Mondi plc (MNDI) Earnings Call Transcript & Summary

Thanks very much, everyone. Apologies for the short delay, but we obviously have to make sure the online webcast is live. But firstly, very much welcome from my side to what is our flexible packaging teach-in. I'm Andrew King. Many of you know me as the Group CEO, and I'm joined by a number of my colleagues, who I'll introduce shortly. I'm delighted to see so many of you here in person in London. And also, I believe we've got 40-odd people on the webcast and probably counting at last count. You'll hear firstly, presentations for the first hour and then there's an opportunity for Q&As after that. So if you could please hold your questions. There will also be the ability to facilitate the questions both on the floor from the online audience, which will explain at the time the Q&A opportunity comes around. But just before we get on to the main topic of the day, a quick reminder, there's not a trading update. We provided you with a trading update last week. But we do look forward to talking to the opportunity we see in our flexible packaging business. This is really the opportunity for you to hear directly from my colleagues about what we do, firstly, in the flexible packaging business, where we see our big competitive advantages. And most importantly, what opportunities we see going forward for this business, which we are very excited about, and I'm sure you will be certainly by the time you leave this room. If I then come on to the agenda for today, as I say, I'm just facilitating this. You'll be glad to hear -- you're going to be hearing some other voices today. Not least from Thomas, who is our CEO of our flexible packaging business. Thomas again will introduce himself in more detail. Evelyn, who is the COO designate of our consumer flexible usiness, who will give us some more insights, particularly in the consumer packaging markets that we do serve. And then we've got Nedim, who is heads up our e-commerce key account business, a vital and growing part of our business and lots of exciting activities taking place there, which Nedim will share with us. Also, we joined today, you've already heard from Mike, you did a great job to the in-house audience around the safety protocols. Mike is also joined by Clemens, who is our CFO of our flexibles business. So you'll have the opportunity both to -- if there are any questions, certainly we can direct to them, but also at the opportunity for those in person to talk to them in the refreshment session afterwards. But as I mentioned already, post the presentation, we will have the opportunity to open up for Q&As. There will be an instruction coming from the operator around how that protocol will work between the in-room and the webinar. But if I turn first to the business of the day and talking about our flexible packaging business. As the heading suggests, we see it as a high-quality business. Extremely competitively positioned and a great platform for growth. Why do we say that? As you'll hear throughout the course of this discussion today, we do enjoy leading market positions in the markets that we serve. We see them very much in structurally growing markets, and there are a number of trends that really do support that growth. And then what we focus on internally is very much customer-led innovation, and you'll hear some great examples of innovation derived from those relationships with our customers. Proven operational excellence, always the bedrock of what we do as an organization is permeates across our organization. And again, some great examples of how we have driven ongoing continuous improvement in our organization and in the businesses specifically that Thomas is responsible for. And I think you've heard this from us in other areas as well, but we do have a well-invested asset base. We believe in investing through the cycle as a business. We have done that and we will continue to do that, but that really puts us in a great position to leverage all the growth opportunities we do see going forward. Again, just before we start positioning of this business, we are -- talking about our flexible packaging business today. I remind you it is 1 of the 3 business units that we operate within Mondi. It is the biggest of our business units contributing last year, 52% of our EBITDA. If you take that with our other big main corrugated packaging business, which has our corrugated business, roughly 30% of EBITDA in total, they account for over 80% of the group's earnings. And this is clearly where the growth is going forward, where we are investing for growth. And for all the reasons we will discuss today, we see exciting opportunities for us going forward. But not to forget our Fine Paper business, a very strong business, delivering into its regional markets of Central Europe and Southern Africa, where we continue to optimize the great asset base that we do have. I think what is very important, why do these businesses fit together? An important point to note is that there are strong synergies across those 3 verticals that I've just discussed. Thomas will take you through in much more detail some of the opportunities we have within the flexibles offering that covers in itself a number of different end markets. But if I look just holistically at the group itself and what opportunities and what synergies we do see across the group. I think we can really categorize them in 2 areas. The 1 is operational synergies I remind you, we operate 14 paper mills across the group. You will hear about 4 of them within the kraft paper business. But really, there are big operational synergies across those things. So even though we segment them on a value chain basis and we operate on a value chain basis, there are a number of synergies from an operational standpoint across our pulp and paper mills. And we work very hard to ensure that those synergies are fully optimized. Clearly, things are on best practice sharing in terms of the operating environment, big procurement opportunities that we always have in procuring both the commodity chemicals and the like, but also regional procurement, for example, paper for recycling and wood and the like, particularly in Central Europe, where we do a lot of joint procurement across our mill network. Supply chain optimization always very important, for example, shared warehousing across the different spectrum of products that we produce, also the procurement of logistics spend and the optimization of logistics always very important across our operations. And finally, I think very importantly, not to be forgotten is around the opportunity for talent development. It allows us to move people around our organization to give them international experience to share that best practice and learning across the different operations. I think linked to that, and you'll hear it also from Thomas is we are able to really specialize our mills in different areas. So for example, we have our flagship containerboard operation in Swiecie in Poland, which I know a number of you have visited over the years. Similarly, in kraft paper, we have our Steti operation, which is the biggest, and I think I would say, without contradiction, the best kraft paper mill in the world, and you'll see how we've continued to invest in that, and it has real hype of expertise. Similarly, on the commercial front, really where the biggest opportunities there are what I would call our downstream businesses, the converted packaging opportunities where we leverage customer relationships across our corrugated and flexible offering. And importantly, in the innovation segment, where you see some great examples here. You'll hear a lot more about them from Nedim, particularly on the protective mailer for example, where we combine corrugated and flexibles expertise to produce a particular product. There's also -- we talk about the hug and hold concept. I think there's an example upstairs. Those of you in the room will be able to see where, again, you've got a flexible paper wrap combined with a corrugated hold. So there's innovation opportunities as well that come about as a consequence of having our 2 packaging verticals. Really finally from my side because I don't want to take up any more of Thomas' time. But just a quick reminder of the track record in this business from a financial perspective. I think you can see from the slide, a strong track record of EBITDA growth over many years at returns that are consistently above our cost of capital. As always, I know people's attention is drawn to the last couple of years. Undoubtedly, these have been very challenging years for the industry more broadly. But in spite of those challenges, you've seen we've delivered double-digit return on capital employed not clearly where we want to be. We certainly see ourselves near the bottom of the cycle right now. And again, Thomas will explain some of that, particularly relating to our industrial exposures. But nonetheless, reflective of a highly resilient business model. So without further ado, you're going to hear a lot more about that business model now from the main speakers for today. And so for that, I'll certainly hand over to Thomas in the first place. Thank you.

