Good morning or good afternoon, all, and welcome to the Mondi Q1 trading update. My name is Adam, and I'll be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. We'll now hand the floor over to Andrew King to begin. So Andrew, please go ahead when you are ready.
Good morning, and welcome to Mondi's first quarter results. I'm Andrew King, Group CEO, and I'm joined by Mike Powell, our CFO. I'm sure you all have read our statement, so I'm only gonna make a few comments before we can move on to questions. I'm pleased to report that the market conditions did improve through the first quarter, with stronger order books leading to higher sales volumes. While costs were broadly stable when compared to the fourth quarter of last year, as we did indicate in February, selling prices were generally lower than the averages achieved in the second half of 2023. This resulted in underlying EBITDA in the first quarter, in line with our expectations at GBP 214 million, after the one-off effect of GBP 32 million from the devaluation of the Egyptian pound.
With these stronger order books and higher sales volumes, we implemented paper price increases across all paper grades during the quarter, which will start to come through during the second quarter of the year. We remain well positioned to benefit from these improving market conditions with our strong operational leverage, broad product offering, and organic growth projects, which do remain on track and on budget. With that, Mike and I are very happy to take questions.
As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Lars Kjellberg from Stifel. Lars, your line is open. Please go ahead.
Thank you. Just a couple of questions from me. You're talking about improving volumes. Can you give any sort of quantification, how it compares to the prior quarter and Q1 2023 maybe? Also, a couple of just housekeeping points. You came to a lower fair value, again, a quantification would be helpful for those forestry gains. And also if you had any maintenance activity. Final question from me, you of course decided not to pursue DS Smith, given what IP did. It's difficult to get a similar deal in place, but are you actively pursuing any other M&A opportunities to integrate your containerboard business? Is that an ultimate target for you? Those are my questions.
Thanks, Lars. It's Mike here. Let me start with the sort of administrative side of stuff. The forestry fair value gain, I think we've always said that the average, if you look at the last sort of five years, 'cause it is a number that goes up and down, is generally about a GBP 60 million gain on average, and that's what we've sort of, as best as we could, given people as guidance for this year. We true that up at the half year and the full year, and therefore in the quarter, we booked 15 of that 60, being a quarter of the 60. I still think, sat here today, that the full year guidance is probably the most sensible number I've got. That's about 10 delta than the Q4.
If you're looking at Q4 to Q1, Q4 was 10 more than that 15, roughly. Maintenance, the first quarter is always a quiet maintenance period, Lars. So there's nothing material in maintenance. Again, for the full year, we've guided pretty similar to last year, around 100. That's normally split, sort of 40% first half, 60% second half, and therefore Q2 will have a number of maintenance shuts in it. Andrew?
Yeah, I think, in terms of volumes, it's always dangerous and sequential, like a quarterly volume number, particularly on the paper side, because it's affected by all manner of different things, including maintenance shuts. As Mike rightly says, we didn't take planned maintenance shuts in the quarter. Obviously, we were like others affected up in Finland with our Kuopio operation being impacted, so we did have to take some production downtime there, but as you know, for us, Finland is a small component of our overall portfolio. If you look on the converting side, you know, you've seen volumes pick up on an industry-wide basis, and we're very much in line with what I'm seeing in the industry.
The bags business, the European is flattening out. Offshore, I mean, non-Europe is very mixed, 'cause we sell into a lot of different regions. America is probably a bit softer. Middle East, North Africa, as you could imagine, quite volatile, but starting to pick up as we see it today. And then finally, on your question, I think we've covered most things on the M&A side. I mean, very clearly, you know, we've always said we see growth opportunities in both our packaging verticals of corrugated and flexibles. We continue to pursue opportunities in both, organic and potentially inorganic. On the organic opportunities, clearly we have a full pipeline of expansionary investments, and we're making very good progress on those.
