Mondi plc

Thank you. Good morning, everyone.

Thank you for joining us. I’m Peter Oswald, Chief Executive of Mondi.

And I’m joined here by Andrew King, our Chief Financial Officer. I would like to briefly summarize this morning’s announcement and then Andrew and I will be happy to take your questions.

We delivered a strong performance in the third quarter, with EBITDA of €466 million, up 30% on the comparable prior year period and up 4% on the second quarter of 2018. This strong performance resulted from a combination of higher average selling prices across Fibre Packaging and Uncoated Fine Paper, a very strong operational performance, good cost containment and contributions from recent acquisitions.

Like-for-like sales for the quarter were up on the comparable prior year period, due to good growth in the Fibre Packaging value chain. Selling prices for the group’s key paper grades were significantly up on the comparable prior year period and marginally up on the second quarter.

We continue to see manageable upward pressure on our variable costs, with one notable exception being paper for recycling costs, where average benchmark European prices were down 42% on the prior year period, but stable on the second quarter. And finally, cash fixed costs were higher as a result of the impact of mill maintenance shuts and inflationary cost pressures, but this was well mitigated by our ongoing cost reduction initiatives.

So let’s look now at our business units. Good containerboards and kraft paper demand continued to support pricing in Fibre Packaging.

Average selling prices for the quarter were higher than last year and modestly up on the second quarter, and prices remained generally stable going into the fourth quarter with price changes limited to modest increases implemented early in the fourth quarter in selected containerboard markets. We talked about white-top kraftliner and Semi Chem fluting.

Going into the annual price negotiations for 2019, in the fourth quarter, we see strong demand for kraft paper, actually very strong demand. This is supported in part by the drive to replace plastic shopper bags with paper-based alternatives and increasing demand for sustainable paper-based flexible packaging.

We saw good sales volume growth in Corrugated Packaging and Industrial Bags during the period. Our €335 million modernization of our Steti mill in the Czech Republic is progressing well and according to plan and commissioning is expected during the fourth quarter of this year.

We are pleased with the positive contribution from Powerflute during the quarter. The integration of our two recently acquired Industrial Bags plants in Egypt is also progressing very well.

Consumer Packaging benefited from previously announced restructuring initiatives, product mix improvements and recently completed investments, although overall performance continues to be held back by declining volumes in personal care components, which will continue into the fourth quarter. We continue to work actively with our customers, suppliers and other stakeholders to find innovative solutions that improve the sustainability of plastic packaging, based on circular economy principles.

Uncoated Fine Paper continues to perform strongly, with higher average selling prices during the quarter offsetting higher input costs and negative currency effects. Further, inflation-linked selling price increases were recently implemented in Europe and Russia.

High pulp prices continue to put pressure on our unintegrated production in Europe. So let me finish with our outlook.

Going into the fourth quarter, we continue to benefit from stable pricing in key fiber-based product segments. However, as expected, the quarter will be impacted by the large project-related shut and ramp-up at our Steti mill, restructuring initiatives in Industrial Bags and continued pressure on the cost base across the group, mitigated by our ongoing proactive and comprehensive cost reduction programs.

Going into the annual price negotiations in the fourth quarter for kraft paper, we see very strong demand. With our robust business model and our culture of driving performance, we remain confident of continuing to deliver an industry-leading performance and sustaining our track record of delivering value accretive growth.

Thank you for your attention. Andrew and I will now be happy to answer any questions you may have.

Thank you.

Yes, good morning, Peter and Andrew. Thank you for taking the call.

Two or three questions perhaps for me. Firstly, obviously, the market share price reaction has been quite volatile in recent days.

And there is some sense that maybe that demand for corrugated, in particular, and maybe for containerboard is slow. And can you give us any thoughts – your thoughts on that in terms of how you’ve seen demand progressing through the third quarter and maybe as we enter into the fourth quarter?