Thank you very much, Andrew. So good afternoon. My name is Thomas. I'm Austrian. I'm with Mondi for about 30 years already. I actually was running each of the businesses that is comprised in flexible packaging at a certain stage. And since 4 years, I'm the CEO, and I'm excited to be here. I'm excited to share with you an overview and then the deep dive also into our flexible packaging business. So let's get right into it. Let me start with an overview. What we show you is the flexible packaging business according to market end users. Why are we showing it like that? These different businesses, Industrial Packaging and Consumer Packaging, they have distinct value drivers. We have different positions. They have different supply and demand characteristics. And so it's important to understand what Mondi's position is in all these businesses and to understand where it will also lead us in the future. So maybe let's start with Industrial Packaging. Industrial Packaging, it caters predominantly into construction industry, some agriculture industry and actually chemicals, for instance, what we do there is we produce sack kraft paper, and we are integrated with our downstream business into industrial paper bag business. It's a very important business, and I will try to explain to you that actually the supply side of this business is very important for us, and we have a very favorable position in this business. You see some names here. It's the typical big guys, international global businesses of the cement industry. You will also see this business is global. So both in the upstream business as well as in the downstream business, this is global. Moving on to Consumer Packaging. In Consumer Packaging, we are focused on value-adding products in more demanding markets. So who are we serving in these markets? It's the FMCG world, we have very special market positions in chosen markets, for instance, in the pet food industry and e-commerce is also falling under this category. This is less of a global business. It is more into developed markets because here, both the markets are more sophisticated, but also the products are more sophisticated. And this is where we see ourselves to add value. Also here, you see some names. We are -- in the e-commerce world, we are in the retail world, big brand owners and the FMCG world. If we move on, I give you another picture of this explanation. You see, on the one hand, you see again a 50-50 split between consumer and industrial packaging. You see the geographical split where, overall, a little bit more than half of the business is in developed markets. It is important to understand, if you want to try to link these 2 graphs that in the Industrial Packaging business, majority of the business, up to 60% of the business is in emerging markets. So we are enjoying higher growth rates there, while on the Consumer Packaging business, it is predominantly in developed markets in Europe and the USA. So let's get into Industrial Packaging for deep dive. Let me start with what are our competitive advantages in this business. The #1, and you will hear me talk in quite a while about it is actually our strategic positioning as a market leader on a global scale. This is very important in this business. We have a very good position, and it gives us a competitive advantage. The second point that you see on this page is these markets are structurally growing. They are more growing in emerging markets. And as I told you, we have more -- high exposure to these markets. So we are enjoying also higher growth rates there. I will talk about paper quality. The paper we are producing is a very specific paper with very specific requirements, which is very hard to copy. And it is important for -- the it's criteria for our downstream business to produce the right product. We have a proven operational excellence track record, and I will show you some numbers in our business, and that goes across all businesses, but here specifically relentless focus on operational improvements and actually doing that year after year is important to maintain our cost advantage and our cost position. Last but not least, I will tell you a little bit about the investments that we were doing in these businesses. And actually, we are very proud that most of them we have completed and we are in a very good position for further growth in this business. So let me talk about the first point, which was the global positioning of this business. What you see is we have 4 paper mills on this chart. It's integrated pulp and paper mills in Europe, in Sweden and Austria and in Czech Republic. And we have -- as you know, we have acquired last year a pulp mill in Alberta in Canada, in Hinton, where we are now in the phase of making a feasibility study in order to invest into a new paper machine also in this market. As I'm not coming back to it, maybe I dwell shortly on what does that mean for us? It means for us access to a new wood basket. And it means for us very competitive raw material source for these markets. Let me move on to the downstream business and you see we have around 40 plants globally. We are the only player in this business that has a global reach. And I will show you some comparisons later. Why is that important? It's important, first of all, customer proximity so we are close with our customers, all the international cement groups are located, and we are there. It gives us obviously the advantage of scale. But it also gives us the advantage that we are able to specialize plants because we have many of them, 2 certain products, 2 certain product types, which helps us to drive operational improvements year after year. So you see all the markets, for instance, West Africa, you see us in the Middle East. You see us in markets where actually business is for us typically not so easy to operate. We are very comfortable being there. We have excellent assets. We have very good business, we're very good business partners, and we're achieving excellent returns in these markets. Let me explain a little bit more in depth the supply side of this business. What you see on this chart is a sack paper capacity. These are the columns that you see. And on top of it, with the dot you see, if these players are integrated into downstream business or not. Mondi is market leader on the paper side with around 800,000 tonnes dedicated to these markets, specialized 3 mills doing exactly this paper. You see the next competitor that we have is playing in North America and also in Europe. You see also a dot that this competitor is integrated. Again, we are the only one who is globally integrated in this business. So the other players that you see, they only have a regional presence with their converting businesses. #3, Scandinavian competitor, actually, no integration and operating on the open market. Then you see 2 companies working in South America. They are integrated. Again, they are only regional players, and they are basically integrated with their paper output into the downstream converting. And then we are moving on. We see 2 other competitors in North America. Again, they are not integrated. So let me wrap it up. Again, we are the largest player. We are the only one who is globally integrated and we have a lot of advantages because of this position. Now same picture, but from a different angle, you see who are the largest consumers of sack kraft paper in the world. And you see we are consuming around 700,000 tonnes of this paper internally. You see actually quite a big distance to the next competitor that was one of the South American players that I was talking about, who is basically integrated. Then #3 is a converting business in North America. There is no integration at all. So it's -- they are buying paper on the free market. And then we're moving on to Russia and then actually already to smaller players here. So if I combine these 2 pages, the last one at this one, you see that it gives us a balanced view on our internal consumption. We're producing 800,000 tonnes. We are consuming 700,000 tonnes. So we are net loan by 100,000 tonnes. What does it gives us? It gives us scale, it gives us flexibility. And actually, the integration helps us to reduce the cyclicality of this business. So the supply side of this market is very favorable for us. Let me move on to the demand side of this business. You see in the chart as a proxy, you see cement output in the last 10 years. And actually, what it should show you emerging markets were growing faster than developed markets, and I think that is not a big surprise. What are the drivers behind this business? In the emerging markets, it is very much linked to cement consumption to big construction projects that are underway. There is growth in population. There is a lot of investments into logistics. So actually, these are growing markets. If we talk about the more developed markets. First of all, we are supplying also there are certain niche markets, which are more in some food or agriculture or chemical segments. But it is mainly driven by the do-it-yourself market. So if you look to what is happening in Europe, for instance, you see that actually, even if the market is going down, there is a continuous trend to repair houses. And actually, this is done with the product that is packed that is in our bags. So this is organic growth markets, the organic growth aspect of these markets. Let me move on to what are the possibilities on inorganic growth on M&A and acquisitions. There are 2 ways, and we performed that also in the past, actually to grow our businesses. The one is that, especially in emerging markets, large cement groups, historically, they have their own in-house packaging operations. All these big groups at a certain point in time come to the decision if they need to invest into this business. And as they consider it as noncore business. Very often, they come to us. because we are the partner of choice. We're the only one who can operate globally and has the integration with paper. And we are partnering up with them. And actually, we take over their packaging operations. That's one way. The other one are bolt-on M&A opportunities. And if there are markets, where none of these ways are possible. And we see these markets as interesting for us, we are building greenfield operations. We did it in Morocco. We did it recently in Colombia. And actually, we are very happy with these greenfield plants. I told you we are producing a very special paper. And I want to go to the unique paper characteristics of our paper. And actually, you can describe it with 3 words. 1 is strength, the other one is stretchability, the third one is porosity. What does this paper -- what does it mean for actually the process of producing this paper. You need slow-growing softwood fiber. You need special technology to prepare the fiber and form a perfect sheet of paper because you need a strong paper. And actually, we have our paper machines and only our paper machines, only this market has it. We call them extensible units. It's actually extending the paper in the process and gives the paper this stretchability. I'm going to give you an example, a 50-kilogram cement bag, is filled with 80-degree hot cement in less than 5 seconds. What does that mean? It means you need definitely strong paper. You need paper that is stretchable otherwise during this filling process, this bag would immediately tier. And actually, you need porosity. At the same time, this 50-kilos cement gets shot into the spec, the air needs to get out, so you need porosity. So this is a very specific rate of paper that actually needs a lot to how to produce it on that scale. You see a few pictures here because actually, the characteristic or the requirement of this bag is different in emerging markets, where actually there's a lot of rough handling. On the other hand, talking about developed markets, you need the same features, you need printability, you need smoothness. You want to have a nice product in the do-it-yourself store when you buy it. Let me talk about cost advantage of Mondi and how we are doing with it. You see that actually 80% of our capacity is in the first and second cost quartile of the resi curve. Why is that? First of all, we have large mills. Secondly, we have dedicated mills. So these mills are dedicated to this product. And we have a lot of know-how how to produce these bags. So we have access to very favorable raw material sources. We are actually very much driven by continuous operational excellence improvements because we need to maintain the cost advantage that we have in this upstream business. Now let me come to the productivity in the downstream business. The downstream business, you see 2 charts. The upper one is actually volume development. Volume development over the last 10 years, and you see we have a CAGR of around 1.5%. Looking to the lower chart, you see productivity improvement. So output per person, again, over the last 10 years, growing by close to 2%. What we do is -- or what we did is, in these last 10 years, we closed 10 plants in developed markets and the acquired or opened up 6 new plants in emerging markets. So what is the result of it? The result of it is our units are getting bigger. We have more cost advantage. And if you look at this chart, I mean, we drew the line for 10 years. If you would shorten it and stop at 22 because the last 2 years have been very difficult for all of us. Actually, you see the CAGR, both on the volume growth as well as the CAGR in productivity improvement would be around 3%. So every year, we grow volume by 3%. Every year, we improved our productivity by 3%. Let me talk about the capital expenditures that we did in this market recently. You know it from Andrew and from Mike, we are very proud that actually we have started up a new paper machine in Steti. And allow me the remark, we are proud that we did it on time. We did it in budget. And actually, the ramp-up curve is exactly to what we have planned. We have a very strong commercial pipeline and our paper is out in the market, and we sell it and we use it. For such a big project, I think it's important to repeat that because we are really -- we were working very hard for these last years, and actually, we started up exactly on time. We also acquired the Hinton pulp mill in Canada, as I was telling you, and we are analyzing in the feasibility study a new paper machine. And we also made investments in the downstream business. As I said, we are open -- we have opened up a plant in Morocco. We have opened up a new plant in Colombia. And actually, we also made a lot of investments into the world of improving our assets overall, that actually prepares us for the next moves in this of continuous improvement. So let me wrap up the industrial packaging part. It is a very good market position we are in. You have seen it. We are the largest producer in paper. We are the largest and only global producer on the converting side. We have very good opportunities growing further, especially with the higher exposure into emerging markets. We have well-invested assets and we know how to run this business. We know exactly what we are doing. We've done it for many years, and we will continue to do so. With that, I'm coming to Consumer Packaging. If you just allow me. The Consumer Packaging piece, I said has different value drivers. And so, also Mondi has different competitive advantages in this business because we are operating in markets that we have chosen where we said this is where we can add value. This is where actually we can make really good money in returns. You see it, again, it's half of our business. It's in [ chosen ] markets that we have taken. It includes as well paper, and I will talk about specialty kraft paper, it operates a lot also in the world of plastic packaging, where actually laminates are required. Barriers are required. So actually really sophistication of the product is required. These markets are growing. They are structurally growing, and I will show you, we believe we can even grow more than the structural growth in this market. Again, and I will come back to that. And at the end, we have a very well-invested asset base. We invested through the cycle also in these businesses. And actually, we are very well prepared for further growth driven by sustainability and other drivers in this business. So again, on a map where we are operating, I told you we are operating in developed markets. We are operating in developed markets with more sophisticated products, which are required for more sophisticated -- for more sophisticated packaging. You see, again, we are supplying these markets on the paper side from the paper mills that you saw before in Europe. And we have, again, we have a network of around 20 converting plants, mainly in Europe and in North America that are serving our customers in these markets. What are the value drivers at the -- actually the growth drivers in this business? And let me talk a bit about it. There are the obvious ones. One is convenience, convenience. So actually increase in food online ordering, food takeaway. I think it's a classical example, everybody of us knows. We talk about lightweighting. Lightweighting, what does lightweighting mean? Actually, lightweighting means you need a packaging with the same performance, but with less material. So you need a high-performance packaging. So lightweighting, actually, you need to have the prerequisites in order to produce and serve our customers with lightweight products. Consumer preferences, I think, yes, you see overall retail growth, you see a movement on the one hand, together with sustainability on the one hand, into paper solutions. On the other hand, it is really consumer preferences to have safe products and actually functioning products at home. Let me talk about sustainability and e-commerce because they are important drivers in this business, and we are very well positioned to actually capture the growth that is in this market. #1, sustainability. And sustainability, there are 2 maybe buzz words. One is paperization, so the trend to move into paper products for consumer products. And the second one is actually on sustainability, the move from multilayer materials into mono materials. For both of it, you need the equipment, you need to stand what you're doing. But especially, you need the know-how and the technology in order to serve these markets. E-commerce. E-commerce itself is a fast-growing market. And actually, Nedim will show you something about it. But actually, for us, we are very well positioned to offer the full broad of products to our e-commerce customers. So actually, also this is again an additional value driver and additional growth driver for our business. What is important on sustainability and actually also on the e-commerce. These markets are fast developing. They are actually moving very fast. So what it means? It means that the time to market for new product needs to be short. You have very high demanding customers. But you need to be very fast in order to give them the new product that they want. And this is an advantage that we are having. So let me tell you something about specialty kraft paper. Specialty kraft paper in Europe, we are in Europe market leader. What you see on this chart is we have produced around 440,000 tonnes of paper last year with the start-up of our new paper machine in Steti half of this machine. Goal is dedicated to these markets. And therefore, we have added the other 100,000 tonnes. So we'll produce around 540,000 tonnes of this paper. Mondi is the only supplier in this market that can offer the full range of products to our customers. We can do it in bleached and unbleached, so white and brown papers. We can do it extensible paper or flat paper. We can produce it with recycled content or pure virgin paper. So we have the full range. And it is important, and I will come back to that later, why this is important for our customers to have this broad range of products. Secondly, we are running these products on some specialized assets in our paper mills. So we have some paper machines that are dedicated entirely to this market. And then we have the other machines, we are on shared assets. So we are actually having the flexibility, all these machines to produce both paper for industrial usage as well as we do it here for specialty kraft paper. Again, the growth here it's a structurally growing market. We have the advantages of these megatrends, especially sustainability and e-commerce that help us to outgrow this market. These markets are actually dominated by FMCG players. They are driving the growth. Because of our business setup. And you will -- from Evelyn later on, because of our exposure to this FMCG world, we are very well positioned to capture that. None of our competitors has this access to the FMCG world. We know how they are operating. We know them. We know how to deal with them, and that gives us a huge advantage when it comes to, again, time to market for new developments and actually drive growth in this business on top of the market growth. I was talking about paperization. And I want to show you some proof points that it is happening. So you see everybody talking about is now the chocolate bar in the supermarket, switching from plastic to paper and then this is paperization. Paperization is much more of it. It is in the consumer market, but it is also in other markets. It is in the retail market. It's in other brand or markets where paperization is happening. What you see here is actually -- what you see here is that our output in specialty kraft papers 5 years ago and last year. And you see not only the pie grew. You see that 15% of our products that we sold last year that were not existing 5 years ago. It's new paper grades, it's new applications -- and we have invented them. We have developed them together with our customers and sold them last year to the market. Moving forward, what does it mean? First of all, because of our investments, the pie will get bigger again. And we come with a very strong pipeline with new products, new applications that share of these new products will grow in the already larger pie. And I think that is very important. I have here some examples, and I'm going to share them with you. What you see on these pictures is, on the one hand, it is Steti world. We are talking about diaper packaging. We're talking about dishwasher tablets, we talk about e-commerce world, and the item is coming back to it. The pictures below are, in my view, extremely interesting. You see wrapping of coffee or for instance, wrapping of pellets from our customers that they are switching because of legislation. Because they want to get of shrink film for compound packaging, and this is, for instance, Europe due to the PPWR. What does that mean? It means actually you need stretchable papers. So actually, everything I told you before about the requirements to produce a cement bag is one-to-one applicable for these markets. You need to have this stretchability. You can -- let me talk about the mattress picture that you see in the middle. Large brand owner actually swapping switching all their packaging in all their stores from plastic to paper. To give you some idea, shelf life test for us for this product was 9 months. I mean it's similar to food products that we have somewhere else. And here, we are talking about the wrapping of a mattress. So it takes a long time that these projects are kicking in. Once they are kicking in, they are big volume movers. So if you just compare chocolate wrapper, with the mattress, you understand that there is much more paper in this product than in many chocolate wrapper. The last picture on this slide is actually it's a Danish toy brick producer. What they did is they decided and they went official with it, they decided they will not have any more plastic packaging in their boxes or in their packaging. So actually, they were switching to paper, they were switching to another paper. And the game here, it's not any paper. It is a very specific paper that they need. You need puncture resistance. For products, for these bricks falling into this bag. You need a certain stretchability of this product. And obviously, you need strength that it's holding. So what I'm talking about is that you have paper and that actually for many products that are transitioning into paper packaging, you need additional features that are required by the customer or by the product. So #1, if we go back to our legal example, what they need is -- they need to seal this bag. So you need a certain coating on that. You are adding other specific barriers that are required by more demanding products. So what -- we are a very large producer of different coating methods and of different coating technologies. Also there, we have invested last year into a latest technology of coating for ultra-thin coatings, where we have done it. We've done it in proximity or very close to our paper mill in stated what I was talking before. And what is the advantage? One advantage is obviously logistic cost. But the second biggest advantage is we have very short time to market. So if we are producing -- if we're developing new products together with our customers, we are the only ones, who can actually go from our paper machine to our coating technology produced a new product tested with the customer. If it fails, we stand up and we do it again until it is working. So as I was telling you, we are producing products with low barrier, medium barrier and also high barriers. High barriers are actually required, especially for very specific consumer markets. And now you will hear more from Eveline about these markets where we are in on the consumer side. Thank you very much.

