Mondi plc (MNDI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this Mondi Half Year Results for 2026. [Operator Instructions] I will now hand over to Andrew King, CEO.

Good morning, everyone, and welcome to Mondi's 2026 Half Year Results Presentation. I'm Andrew King, Group CEO, and I'm joined this morning by our CFO, Mike Powell. I'll begin with some key messages from the period under review, and then Mike will take you through the financial performance in more detail. I'll return to provide an update on the performance of our business units and discuss some of the current market dynamics before taking you through various of the actions we are taking to strengthen our competitive advantage in what remains a volatile market backdrop. After that, Mike and I look forward to taking your questions. In the first half of 2026, we delivered underlying EBITDA of EUR 379 million, down on the prior year due mainly to margin pressure from lower average selling prices and higher input costs. We were able to partially mitigate these pressures through higher sales volumes, strong cost control and proactive pricing actions through the period. We remain focused on taking decisive action on those areas we can control. Tight control of working capital mitigated the fall in earnings, allowing us to generate cash from operations of EUR 347 million in the period, while lower capital expenditure also contributed to a stable net debt position. We continue to take actions on cost, operational excellence and portfolio optimization while ensuring we are well positioned to serve our customers with our broad range of innovative, sustainable solutions. These actions, together with the significant competitive advantage we continue to enjoy as a business, ensure that Mondi is strongly positioned both to withstand the current market pressures and capture the upside as market conditions improve. With that, let me hand you over to Mike for more color on the financial performance.