Secondly, you reported obviously a very strong performance in the period helped by lower OCC prices. Again, if you give us any sense as to what you are seeing on OCC price trends in the market at the moment?

And I suppose finally, just in terms of the Uncoated Fine Paper business, if you could give us some sense as to how the volume environment is looking there? I think, you had talked about it being flat at the half year, perhaps you might give us some thoughts on that?

Thank you very much.

Yes, thank you very much, Barry. So on the first question with regards to corrugated demand, we see that strong demand which we reported on two months ago somewhat moderating.

But first of all, the good news is, we don’t see any pressure on prices neither with regards to Corrugated Packaging nor containerboard, and that’s the most important thing. And the order intake in our order book is not as strong as it was, as I said, but it is satisfying.

With regards to kraft paper, we have somewhat different picture, because here the order intakes, the order book is very strong. And I – yes, then I take your second question was on OCC price trends that’s obviously difficult to predict.

But as the Chinese government has all intentions to further reduce its intake of paper for recycling, with a planned phase out in 2019 or 2020, we'll see if that comes at this speed, but that’s the plan. We see for the foreseeable future OCC price is staying rather flat in the medium terms on a two or three-year horizon.

There are a number of reasons why they will gradually move up. Your third question is on Uncoated Fine Paper, demand has stayed sluggish with the typical pattern we always referred to, so a marginal decline 1% to 2% in Western Europe, a bit higher in Central, Eastern Europe and slightly positive in Russia and South Africa.

And this pattern has stayed as is. And actually, we are wondering why there are no closure announcements of independent uncoated fine or uncoated wood-free producers who are not backward integrated with paper, unless they have specialities like we have in Austria.

Okay. And just a follow-up, Peter.

On the corrugated, you indicated, I think, at the half-year that volumes were flat. Does that mean that moderating that volumes are down now, or are you still seeing year-on-year growth?

We see year-on-year growth in the first-half year. It was flat, because we fully concentrated to implement all paper price increases, which we have broadly achieved.

And so we could now return to a normal sales pattern, which means that volume growth is good, so we are growing again, if you – if that’s your question.

Yes, thank you very much. Thank you.

Yes, thank you. Thank you for the call.

Just a couple of questions. The first one is on kraft paper, you are talking about volume growth being very strong.

Could you give us some idea of the scale of that? I know historically, demand has been relatively flat.

And also, on white-top kraftliner pricing, I know there has been an attempt to raise prices in this quarter. Could you give us some idea about how successful that has been?

And then also the asset gain on forestry, could you give us an idea about whether that’s increased or decreased in the third quarter compared with earlier in the year? Thanks.

Thank you, James. So at kraft paper, it's important to note is, it's not necessarily volume growth, because we are capacity restrained.

We see demand growth mainly in overseas markets and in the special needs of shopper bags I referred to, and this is very healthy for our pricing. And as you know, we do annual contracts for our overseas markets.

So we have adapted our policy to have now not any longer annual contracts in Europe, but we do have them in overseas markets, and so it's now an important period to agree with our customers on the prices. And given the very strong demand, we’re very optimistic about this.

The kraftliner price increased. We only went for a price increase for white-top kraftliner in Semi Chem fluting, not for brown kraftliner, and part of that was achieved.

Yes, so it’s…

Yes, maybe I could just add on the fair value gain. The short answer, James, is there's very limited movement in terms of the change quarter-on-quarter.

So you'll see a – there is a bit of a gain, but it's fairly moderate and very similar to the target level you saw in the first-half.

Okay, thank you. And just a follow-up.

So you're not seeing any pressure from customers to lower testliner prices because of the lower wastepaper costs?

On testliner, I can't respond, because we are 100% integrated. So we are simply a too small player in the market.

And on kraftliner and all the other grades we sell, I'd say, the answer is a clear no.

Okay. Thank you very much.

Thank you. Just want to come back a bit to the kraft paper.