As we said at the full year, we, you know, we expect to be sort of 80% complete in terms of the payments, at least on that big GBP 1.2 billion expansion program. And then starting to ramp up, particularly into next year and the year thereafter, in terms of the profit contribution. So we're excited by that, and we certainly believe, you know, those investments remain very well placed. And of course, we continue to seek further opportunities, around that, the most recent being, the Hinton acquisition and, hopefully the follow-on investment into, a forward integration into the paper machine there as well. In terms of M&A, again, we, you know, we see both those verticals as offering M&A opportunities. You mentioned specifically about forward integration and containerboard.
I think, you know, really we have a very strong niche containerboard position, producing a lot of niche grades, like the hard top semi-chem, et cetera, which is sold on a global basis. You don't necessarily need to forward integrate those. Where we see a benefit in being more balanced is on what I'd call the bulk grades of the unbleached kraft liner and test liner grades. There we actually currently short of paper on test liner, but building out Duino, which is exciting for us. And, you know, we see it as an opportunity to further the expansion of that business if the right opportunities come at a price that makes sense for our shareholders.
So we'll continue to actively look at those, but importantly, we have a number of options on an organic front that, you know, anything we do is more from an opportunity perspective rather than anything defensive.
Can you comment on anything about the timing on Duino or confirm the timing?
It's very much on track, and we expect to complete and be wrapping up next year.
Very well. Thank you.
Thanks, Lars.
The next question comes from Cole Hathorn, from Jefferies. Cole, your line is open. Please go ahead.
Morning. Thanks for taking my question. Could you give a little bit of color on the cost developments into Q1 and how you see the picture from here? Effectively, what I'm looking for is any commentary you can provide on the wood costs you're seeing in your Central Eastern European basket, considering all the Nordic producers are calling higher wood costs. I'm just wondering if that is steepening the cost curve. Thank you.
Yeah, morning, Cole. Let me start. I mean, let me talk about costs in general so that we cover the broader topic. I mean, I said at the year-end results presentation that costs were going sideways into Q1. That, that's proved to be the case sort of overall. There's some movement in there. You know, there's small uptick in resins, small uptick in wood, mainly around the Nordics, as you commented on. But I would say generally, most costs are flat. There's some relief in other areas, but they're all sort of roughly sideways if you add them up.
In terms of wood specifically, as you know, Central Eastern Europe, wood costs went up quicker than the Scandinavian costs, and then the Scandinavian costs followed sort of slower for longer, and have stayed high and continued to increase. So the Scandinavian costs have gone up probably some 5%. But Central Eastern European costs have not. And therefore, our wood costs are, are sort of in relative good shape, if I can put it like that. They're still obviously higher than 2022. I think that's a structural change that we talked about prior, but the Central Eastern European costs are, are relatively sideways as Scandinavian wood costs are up. If that's okay.
Great. Thank you. And then, I mean, you've completed the acquisition in Canada now. Just like, your thoughts, you know, now that you've got the keys, you know, how are you thinking about that business? Will you see some benefit from kind of higher softwood pulp prices, as they're developing? And just any color you can give on that, that small Canadian acquisition, and the plans for the conversion. Thank you.
Yes, Cole. No, we're very happy with that acquisition. We've, as you say, got the keys now, and we are proactively working with the team in Hinton. Clearly we are having to establish our own infrastructure there because it was very much part of West Fraser before. But that's all done basically because we had plenty of time to plan for it. The focus initially has been very much on optimizing the pulp mill that is there, and I think we've already made some very important gains there. So the pulp mill production and cost structure and stuff is already starting to improve.
So I'm delighted with the contribution I think our team's been able to make in working with the local team in Hinton around that. So that was always priority number 1. Obviously alongside that, we are working on the feasibility study around the paper machine. So, you know, that is, call it phase 2. In terms of the pulp, it is a pulp that, it's an unbleached kraft pulp that goes primarily into the Asian market right now, so into China, is a very important market. It hasn't been moving as much as, call it, the European softwood and hardwood pulp prices that you see in the sort of PIX indices and things.
