Hello everyone, and welcome to this Mondi Q1 trading update. Just to let you know, we do have captions today on this call, and these can be switched on and off within your Zoom settings, but please be aware they are automated and can sometimes contain errors. We will be taking questions today, and this can be done by using the raised hand function on the Zoom app. I'm now going to hand you over to Andrew King. Andrew, please go ahead.
Good morning, everyone, and thank you for joining us to discuss today's trading update. I'm Andrew King, your Group CEO, and with me is Mike Powell, our CFO. I'm sure you've all seen the announcements, so I'm just going to pick up on a few points before we'll welcome any questions. The first quarter of the year was characterized by higher sales volumes, good cost control, and fewer planned maintenance shuts. These offset lower average selling prices when compared to the fourth quarter of 2024. Underlying EBITDA for the quarter was reported at EUR 290 million. Importantly, we continue to make good progress, ramping up production at our capacity expansion projects. Our new kraft paper machine at Štětí, which we started up in December last year, is showing excellent results in terms of both paper quality and production volumes.
We are also delighted that our newly converted paper machine at Duino in Italy successfully started up on time and on budget in April. We're also pleased to welcome our 2,200 new colleagues from Schumacher to Mondi, and we look forward to working with them to drive sales and provide our customers with an enhanced range of solutions. Before handing over to take questions, just a quick point on the tariffs. As we said in our statement, the direct impact on our operations is limited, with under 3% of our revenue involving export sales to the US. However, we remain mindful of the potential second-order impacts that could affect trade flows, consumer confidence, and supply chains. With that short introduction, I'm happy to hand over to questions, so it's back to the operator.
Thank you very much. Right, we do have a variety of raised hands, so we're going to start with Cole from Jefferies. Cole, if you'd like to unmute and ask your question, please.
Morning, thanks for taking the question. If I could just start on any changes in cost inflation that you're seeing, be it wood costs. I'd just like your commentary on the waste paper costs have obviously moved higher into the second quarter, and I'm just wondering how Mondi's positioned with waste paper costs and the majority of your costs being from the wood side. Secondly, on the Schumacher acquisition, you've had the business now for 30 days. Just like initial thoughts on how that acquisition is progressing? Thank you.
Morning, Cole. It's Mike here. Let me take input costs and costs, and then Andrew can talk about PFR into Q2, how it relates to the market, and probably touch on Schumacher. Input costs, I would still guide as I did at the full year results. I would say input costs are fairly flat overall. I'd still give that guidance for the full year. Clearly, within quarters, you see some movements. Actually, Q1, Q4, for example, we actually saw on average lower PFR costs. Clearly, they accelerated into the Q2, but that was offset by higher energy. As we move into Q2, those are probably flipping around. Again, in a scale of a business the size of ours, input costs flat is still very good guidance.
We're working those hard on discretionary costs and in the current environment, being very careful and reducing discretionary costs where we can. No change to guidance, a bit of movement up and down within the quarters, but in the scale of a big business, Cole, it's sort of a few ups and a few downs leave us flat. Andrew, do you want to touch PFR and Schumacher?
Yeah, Mike's kindly given me the job of trying to predict the PFR prices.
They've gone up.
They've gone up, yeah. You're right, Cole, and obviously our exposure on a relative basis to some of our, call it corrugated peers, isn't quite as much because of our bias towards virgin-based products. I remind you, we still, pre-Duino, were buying about 1 million tons a year of PFR, and clearly with the ramp-up in Duino, we'll be consuming an extra 400,000-450,000 tons of PFR. It's not an insubstantial spend for us. As everyone knows, the PFR prices have been going up quite rapidly over the course of Q1 and into Q2. They started the year somewhere around EUR 100 a ton and up to, what, about EUR 160 now. Always a very difficult price to predict. It's always volatile; we know that. Of course, it's driven by not direct supply-demand impacts because it's almost a byproduct of other processes.
In the short term, clearly what it's doing is driving up the whole recycled containerboard cost curve. As we discussed at the full- year results, I mean, the recycled market is under huge pressure already. There was a modest price increase in Q1, but that's basically all been eaten up by this PFR increase. From a margin perspective, the market is back to where it was at the beginning of the year, which was in a very strange situation. There are further price increase initiatives out at the moment, supported clearly by a rising cost base driven by this PFR dynamic. In short, the market remains under huge pressure. The top of the cost curve is clearly under massive pressure, compounded more recently by the PFR increases. Clearly, on the back of that, we're also seeing some price increases in the virgin grades.