Thank you, Thomas. Hello, everyone. My name is Eveline, I'm the designated COO of Consumer Flexibles. I'm 20 years with Mondi. My background is I'm a chemist, but you will learn quite soon my heart beats for sales, you will know. And while I was in Mondi, I went from product development, through several sales jobs, then I got the -- the honor to lead plant, first one plant or more plants and here I am. Today, we're talking about consumer packaging. Thomas already mentioned, it's a market where we always have been very strategic about where to play. We intentionally choose markets, which are fast growing, demanding, sophisticated, where we, as Mondi truly can differentiate. And today, I will introduce you to our most sexy product. These products are growing far ahead of GDP. We are growing far ahead of the market. And here, we are a market leader. So what sets us apart? Why is Mondi -- why is Mondi winning? So first of all, we understand barrier. We understand what matters for us to protect food, pet food and other stuff. Secondly, we are not only converters. So what we do for our customers is we solve problems. We are partners. So we produce pouches, we produce bags, we've spouted but we produce sustainable products, compostable products. And we can do so because we understand both. We understand the world of paper and we understand the world of plastic. So being integrated in both past in both areas, just gives us a really high speed to market and also this excellence and knowledge which we need for that product. Third part, and we shouldn't underestimate that, we understand -- sorry for not showing the picture. So we understand legislation. So why is this important? We have packaging, packaging waste regulation. So we, as a global partner for our big FMCG partners, but also for other customers, we understand what this means to packaging. And what's most important about here is also the target have to make sustainability affordable. It's very important that we are providing products, where our customer can lead. We are one of the few companies, which have this ultimate knowledge and expertise in the area of paper and in the area of plastic to be the leader in that market, and this just gives us disadvantage where we are. So let's start about pet food, one of these excellent markets we are in. And we are super proud at Mondi. Here, we are the #1 player in Europe when we talk about flexible packaging for pet food. This is a market, it's all about emotions, it's about trust and it's about high performance. So why is this market so powerful? Of course of the emotions. So nowadays, we don't talk about pet owners, we call them pet parents because people deeply care about their pets. And why we liked it because it makes this market resilient, super resilient in times of crisis. That's a very good part of it. And the other side of the part, it's a super demanding area, which means not everyone can do it. One of the examples I want to show you where we play this important role is actually our small wet pet food pouch. You have to understand in that pouch, when we fill the product, it's getting up to 120 degrees and it has to survive a shelf life of 24 months. So the customer has to trust us about what we deliver. And there are only a few companies in the world, who understand barrier that well and who have the operational experience and consistency to supply to the market. And here we are. We are this partner, and here we grow in a very nice way. The other part, you can see here on the screen is the dry pet food part. Thomas was already mentioning it. It's an area which is still very much focused on convenience. So I show you why? Let's take here -- it's unfilled. But someone has to understand, we're talking about these huge bags and what we do here is we make them convenient. So we add features like [ reusability ], but we also have a handle here so that a person like myself is able to carry these bags and we make them -- and that's most important, we make them sustainable. So this pouch and bags you see here, they are all in mono constructions, also the wet pet food pouch is a mono construction one recycling ready. And the important thing about this pet food markets is we can offer the full portfolio. When we work with the FMCG partners, they want one partner. So what they want is a one-stop shop and Mondi is that partner. The next excellent market is our home and personal care market. Let me show you this dishwasher tablets, Actually, for that pouch, we are a market leader. What is important in that market. We are providing solutions, but we are not disturbing our customers with our solutions. Sound strange. What I mean is it's all about sustainability. We are codeveloping with our FMCG partner solutions which work and can run on their existing machines. Because we learned many sustainability transition actually didn't work out in the market because customers had to invest in new machines or they had to upgrade them. So the target for Mondi is that we provide solutions, which work on their existing machines, which is an asset. And especially when we look at that one, it's an evolving process we have to understand. What does it mean? We start with a lightweight, multilayer pouch. The next generation was a mono pouch, which is already recycling ready. And at the moment, what you will find on the shelf is actually a paper-based pouch. Why can we do that? Chris, we understand both, both worlds. We understand the plastic world, and we understand the paperwork, and we are fully integrated. We are so much faster than the others to provide the solutions and to give this added value to our customer. So the least and the last sexy market of today is our new coffee market. When we talk about the coffee market, it describes taste Aroma perfection. Why I'm telling you these emotional things because this is how consumers decide. What it means to the packaging, it means it is a highly demanding, highly sensitive area, no compromises. You, as a consumer, you want a fresh coffee. So we cannot compromise on barrier. And again, our solutions are supposed to work or will work on the existing machines. So what I show you here is the first sustainable vacuum packed coffee back produced by Mondi with no limits in barrier and other requirements. There is another great area, where we could show our innovation power, and this was in development with one of the biggest FMCG customers where we developed a compostable capsule paper-based. To tackle the single-serve market in sustainability. And also here again, you can only solve those problems if you understand what it means to provide these kind of barriers and to have a paper solution we fully integrated. Our target is to grow with the customer. We understand the customer, we understand the products. We understand the market, and we understand the consumers, and we provide solutions that help our customer to lead. By combining this enormous power of knowledge of innovation with this extreme focus on customer, we are not just keeping the pace of the future of packaging. We are shaping it. We are leading it. Thank you. With that, I hand over to Nedim.