During the half-year results, you talked about the potential benefit of seeing that move from plastics to paper bags. So if you can give us any sense of what you're seeing.

And you also talked about the potential integration with the Consumer Packaging business and the sort of interface you have in that business? Have you taken any initiatives?

And where geographically do you see that growth coming through?

Yes. Thank you, Lars.

So yes, we are actually working very busily on it. So kraft paper is obviously, the majority is selling the kraft paper to everywhere on the globe.

And that is very strong. That's one story.

But referring to a new story, we do have now severe capacity restraints to produce enough kraft paper for shopper bags. And so we are considering how to change our product mix, but that's a problem from a supply point of view at the moment.

With regards to the initiatives, which we call now eco-solutions, so a move from plastic to paper for a variety of consumer products, we have a fairly intensive working group who had already produced results, and we are marketing this now with our customers. But as I highlighted the last time, we have certain things, like these shopper bag things, which are immediate and have affected us already in the first-half of the year.

And then we have to develop new products, which replace plastic packaging and that is more of a – in financial terms more of a two to three-year project. So we don't see – we will start to see it in – during the next year.

Okay. So you talked about manageable cost inflation.

So if you want to – if you can share a bit what you're seeing at cost inflation? And clearly, in the Nordic market, there has been some significant wood cost pressures.

I think you commented in the half year point, you didn't see any of that in your main production areas. So if you – if there's any change to that, it doesn't sound that way.

But also, I'd like to a bit understand the underlying performance in the Consumer Packaging business, where you called out some positive mix changes. Of course, resin prices have been quite volatile and mostly going up.

But if you were to take out the personal care negatives, is this business now making progress? And then finally, where do we stand on Ruzomberok now in terms of the investment there?

Has there been any change timing-wise or permitting-wise?

Yes.

Yes. So cost inflation will be covered by Andrew, I take the other points.

In Consumer Packaging, excluding CPPs or consumer – the – sorry, the personal care components, we see, yes, our results up, clearly up. Then on the question on permitting, unfortunately, we can't give a very final answer, but we are very confident that we can make an announcement within the next few days.

And I hand – with regards to costs, I hand over to Andrew.

Yes. And I think, Lars, as you rightly say, I mean, clearly, I mean, it's not to say we don't have some exposure to that Scandinavian wood cost issue.

But as you well know, our exposure is extremely limited. Effectively, we have the one mill in Sweden, Dynas, where we have seen some higher wood cost inflation.

But clearly, in the Central European markets that we particularly purchase wood from, the inflation – the cost inflation is much more moderate on the wood cost side. And of course, in Russia, it's much more under our control given that we largely control the value chain there.

So I think safe to say is, our wood cost inflation has been much more moderate than the people much more exposed to the Scandinavian markets over the course of this year. In terms of general cost inflation, as we continue to reiterate, I mean, we do see inflation around in the markets in which we operate.

But it does not – it has not – certainly not accelerated at all. It remains manageable, as we say, and it's difficult to pinpoint any one cost category, because obviously, there's – across most categories, you are seeing some inflation.

Obviously, the big notable exception being that OCC. And, as I say, if anything, our wood cost situation, I think, is – if we would compare to our peers has probably been more moderate because of our exposures in Central, Eastern Europe.

Just one follow-up. Then let's assume you do get a – or some sort of release from you shortly on the December off, what is the timeline then to ramp up that – start ramping up that machine?

The machine will start up end of 2020.

Okay. Thank you.

Hi, guys, thanks for the call. You just shared about Uncoated Fine Paper.

You talk about unintegrated producers taking the strain with the pulp prices. Could you talk about your Austrian business?

Is it cash generative as we speak, or is it cash negative?

Andrew?

Yes. I think, Brian, as we alluded to, I mean, clearly, the unintegrated players more broadly are under extreme pressure.