Thank you, Andrew, and good morning, everybody. Thanks for joining. Now let me take you through the group's financial results and starting with the main movements in underlying EBITDA for the first half of 2026 when compared to the first half of 2025. We achieved higher sales volumes across most of our packaging businesses, driven by the ongoing ramp-up of our major capacity expansion projects and an improvement in order books, along with a resilient performance in our converting businesses. Sales prices were on average below the prior year. Pricing across our paper grades declined in the second half of 2025 and into early 2026, resulting in the group starting the year at lower levels. Although price increases were implemented during the first half and with some initial benefits realized in the period, average prices for the half remained below the prior year. We expect to achieve the full effect of these price increases in the third quarter. Turning now to input costs, which increased with higher wood costs in Central and Eastern Europe as well as the impact of higher energy and other categories due to the conflict in the Middle East. As we entered the third quarter, input costs do remain volatile and based on current spot remain above average input cost levels seen in the first half. Whilst you can see and follow the energy indexes publicly for yourself, let me give you a little more color on Central and Eastern European wood costs, which are firming and may be a little counterintuitive compared to the economic environment. As the demand for items such as furniture and European wood exports into the Middle East decline, we are seeing less harvested volumes. Therefore, there's less sawmill activity, resulting in lower wood supply and wood chips into the market. Alongside that, unlike Scandinavian markets where there is currently a degree of calamity wood, Central, Eastern Europe has little calamity wood. These factors result in the cost of wood increasing in our Central Eastern European region and will continue to do so in the second half. These inter-European fluctuations are not untypical of what we see in regional markets from time to time. For forestry fair value, we recognized a loss in the period of EUR 35 million compared to a gain of EUR 18 million last year, and that results in the EUR 53 million delta that you see. This loss was mainly a result of a reduction in local wood prices in South Africa during the period. And while the year-end valuation will be based on prevailing prices at the time and reliance on a number of market input factors in South Africa, such as the export price of wood chips, the exchange rate and the South African diesel price, which, of course, is linked to the oil price, absent any significant changes to the current market environment, I would expect a fair value gain in the second half. Fixed costs, we worked hard on, were flat year-on-year, excluding the acquired Schumacher cost base, which reflects the continued focus on cost control and driving efficiency improvements to offset inflationary cost pressures. Andrew will touch more on some of these initiatives later in the presentation. Lastly, FX and other totaled EUR 42 million and was mainly attributable to the weaker U.S. dollar versus the euro and hence, was a year-on-year headwind. The dollar has largely been steady actually since the second half of 2025 and even recently shown a little bit of strengthening. Adding all that up results in an underlying EBITDA of the EUR 379 million that you see on the right-hand side of the page. Now looking now at cash flow movements during the period. And our teams have worked really hard to mitigate the impact of lower earnings. What I've done here is I've simplified the cash flow because as accountants tend to make it rather complicated in the statutory format these days. So I'll start off with underlying EBITDA that you can see at the top of the slide and adjusting for the noncash forestry fair value that I've just taken you through. Then as expected, we had a working capital outflow in the period, which we generally do experience in half year 1 due to seasonality effects as well as the impact of higher prices at the end of the period. Pleasingly, this movement was less than the equivalent period last year. And whilst not shown on the slide, when you do get a chance to look at the balance sheet, you'll see that our absolute total working capital balance at 30th of June 2026 was EUR 122 million lower than the balance at 30th of June 2025. So really a real good testament to the strong focus on working capital management. Tax and interest paid was higher, mainly driven by the timing of Eurobond coupon payments. That's only a timing issue. Investment in property, plant and equipment was around EUR 140 million lower than the prior year. And we continue to apply rigorous discipline to new CapEx approvals, leveraging our well-invested and well-maintained asset base whilst ensuring we continue to prioritize safety and asset integrity. For the full year, we expect CapEx to be around the EUR 500 million mark. Previously, we guided to EUR 550 million, so somewhat lower than previous guidance and well below last year's EUR 690 million. I do want to be clear on this. We are not storing up an issue for the future here or risking safety or growth and the reductions are spread across a broad portfolio of smaller projects. Taking all that into account, while earnings were down on the prior year, you can see about halfway down the slide, the EUR 5 million inflow versus the EUR 18 million outflow of last year shows our cash movement generated from the business was largely unchanged. Dividend payments reflect the return of the full year dividend within cover range. And taking all other items into account, including the acquisition of Schumacher in 2025, net debt was unchanged at EUR 2.6 billion at 30th of June 2026. While leverage is higher at 3.2x at the end of the period, as can be seen at the bottom of the page, this is really driven by the lower 12-month trailing EBITDA, which does include a fair value loss for both of the periods shown. Moving forward, we expect leverage to reduce, supported by both the ongoing focus on cash management and the improving trading momentum. I now want to set out our robust financial position. We successfully refinanced our EUR 1 billion RCF facility during the period. We also repaid the remaining balance of the Eurobond that matured in April 2026, which we'd already refinanced in October last year. The only notable debt maturity in the near term is the EUR 750 million Eurobond due to mature in April 2028. So we remain strongly positioned with liquidity totaling EUR 1.15 billion, an investment-grade credit rating. And a reminder, we have no financial covenants. As you would have seen from our release this morning, we've recognized a EUR 320 million of pretax special item charges in the period. This compromised a noncash impairment charge of EUR 296 million and cash restructuring and closure costs of EUR 24 million, which we expect to flow out as cash in the second half of the year. Impairment charges compromised EUR 206 million at our Duino mill in Italy. And whilst Duino continues to ramp up volumes in line with plan, and we remain confident in its long-term future, the current outlook indicates a lower returns profile than previously anticipated with returns highly sensitive to energy input costs and selling price assumptions, both of which are proving to be highly volatile in the current world. The remaining EUR 90 million impairment charge was split between our Neusiedler uncoated fine paper operations in Austria, the Schwarzenberg solid mill in Germany and the Stambolijski mill in Bulgaria that ceased operations in 2024. And lastly, technical guidance for 2026. After a normal review of the useful lives of our assets, we've reduced the expected depreciation and amortization guidance for the year to approximately EUR 475 million, which reflects our well-invested and well-maintained asset base. We've also reduced the guidance for the full year impact of maintenance shuts from EUR 100 million to EUR 80 million. This reduction all attributable to the second half. So to draw to a close, we have and continue to take a number of actions to deliver earnings and cash resilience in the short term whilst continuing to enhance leverage to the upside as markets improve. With that, Andrew, I hand back to you.