So it's fair to say it has been a more muted, it has gone up, but much more muted than you see in the, I'll call it, traditional pulp benchmarks that you would be following. But, you know, our primary focus, as I say, there is optimizing the operations, optimizing the pulp mill, and then giving ourselves the option to invest in the paper machine, which is, you know, ultimately our ambition there. Which, as I remind you, then allows us to backward integrate the big bag position we have in the Americas. We enjoy very strong positions in both the US and Mexico. And I think, I mean, you mentioned, you asked about the wood development. Sorry, you asked about the wood development.
Obviously, a major attraction to us of Hinton was the very, very cost effective wood and the right type of wood for the specific pulp we need for kraft paper. And needless to say, we are delighted with that access. It is highly cost competitive, and it's high quality, so very excited by that.
Andrew, and then just following on from Laura's question, you know, with DS Smith, will there be any changes to your supply agreements in Central Eastern Europe? I imagine not, just considering the logistics, transport benefits of your mills. But I'm just wondering if there will be any implications of kind of changing sourcing if IP ships more paper across from the US. And then finally, I suppose, have you also gone out with a price increase for June, similar to SCA and Smurfit Kappa? Thank you.
Yeah, I'm not sure if I followed the exact question around the implications of IP. In terms of logistics, we will be continuing to optimize our logistics. As you know, we sell containerboard, both into our own businesses, but also into our, into a global network. I don't see a particular change in that, but obviously, like always, we will adapt as and when, you know, the competitive landscape, if and when it does change. So I don't think I can comment now on any specifics around our sort of commercial offering. Just very quickly on the prices. Yes. I mean, we are, I mean, as we say, and I think we said it at the full year, and we, well, re-iterated, you know, the order situation has materially improved.
We are seeing a very strong order situation, a series of price increases. I mean, price increases have been going through, and we are looking for further price increases at the moment. I mean, one cost item that of course is going up is paper for recycling. It doesn't affect us as much as it might others, 'cause as you know, we're obviously more wood-based. But we still procure 1.3 billion tons of paper for recycling, so that is a cost item that's going up, but it's going up, as you know, for everyone, which is of course, to your point about steepening the cost curve, clearly that is both raising and steepening the cost curve.
and I would suggest that the bulk of the first price increase on the recycled side has been almost eaten up by the paper for recycling increases.
Thank you.
The next question comes from Charlie Muir-Sands from BNP Paribas. Charlie, your line is open. Please go ahead.
Morning. Thank you very much for taking my questions. Just a couple from me, please. Firstly, just going back to Hinton, given where pulp prices are at the moment, can you give us any kind of approximation as to the EBITDA contribution that business will give you, this year, or on a kind of annualized run rate basis? Secondly, just wondered if you could talk about the performance and the pricing dynamics of your, plastic flexibles business. And then lastly, just on PPWR. I know it hadn't got much change in the final draft, but now it's gone through, EU Parliament. Have you got any kind of evolved thoughts on the, the positives and the headwinds that it's going to generate for your business over the next five years? Thank you.
Very good. Everyone's using the opportunity to ask multiple questions. I hope I can keep up. On Hinton, no, I mean, this year we wouldn't we'd expect basically a break-even, even EBITDA at Hinton, because clearly, I mean, and that's, you know, we've absorbed some transaction costs in the first quarter. We've got, you know, we are optimizing the pulp mill, and the like. Obviously very dependent clearly on the pulp price and what it does, 'cause that can have a swing effect. But, you know, that's, that is roughly what we are planning for this year.
As I said, on the pulp price, you have to be a bit careful because it's not the increases on that unbleached kraft pulp into Asia is not the same as we're seeing, you know, as I say, on the benchmarks that you might be following into other markets, it is more subdued. On the question of C-flex pricing, I mean, I always think about the margins, because the absolute price is not what's relevant here. It's effectively the margin over resin prices which really counts. And there, you know, we are seeing a very stable, very stable performance.
I think the defensive qualities of that business have been amply demonstrated through this period, where you've seen a very stable performance across all the, you know, volatility we've seen over the last three, four years, frankly. And that really continues. In the short term, clearly pricing and to extent, margins can also aid, depending on what's happening with resin prices at any one time. 'Cause you get a bit of a sort of lead and lag effect on the margins as a consequence of movements in that. But there's a pretty swift pass-through, and it's, I don't say it's automatic, but it's largely built in, that the pulp prices move with resin prices. But the margins, which is what I care about, have been very robust.