Thank you very much, Eveline. Hello, everyone. My name is Nedim. I've been with Mondi for 7 years, all 7 years focused on the e-commerce market, on the e-commerce customers. And today, in my role together with my team, I'm responsible for e-commerce key accounts. I would like to start with the definition of e-commerce. E-commerce refers to a sale of a physical product via digital channel to a private and consumer, which means that when we order something on Amazon or a website of [ ASOS ] or John Lewis, the product that comes to our doorsteps comes in e-commerce packaging, which is either a box or a bag. Now why -- every time we -- actually, why is e-commerce a megatrend. So every time we think about e-commerce, one phrase comes to mind, and that is exponential growth. Whether we think about a market value or the e-commerce share in total retail or a percentage of population that is shopping online. The growth across all these metrics, both historically and in projections is exponential. Now if we zoom in on the flexible e-commerce packaging and then even down to paper bags because paper bags have the highest share of flexible e-commerce packaging Again, here, both in the Europe and the United States, we see the exponential increases. And that's why we call e-commerce a mega trend. And it's important to note that Mondi recognized this trend early on and strategically position itself to utilize on this significant market opportunity. And to give you a context about e-commerce total retail is about 20% and growing. There are 3 key market drivers in e-commerce. The first is a shift from plastic to paper. A major trend driven by influential companies such as Amazon and Zalando, as well as a giant fashion retailers such as H&M and Inditex, all of whom transitioned their portfolios from plastic to paper a few years ago. That said, over 50% of European e-commerce companies still rely on single-use plastic for their shipments, meaning that this trend will continue for years. Second, broader material changes due to the regulatory changes and empty space ratio requirements, this trend has become active. So it is in its infancy. However, it will become significant in years to come. And lastly, we have switch from manual to automated packing. Automation increases productivity, reduces labor dependency and lowers costs. In the coming decades, automation will play important role in e-commerce fulfillment and logistics. Now what you see on the right-hand side of the screen is a snapshot of our latest annual consumer trend report. We've always known that consumers' preferences were important. But in a meeting with an important e-commerce customer a few years ago, this point became even clearer. In that meeting, they told us that their priority for that year was to eliminate plastic because consumers asked for it. So they focused all their attention and resources in doing just that. And at the end, they concluded by saying, this is how we set priorities. Now after that meeting, we went and talked to other important e-commerce customers, and they told us the same thing, consumer input shapes packaging strategies. And this is when we decided to start doing our own research to understand what consumers expect from e-commerce packaging so we can actually help our customers align with those expectations. And this positioned us as trusted advisers to our customers and thought leaders in the industry. Every time someone asked me how does Mondi provide value to e-commerce customers, I always go back to this slide. Our multi-material portfolio, which fulfills all the requirements of the e-commerce supply chain is our key competitive advantage. So on the top, we have listed all the solutions for manual packing. And on the bottom, we have listed all the material that is used for automated packing. On the left-hand side, we have products that have a higher protection all the way to the right side, where we have products with a lower protection. And this is why Mondi is considered a one-stop shop for e-commerce packaging. And some of our customers buy all the products from our portfolio. Now to demonstrate the -- how we provide value to our customers, let's just go back briefly to the key drivers that I mentioned earlier. So the first one, switch from plastic to paper. A leading online fashion retailer in Europe came to us a couple of years ago with a request to help them move from their portfolio from plastics to paper. We understood the requirements we crafted the specifications. We did the trials, we implemented the new portfolio, and we scaled it. This company today is using 100% paper-based solutions. A little bit over a year ago, Amazon approached us due to the second key driver, which is the broader material changes. And in particular, the empty space ratio requirement. They wanted to move part of their portfolio to flexible packaging. However, they couldn't just move it to a regular paper bag because the products they wanted to pack in there still required good protection. So we worked with them. On designing a product that today is called a protective mailer. So this is a paper bag with that offers the flexibility. And also we have corrugated material inside to offer the protection. So you have both protection and flexibility in one product. By doing this, we combine the materials that haven't been combined so far, at least not in an e-commerce supply chain. We have implemented this product. We have worked with the machine suppliers to produce the lines that can enable us to produce this at scale. And we are in the process of scaling it throughout Europe. Lastly, when it comes to automation, the leading pet food marketplace came to us and they wanted to move from manual to automated packing. So they effectively wanted to move from our corrugated box to the corrugated material that is designed for automated packing lines. Fast forward a couple of years. Today, this company runs 80% of their portfolio or all the volume through automated packing lines. To conclude, e-commerce is a megatrend, and Mondi is strategically positioned to capitalize on this magnificent market opportunity. By understanding our consumers or the consumers and the expectation of e-commerce packaging Mondi became a trusted adviser to our customers. And due to our deep expertise and broad portfolio, we have been recognized as a market leader in e-commerce, packaging and logistics. Thank you very much. And now back to Thomas.