That is more about margin expansion in our case, because clearly, as Mike just said, most other costs are fairly benign at the moment. Maybe the non-Schumacher first impressions. Now, I think it has really confirmed what we were hoping. We certainly see a strong synergy opportunity. Clearly, as a buyer of paper right now, that buying power is very useful for us, for one thing. More importantly, everything we had hoped around giving our customers a better geographic offering, also obviously adding that solid board exposure, which is a very interesting niche for us as well. We really think that that does open up bigger opportunities for us. We are very excited by that.
The initial engagement with the combined customer base, I think, has been very positive, very positively received, and equally important, our rapid engagement with our new colleagues from Schumacher has been, I think, gone extremely well. We are currently working very hard on the hard work around integration and making sure we really bring the best of both together and drive the synergy. We remain extremely confident in the synergy optimization opportunities, and we certainly believe the combination will be able to drive that commercial offering, which is all- important in this deal for us, and remain very excited by the opportunities that it brings us.
Maybe just as a follow-up, could you give any commentary around your order books? I understand it might be too early to see any indirect impact from U.S. trade tariffs, but we're in a situation where we're seeing differing commentary out of the U.S. versus Europe. In the U.S., you've got corrugated volumes down too. In Europe, I imagine they were probably plus 3% to 4% in Q1. I'm just wondering, after a good order book in Q1, what are you seeing into the second quarter? Thank you.
Yeah, thanks, Cole. I think, as you say, I mean, in Q1, it was obviously not really a tariff story because it only really started to become a topic into Q2. In Q1, orders, I mean, volumes in Europe, we see we have not got the full industry stats as yet because they have not been published. I mean, it was a fairly good quarter, I think, from a volume perspective across the industry. Certainly, our Central European business enjoyed good volume growth in Q1. Turkey is another issue. Turkey had a very difficult quarter. I mean, as you well know, the geopolitical issues there are disturbing, and that has created a lot of uncertainty in that particular market, but that is a different story to the tariff issues. Clearly, the tariff discussions only really started to take place into Q2. As you say, it is really too early days in that.
I think it is fair to say that there's a general unease around. I mean, it is the topic. Every time you talk to customers these days, it is a big topic for everyone, more in terms of simply the uncertainty that it creates. Everyone's speculating as to what might or might not happen. As a consequence, as we all know, uncertainty is the enemy of good commerce, and it just creates a more unstable environment, should I say. It is not particularly evident, frankly, to date in our, call it, European order books. At the same time, I think we shouldn't be complacent around this at all because undoubtedly, it is a big topic for our customers and their customers in turn, and everyone's pondering what it might mean for them.
Clearly, none of us know what the rules of the game will be anyway around this. I guess that in that uncertain environment, everyone takes somewhat of a risk-off approach. I think we are by no means complacent about this, but it's not particularly evident so far in our order books. Where we do see pockets of genuine weakness, I suppose, is in exposure to China. Where we do sell product into China, which is fairly limited in our case, but we do sell some pulp, as you know, into China, both from South Africa and from Canada. There you can see a weakness in the order situation. I think that, again, China is clearly really in the crosshairs of the whole tariff discussion. I think that is evident in a deep sense of uncertainty within China.
Again, I'm not sure if it's driven by actual underlying demand-side declines or just the uncertainty that prevails. People are looking to hunker down and not carry stocks and the like, which is a typical sort of risk-off behavior.
Thank you.
Thank you so much for your question, Cole. Our next question comes from, let me just check, comes from Lars of Stifel. Lars, if you'd like to unmute and ask your question, please.
Yeah, good morning, and thank you for taking my questions. You, of course, have a lot of internal things that you're doing right now with Štětí, Duino, and Schumacher coming on board. I just wanted to clarify if you have been taking any sort of startup costs above the line or if these sort of costs are capitalized as you ramp them up, and if you can comment on what sort of contribution you would expect from these assets in the current environment. I appreciate the high uncertainty, but nevertheless, it would be interesting to hear your comment on that. On Schumacher specifically, of course, it is a sort of a challenging market, but it seems as if Germany is strengthening a bit. Are you seeing that? What sort of contribution in this environment, again, would you expect to get from Schumacher?
If I start there and can see if there's any follow-up.