You know, and I think excitingly, and, and this probably links into your last question about PPWR, you know, we, we do see ongoing opportunities in that business to continue to drive the sustainable packaging agenda. I appreciate people might think it's perverse in a plastics-based business, but there is a lot of opportunity to drive fully recycled plastic offering. Obviously, PPWR is pushing for more recycled content, and we're fully supportive of that, and we have the capacity and the capability to do that, and we are developing a lot of innovative solutions around it, driven by the sustainability agenda. And I think that brings us in another leg of, of growth opportunities in that business.
Combined, that is, with our paper offering, and we see more and more commonality between our paper-based bags business and our, our consumer flexibles offering, whereas historically, they served very different markets. You know, paper bags focused very much on industrial, whereas consumer flexibles on, as the name suggests, on the consumer offering. Whereas now, more and more, we're seeing paper offering also into our consumer customers, and I think importantly, into other more industrial applications which are driven by, by sustainability needs. For example, our stretch wrap product that we are using to wrap pallets instead of shrink wrap, all the, all the e-commerce applications around... that paper bags are replacing plastic wrap. It's done in Europe, for example.
Amazon has transitioned totally away from plastics and is using our paper bags, and we're delighted with that, and we're looking to expand that offering into other markets. So we have a huge number of opportunities, both in leveraging our consumer flexibles relationships, and also developing new products. And I think, you know, following, you know, your question specifically about PPWR, you know, now that it's clear what the legislation is at the EU level, and, you know, I think we're very content with the outcome. I think it's a sensible outcome. You know, we are believers in promoting the appropriate regulation to drive the need for more sustainable packaging solutions.
You know, we're very much at the forefront of investing in that trend, and so in that sense, we are very happy with the right regulation that promotes that sort of activity. You know, we think this legislation is perfectly workable. But of course, the devil is also in the detail, and, you know, now the next phase is how this actually gets implemented at a country level. Clearly we'll need to be watching that, and understanding the ramifications of that. So in some ways, I know it's, I don't wanna be kicking the can down the road, but frankly, one has to reserve judgment on the... until you understand all the details at the country level, and that's obviously the next phase of how these things get implemented.
In short, you know, we see it as a net positive for us. Certainly our consumer flexibles, our general bag, and kraft paper offering, we think is a net beneficiary of this, and it's pretty neutral for boxes, I would say.
Many thanks.
The next question comes from Justin Jordan from Davy Capital Markets. Justin, your line is open. Please go ahead.
Thank you, and good morning, everyone. I've got two questions on essentially paper bags or flexible packaging. Firstly, when you talk about volume growth in flexible packaging, I'm assuming you're referring to Q1 sequentially over Q4, because I'm assuming that volumes in a year-over-year sense are still down because of subdued industrial and construction end markets. And secondly, just on pricing in sack kraft, according to recent, it would appear like there were some modest price increases achieved in early Q2, 2024. Would we be right in inferring, given the sort of positive pricing momentum we're seeing in containerboard from, let's say, a second round of increases from mid-2024, should we infer a similar possible potential positive momentum in sack kraft for the second half of the year as well, please, in terms of pricing?
Yeah. So, firstly, on your question on bag, yes, I mean, on a sequential basis, we've seen an improvement in both the bag and obviously the Kraft paper volumes. Clearly, Kraft, you know, one has to be a bit careful on paper volumes from one quarter to the next, 'cause of course it can be impacted also by maintenance shuts and the like. But very clearly, I mean, when it comes to, for example, you know, downtime driven by market demand issues, we've taken materially less in the first quarter this year than we did, you know, in the second half of last year. So demonstrably, the market is much, much firmer there. I mean, we've seen a sharp upturn in deliveries more generally for kraft paper in Q1.