Thank you, Nedim. So to conclude the consumer packaging part, I also want to share with you what we have invested. As I told you, we have invested the Steti paper machine, half of it goes into the specialty kraft paper lines world. I told we have invested into ultra-thin coating machine, again, in Steti, reducing time to market for co-developments with our customers. We have invested over EUR 60 million in the pet food market, the pet food market, where we are already leading, but where we see the additional growth and based on this growth, we prepared for sustainable products and future capacity for future growth. And as also Nedim was telling you, we are scaling up our operations on the -- be it both in Europe as well as we do it in North America. So we are at our presentation. And actually, if you give me one more minute, I would like to wrap it up with a page that actually Andrew used for him. We were talking about leading market positions. You have seen on the Industrial Packaging side, we are a global market leader in sack kraft paper. We are a global market leader on the converting side into paper bags. Our a leader in Europe in sack kraft is specialty sack kraft papers and Eveline has shown you that in our chosen markets, we are a market leader for very sophisticated products. We talk about structural growth. On the Industrial Packaging side, I was explaining to you that actually more than half of the business is in emerging markets where we see healthy. And if we talk about Consumer Packaging, we are talking about structurally strongly growing markets and combined with our expertise we are confident that we will continue to gain also market share in these markets. Customer-led innovation, we are partnering with our customers. And I think both Nedim as well as Eveline have shown you some examples where we are doing it. We are material agnostic. So actually, if the customer wants paper, we are fine, if the customer wants a mono material, we are equally fine, we're happy to supply them with both solutions if they wanted. We have shown you our proven operational excellence. You've seen it. We are continuously working both in the upstream business as well as in the downstream business on improving our cost position and actually working on productivity very hard. And talking about investments. We have invested EUR 600 million in this last year's into flexible packaging. And actually, overall, flexible packaging is actually responsible for half of the result of the Mondi Group. I think we are very well positioned also to continue to grow and deliver these numbers in the future. So from my side, thank you very much for your attention. And actually, I think it's time to hand over to Andrew for Q&A.

Very good. Thank you to the team. I appreciate it's a quick gallop through, but I hope you've got a real flavor for what we do in our flexible packaging business. Now we do have some time for questions. Before we start taking the questions, if I could just ask the operator to explain how we're going to take question from both the floor and from the webinar.

Thank you, Andrew. [Operator Instructions]. I'll hand back to you, Andrew.

Right. With that, I think I'll do the easy thing first and go manual. So Lars, you were first up. There is a microphone coming.

I can probably keep it going for 30 minutes, but I'm going to stick to 2 questions. So just starting with, you always spoke to your leading positions in the markets that you serve. But we can also see there's quite a large number of producers. So if you can speak to what that leading position gives you in terms of your integrated business model versus some of your peers and how that enables you to maybe superior profitability, I'm not sure, but if it does, but also the growth component to that, how you -- how that enables you to drive faster growth than the overall market? That was my first question. And then if you kind of look at the e-commerce bit of your offering, clearly, there's now been a transition. It seems to be at least somewhat away from or corrugated into paper bags or paper solutions. Does that cannibalize on your corrugated business in any meaningful way, but also if you could comment on how big that e-commerce offering is in share of your business?