Thanks, Mike. I'll now take you through a review of the business unit performance and thoughts on current market dynamics before again coming back to the actions we are taking to strengthen our competitive advantage. If I move then to Corrugated Packaging, as you'll see, a highlight was the good volume development across our key segments. Containerboard volumes were up around 12%, supported by the ramp-up of the recent capital investment projects at both Duino and Kuopio mills. While in the box business, we delivered 2% volume growth on a like-for-like basis. In boxes, we continue to see quite divergent regional growth rates with the Polish and surrounding emerging European markets seeing continued good growth and Turkey recovering, albeit volatile, while Germany and Benelux continue to struggle. Despite the generally low growth market, we are encouraged by the pipeline of opportunities in our portfolio, supported by the broader geographic coverage we now offer across Northern Europe as a consequence of the integration of the Schumacher business last year. In Uncoated Fine Paper, volumes were again stable despite market demand declines estimated at around 3% in Europe as we continue to gain share at the expense of weaker competitors. Margin pressure came from a combination of the lower average selling prices across all key paper grades and the significant input cost inflation. Prices came off through the second half of 2025, as Mike explained, and into Q1 2026 on the back of both the sluggish demand and the ongoing overcapacity in some of the bulk grades of recycled containerboard and uncoated fine paper. In response to the sharp uptick in input costs as a consequence of the Middle East war, we have been successful in implementing a series of price increases across all key grades during the period. Although not sufficient to fully offset the impact of the cost increases in Q2, we do see further benefits from these price increases into the second half. While largely cost driven, it is encouraging to see that the price increases are also supported by strong order books going into the second half, particularly in the virgin containerboard grades. The focus has rightly been on the continued oversupply in recycled containerboard. However, I note that the supply side dynamics in the niche virgin grades, which is our largest exposure, are very different. There is no significant new capacity in Europe and the large capacity reductions in the U.S. have served to reduce exports to Europe, traditionally an important export market for the U.S. producers. Steady demand, this has served to significantly tighten up the virgin containerboard markets. We are currently engaging with our customers on further price increases across our range of containerboard grades, supported by both the tight supply-demand balance in the virgin grades and, of course, the ongoing cost pressures we are seeing in recycled containerboard. Margins in our Corrugated Solutions business were pressurized by the lag effect in passing on the rising containerboard prices through the period and the intense competitive pressures in what remains sluggish growth markets. We also saw a weak performance from the small solid board business acquired as part of the Schumacher acquisition, which Mike referred to in the earlier discussion on impairments. Turning to Flexible Packaging. We delivered a resilient performance with solid results from our converting businesses, mitigating the squeeze in kraft paper margins. Pleasingly, we were able to deliver good volume growth in improving but still generally low growth markets. Kraft paper volume growth was supported by the optimization of recent investments and resilient export demand. While in paper bags, we saw ongoing good growth in e-commerce applications in both Europe and North America and regional strength in industrial bags in Central America. Industry volumes for industrial bags in our core European markets remain relatively flat, and we still haven't seen a marked cyclical recovery of the lows of recent years, impacted, of course, by the subdued household construction activity. The business saw significant input cost pressures during the period as higher oil and gas prices filtered through to other inputs, most notably logistics, chemicals and wood, as highlighted by Mike. Through very proactive management, our commercial teams were able to limit the lag effect in passing on these costs in our converting businesses. We also implemented paper price increases during the quarter and early into Q3, supported by both the generally higher cost environment and, importantly, good demand driven by the increasing use of kraft paper and e-commerce applications and steady demand from traditional industrial uses. I'll come back to developments in the e-commerce market later in more detail. While these price increases had some effect on the Q2 performance, we expect the full impact again to come through in the third quarter. Similarly, though, we do expect a further uptick in the cost base as Central and Eastern European wood costs continue to rise and recent events in the oil and gas markets point to further general input cost inflation, noting, of course, that the outlook here is changing on an almost weekly basis depending on events in the Middle East. We will continue to monitor closely the impact on the cost base and look to respond with pricing actions where appropriate. In the context of the prolonged industry downturn we have been experiencing, I want to spend a few minutes highlighting the various actions we are taking to both ensure resilience in the short term and support long-term value creation for our shareholders. As a group, we do benefit from operating some of the most productive and lowest cost pulp and paper mills in Europe. Coupled with our strength in integration and diversified portfolio of packaging solutions serving structurally growing markets, we are well positioned for the future. However, we are focused on doing more to strengthen performance, cash generation and competitiveness through a combination of plant network optimization, strong capital discipline, operational excellence and commercial execution. Our ongoing actions around plant network optimization are tailored to create a stronger, more scalable platform to support growth, drive productivity and cost optimization and improve returns. We've announced the closure of 6 converting plants over the last 6 months. Of these, 2 plants are now closed with the remaining 4 plants expected to close over the remainder of this year. I'll remind you that these plants were profitable, so the upside comes in successfully transferring the volumes to larger, more efficient sites to improve asset utilization and reduce fixed costs while, of course, ensuring we maintain service continuity. To put this challenge into context, it requires a transfer of around 800 customers supported by careful qualification and transition planning. We are relocating 30 major items of equipment and the 6 closures involve a reduction in head count of around 580 by year-end. We continue to look to optimize our operational footprint to support long-term value creation and will not hesitate to take further action on our portfolio if required. As Mike has already alluded to, the major capital expenditure projects we have been developing over the past 4 years are now largely complete. Our priority is now to drive cash returns from these investments through both operational and commercial optimization. While