You could see it from – if you just simply take the benchmark selling price of the Uncoated Fine Paper relative to where pulp costs are. And of course, in euro terms with a bit of a weakening in the euro relative to dollar and the pulp price – pulp costs have gone up even more.

So yes, it's fair to say our Neusiedler operation is marginal at best at the moment, which, as I think Peter alluded to earlier. We would regard Neusiedler as a – it's a big, unintegrated facility and it also produces a lot of specialty products.

So you can only imagine that the higher-end of that unintegrated cost curve must be under severe pressure at the moment. And as we say, we're frankly quite surprised that we haven't seen more supply-side reaction to date.

Thank you.

Hey, guys, thanks for taking the call. A couple of questions from me, please.

Firstly, just following up on your comments around box volumes that you're remaining disciplined in terms of the pricing side, H1, and now you're back to more normalized markets. If that would suggest that box pricing has been stable now sequentially, should we expect further upside there?

And secondly, just specifically on kraftliner, what are you seeing in terms of import trends in Europe at the moment? And how do you gauge the prospect for a brown kraftliner price increase either before year-end or into 2019?

And finally, just on the kraft paper price increase or price negotiations, I should say, would it have been your intention to simultaneously negotiate a – an Industrial Bags price increase at the same time, so we avoid a delay and is there scope for us?

Yes, thank you. So with regards to box volumes, we have achieved our cap, the pass-on of prices as per end of Q2.

And this, of course, doesn't mean that we are not going for further price increases, because we want to – now to improve our margin. But the pressure, the pass-on from prices, I think we are, to my knowledge, one of the very few companies who have completed that task in Q2.

And so the increases will be clearly fairly limited, but it would be wrong to say it's not a focus anymore. We always try to make better returns.

On the question of kraftliner import, the kraftliner imports have somewhat softened over the last month. Your question about kraftliner increase, at the moment, we are watching how things develop.

Typically, the Christmas period is a weak period, because converting operation box plants close down. And so one has to evaluate the situation around January whether we can go for another price increase, but it's too early to give a view on that.

With regards to Industrial Bags, it's important to differentiate between Europe and overseas markets. In Europe, we have changed now in our paper pricing more or less to quarterly or ad hoc price increases.

And obviously, they are known to our Industrial Bags operation, and they are in the process of implementing them in overseas markets, where we mainly supply to external customers but, of course, to a certain extent also to internal customers. The very high price increase, which we will execute in kraft paper is known by Industrial Bags, and they are already negotiating this price increase to ensure that at the 1st of January, they both get substantially higher kraft paper prices and can sell – and at least to recover that with our customers.

Okay, great. Thanks very much.

Good morning, guys. A couple of questions.

Just in terms of the underlying EBITDA disclosed, were you able to give us the EBIT number? I'm assuming it was a little bit higher.

And then secondly, in terms of containerboard additions, so certainly on the kraftliner side in the next 24 months, is there anything that you guys sort of have your eyes on but that can disturb the markets materially? And then I guess, going back to the question on UFP, I mean, the fact that Neusiedler is marginally best right now.

So it indicates that's sort of a wait-and-see approach for a couple of players. I mean, what is driving that?

Is – or are we expecting a correction in the pulp price maybe? And then just lastly, I think Peter made a comment about OCC prices ticking up in the next two, three years gradually.

Now if you could just comment around the drivers around that? Thanks.

Yes. Thank you.

So on EBITDA, I'll pass on to Andrew.

The short answer is no. In short, we're providing an EBITDA number, I mean, to try and give some direction, obviously depreciation as a function of capital versus depreciation – CapEx versus depreciation and obviously acquisitions, I mean, to give you some thoughts around that.

€220 million was our depreciation and amortization in the first-half. Clearly, we have some acquisitions, but Powerflute being the biggest of them and some smaller ones.

And obviously, we continue to spend CapEx above depreciation. So all of the – we'd expect that to sequentially go up a bit.