Very good Thanks, Lars. Never have expected anything less from you than a couple of questions. But we will go first, I think probably -- I think it's specifically linked to the industrial business where we do have such a strong market position. And what does it give us? Maybe, Thomas, you could provide an answer on that.

I think what is important to see is that we have -- compared to others, we have another business model. Yes, we are in leading market positions, but we are actually the only one who in-house has all the capabilities, when it comes to barrier properties as well as it comes to integration into paper and upstream business that others don't have. Other companies need to partner with other companies in order to develop new products, which is obviously possible. And I mean I'm not saying it's the wrong way, not at all. We are faster, we are faster and we have the expertise. And you have to see -- if you develop these products, I was talking about shelf life test of the mattress packaging of 9 months, okay? We are working with much more complicated products. So actually, you have a number of tests in order to arrive at the final product with which the customer is happy. So actually, in this time, to have all the possibilities, technology and know-how in-house reduces time to market and that, I think, differentiates us from our competition.

I understand, but that's actually give you quicker growth? And if so, can you quantify what that really translates to?

I mean, I can only talk about our growth. And our growth in these markets is definitely ahead of GDP. We are gaining market share in all of these markets that we have shown, we are gaining market share. And these are very interesting markets, already. And we will continue to do so because the trends that we have shown you are not like the initiative of the week. They are here to stay, and they will continue and actually, especially moving now with [ PPWR ], for instance, coming 2030, actually, the pressure is on the market, the pressure is on our customers to transition to new products. So both this megatrend of sustainability as well as also in this e-commerce world. What is important is that actually it is driving change in this market. It is actually challenging every single packaging that is out there today from the consumer to our customers and then from our customers to use -- to us. And actually, that helps us because here, speed and expertise is necessary in times of high pressure to make new products.

And I think it is safe to say, I mean, clearly, we like it when our customers want us to innovate. That gives us the opportunity to develop new products, to develop opportunities for them to obviously outperform their competitors as well. And as Nedim also pointed out on the e-commerce side, when you go to the end consumer, they want these products. And that is what gives us a lot of confidence that there is a real push here. And yes, there's always ebbs and flows in any sort of cycle. But it is for real, and we're seeing big volume opportunities here. But we better move on. Just on your second question, very quickly, in terms of the size of the market, I mean, obviously, in terms of our corrugated business, it is an important component within that. I'm not going to give you exact percentages. But it is clearly the bigger demand source. But on the other hand, the bag side off a lower base clearly is growing fast, as Nedim said already. I think just to quickly short-circuit it because we better get on to other people. But in terms of cannibalized -- the question of cannibalizing, yes, on the margin, there is transition in certain categories from boxes to bags because of the whole issue around light weighting PPWR and space, et cetera, lends itself to that, particularly in the fashion space. So fashion retail is going a lot to bags. But to be clear, there is a big demand and a growing demand of a much bigger base for boxes. So the box still expect to grow but the rate of growth in bags is faster. The initial stimulus for that was very much plastic substitution. And that has been a huge driver and will continue to be a driver. I mean we're very excited about in North America with some of our key customers that we've been working with in Europe, and we are investing behind that. But there will be an element, yes, where we're taking business from the box business into the bag business. That is why we've set up a separate commercial function with Nedim as part of that. Driving our offering across a whole spectrum of products because we want to be, call it, product agnostic. We don't want our bag and box guys competing with each other for the same business. We want to be able to provide the customer with the best solution for them, and we think that that's the best way forward and will provide us with the best opportunities. But thanks, Lars. Maybe we could go to one more on the coming just one back. No, sorry, well, we've already chosen Andy then.

So just on the -- I mean, Slide 9, you gave us sort of 50-50 split between industrial and consumer packaging. Do you have an approximate split for the EBITDA side? And just for the context, I mean, obviously, things like construction are obviously cyclically weak. I'm just trying to get an idea of the sort of peak to trough in that part of the business and the potential opportunity if we see a rebound in construction in the coming years.

I knew I would open a can of worms in whichever way we split the business. But I think as Thomas so well articulated, we think that is a good way to articulate the different value drivers in the business. We are certainly not going to get into the realm of splitting out profitability in that because, ultimately, the reality is we've even struggled ourselves to define exactly what is what and which pot because the reality is there's a lot of synergy across these different businesses. And even, for example, in the paper mill, we have flexibility to sell into -- or to produce for the both respective markets. So it's not a static number for one thing. In broad terms, though, if you look at it in terms of the current profitability should we say or not current -- should we say the average profitability. You would say that the industrial side has -- is higher margin simply because we control more of the value chain. If you think about it, most of it is integrated. We produce the pulp, the paper, and then it goes into converted box, whereas in bags. And in the consumer side, clearly, we don't have that quite that same level of integration because, for example, in the plastic side of the business, you buy in a resin there's or even a film in certain cases. So you don't have -- so the same -- it's not as capital-intensive, similarly as a consequence. So if you took a rough guide, there's still more EBITDA in the industrial side relative to the consumer side, but simply for that reason. In terms of, call it, the cyclicality of it, I mean, very clearly, as Eveline so rightly said, the consumer side from a demand perspective, clearly much more defensive in nature, people drink and feed their pets regardless of the economic cycle, and that's why it's such a fantastic business in that sense. So you typically see less demand side cyclicality on the consumer side by the same token as hopefully Thomas pointed out on the -- while there's more cyclicality of demand in the industrial space, and you saw that, for example, in that graph showing the long-term trend on -- on bag volumes in the last couple of years. The supply side dynamic is extremely favorable. And certainly, our position within that is extremely strong, and that's why we can still make good money even in very difficult times. But clearly, there is also a cyclical upside there if and when we finally get some tailwinds in this world. I don't want to prejudice the people online. So if we could maybe take the question from Brian Morgan, who's on waiting patiently online.

Cool. Thanks, Andrew. If I could just ask, do you have enough kraft paper capacity on a, say, 5- to 10-year view, given all of this growth?

I hope not, but maybe Thomas could outline what we have the or the question, do we have enough kraft paper capacity for the next 5 to 10 years?

I love the question. You see we are in the phase of ramping up the new paper machine in Steti now, which is adding overall 200,000 tonnes. I was also talking about that we have Hinton, which is an outstanding place from a cost point of view, where we are in the phase of the feasibility study to investing into a new paper machine and this paper machine would be something in the similar size of the one that we are -- that we have added recently now in Steti. So actually, I think for the next years, we are pretty good in shape, when it comes to kraft paper capacity.

Very good. Thanks, Ron. Maybe you come back to Cole, sorry.

Cole Hathorn from Jefferies. I'd just like to start with the supply demand and the competitive moats that Mondi have got in sack and kraft paper. One thing that wasn't mentioned is you're the #1 in sack and kraft paper, but you compare that to containerboard, which is the much bigger brother of the paper markets. How do you see supply and demand in sack and kraft paper considering containerboards oversupplied? Why are you comfortable to invest in sack and kraft paper? And what are the barriers to entry? What gives you confidence that you will continue to be the market leader there?

That's a very good question. Thank you for that. You see -- if you look to the industrial packaging piece. So sack kraft and demand into paper -- into industrial paper bags. You see in the past years, in the past decades. Actually, there was no conversion of any machine into this business. And I explained why it is. Because you need specific pulp, you need specific preparation of the pulp, and you need this extensible unit into the paper machine to produce these papers. There are some smaller conversions on the specialty kraft paper, but actually some players are entering into the market. But we are seeing very good growth rates overall in this market. So they are definitely by far not as a strong impact as it is in containerboard. In the specific world of virgin sack kraft paper, actually, I do not see a lot of risk that actually that new players would enter the market. On top of it, you have seen also from the demand side or from the consumer side, we are, by far, the largest consumer of sack kraft paper consuming 700,000 tonnes of paper. So if you are a new entrant into this market, it would also be actually quite difficult to find easily or quickly and outlet for all your capacity.