Okay, very good, Lars. In terms of startup costs, yes, there's always startup costs, but those are all taken as above-the-line costs. That's just a cost of doing business. It's partly reflected in when we talk about maintenance shuts. Clearly, for example, when you're commissioning a new machine— I mean, Duino is a slightly different topic, but for example, the Štětí machine, when you take down certain operations in order to commission the new machine, it's part of that maintenance cost. For example, at the moment, we're doing some work up in Sweden. Maybe you can go and visit it, Lars, but they are down at the moment on a big project. That will be incorporated in our guidance around that annual maintenance charge. It's a downtime, effectively, while you're commissioning.
Of course, when you start a new machine in particular, there are some startup losses because you're running with a fixed cost base, and of course, you haven't got full-salable production, etc. It takes, I mean, it takes two to three years for a machine to be fully optimized, both from a production perspective and quality perspective, and as importantly, from a commercial perspective, i.e., bringing it into the markets that you want to serve in the long term. That's all in our numbers, if that makes sense. We don't separate that out, and we certainly don't take any of that stuff below the line. The only thing we're allowed to take below the line is the direct, well, not even that. We take sort of direct transaction costs relinquished to acquisition. Schumacher, there will be some transaction costs, but those are the direct transaction costs.
When it comes to then, for example, the integration costs, the cost to deliver synergies, etc., those are all incorporated in our trading profits. Yes, there is some initial drag when you start up these machines. For example, Duino will be initially loss-making as we ramp it up for obvious reasons, because until you have a certain level of production, you have a big fixed cost base that you cannot cover yet. We just incorporate that all in our full guidance. It should not be seen as a separate cost category. In short, though, we are very happy with where we are with those projects from a project execution perspective. These are big projects, and we are not unaware of all the execution risks that come with big projects.
I'm delighted, and a huge credit to our technical teams and the operating teams at each of these operations that have been able to bring these big projects on time, on budget and are now ramping them up in line with our business plan. In terms of the overall contribution from the projects, as we keep stressing, obviously, when you're bringing on new capacity, the one big line item that you do not know at any one time is your selling price. What we do know is we can manage the market risk very nicely. As you remind you, P&T and Štětí, yes, it's 200,000 tonnes of sack kraft. But roughly speaking, by the time we optimize everything, net exposure will be an extra 100,000 tonnes of sack kraft. I remind you, we lost 100,000 tonnes of sack kraft in Stambolijski back end of last year. It's essentially replacing that now.
You have 100,000 tonnes of the specialty kraft papers, which you are all invited next week to our teaching on flexibles. We will tell you about all the exciting markets that we are selling into and the big increases in demand that we are seeing driven by the whole sustainable packaging dynamic. We are very excited by that, and we certainly see the market risk as being manageable. Obviously, the profit contribution in next quarter will be a function of the selling prices, and that is also a reflection of the overall market dynamics. Duino, similarly, yes, we bring on 400,000 tonnes of recycled containerboard, and I appreciate everyone is very nervous about the overhanging capacity in the recycled markets.
Again, I remind you, we are short of recycled containerboard in our operations, and obviously, that's been, I don't want to say exacerbated, because it's a nice problem to have at the moment— being increased by the Schumacher acquisition. It is a great combination, frankly, bringing on Duino and having Schumacher at the same time, because it allows us to drive that integration strategy. The market exposure in terms of finding markets for this volume is very limited in our case. Obviously, again, I stress that the exact margin earnings contribution in year one is always a function of the overall market price. I'll short-circuit things. I think Mike is interested that the full-year guidance on net contribution from all our expansionary projects in this year was EUR 5,200 million. We stand by that guidance.
Just one follow-up, if I may. You call that this is part of your maintenance cost in a way. What are you looking at for your maintenance costs to help us out to understand that? I think last year you had about EUR 100 million. Is that number now going to be materially higher?
No, the full-year results are guided this year would be about the same. We'll clearly firm that up for the half year. Quarter one has had nothing because we do not have maintenance shuts in quarter one, similar to last year. I'd expect probably that 100 to be split 20/80. That, again, is in line with what I said probably eight, ten weeks ago. Therefore, there will probably be about 20 in Q2, about 80 in the second half. If there is any difference to that, I can update at the half year, Lars.
Very good. Thank you.
Thank you, Lars.