we recognize that we are not where we want to be with certain of these projects, as Mike has already discussed in the context of the Duino investment, we are in a position now where we can drive growth from existing installed capacity without the need for further major expansionary CapEx. We can reduce capital expenditure without prejudicing asset quality or mortgaging future upside. As Mike mentioned, for 2026, we are now planning for full year CapEx of around EUR 500 million, reduced from our previous guidance of EUR 550 million. Our investment program is focused on safety, asset integrity and cost optimization with only highly selected growth CapEx in core markets. A large component of the current cash out is linked to the biomass boiler projects in South Africa, Slovakia and the Czech Republic, aimed at driving cost optimization, energy efficiencies and reducing our exposure to the volatile fossil fuel markets. Again, I want to emphasize, as Mike did, that the reduction in CapEx guidance is not about pushing out urgently needed maintenance CapEx. We are confident that we can run the business with the lower CapEx levels given the well-invested nature of our asset base. Operational excellence and continuous improvement is part of the DNA of the group. It is core to how we seek to drive competitive advantage and unlock value from our asset base. At our flagship containerboard mill in Swiecie, Poland, for example, paper production has increased by 18% over the past 10 years on the same machine footprint. While in converting, our industrial bags business has achieved a compound annual growth in productivity of 5% over the same period. Building on this legacy, we are now accelerating the rollout of our Mondi Management System, or MMS, as we call it, across our mill network and extending it into our converting operations. This follows successful pilot projects in various of our key mills. I mentioned this initiative at the full year results, but just to remind you, it is a multiyear program aimed at taking us to the next level of operational excellence through a zero loss mindset, embedding standardized processes and ensuring the sharing of best practice, facilitated by empowering our people and strengthening our leadership teams. It focuses on right first-time performance, waste reduction, reliability, operator capability and improved run rates. This is not about quick wins. It's a long-term program designed to embed consistent execution and strengthen leadership capability across our operations. I'm very excited that early adopter sites are already reducing unplanned downtime and improving operating efficiency, reinforcing our confidence that we can drive operational excellence to the next level, improving competitiveness and cash returns. Again, by way of example, the Swiecie mill achieved 4.3% productivity gains over the last 12 months with production output on selected machines up 11%. While, of course, not all due to MMS, this is clearly a major contributor. While market growth remains subdued, we are confident that the structural growth drivers for sustainable packaging solutions remain firmly in place. Customers increasingly need partners who combine both broad product choice, innovation, sustainability, secure supply and reliable execution. We are well positioned in attractive end markets such as FMCG and e-commerce, where customers do remain focused on reducing plastic when not required and improving packaging sustainability. In this market, achieving growth is not simply about pushing products, it is about customer partnerships, technical collaboration and innovation. Some great examples in our collaboration with our leading -- is in our collaboration with a leading Ecuadorian banana exporter to develop a corrugated solution using our smart kraft brown and Frescoflute containerboard. While you'll see from the picture, it's not immediately obvious. The design is around 10% lighter while maintaining the strength needed for demanding export supply chain. Another example you can see in the top left of these images is where we have supported the transition to a recyclable mono-material solution, which is an industry first for our shelf-to-table tuna product. These examples, and the many more we have, show how our product offering, technical expertise and customer partnerships help us to win customers and capture growth whatever the market conditions. We do have a particular strength in the strongly growing segment of e-commerce, and I just want to spend a couple of minutes around this. Here, we can support customers across the complete range of fiber-based packaging. Traditionally, e-commerce has primarily been a box business with significant growth seen over the past 20-odd years. It is now a major component of demand estimated to account for roughly 15% of the European box market. While demand here continues to grow, it is undoubtedly slowing as the e-commerce market matures and the major players look to optimize their packaging. We have strongly focused on supporting our customers in this journey, developing products such as the paper protective mailer, which you see in the pictures in conjunction with a major e-commerce customer. As the leading incumbent producer of kraft paper and paper bags, we have also been at the forefront of supporting our customers' transition to the use of fully recyclable, lightweight and flexible paper bag solutions. More recently, again, as e-commerce customers look for increased efficiencies in their packaging processes, we have been working with machine suppliers and customers to develop automated packing lines that use our packaging materials such as kraft or functional barrier paper. It is in these kraft paper and bag applications that we are seeing the strongest rates of growth currently and a key reason why kraft paper demand is positive going into the second half of the year. Last year, as you know, we combined our e-commerce sales teams across corrugated and flexible packaging, creating a simpler, more coordinated proposition for customers across all applications and markets. Our broad fiber-based e-commerce range is supported by integrated production, technical expertise and recent investments in Steti, Swiecie, Kuopio and our North American bag network, helping us support existing customers and win new business in these fast-growing applications. Mondi is indeed the home of e-commerce packaging. In summary then, we are well positioned to deliver short-term resilience and sustainable long-term shareholder value as a leader in sustainable packaging solutions with exposure to attractive structurally growing markets. This is supported by a well-invested, cost-advantaged and integrated asset base. We remain focused on disciplined capital allocation and retaining a robust balance sheet. Importantly, we are taking decisive actions today to drive performance and strengthen our competitive advantage for long-term value creation. I'll then just finish with the outlook for the remainder of this year. We have seen trading momentum gradually improving through the first half, and we enter the second half of the year with higher packaging prices supported by very good order books. That said, we do see headwinds with volatile energy-related input costs and higher wood costs across Central and Eastern Europe. Of course, we are also mindful of the ongoing geopolitical turbulence in the world. With that, I would take you back to Q&A, and Mike and I would be happy to answer your questions.

