growth in all of these different markets. And as a consequence, one sense is the supply chain across the piece is kind of taking a somewhat of a wait-and-see attitude, so we have to be mindful of that in the short term, but yes, we're positive about the supply side. And we'll have to watch how the demand side develops over the coming months as to our pricing strategy going forward. So I, we come back to that commentary made in the trading statement. We have to be conscious of the macroeconomic overlay and the geopolitical uncertainties that abound and seem to, unfortunately, only heighten on a daily basis, albeit we also know, particularly with these trade discussions, that things can change quite quickly as well. So maybe some positive outcomes around some of these bilateral discussions might well restore confidence through the supply chains, but I think right now we just have to be cautious around the expectations in the near term.

And our last question comes from Lewis of Goodbody.

First one is just on some color behind the sequential improvement in the Corrugated and Flexible Packaging segment. Just sort of how much of that is mix? And is there sort of a market difference intra segment between sort of those end markets or products? And then the second one, just acknowledging the direct tariff impact is limited, just on that indirect piece, can we maybe get an insight on how much of that demand is sort of resilient in terms of FMCG or essential industrial goods or otherwise?

So I'm not sure if I followed the first question. In terms of demand resilience, I think it's dangerous to just sort of say industrial, bad; FMCG, good. It doesn't necessarily work like that. I mean, again, we'll be giving some insights into our exposures on the Flexible Packaging business. So corrugated more generally is 60%, 70% kind of food, beverage and nondurable indirect exposure because obviously it's largely a transport packaging. And then there's a sort of industrial component. In our flexible business, if you take it at a very high level, it's around half consumer-driven; half industrial, being mainly cement, building materials, agricultural, et cetera. I think it's wrong to assume that in a sort of more difficult macroeconomic environment that one is sort of prejudiced particularly relative to the other. Because obviously there are very different dynamics, where the -- if you're building bridges using cement bags in Egypt, it doesn't necessarily correlate with overall sort of GDP growth, et cetera for the globe. So you have to be a little bit careful, but that -- I mean what I've just outlined is the broad sort of exposure differences between, call it, the industrial and FMCG. But I wouldn't translate that into one is going to get hammered in a downturn and the other is going to prosper.

That's clear. My first question...

I -- can you just repeat the first part?

Yes, yes, of course. Just on that sequential improvement, just wondering how much of that is mix.

You mean on the pricing or quarter-on-quarter. Is that...

Yes, yes, quarter-on-quarter.

No. I mean it's, I mean, pricing actually was down quarter-on-quarter. I think we, hopefully, made it -- on a sequential basis purely because we saw -- as I think we've said at the full year results, we saw containerboard, kraft paper and the like tailed off into Q4 of last year. So we started the year at a kind of a low point. And then we've been getting some price increases through the first quarter, but if you take an average-on-average effect, Q1 pricing was lower on average than Q4. I'm looking at Mike because...

[indiscernible]. I'm nodding. You just can't see it.

Yes. So I hope that's clear.

Yes.

But thanks, everyone, for your interest. Mike and I need to go and talk to our shareholders at the AGM, so with that, we should probably wrap up. As always, Fiona and team are readily available, if there's any follow-up questions, but thank you again for your interest. I'd just like to reiterate, I think, yes, Q1, very much in line with our expectations. Most importantly, I think we made great strides on our big, important projects; and also working very hard on the Schumacher integration, which will set us up very strongly for the future, obviously with an eye to the overall macroeconomic environment -- and as a last advert for our Flexible Packaging teach-in next week where, hopefully, we can give you a lot more insights into the value drivers behind that particular business. We're looking forward to seeing you -- as many of you as possible at that event, either physically or on the webcast. So thank you again for your attention. And no doubt we'll keep in touch.