Just to remind you, in terms of timing, we did take some big shots last year as well. For example, that PM10 commissioning was a last-year event. As it so happens, that was also impacted by, call it, project-related shots over and above the normal shots. Sorry, last year, you asked also about Germany and Schumacher. I mean, we're hopeful around Germany. I mean, I'm a firm believer in Germany in the long run. I mean, that's why Schumacher was also very interesting for us, and it's a very important corrugated market. More importantly, we think we're extremely well positioned within that market. I think it is fair to say that in the last few years, it's been a very difficult market. When it was 2024, it remained difficult.
Yes, if you look at the industry volumes, they look a little bit better in Germany than they have been. It is still not strong, I would say. I agree with you, Lars. Obviously, if one believes that the commitment to this additional spend from the federal government, if the political situation can be resolved and the like, must be a strong stimulus for growth from an economic perspective more broadly, and undoubtedly, we will benefit from that. I think it is early days in that. It is fair to say it is still a challenging market environment. Like you, I also have strong hopes that we will see a stronger environment going forward from a trading perspective.
Most importantly for us as well, we think there's a lot of self-help we can do in driving our synergy opportunity and driving that combined commercial offering where we have access to customers, simply put, that we weren't able to access previously because we didn't have the necessary geographic coverage in our box business.
Very clear. Thank you.
Thanks, Lars.
Thank you for your question, Lars. We're now going to go to Charlie from BNP Paribas Retain. Charlie, please unmute and ask your question.
Yeah, it's morning. Thanks for taking my questions. Just related to the startup costs specifically again, I guess, obviously, Duino wasn't contributing at all in Q1. Were there any particular costs for that or other projects that you were incurring in Q1 that didn't have any kind of offsetting revenues or profit contribution? On the project contributions you're expecting for the year, the €50-€100 million, I just wanted to clarify, I assume that excludes the contribution you're expecting from Schumacher. I just wondered where your expectation is for how much Schumacher might contribute in the year now. Thank you.
Yeah, Charlie. I appreciate, I mean, the good and the bad thing is there are lots of moving parts around all of these projects. We see it as kind of normal business to be bringing on projects as and when they come, and all the costs associated with them are in the numbers. I can only reiterate that. Yes, there were some startup costs in Q1 linked to Duino because clearly we started having to, we can't capitalize everything. There are some operational costs that we were incurring, and we did not have any revenues, but it is pretty small. It is not particularly material to the overall group number. Just as we were incurring costs there, obviously, we started to see more revenues, for example, come out of the PM10 ramp-up and the like. I can just reiterate, these are all in the numbers.
There's always a bit of noise associated with projects as you bring them on, as you ramp them up, etc. To us, that's normal business. Most importantly, we expect to see a year-on-year incremental contribution in the EUR 50 million-EUR 100 million range, depending on exact pricing over the course of the year. That's an all-in number, including all associated startup costs, etc.
Yeah. Charlie, that 50-100 is the organic expansion. That is on the EUR 1.2 billion growth programme. That guidance has not changed, and we still feel good about that guidance. As Andrew said, those projects have been brought on time and on budget as well from a CapEx guidance perspective. Therefore, no change. You asked about Schumacher contribution. That is outside of that 50-100. It is on top of that. I think Cole said you have only had the business for four weeks. That is quite correct. We are still in German GAAP, and we are very pleased with the acquisition. The fit is as good as we expected, and the opportunities, as Andrew has said, are exciting ahead of us. The best guidance I can probably give, and we have only had it for four weeks, is we have previously said a couple of things.
One is in FY2023, our best guess of IFRS was that it made EUR 66 million. We've said that publicly, and we've also said that it will be, in the first full year of ownership, EPS accretive. There's no change to that EPS accretive guidance. I think probably if you wanted to plug a number in for nine months, net of transaction costs, because we've got to spend some things to deliver synergies, probably EUR 30 million for the nine months. I wouldn't take that necessarily as a run rate because I think we're quite excited about the opportunities. If you wanted a number for this year for your model, which I guess is behind your question, best guess today, four weeks in, net of transaction costs and, sorry, net of synergy costs, EUR 30 million is probably not a bad guide.
Thank you.
Thanks, Charlie.
Thank you, Charlie. We're now going to go to Patrick from Bank of America. Patrick, please unmute and ask your question.
Good day. Thanks very much for taking my question. Maybe just a little bit of a longer-term question. We've spoken about us being below mid-cycle and the projects contributing below mid-cycle. All of your commentary seems to be suggesting the price increases are largely being pushed around by costs. I mean, thinking longer-term, what do you think we need to see for sort of a return to a pricing environment or market environment where you can price for margin and sort of recover to that mid-cycle level that we've seen in the past? Is it working through the excess capacity? Is it a return to demand? Is it the high end of the cost curve falling off? Yeah, maybe if you could just give us your thoughts around that and how that could play out. Thank you.