The imponderable is always the currencies, where obviously a devaluation of some of our underlying functional currencies can have an offsetting effect to some extent with net-net. One would expect some sequential increase in the depreciation charge, but it won't be particularly material half-on-half.

That would be my best estimate. I don't know, Peter, you want to address the kraftliner supply.

Yes [indiscernible]. That was very easy to say.

For the next two to three years, no kraftliner capacity comes up in Europe. We will see that Belarus is starting up a liquid pulp machine, which will also produce lots of kraftliner at least at the beginning.

Equally, they are closing down some capacities that might have a marginal impact. So we see, as we've said before, nothing has changed in this regard.

Demand will be up driven by the structural growth driver in e-commerce, and supply will – the increases will be absolutely large. And so we believe in a very healthy picture.

With regards to Uncoated Fine Paper, Neusiedler, I mean, it's a situation which we monitor, and we will see how things develop going forward. As Andrew said, we have a number of premium products, which give us premium up to €300 per tonne.

So we have highly profitable products, but it's something we monitor very closely. In terms of paper for recycling, you see – I think we have in all our analysis also now with this – yes, don't want to quantify, but this – all we see is that we create everywhere over capacity.

I think we have to take a global picture, which includes China. China has closed in the first-half year 4.4 million tonnes of containerboards.

It's expected to be around 6 million or more for the whole year. Another 12 million to 15 million tonnes are at risk because of – obviously to reduce paper for recycling.

And those who do not get access to the pulp to import them are in a really difficult situation. So basically, hundreds, if not more of small containerboard mills are at risk.

And the one consequence and the question will be how will China solve that issue going forward. It's not just about building a new containerboard machines in China, because the real question is where to get the raw materials from?

And part of the answer will be that they will install pipe units where they convert paper for recycling into pulp and then ship this pulp to China, there are a number of projects underway. But the shortfall, we talked about 20 million tonnes is far, and that will drive up finally again our paper for recycling costs, because this new competition in Europe and the U.S.

will come up. The second solution is that paper will be imported into China and we have seen a strong uptick from a low base of kraftliner and testliner import increases into China.

And I think that's not a one-off event, but that has some room to run. And therefore, this extreme shortage, which we have in China, will be very beneficial for the containerboard market around the world.

Okay, thanks. Peter, do you mind just repeating that the quantum of the closure in China, was that 4.4 million tonnes?

Yes, it’s 4.2 million or 4.4 million, I have to look it up in the – only in the first half.

Okay.

So…

Okay. Yes.

The growth in the first eight months in China is 6.6%, which is about 4 million tonnes. So this means that China needs 10 million tonnes more containerboard.

And yes, they are building new machines, but there's additional problem of getting the raw material. And I think that, for the containerboard industry around the world, actually good news.

Okay, excellent. Thanks very much, guys.

Thank you. Good morning, everyone.

I just wanted to return to your capital projects for a second. Obviously, you're hinting at some imminent news flow on Ruzomberok.

I guess, if we take that in around, are we still on track as for your previous guidance of €700 million to €800 million CapEx for both 2018 and 2019 within the scope of sort of total project spend or capital investments of €750 million?

Yes.

Okay. Thank you.

And just further clarification just on FX. In the first six months of 2018, FX headwinds were about a €50 million headwind to EBITDA.

You seem to be hinting at it's a much more modest number in terms of FX headwinds in Q3. Can you give us some more granularity on that?

Justin, as always, this is a trading statement, not a full set of financial, but the short answer is yes. They were as much more moderate in the third quarter if you look at it on a sequential basis versus the Q2.

Obviously, we continue to have moving parts with things like the Turkish lira being very volatile. But as you know, it’s a fairly small exposure for us.

The rand devaluation was positive, but obviously a ruble devaluation on the other hand is a bit negative. But taking in around and the overall currency effect was fairly limited on a sequential basis.

Okay.