[Operator Instructions] Our first question comes from Cole Hathorn of Jefferies.

Mike, I'd just like to follow up on your comments on Central Eastern European wood costs. Would you mind giving us some context of how big the wood cost bucket is and the headwind maybe from a quantum perspective that you see today into the second half? And are you comfortable that the price actions so far are more than offsetting the cost increases?

Thanks, Cole. Yes, I think I've described sort of the economics of the situation. Central Eastern European wood second half on first half, best guess today and pretty likely to happen because you tend to contract forward a little bit. It's probably on its own about a EUR 30 million, EUR 35 million headwind, half 2, half 1, if that's what you're after. Again, first half was up probably EUR 25 million on second half last year. So I'd probably expect year-on-year Central Eastern European wood to be sort of EUR 60 million, something like that. So hopefully, that's clear. Second half on first half, about EUR 35 million and overall a bigger number. Yes, I mean, price actions have been taken and -- but it does moderate the margin improvement, if you like. So we will get some Q3 benefit of those prices coming through. But obviously, we have got those wood costs coming through before any sort of other energy, energy related. But yes is an answer to your question.

And then, Andrew, maybe one from your side on the pricing actions. Just to confirm, is Mondi out with price increases across containerboard and sack kraft, like further increases to the ones that you've already achieved? And I'm just wondering, is this -- how comfortable do you feel about those price increases? Is it nicely supported by order books? And maybe following up from that with Duino, given the impairments, I realize the recycled containerboard market is very challenged. But one of the reasons that you originally did Duino was you were going to export volumes into Turkey and Turkey had safeguard measures put against Europe, but Europe doesn't have any safeguard measures against Turkey. When is the time that the industry kind of takes the gloves off and pushes back on some of the Turkey volumes that are coming into Europe on recycled containerboard? And would that be something that you would pursue?