Yeah, thanks, Patrick. I think the first comment I'd make, that issue around, call it, pricing driven by cost is purely in one particular segment, which is the recycled containerboard sort of markets, which, yes, it's important, but it's certainly not the only market we serve. I mean, for example, in our flexible packaging business, there is no real sort of, call it, supply-side concern. Sack kraft, which is the major product within that market, the only new supply coming on is our own. And as I mentioned already, net net, it's actually fairly limited incremental because of the unfortunate situation we had with Štětí at the back end of last year. So I would hesitate to say there's no real supply-side concern, should I say, on our flexibles business. There, it's driven a lot by the cycle and normal sort of supply-demand dynamics in a cyclical downturn.
Of course, more the industrial exposures get more impacted, but the supply side is actually in very good shape, I would say. On that particular business, to me, on the industrial base, it's just industrial exposures. It's simply a question of the cycle, and the cycle turns. We have seen an improving order situation in, for example, what we call our overseas business, which is very cement-exposed and the like. The cement industry and emerging markets has looked a bit better. I caveat that by saying, of course, with the tariff stories, everyone's a little bit uneasy right now, but that'll be resolved one way or the other going forward. That's very much a, call it, I firmly believe, more of a sort of cyclical demand-side issue.
Similarly, in our consumer-facing businesses in flexibles, very robust, frankly, on the demand side, even in a more difficult world. The supply side, yes, there is a bit of new specialty kraft coming on from different players, but I am very excited by the structural growth we see in those markets going forward. I think that will contribute to onward strengthening both from a margin perspective and a volumes perspective in, as you say, the longer term. The one market, coming back to that corrugated business, which is, as you say, the one where we are faced with this overcapacity story, and you cannot call it price for margin, as you were saying. It is more about trying to push on the cost. Firstly, I am a believer that this is a long-term structurally growing market.
I think over time, the world needs more boxes driven by everything from the e-commerce dynamic through to the fact that there is no obvious substitute. It is the most environmentally friendly solution when it comes to moving goods around in a protective packaging. That long-term growth dynamic, I firmly believe, remains in place. In the short term, we've had the issue of a coinciding demand-side softness driven by the cycle combined with, of course, this capacity expansions coming into a downturn. That's what's caused this short-term indigestion in the market. I think what can resolve that in the long term, you need an incentive price for new capacity. It might sound odd at the moment, but in due course, the world will be short of this stuff again if the price doesn't get to a level that incentivizes new capacity.
What needs to happen to get to that point? Clearly, some genuine demand-side and sustained demand-side recovery can take a big chunk out of the excess capacity. I think we all believe that there has to be further capacity closures. There have been some closures. I mean, there's a lot of downtime being taken in the market that is extremely expensive, and I'm not sure how people can carry on doing that without being pushed to permanent closures. I would expect to see some permanent closures in this market. Clearly, we're in a different situation because we have very low-cost production in this product, and we can still make money even in these very difficult times. Undoubtedly, there must be a lot of pain at the higher end of the cost curve. One would assume that that would drive some closures.
Always takes longer than one expects. Of course, it's always somewhat frustrating. I suspect it'll be a combination of those. Maybe the last point, we are living in a world right now where exports from Europe have severely reduced. Clearly, if export markets improve, that can also be something of a safety valve. I would not rely on that in the long term because I think, as we are seeing in the U.S., there is a realization that this is a product that does not travel particularly well. It is always better to try to sell it as close to home as possible. I hope that.
Thank you. Yeah, thanks a lot.
Thank you, Patrick. We're now going to go to Brian of RMB M Stanley. Brian, please unmute and ask your question.
Hi, good morning, Andrew and Mike. Quick question on Duino and PM10 at Štětí. First question on Duino, if I may. How are you marketing the product? Are you sending that material to Turkey as originally planned or?
Yeah. Brian, we lost you there, but we certainly heard the first part of that question. Can you still hear us? Are you able to?
Brian's dropped off.
Looks like Brian Morgan's dropped off, but.
Can you hear me now?
We can, Brian. Thank you.
Sorry, I don't know what happened there. The second question was on the ramp-up profile for both, for PM10 and for Duino. Is it just a question of volume ramp-up, or is there a question of quality ramp-up too?