And looking as we do into the fourth quarter, if you take again current spot, I mean things can change. But it all looks fairly benign sequentially again into the fourth quarter at the moment.

You’re right. Just again, just one further little sort of a granular question.

So at the time of the Q2 results, you announced you were targeting almost €40 a tonne in white-top kraftliner and semi chem fluting, and I think it was up to 6% price increases in graphic paper. Can you just give us – I know you describe it as part achieved in white-top kraftliner.

Can you just give us some granular as to what that is? Is that potentially 20 or something you achieved?

Yes, about half was achieved and the rest is under this – the discussion.

Sure, okay. And then in Uncoated Fine Paper, what is the progress?

In both cases.

About half achieved.

Uncoated Fine Paper was a bit higher, that keep on trades.

Okay, great. Thank you.

And then again talking about results, you described the M&A landscape as very stretched valuations dominated by P/E. I'm assuming probably not a lot has changed frankly in the last two, three months?

No, but in the last five days.

Sure, okay. I think there's a couple of indications, they are not determined by five days, would perhaps five days.

Yes. It's – I think all corrugated containerboard producers are down by 50% roughly, and people thought we are also a pure containerboard producer.

Yes. But yes, we have to see how things develop, but – so it hasn't changed.

I would say, marginally now, forget the joke I made. Marginally, we – I think, things are moving down and become a bit more reasonable, but it was obviously, was within two months or three months, not a big change.

But things are softening a bit.

Okay, that’s great. Thank you.

Thank you. Still a couple of questions left from my side.

First of all, coming back to this capacity situation in containerboard. And as you mentioned yourself, there has been quite of a selloff in the shares recently, and partly that relates to some fears in capacity additions, mainly, I guess, in the U.S.

You talked about Europe and that we don't have much capacity coming on stream here and that's obviously a good thing. But how do you see the things that are happening in the U.S.

right now on the capacity side on, for example, kraftliner? Do you see a risk of increase the imports into Europe due to that?

Yes, of course. I mean, we have to look at the open markets.

However, we know from the pure economics that to sale kraftliner from the U.S. to Europe is generally a bad business and it's only done if people want to avoid to close capacity.

So it's a marginal business, which will never be a permanent thing, but it depends on currencies and a lot of other effects. And what I was just highlighting is that, if we take a global picture roles, if we look at China and see that China has this enormous problem of basically being unable to produce enough boxes for all their products and the Chinese government will not stop the Lenovos of this world but to export just, because there are no boxes available and the solutions will be based pulp out of paper for recycling.

The second solution is importing more paper, and I believe they will do that. And that will make probably – and now with the complication of the trade wars, but there will be a new big importer and that is China, and this has to be factored in as well.

But I'm not saying in anyway that any capacity additions don't raise any concerns or should be ignored, because they have to be put into respect if – in a really global world. And we talk in China about €10 million to €20 million reduction and that's maybe bigger driver than the one or the other a new 500,000 or 1 million tonnes and we have to keep it all that in perspective.

Yes. No, that's a fair point.

Then just a question on the CapEx program, which you touched upon previously of about €750 million. Now how much enough of an – I mean, you're about to start up the Steti mill, and that's going to stop to contribute, I guess, positively going into 2019.

But could you quantify a bit, I mean, how big of an earnest contribution do you expect from this whole investment program in 2019 and also beyond?

I mean, on Steti, we have spent €355 million or we’ve really have spent €355 million. We’ve guided towards a mid-teen return.

So you can make up the numbers – yes, you multiply by whatever around 15% and you get somewhere there and the rate will be determined exactly how the ramp up will be and where prices will be. I think, we can’t be much more precise, but it gives a good idea.

Sure. But I guess, the fact that pricing is, I guess, pretty high right now that should drive the returns higher, so?

Yes. But also, it could be the ramp up curve, which you have to consider.

It's not from day one that all products are placed in the market in the best way. There might be some technical delays, but it's – yes, it's anyone's guess.