And that's obviously manifested in a much stronger and longer order book for us on the kraft paper side. Clearly, the downstream business has been slower in call it picking up, because then you don't have the stocking and destock, or restocking effect there. But it does seem to be flattening out now, and obviously it'll be important to see how that develops into the summer months, because recognizing, you know, the summer months in Europe are where the really big bag volumes come through. Winters are typically slower months anyway. And just on pricing, yes, I mean, we're looking to see further price increases. What's most important will be into H2.
Clearly on a lot, you know, we still have some important business on the open markets, which is priced on a half year basis, so the half year price negotiations into that open market business will be important, but it's encouraging that we are getting price increases through at the moment, and we certainly look to see further price increases.
Great. Thank you, Andrew.
The next question comes from Sean Ungerer from Chronux Research. Sean, your line is open. Please go ahead.
Good morning, Andrew and Mike. Apologies if I missed this earlier, but just going back to UFP volumes, maybe you could provide a little bit more color on that and potentially, I guess, the general state of the industry, given pulp prices are rising. I'm assuming those non-integrators will be feeling that a little bit more than you. That's the first question. Thanks.
Yes and yes, I think are the answers to those two questions. So fine paper volumes in, I mean, industry-wide, and clearly we also saw it in Europe. You know, as you know, we serve two regional markets, really, sort of Central Europe and Southern Africa. So just talking specifically about Europe, volumes have improved. Yeah, order books have improved a lot. Clearly, you know, I think there is also an element of restocking in that, undoubtedly, which obviously doesn't go on forever, but it's definitely supported a much stronger order situation in Q1 than we've seen for some time now.
And on the back of that, as we said, at the full year results, and, you know, we've continued with some price increase initiatives there, on the back of that, and those have gone through. To your point on the pulp prices, yes, I mean, clearly pulp price increases do offer further cost support to price increase initiatives, because, as you say, there's still an important integrated production base in Europe, which of course gets negatively impacted with rising pulp prices, and it squeezes margins, and obviously that in turn leads to further cost support for any potential price increases.
So, you know, we're, that's, I mean, that's only really recently happening, that you've seen this material increase in the pulp prices, so we'll have to see how that manifests, but you're correct in that it's, it obviously steepens the cost curve and puts pressure at the top end again, in spite of the recent price increases. As you say, we are net long in pulp, being an open market pulp seller out of our Richards Bay operations in South Africa. Obviously, we are a net buyer of pulp in Neusiedl, in Austria, but net-net, it's clearly beneficial to us.
Thanks, Andrew. And then just turning to FX, obviously there was that one-off impact. Excuse my ignorance, just out of interest, why was that sort of not treated below the line? And then I guess just secondly, I'm assuming FX this quarter was broadly negative, and then just one more thing to FX. Are you able to provide any sort of sensitivity around the Turkish lira, obviously, given the pretty big movements? Thanks.
Yeah, so, let me deal with the Egyptian FX issue. Firstly, I do see it as a trading item, but the reason being, it arises, we sell paper in a hard currency from Europe into our Egyptian business. You will have seen from, you know, very public coverage of Egypt, that the currency has, for the last 15 months, been sort of very, very stable. It's been totally controlled. That was because Egypt had no hard currency. It's a legacy of the Russian War, where Egypt has been paying for its grain in hard currency at higher prices, because it couldn't get it from the Russian countries, and therefore was paying a lot of its hard currency for food, basically.
And the country has run out of currency for all industries. That's been a 15-month issue. We have continued to supply paper to our Egyptian business. We're a long-term player there. Middle East, North Africa is a good region for us. We've got some good businesses there, and as I say, we, we took a long-term view of the territory. So this is sort of 15 months of purchases in hard currency that couldn't be paid for. What has happened in Egypt is, as the IMF have sorted the loans out with the country, part of that conditionality was that the currency devalued.
The currency devalued, back end of March, I think it was, by about 60%, so it's a significant devaluation all in one go, and therefore, of course, that book gets hit by that one-off FX. Normally, of course, as you see currencies devalue, you normally get that in the monthly numbers. So, but this is a one-off, been resolved. That's why it's a trading item, because it's a trading business. We clearly couldn't hedge it, because there was nothing to hedge against, because there was no hard currency. So that's the Egyptian issue. I think generally on FX, it's pretty flat. I think in Turkey specifically. I think in Turkey, we continue to run. I mean, it's a hyperinflation economy.