Yes. Thanks for that. Firstly, in terms of the specific question around Duino, obviously, we're not going to give specifics on sort of commercially sensitive issues around where and when we're selling our product. It is fair to say that, as I said earlier, clearly, the dynamic has shifted a bit since the acquisition of our Schumacher business. That gives us a natural outlet for paper from Duino, either directly into our broader converting network as we have now in Central Europe or through what we call swap deals, which is a fairly common thing in the industry where you swap with other producers to optimize logistics and the like into your respective plants.
There is a lot of volume going in, will be targeted because we're still ramping it up as we'll come on to, but a lot of the new volume is targeted into those through either directly or indirectly through swaps into our own converting operations. Clearly, there is some volume targeted particularly into what we call the open market in Italy itself. To your question on Turkey, less attractive, frankly, right now than we had perceived at the time we made the original investment decision because, as you know, in Turkey, they had put tariffs on containerboard imports some time ago. We readjusted some of our thinking there. Having said that, there are still price points at which it makes sense to export to Turkey.
It is certainly an option for us because, as you know, we ourselves, again, are short of paper in Turkey as well. We do still have the option to sell some of it into Turkey if the pricing is more favorable relative to buying it directly in Turkey itself. It is a combination of those. As I say, we are still net short of recycled containerboard in the group. We are in a very strong position to place that volume into both our own captive, call it, customer base and the market. In terms of the ramp-up profile, as I said earlier, it takes two to three years to get full optimization of these machines. Why is that? Partly, it is because there is a technical ramp-up. You get quite a lot of volume upfront.
You can get to 60-70% output for, in rough terms, quite quickly. But then to get that last 20-30% of the production, which is obviously really the hugely sort of profitable business, the incremental volumes that you can squeeze out at the end, that does take a period of time to optimize both in terms of the actual production output and also, call it, the quality parameters. Now, with PM10, I think we alluded to it in the literature, we're delighted with the quality. And so are our customers. I mean, we're already producing a very high-quality product there. Now, it's about ramping that up to full capacity over a period of time in terms of optimizing the full mill. I mean, frankly, in that operation, it's around optimizing the whole mill infrastructure, which was part of the project which we're in the process of doing.
You have the commercial optimization, where again, you do not necessarily sell the first volume straight into your long-term market. You will sell it into a broader market and then develop over time the markets that you want to serve and optimize in the long run. That does also take a period of time. All of these nuances that I have just been referring to are built into our modeling, our planning, and the kind of guidance we give you in terms of contribution. It does take up to three years before you have full optimization, full contribution from particularly these big paper machine investments.
That's perfect. Thank you, Andrew.
Thank you, Brian. We're next going to go to Sean from Chronux. Sean, please type star six to unmute and ask your question.
Good morning, Andrew. Mike, can you hear me?
We can, yeah. Thanks, Sean.
Excellent. Thanks. My first question just to run on a credit word for you. It's obviously a bit less relevant in the profitability mix at this point. It does seem like a fair amount of capacity has come out of the market, which has been ahead of the sort of softness in demand. Maybe if you can share any light on order books and perhaps if Mondi's had to take any downtime on their non-integrated assets or machines, sorry.
Yeah, thanks, Sean. Yeah, I think it's fair to say it's been the uncoated paper market. If you compare year on year, it's a bit more difficult. Reminding you that this time last year, it was actually very strong. Clearly, we always knew there was an element of restocking. This year, I think, started off in pretty decent shape, but clearly, the European market is challenging. We have seen pretty flat to even some declines in pricing. Of course, we are current, there's big debates, obviously, what we're next on the pulp price. One senses with China slowing down and the like, one would have to assume that pulp prices will start to come under pressure. Of course, that in turn reduces the cost support for fine paper pricing in Europe because there still is some unintegrated capacity around now.
Obviously, in the short term, in our Neusiedler operations, we somewhat benefit from that because we buy in pulp there. Obviously, in Raubling, which is the main profit contributor there, we would suffer if the uncoated fine paper price comes under pressure as a consequence of that. Yeah, it's been a bit up and down, I would have to say, in the fine paper markets in Q1. Certainly, we're not seeing any real improvement on that at the moment going into Q2. I think it is quite challenging for that business. Having said that, our guys in Raubling are doing a great job on cost control. The wood cost situation has got much better over the last couple of years. That means they're driving good profitability in spite of a challenging market environment. We have also seen imports from the likes of Asia.