We don't know exactly how all this ramp up and the introduction of the product into the market will exactly work. And we should not forget that we’ve always been very clear about it that the Steti, especially this Steti investment has about one-third of replacement.

It's a replacement investment, which actually no return, it just continued to keep on pushing to get this. It’s different now for Ruzomberok project, which Steti was one-third roughly same business CapEx with very, very limited returns.

Okay, that's clear. Thank you.

And just a final question on – I mean, in terms of Q4, you’re mentioning some restructuring initiatives within industrial bags. Perhaps you could just remind us what exactly you're doing there?

Yes, it’s Andrew here. I mean, it's frankly an ongoing part of our industrial bags is in business model in a sense that in the mature markets, particularly Western Europe, North America, you constantly, obviously, gaining productivity benefits that – unfortunately, that also means you'll end up with effectively excess capacity in what is otherwise a fairly flat demand environment.

And as a consequence we have to continue to look at how we optimize our manufacturing footprint. And so we do take steps every so often to optimize that given the scale of those of the steps and effectively we see it as part of the model that we follow on that business.

It typically takes some amount of that above the line. And hence, the reason I'm just cautioning that in the fourth quarter, we're likely to see some of that and it has a distorting effect if you look at the quarter-on-quarter comparison obviously in total for the year.

It's built into our expectation.

Okay, that’s clear. Thank you very much.

Thank you, and good morning, everyone. I have one follow-up on cost inflation and relates to energy.

Can you just give us an update on both how much energy represents of your cost space? And on that energy, specifically how related that is to kind of the uptick we’re seeing in oil prices?

Thanks.

Yes, it’s Andrew here. I mean, energy in absolute terms is, if you take the full energy, input cost is somewhere around €400 million cost for us in the business.

Clearly, it’s extremely difficult to predict exactly what's going to happen from one period to the next on the energy bill in total, because it is obviously correlated to the various different input costs here from certain amount of gas, coal, oil, et cetera. So you really have to follow those individual commodity input costs to really get a full handle on it.

Clearly, generally speaking, we are seeing some input cost inflation – energy cost inflation across the piece. But as I stated, it's not unmanageable, but it's an ongoing theme.

So long as we see continuing rising oil prices and with that the other related input costs.

Could I just dig in a little bit more into the U.S. capacity increases.

I mean, you've given some interesting commentary that China is closing over 4 million tonnes of containerboard capacity, and that's even more than the announced U.S. capacity increases at the moment.

But how do you expect that to play out? Do you think it's going to be increased exports of containerboard from the U.S.

to China, or do you think that the European players as well are going to start increasing exports into China if there's this increased demand for containerboard?

Yes. Cole, I mean, I think – I don't know, no one knows how it will work out.

But 20 million tonnes of imports in one way or another are needed. And if one believes that the China continues to grow even at more – many a much more moderate rates.

And if one believes that China will be a net exporter of goods and that seems to be the consensus. They will have to import something.

And the – what I was alluding to is the one extreme model would be that they convert all their old paper for recycling is converted somewhere into pulp eventually to China, but that’s economically not very efficient model. However, it’s beneficial today because of the input duties and the VAT structure in China, but that might not continue.

And therefore, it will be a mix between this pulp out of paper for recycling and imports of containerboard. And therefore, I personally believe that import of containerboard will be a significant part of it.

So a couple of millions per year, and things are now starting up. I think the first eight months were – not sure, was it eight months, for some 1.1 million tonnes of imports, which was about close to top it was a year ago.

And I think that trend will continue, but it’s a bit impossible, I think, to determine how the mix will look like, because it depends on import duties and the VAT system they have in China where they allow for deduction or not, which is de facto tariff, a hidden tariff on imports and the ways that this plays out will determine how much containerboard input there would be. Now, it would go now too far to analyze exactly all the situation in China is with regards also to CO2 emission limit.