Yes. So firstly, Cole, on the pricing actions, just to be explicit, we are engaged with our customers at the moment on price increases across our containerboard grades. As I said in my comments, clearly, in the virgin grades, we are seeing a very tight supply-demand dynamic driven by a confluence of factors. As I mentioned, there's reduced supply out of the U.S. for obvious reasons. I mean there's huge capacity reductions in the U.S. and export business has never been particularly lucrative. It's more marginal business for the U.S. producers. So it's natural that when they shut capacity in the U.S., the first market that they stop serving is exports. And of course, that's probably exacerbated now by the significant price increases we are seeing being implemented in the U.S. So that's made Europe progressively less attractive. And of course, the marginally stronger dollar over the last quarter or so has probably also supported that, but that hasn't moved particularly much. But one also has to recognize that has been a big topic is the sort of weak dollar more generally. But -- so any strengthening of the dollar does undoubtedly support European pricing dynamics as well. So yes, it's across our grades. On the recycled side, I mean, it goes without saying that it is more cost driven. Everyone knows about the oversupply issues on the recycled side. But as I think we've said on a number of occasions, there simply isn't the margin to play within the industry at the moment, particularly given the elevated input costs at the moment. As you know, the recycled cost curve is particularly exposed to external energy, to gas and other forms of external energy. And with these elevated gas prices, the whole cost curve has moved up. Margins are under enormous pressure across the cost curve. And that is simply the main driver there. But as I say, on the virgin side, and across the piece, our order books are very good. You mentioned about kraft paper, we are not out with the price increase on kraft paper at the moment, albeit we are very encouraged by, again, a strong order position, as I said, stable demand out of, call it, the traditional industrial sources of demand. Europe is okay. It's still not kicking on from the cyclical lows we've been seeing, but that is not hard to understand given the ongoing geopolitical issues and the impact that has on consumer confidence that people are not building that extension to their house or investing in a new kitchen or something like that, that uses the bags for our products. To the extent they were, I mean, it's still okay. Export markets are decent, and that's encouraging. And as I say, we are seeing quite strong demand from nontraditional uses of kraft paper, most notably the e-commerce, which is what I was discussing in terms of some of the movements in the e-commerce market, which is driving demand for our kraft paper applications and our coated products and the like, which is very encouraging. It's tightening up those markets. So we go into the second half with a very strong order position there. And maybe just your last question on Duino specifically, you're right in that one of the logics behind Duino in the first place was we are short of containerboard in our Turkish operations. We saw this as an opportunity to have leverage into the Turkish markets because Duino is well placed logistically to supply into Turkey. But as you rightly say, there have been significant safeguarding measures put in place that effectively make it prohibitive to export containerboard into the Turkish markets from Europe. I think it's a bigger political question as to when the gloves might come off. I think it's a topic more broadly for Europe in that as an industry, we often feel like we're fighting with one hand tied behind our back, not that we need safeguard per se. But of course, when others play that game, then it is difficult if Europe doesn't respond. But all you really are asking for is a level playing field, and then we think we can compete very confidently in global markets. But at the moment, you're not seeing it. You see it in other sectors from, for example, Asian volumes into the fine paper markets and things like that, not we believe competitive delivered into Europe, but they are bringing some volume in at different times. So yes, I think it's a broader topic. And of course, as an industry, we discuss these matters. And certainly, we would encourage anything that provides something of a more level playing field.

Our next question comes from Brian Morgan of RMB Stanley.

Just a question on Germany. You called out that it's still quite weak. Eastern Europe is pretty strong and you say in Germany, it is pretty weak. We've recently seen PMIs, manufacturing PMIs pop above 52, first time in years that we've seen manufacturing PMIs pop up that high and certainly above 50. Are you starting to see that come through in your business yet?

It's a good question, Brian. If you look -- and you're referring specifically to the comments I made on the corrugated business, where obviously you look very much on a regional basis. And so in order of magnitude, I think first half industry numbers suggest Germany was still flat to even slightly backwards, whereas see Poland, for example, is 4%, 5% type of growth rates. But as you rightly say, I mean, it does look like some of the macro indicators are turning somewhat more positive. And it is fair to say our order books into sort of June, July did start to show quite an encouraging pickup. But 2 months doesn't make a summer, especially these days in Europe. And so I think we -- one has to be a bit cautious about interpreting that into a general trend. But yes, I would concur that what we're seeing on the ground does seem to reflect an improving environment relative to where we've been, but clearly, early days yet, but at least encouraging, I agree.

Is it too soon to start thinking about CapEx? You've cut CapEx to maintenance CapEx. Is it too soon to start thinking about the next level of growth?