Those do come and go. It's a very spot market for the Asians. You do see on occasion import pressures, and then they alleviate. It's very mixed. It's very volatile in that sense. Yeah, all in all, pretty muted sort of demand-side environment, very good cost control from our teams. Holding up profitability, I think, is the main message out of European fine paper. South Africa, always a slightly different dynamic. Frankly, the biggest profit driver there is the export pulp, where again, a weaker dollar pulp price is clearly a headwind for that business. By the same token, obviously, the weakening rand is somewhat supportive, but clearly a challenging export pulp markets at the moment, especially if the Asian markets continue to soften.
Perfect, Andrew. Thanks. Just a further one on Schumacher. I appreciate the EBITDA guidance for the full year. I think when the deal was first announced, you guys sort of hinted at low operating rates between, I do not know, if it was low 40s or 50s, I cannot recall. Are you able to shed any light on that evolution at all?
Yes. I mean, they remain low as we expected. I mean, just to remind you, these are converting operations. It is very different to a paper mill. You have different cost structures. You have a little bit more flexibility on your cost structure. We were excited at the time by the fact that there was a very well-invested asset base, heavily underutilized. We believe with the combined sales platform that we now have, we have every opportunity to fully optimize and utilize that capacity. That capacity remains underutilized. It also comes back to that earlier discussion we had around the trading environment in Germany in particular. We also sell into Benelux and the U.K. We were very excited by the conversations we have been having with our customers.
I think they see us as a real credible player across that northern European market now. We do have all the weapons at our disposal now to be highly competitive across that region. It is now up to our teams to drive the integration and optimize the hard cost synergies and at the same time ensure that we drive the commercial strategy to fill this heavily underutilized capacity with the right volumes because that is also very important.
Great. Thanks, Andrew. Just last one. Just in terms of the reported underlying EBITDA for the quarter, with the benefit of hindsight, are there any sort of pockets that were maybe better than expected that you guys saw? Thanks.
Sorry, I missed the first part of the question, Sean.
Mike, in terms of the performance for underlying EBITDA for the quarter, with the benefit of hindsight now that we've obviously closed the quarter, was that pretty much in line with your expectations, or were there any pockets that were much better than you guys initially anticipated?
No, pretty much in line. I think also the delivery of the projects for the forward business has also gone very well as well. I mean, it is one thing to deliver numbers and look backwards. It is really important that we have delivered these projects, which allow us a great platform going forward too. I think, yeah, it has been not that we run the business by quarter, as I always say, Sean. Yeah, if I was to talk about the quarter only, in line, both in terms of delivery of projects and numbers.
Cool. Thanks for the time. Cheers.
Thanks, Sean.
Thank you, Sean. We're next going to go to James from Prescient Securities. James, please unmute and ask your question.
Yeah, thank you very much for all the details today. Yeah, two questions for me, if I may. Firstly, the sack kraft paper market, as you mentioned, it clearly is in quite a different position to the corrugated business. There has been a little bit of a price rise, I think, that we've seen in the last sort of few months or so. Is there a price rise, another price rise underway as you're doing for containerboard? Secondly, on the Schumacher business, now you own it. Is there any way you could give us some historic numbers, maybe for last year, what the sales were even, or the EBITDA? And just quickly, if I may, just to do the third one, that 50-100 million of benefits from the projects, I assume that's an EBITDA number. Do you have a depreciation number for that?
I was assuming around 40. Thank you for that.
Yeah, James, let me start. The Schumacher, no, I mean, we do not give individual details on any of our businesses. Frankly, FY2024 is all still in German GAAP anyway. I mean, we have only owned it for four weeks. I am certainly not going to spend a lot of time and resource retranslating FY2024 right now. We have got a business to integrate. Listen, I have given you good guidance, I think, in terms of our best guess for the EBITDA for this year. I think you have heard that we are pleased with the combination. Frankly, we are super excited about the opportunity, very much in line with what we have said in the past. In terms of the €50 million-€100 million EBITDA, I have already guided to this year's depreciation. There is no change to that. I think over time, our depreciation will nudge up.
If you think of 2026, 2027, it'll probably nudge up to the 500 type number as we move forward. No change to depreciation at this trading update either for this year. Andrew, do you want to take the other one?
Yeah, in terms of the bags business, and I've gone for the life of me to remember what you'd asked for.
Is there a second price increase?
Oh, sorry.