But finally, I think the government will find out that it makes sense to import some paper, because if – even if they import this paper for recycling, it is a CO2 and energy-intensive industry, which the Chinese do not, I mean, they don't have so much energy or not clean energy there on their coal. And therefore, I think that will, over time, if rationality prevails, be be more open to paper import.

And therefore, I believe that this containerboard story has longer to run.

Yes, very clear. Thank you.

And then also just thinking about your outlook into 2019, can you just remind me of what’s supporting your 2019 profit growth. You've got contribution from your Powerflute and Industrial Bags acquisitions.

You've got an industrial bag paper price increases, as well as some of your niche paper price increases, you’re broadly offsetting your cost inflation. What else am I missing here that supports your 2019 profit growth?

Yes, I think, I hand back to Andrew.

I think, Cole, I mean, obviously, we always focused on our controllables. And as you rightly pointed out, obviously, the acquisition full-year effect is one contributor, really the other is the CapEx contribution.

I mean, we had an earlier question around the CapEx contribution. Clearly, the biggest part of that is the Steti project, where clearly when - as we ramp up on that, we should definitely see a year-on-year benefit in terms of the output around that.

And we're very confident that’s combined with our other Cap – bigger CapEx projects in the €40 million to €50 million range. We still contribute – we’re still quantifying exactly what it looks like with current pricing dynamics, et cetera, but it will be that order of magnitude of incremental CapEx contribution with the estimate at this stage subject to what pricing will be over the course of next year.

So those are the sort of main controllables should we say. And then, as you said, it’s a function of how the market dynamics play out.

Great. Thank you very much.

Maybe one which we can share. If you look to our businesses within Fibre Packaging, the most profit contribution will come in the following year from – this year, it was more on the containerboard side.

I think, it would be more on the kraft paper/industrial bags side. And then there will be some contribution from Uncoated Fine Paper and Consumer Packaging.

Okay. Thank you.

Hi, guys. Maybe just a follow-up on Cole's last question with regards to the profit outlook, but I'm actually more looking towards the – sort of into Q4.

So sequentially, looking at Q4 versus Q3, how should we expect the sort of profitability to evolve? You obviously have maintenance, I think it looks sort of flat quarter-on-quarter, costs marginally up.

But you will have seasonal benefits of the Uncoated Fine Paper returning normalized volume environment from the European summer, whereas the bags' volumes typically go down in the European winters. So how should we think about sequential sort of profitability heading into the last quarter of the year?

Thank you.

Wade, you seem to have summarized it all very neatly. But, I mean, clearly, we're not giving profit forecast, because – as we alluded to in the outlook statement, I mean, there's a few one-off type of effects that are going to impact the sort of sequential basis.

I mean, as you mentioned, the maintenance shut, we've guided to more or less the same full EBITDA effect quarter-on-quarter. But that does somewhat understate the negative effect of the Steti commissioning because, obviously, we build in the actual shut cost while we're commissioning – while we're doing – commissioning the project.

But of course, then is the ramp-up curve on the new project, now it's mainly the new recovery boilers. That will be a lot quicker than a typical paper machine start-up, for example.

But it will have some drag on the fourth quarter number beyond the maintenance shut cost itself. I mentioned obviously this, again, we've already spoken about it, but there is this – in addition to, as you say, the normal seasonal slowdown in industrial bags into the weaker winter period.

We’re obviously taking some restructuring actions, which is again incremental on the Q3 number. As you rightly say in a flattish pricing environment with some modest cost inflation, you see a little bit of a squeeze there, but it's very much contained.

So those are the main moving parts I would see Q4 versus Q3, as we outlined in the outlook commentary.

Two more questions, and then we finish, if there are any.

No.

Okay. So then I thank you very much for listening into this conference call and for all your questions.

I think it was a strong result, and we look confident into the next years. Thank you very much.

Goodbye. Have a good day.