Yes. In short, we're very conscious. We've spent a lot of our shareholders' money in expanding our capacity. We do have, call it, capacity to allow us to grow into growing markets and support growth in these markets through a combination. I mean, essentially, when we bought Schumacher, we knew there was a lot of latent capacity there. That was part of that logic. And so we're very confident. Of course, there's always smaller debottlenecking things that might make some sense, but that's very much in that bigger program that we talk about. And so it's not -- there's no need for us to make significant investments on the capacity side in order to be able to support the growth that we see going into the market. Where we do spend a bit of, call it, expansionary CapEx at the moment is, for example, we've done some work in our North American bag business, where we essentially consolidated into a single plant in a lot of our e-commerce business because there's a very strong growth in e-commerce demand for paper bags at the moment in the U.S. market, and we're adjusting to that. But these are very selective smaller CapEx. We are very confident we can work within the kind of CapEx quantum that we spoke about in the commentary and still facilitate the growth that we hopefully can start to see in the markets.

Our next question comes from Detlef Winckelmann of JPMorgan.

Maybe to start, I mean, we're hearing a lot of news regarding testliner price increases going ahead. I fully understand that is cost driven. I want to get a sense on the kind of supply-demand dynamics downstream at the box level and whether we're struggling to implement all those testliner price increases downstream or not? And then maybe my second question would just be maybe an update on where we are with Duino right now. I mean, if I think about Italian electricity or energy price is extremely high in H1, presumably still in the ramp-up phase. Just curious how we should be seeing that progress. And if you're willing to share maybe like an EBITDA number, but EBITDA kind of qualitative assessment, I suppose, going forward.

Sure. So firstly, in terms of the box supply-demand, I mean, just for those comments with Brian, we're seeing different rates of growth in different regional markets throughout Europe. I think if you take Europe as a whole, it's sort of in the 1% to 1.5% growth year-to-date. If you see the industry numbers, I think they were a little out of date, but they -- in that order, which, on one hand, has -- I mean, the very positive thing is it's progressively got better. I think the May numbers were pretty strong. They just came out the other day. And it just reflects what we feel, which is that there has been a bit of a pickup in momentum over the last couple of months. And as Brian rightly pointed out, the economic indicators feel a bit better in some of those very important markets like Germany for us. And that does feel like it's picking up through the order situation. But it's been difficult in the first half or first quarter really, then it started to improve a bit. Clearly, we have the normal lag effect that comes through when you're getting containerboard price increases. It does take time for that to come through the boxes. It's always the case. We always say it's a kind of 3- to 6-month lag effect, and that holds true. So it's a work in progress, frankly, in terms of implementing the price increases that have been coming through in the box -- sorry, in the containerboard and pushing it through into the box business. There is a lot of competition out there. That's undoubtedly the case, but it is encouraging that we are starting to see a better demand picture. And of course, that all helps in terms of pushing the containerboard prices through, which need to happen because the box market can't absorb these sort of price increases. Maybe then just -- sorry, on your question on Duino. Yes, I mean, obviously, Duino is very much still in ramp-up, which has a few effects. Clearly, every tonne you produce, you're getting a lower unit cost of production because you've got an immediate fixed cost base that you then have to leverage off. We would estimate that this year, we probably -- it's 420,000 tonne nameplate capacity machine. I think we'd probably land up doing around depending on market conditions, et cetera, as well, but probably around 300,000 tonnes this year, plus/minus out of that machine. So clearly, next year, we'll see the further step up. And certainly by the end of -- well, second half of next year, you should be at, call it, full run rate, all else being equal from a technical perspective. Very important, though, when you bring this sort of volume into the market, you do it in a coherent way. And so we're working very hard with our customers to bring it in and supply the right customer base. And so the mix effect changes over time and that we're working on continuing to optimize. But of course, as Mike said in his comments, the ultimate returns here are -- there are 2 huge variables at the moment. One is input gas prices and the other is, of course, the selling price. The selling price is something one always knows is volatile. Of course, there's gas. It's relatively unprecedented in the European context for obvious reasons why the gas price is particularly volatile. And of course, Italy is very exposed to that and this mill in particular is exposed. So we had to factor that all in when thinking about kind of the return profile in the short term. But nonetheless, our focus there is driving it to full production that gets you much further down the cost curve, and it will be a resilient long-term player there. And then at those -- at the cost levels when it's optimized and an important part of the whole integrated system.

Our next question comes from Gabriel Simoes of Goldman Sachs.