Yeah, I mean, I think it has to be, I mean, they're very different markets, and they operate in different ways. I appreciate that one is called kraft paper, and the other is kraft liner, but they do operate in very different sort of dynamics. As I mentioned, very strong, the supply side is in good shape. I think in terms of the demand side, we saw good volume in our underlying bags, the bags business, which is where most of the sack kraft goes. Certainly, Europe showed good volume growth in Q1. Our export markets, as I mentioned, the cement industry seems to be picking up in the emerging markets that we serve. It feels a bit stronger.
I think the big caveat to that in the short term, though, is the unease that is around simply being driven by the tariff uncertainty and the impact it may or may not have on growth in all of these different markets. As a consequence, one senses the supply chain across the piece is kind of taking a somewhat of a wait-and-see attitude. We have to be mindful of that in the short term. Yeah, we're positive about the supply side, and we'll have to watch how the demand side develops over the coming months as to our pricing strategy going forward. We come back to that comment we made in the trading statement. We have to be conscious of the macroeconomic overlay and the geopolitical uncertainties that abound and seem to, unfortunately, only heighten on a daily basis.
Albeit, we also know, particularly with these trade discussions, that things can change quite quickly as well. Maybe some positive outcomes around some of these bilateral discussions might well restore confidence through the supply chains. I think right now, we just have to be cautious around the expectations in the near term.
Appreciate that. Thank you.
Thanks.
Thank you, James.
Our last question comes from Lewis of Goodbody. Lewis, please unmute and go ahead.
Good morning. Thanks for taking my questions. First one's just on some color behind the sequential improvement in the corrugated and flexible packaging segment, just sort of how much of that is mix and is there sort of a market difference inter-segment between sort of those end markets or products. The second one, just acknowledging the direct tariff impact is limited. Just on that indirect piece, can we maybe get an insight on how much of that demand is sort of resilient in terms of FMCG or essential industrial goods or otherwise?
Not sure if I could follow the first question. In terms of demand resilience, I think it's dangerous to just sort of say industrial bad, FMCG good. It doesn't necessarily work like that. I mean, again, we'll be giving some insights into our exposures on the flexible packaging business. Corrugated, more generally, is 60-70% kind of food, beverage, and non-durable indirect exposure because obviously, it's largely a transport packaging. Then there's a sort of industrial component. In our flexible business, if you take it at a very high level, it's around half consumer-driven, half industrial, being mainly cement, building materials, agricultural, etc.
I think it's wrong to assume that in a sort of more difficult macroeconomic environment, the one is sort of prejudiced, particularly relative to the other, because obviously, they're very different dynamics, whether if you're building bridges using cement bags in Egypt, it doesn't necessarily correlate with overall sort of GDP growth, etc., for the globe. You have to be a little bit careful. I mean, what I've just outlined is the broad sort of exposure differences between, call it the industrial and FMCG, but I wouldn't translate that into one's going to get hammered in a downturn and the other's going to prosper.
That's clear. Thanks. Yeah, my first question.
Can you just repeat the first part?
Yeah. Yeah, of course. Just on that sequential improvement, just wondering how much of that is mixed?
You mean on the pricing or quarter on quarter?
Yes. Yeah, quarter on quarter.
No, I mean, pricing actually was down quarter on quarter. I think we hopefully made it clear on a sequential basis purely because we saw, as I think we said at the full year results, we saw containerboard, kraft paper, and the like tail off into Q4 of last year. We started the year at a kind of a low point, and then we have been getting some price increases through the first quarter. If you take an average on average effect, Q1 pricing was lower on average than Q4. I am looking at Mike's hopefully.
Correct. I'm nodding. I just can't see it.
Yeah.
That's great. Thanks, James.
I hope that's clear.
Yeah.
Thanks, everyone, for your interest. Mike and I need to go and talk to our shareholders at the AGM. With that, we should probably wrap up. As always, Fiona and team are readily available if there are any follow-up questions. Thank you again for your interest. I would just like to reiterate, I think, yes, Q1 very much in line with our expectations. Most importantly, I think we made great strides on our big important projects and also working very hard on the Schumacher integration, which will set us up very strongly for the future, obviously, with an eye to the overall macroeconomic environment. As a last advert for our flexible packaging teach-in next week, hopefully we can give you a lot more insights into the value drivers behind that particular business.
Looking forward to seeing as many of you as possible at that event, either physically or on the webcast. Thank you again for your attention, and no doubt we'll keep in touch.