And then maybe just a follow-up on the consumer packaging markets. You talked about good growth there in Mondi wanting to drive more growth in e-commerce, FMCG, the new product developments. And if I go back to 2016 to 2020, the -- your competitors in the box market were talking about deploying innovation centers, focusing on helping customers. How are you able to work with machine suppliers and customers to not only deploy new products but deploy them at scale and quickly. So you take more than your fair share of the growth? And does anyone else have innovation centers and flexible packaging like yourselves?

Thank you. So maybe let's start with that. We have opened last year in Germany, a new R&D center. It's called Flex Studio, which is basically a combination of customer experience center in the same building we have a floor for testing machinery. So we are testing newly developed products with our customers. And in the same building, we also have added a lab in order to analyze the newly tested product. So in the world of fast change. I think also the way of doing innovation has changed. I mean what we are doing is not is research. What we are doing is development. So actually, we are going together with our customers, into this new building, and we are co-innovating products with them in order to reduce time to market and to have quickly a product that actually they can take home and say, okay, is there something that we want to use in the future. Does other players in this world have ours, for sure they have. Those other players have R&D centers where they can combine and test with all the technology, paper and plastic solutions, I'm not so sure.

Yes. And I think that is the critical point. We by no means suggesting we're the only people, who are innovating in consumer packaging. It is a very field ripe for innovation and product development and the like. Our specific USP is the ability to combine the expertise on the paper and other substrates that we can combine. And that really, we believe, gives us huge advantage. And to be honest, 5 years ago, it wasn't a topic because it wasn't really being driven. Now every day, I can assure you the team is talking to our customers about exactly where the opportunities lie for driving these sustainable solutions, and that's what's exciting. I have to get to you, eventually.

Ephrem Ravi from Citi. 2 questions. I'll take it one by one. Firstly, it's a bit philosophical. But when you do pricing, what's your frame of reference for these new products that you're innovating and bringing to the market? Are you, for example, pricing it versus a plastic? Or is there like how do you price up the sustainability premium, if you will, because I mean do you do consumer research and then go back to customers? And yes, I mean that's pretty much.

I mean maybe Thomas can take a little bit more detail. But in short, I mean, undoubtedly, it is clear that more often than not to call it more sustainable solution, at least initially is more expensive than the incumbent. I always say there's a reason why you have the incumbent solution. It's normally because for the at -- for the level of functionality you need, there's a price that is attractive. And so invariably, we are charging more for the sustainable solution partly because initially upfront, when you haven't got the scale, et cetera, the unit cost is higher, that does come down over time. But maybe some thoughts on how we discuss that with our customers.

The development, especially of newly developed sustainable products is actually coming in waves. So wave is typically switching into a new product combination, which is -- it is more expensive. It is more expensive simply because of the product mix and of the way, how you produce it. And we, as codeveloper with our customers, we are also having a good margin on this business. Nevertheless, and I mean, we see that overall with the pressure on them especially now these last 2 years. Actually, big brands, especially in the luxury brands, they face a lot of pressure from their consumers. So what we are at the moment focused on it, we are very successful with that is what we call cost out innovation. So you want to have the same you have to find the bits and pieces that make it cheaper for the customer to produce. And this comes in phases. It's depending on the cycle. And as Eveline said it from multilayer to monolayer, from mono layer going into paper solutions.

And how do you incentivize your salespeople to upsell into more kind of -- because I presume they don't know what the margin profile is, et cetera. But how does it kind of work on a day-to-day basis, when someone is someone from Nedim's team is going out and speaking to a small e-commerce, not at the Amazons of the world, but a startup, I don't know, a pet food e-commerce platform. So how does he sort of decide which products to kind of push and how to kind of optimize margins from a Mondi point of view?

It's -- we showed you our flexible packaging business linked to market end users. What makes us successful is actually to have this market focus. Yes, there are products, where you potentially earn more in a box than in a bag or the other way around. But actually, the success with the customer is that you give the customer what he wants, and then you actually give it to this customer at the right time. So you might sacrifice margins left and right sometimes. But at the end, when it comes to scaling up the whole portfolio, it definitely counts for you that you are the one who is giving the customer exactly what he wants. And so therefore, this is the incentive system that we have for our people that actually they bring back home the request from the customer what he really wants.

And I can assure you our commercial people know exactly what the costs and margins are in each of the products that we sell. Should we go back to the line. So we've got James Twyman on the line?

Yes. Hello. Thank you very much on a very, very informative presentation. I've got 2 questions, if I may. The first one is you mentioned recent CapEx that you've been doing flexibles. Could you talk around what sort of plans you've got in terms of growth projects over the next few years or some sort of idea of what sort of spending you're thinking of doing in there. And then secondly, operating rates, my understanding is in kraft papers is actually pretty good at the moment. So I just wanted to contrast that with the fact that returns are very much at the lower end compared with the last sort of 10 years or so. What are we missing there in terms of why we're at the bottom end of the cycle from that perspective?

Yes. I think I'll take those. I mean, just in terms of CapEx, James, we give very clear guidance in terms of the group numbers. I won't even ask Mike to comment on that because I think we've given it to you before. So we're clear in terms of the CapEx we're spending this year. Undoubtedly, we've had a big expansionary program. We are a large part of the way through that in terms of the actual product execution. Now it's about, call it, commercial execution -- well, commercial and production ramp-up, which is taking place. I mean I think you heard from Thomas, we do have a well-invested asset base. We've spent money in terms to be able to leverage that future growth that we see. So in the short term, clearly, the focus is actually from a CapEx, more on ongoing cost optimization opportunities. For example, we've got a couple of energy projects going on at the moment in our pulp and paper mills, which continues to drive the cost base down. I've been around that certainly in the near term. So you would connect on that basis that the overall CapEx budget for the group comes off in the absence of other big exciting growth projects, which we'll tell you about at the time. In the flexibles business, the main [ bunky ] project that we obviously are currently reviewing is the expansionary project at Hinton. As Thomas has already told you, we are in feasibility on that. Realistically, that is a decision for next year. So that's where we are on the CapEx side. I think to your question on operating rates I've always these operating rates. I know everyone loves trying to calculate them. I mean, we can't even calculate our own capacity. It's amazing how different that is. So I don't quite know how everyone works out these precise operating rates. But it is suffice to say, a tighter market in the sense that, as we discussed already, there's a lot -- there is no new capacity, particularly in the sack kraft space other than the capacity we've been bringing on. But at the same time, we also know the demand side, particularly in the industrial space, as we discussed already, is more cyclical, and it has been cyclically impacted. I mean when you look at our bags volumes, and we are a proxy for the market in that respect. And we have seen a decline in volumes, quite material decline. If you look at peak to trough volumes for the European market, and I hope I haven't got this wrong, but it's over 1 billion bags of demand was lost from the peak in middle of 2022 to the trough, which hopefully with a bit of a hindsight was kind of where we're beginning of last year. And since then, we've seen a slow recovery. But in the face of those sort of cyclical headwinds, it is very challenging in spite of obviously a very much more favorable supply side than you see on the containerboard, for example, as -- and I should hesitate to say on the containerboard, it's in the recycled containerboard, the virgin grades are, as we well know, much tighter from a supply side perspective. So thank you very much, James. I hope that answers your question. We have time for a couple more questions from the floor. Yes.