So therefore, you know, we really trade that business on a cash basis now. The team have adapted quite quickly over the last couple of years to do that. And therefore, as currency moves, we have to get that into pricing. But of course, you know, costs continue, local costs, even in labor costs, continue to increase. So Turkey continues to be a difficult economic environment to trade. But we've got a good team on the ground. There's good fundamentals there again, for the long- term. But yeah, short- term, you know, economics and politics there are difficult.
Okay.
Thank you.
Thanks for the time.
The next question comes from James Twyman from Prescient. James, your line is open. Please go ahead.
Yes, thank you very much. Just on Egypt, could you give us some idea of the sales and the net assets of the business there? And secondly, just regarding the DS Smith business that you looked at, could you just give us some understanding of really what the key reasons are, that you didn't think in the end that it would create shareholder value, in terms of, you know, were the synergies not higher or was it that you thought IP was gonna push a higher price that meant that it wouldn't create shareholder value? Or, you know, what other factors were there, that were the key drivers for that? Thanks.
James. Yeah, on Egypt, obviously we're not going to give you, you know, a full breakdown of it, but it's two bag plants. I mean, it's good volume business. A very, very profitable business. And as Mike says, the way the reason why this devaluation or this effect hit us was because we supply our own paper into our own bag plants, as we do all over the world. And we took a long-term view that this absolutely is a very good market for, or has been, and will continue to be a very good market. They had this currency problem, and that hopefully is now behind. Well, it's behind us in terms of this one-off effect.
And it should be behind the country now, because they're now back onto a floating rate, having taken the pain of a devaluation. And, you know, importantly, we can now price appropriately in the domestic market, and recover all the margins. So it's a very good, profitable, long-term business for us. With a very important backward integration in paper production, and that's the way we've always seen it. It's always painful to take a one-off knock like this, but, you know, it's now adjusted appropriately, and we'll continue, on that, with that business. James, unfortunately on the, on the DS, I'm not gonna give you any more color than you've already been given.
You know, we made it explicit that we just simply didn't see the risk reward ratio, or relationship, appropriate for our shareholders in continuing that process. So we chose to withdraw. Most importantly, as I keep saying, is you know, we have exciting opportunities on our own, and we'll continue to exploit that as I think I said right up front in the questions.
Okay. Thank you very much. Just quickly back on Egypt. If the currency moves another 50% or so, would this happen again, or how was that more of a specific thing relating to the last 12 months?
I mean, I think any currency that moves 50%, there's an impact on the economy, James. But, but no, I mean, I think you should, you know, it's a one-off, it's behind us. Clearly, the receivable has now been paid as well, so therefore the, you know, the absolute balance is much, much lower. They're paying on a regular basis as a country. And as Andrew said, we're also now pricing into the selling price domestically as well. So, very much behind us.
Okay. Thanks.
Thanks, James.
The next question comes from Pallav Mittal from Barclays. Pallav, your line is open, please go ahead.
Good morning. So on the uncoated fine paper business, again, a number of your peers have said that the capacity in the industry still needs to come down, and you have already reduced capacity over years, but how should we be thinking about it over the next few years?
Yeah, I think, I mean, you know, we certainly plan and well, expect and plan for ongoing structural decline over time in the fine paper market, and that's much less so than... I think the danger here is everyone lumps all graphic paper grades together. I mean, very clearly, they're on different trajectories. I mean, newsprint being the most negatively affected, the coated grades appear seemingly more affected as well. Uncoated fine has typically been on the sort of slowest rate of decline of all the graphic paper grades. So that is something I think people should be aware of, because I often see it sort of being all lumped in, into one. But that said, yes, very clearly, we assume an ongoing structural decline.