Pallav Mittal from Barclays. A quick question on your competitive landscape. So since the Russia-Ukraine war, the Russian supplier, which had a big market in Europe is out of the market. So what I'm trying to understand is how did that benefit Mondi in terms of volumes or maybe even pricing? And if there war stops, should we expect any headwind if that supplier comes back to the European market?

Yes. Very good question. I'm sure you saw one of those bars on Thomas' slides, is referencing that exact lack competitor, which is Segezha obviously. Maybe, Thomas, you could talk about where they've been in the market.

So actually, what happened was Segezha, Russian paper mill, Russian integrated paper mill, they had converting operations in Europe. They don't have them anymore. It's not part of the group anymore. They sold it. They are integrated in Russia today and actually what happened to their paper that they are selling out there on the market is this paper is going into Asia. So actually, it has found a new place. And leading into your second question, if there are any changes in the political landscape, first of all, they have markets they are selling to today. So yes, maybe something of these volumes would come back, but I wouldn't see that as any major disturbance, not at all. I think on the other side, probably the bigger impact of opening up would be on the supply side. And here we talk about forest, here we talk about wood supply, especially into Scandinavia and into Central Europe. And so actually, the competitor itself, I actually don't see that as any threat to our business.

I'll keep it very short. Ioannis Masvoulas from Morgan Stanley. A couple of questions. First, on this revenue split industrial versus consumer, you show 50-50. I think a few years ago, maybe 5 years ago, it was 63% for industrial or something in that range. Is that shift towards consumer more of a function of the footprint production lines or just the organic growth of the 2 segments? And the second question on Hinton. You talked about the feasibility study in a scenario, where we have trade barriers and moving paper to the U.S. might prove unfeasible. Can you talk about some of the options there?

And I didn't think it would take so long for the tariff question to come up, but appreciate it nonetheless. Just in terms of the revenue split, I think, if I recall correctly, you were referring, there was a -- and we've referred to a 60-40 split. That's when we've looked at effectively the asset base from a -- treating all our bags business and all our kraft paper business essentially as industrial. We've taken a more end use sort of lens here. So it's really more of a question of the definition. So when we look at it in detail, obviously, we have a number of, call it, industrial bag exposures, which actually into consumer applications. And so it's essentially a refined calculation looking specifically at the end market uses. So it shouldn't be read about the end to that. Having said that, obviously, we do see a lot of opportunity on the consumer side. We're very excited by the growth that we are seeing there. We're continuing to invest behind it. But likewise, we've also put money behind the growth in the industrial markets, where we enjoy such a strong position, and we are determined to retain that position. Very quickly on the tariffs without getting into the detail, I mean, we spoke last week briefly about it in terms of the trading update. As a group, I remind you, we have very limited direct exposure to tariffs, it's 2%, 3% of our turnover is -- represents turnover of anything we sell from somewhere else into the U.S. That, of course, includes also in this particular business, to go into the U.S. and also Canada into the U.S. The reality is that the price we sell in those trade flows are currently exempt under the USMCA regulations. Clearly, we -- it's a moving feast. So we have to keep it under review. But the products that we currently make in Hinton, some of which is sold into the U.S., a lot of it actually into Asia is exempt and as would under the current rules, the kraft paper product, but it is undoubtedly an added uncertainty, as we all know, when rules are changing or does create uncertainty and undoubtedly, we'll be needing to consider the implications. But as I said, we are not ready for that decision anyway because we're working through nearing the permitting and all the detailed feasibility work before we're in a position to overlay whatever the trading conditions will be at the time. So it's something to think about for the future. Very good. I think we are coming to the end. So we have 1 very last 1 of Cole, I saw you itching either for your drink or for the question.

I'll stick with the questions. I've actually got 2 follow-ups, if I may. The 1 is I want to understand really the scale benefits of your industrial bags business, if you pay that to others. Can you talk about some of the kind of benchmarking you do by plant comparing to each other the efficiencies of that. Should we think about Mondi's Cement and Building Materials bag business likely having higher margins than your competitors just because of your scale just on the converting side alone. And the second one is there's a lot of focus on growth in consumer packaging because of the more stable volumes in markets. But industrial business I think, is quite an attractive space. You probably do get good margins. Do you have a specific preference to grow consumer over industrial? Or are you agnostic to that when you deploy capital.

Well, maybe I will take the second part, and Thomas then can talk about the exceptional performance we have in our operation plant performance. But just in terms of the overall dynamic, I mean, very clearly, we like all our exposures. We think that the industrial exposure, we enjoy a privileged position. Clearly, the overall market is growing relatively slower than the consumer markets. And of course, the overall market opportunity is smaller in a sense that it's just simply a smaller global market. Having said that, we're in extremely strong position for all the reasons that Thomas outlined. I see great opportunity both organically to continue to grow this business, both upstream and downstream. And of course, if there's M&A opportunities that come either from the outsourcing, which has been a highly productive area of growth for us over time. And of course, if the world we haven't spoken about it at all because, frankly, we're not seeing at the moment. But if the big competition for industrial paper bags is woven polypropylene bags, if the cement industry ever worried about sustainability from that perspective, and you saw a shift in that direction that would add a huge new impetus. Now I don't want to paint that picture because we -- it is fair to say we are not seeing that as a trend right now. But if that ever happened, of course, that adds to even a bigger emphasis to the sort of growth opportunities we see in the industrial space. Equally, on the consumer space for all the reasons I think we outlined and I'm running out of time. So going to keep it short. We see a great opportunities. We're investing behind that for all the reasons from the pet food converting to the coatings business to, obviously, some of these upstream investments, which are very much predicated also on the consumer markets and the growth around paperization, et cetera. So opportunities very much in both. So we don't sit there and think we'd like to grow in this rather than this. We like them all for somewhat different reasons for hopefully the reasons we articulated already. Very quickly, because I take a little bit of your time.

I know we are the most productive producer in the industrial paper bag downstream business. Why do I know it? You have seen this business has grown historically a lot via acquisitions. So we bought 20, 30, probably more than 40 plants and actually we closed and restructured many of them. We have never bought a factory that was more productive than us. Never. We always went in and actually we brought our expertise, how to run the machines, how to set it up, what -- which products to run and in which schedules according to our expertise. So we are definitely the leader when it comes to productivity in this space. Why is it? Because we are bigger, we have a larger scale. And we also have, as I said, we have this possibility to specialize certain plants. And that actually gives you from a supply chain perspective from everything, a huge advantage actually to be more productive than your competitors.

Very good. I am very conscious of the time and that we must stick to our commitment around that, which I think we're already extending people's patients. But just finally on that point as well, I'm always deeply skeptical, when people come to me and say, we can run this thing better than someone else and hence, there's a kind of synergy. But I do think in our bags business, we have demonstrated time and time again that we can genuinely add value, when we acquire these businesses just from an operating perspective before you get into the integration benefits and the like. Which is maybe a nice way to round things up. I really do appreciate everyone's attention today. I hope you have got a flavor at least for what we do in this business. I know there's some complexity in understanding it, but we like that complexity because that gives us opportunity as well. We are very excited across the piece and the opportunities that it brings. We think we are extremely well positioned to take advantage of those opportunities as they arise. And we see a lot of good strong structural growth here and that will give us the opportunity for long-term sustainable value-accretive growth. So with that, I'd just quickly like to thank the team of presenters and obviously, everyone else who's been working extremely hard to make this event happen. I won't name everyone because I got no time left, but I really do thank you. Thank you, everyone, online for your attention. And for those of you in the room would be delighted if you joined us for a refreshment upstairs. So with that, thank you very much, and we will close the webinar.