At the same time, I think, you know, I firmly believe there's a core of very profitable business there. You know, we are determined to be part of that. We think we are well positioned to be part of that in Central Europe, where we have really two offerings. We have, call it the bulk business coming out of our cost-effective Slovakian operations, and the more specialty products out of our Neusiedler operations. You're right, in that we took out a machine in Neusiedler. That is because that allows us to be much more nimble in that mill, and focus on the higher value-added specialty products, and that is now what that mill is very much focused on, allowing then Rožnov to be focused on the bulk grades. So we think we're well positioned in that regard.
But yes, over time, we certainly expect that market to continue to, you know, decline in overall demand terms, which by definition, as you say, requires capacity over time to be taken out. You know, I think we are very well positioned, though, to supply into the core of profitable demand that we certainly will, we believe, will remain. And recognizing, you know, the other part of our fine paper offering is in Southern Africa, which is a totally different market altogether. You know, any type of decline is much slower. And recognizing also that the offering there is actually a large part of it is pulp, which we sell into the open market.
In fact, we could extend our pulp offering if the domestic fine paper markets started to decline at a rate that we don't expect right now. So, we've got other levers we can pull there as well. So yeah, I think that's the picture we see on the fine paper side.
Thank you.
Thanks, Pallav.
Thanks, Pallav. Operator, I think we've got time for one last question.
Our final question today comes from Andrew Jones at UBS. Andrew, your line is open. Please go ahead.
Hi, gents. Just a question on the momentum over the next few months. I guess, I mean, I'm reading strengthening order books suggests, you know, higher volumes sequentially in the second quarter. Are there any grades where you don't see that happening? And secondly, just on, you know, on the demand outlook, we're going into the summer, you know, weather's getting better, Olympics is coming up. You know, we've obviously seen a lot of, you know, restocking impacts, helping volumes in the first quarter, maybe, you know, into the second. How do you match up, you know, the sort of restocking element versus underlying real demand? And how do you see that underlying demand developing in the coming months? That's my question. Thank you.
Sure. So, yes, you're right that, I mean, clearly restocking has supported the, the big volume pickups that we've seen in Q1, and clearly restocking doesn't carry on forever. At the same time, it doesn't just happen, you know, overnight, as it were. It does take some time to kind of work through the system. But encouragingly, we're also seeing a pickup in underlying demand, as, as I would sort of be measuring it, you know, the... When you look at the, the converting business, so for example, the, the box business, and obviously we all know what Smurfit said yesterday, and they are clearly a much bigger exposure in the, in the box business than we have on a transcontinental basis.
But of course, you know, in the box, demand translates into underlying demand growth for containerboard, where we are, you know, strongly positioned. So yes, we are seeing an improvement both in the underlying picture, and of course, we've had additional support from restocking, which will continue for a while longer, but of course doesn't continue forever. As you rightly say, though, we're also going into the stronger summer months, that seasonally, you always get more demand for the packaging products more broadly through the summer months. Particularly, so our industrial bags, as I said earlier, in Europe, is quite seasonal in that respect, because construction activity and the like happens, you know, there's more activity in the summer months than in the winter months.
But also, when it comes to, you're right, you're right to point out all the product, football tournaments and other Olympics and all these other events. Most importantly as well, is when the sun starts shining eventually in Europe, we will—you typically also see a pickup in everything from, you know, takeaway food packaging, and we supply into that sector through our specialty kraft paper offering, through to clearly the consumer flexibles and also into the box business as well. So, we will, I think, for any number of reasons, be delighted when the rain stops falling in Europe, and maybe the sun comes out. I'm looking out onto a very wet car park, so I'm still waiting for it, but I'm sure it's chasing the sun.
Yeah. Ahead of the bank holiday weekend, I think we're all looking forward to some better weather. But no, that's great. Thank you.
Good.
Welcome.
Well, thank you very much as always for your interest, everyone. Before I hand back to the host, again, thank you very much. We are now going to our AGM, so we might see some of you there, but thanks always for the interest, and we look forward to keeping in touch. Any questions, please come back to Fiona and team, who'd be delighted to help. So thank you.
Thanks, all.
Thank you very much for your attendance today. This does now conclude today.