Good day, and thank you for standing by. Welcome to Mondi Third Quarter 2022 Trading Update conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automatic message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Andrew King, Group CEO. Please go ahead.
Good morning, everyone, and thank you for joining the call this morning to discuss our trading update. I'm Andrew King, your Group CEO, and with me is Mike Powell, Group CFO. I'll start with a brief summary of this morning's announcements before we will take any of your questions. I'm pleased to report that we delivered a very strong performance in Q3 with underlying EBITDA from continuing operations at EUR 450 million, up 55% compared to the prior year period. This was on the back of higher average selling prices and overall volume growth, more than offset by the significant cost pressures. We're able to mitigate the impact of the significantly higher European gas and electricity costs in particular, as most of our pulp and paper mills generate the majority of their energy needs internally.
Importantly, our EUR 1 billion expansionary capital investment program is progressing well, and we expect these projects to deliver mid-teen returns when in full operation. Within that portfolio of projects, we are pleased to have recently approved the investment in a new 210,000 tons per annum kraft paper machine at our flagship Štětí mill in the Czech Republic for an estimated EUR 400 million investment.
Startup expected in 2025, with full production ramped up by 2027. In August, we agreed to acquire the Duino mill near Trieste in Italy. We plan to convert the existing lightweight coated mechanical paper machine into a high quality, cost competitive, recycled containerboard machine with an annual capacity of around 420,000 tons. This converted machine would be expected to start up in 2025.
If I then turn briefly to the outlook. While significant geopolitical and macroeconomic uncertainties do remain, and we anticipate a continued inflationary pressures on our cost base as we enter the fourth quarter, we are confident that the group will continue to demonstrate its resilience and deliver a year of good progress.
We remain well-placed to deliver sustainably into the future, underpinned by our integrated cost advantage asset base, our culture of continuous improvement, our portfolio of sustainable packaging solutions, and the strategic flexibility offered by our unique platform for growth, strong cash generation, and financial position. With that, I thank you, and Mike and I would be happy to take questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. Now, we're going to take our first question. Please stand by. The first question comes from the line of Lars Kjellberg from Credit Suisse. Your line is open. Please ask your question.
Good morning, and thanks for taking my questions. I just wanted to try to understand a bit the sequential moves in the various components. We can obviously see pricing. You called out, you know, wood cost and energy cost, and as far as I recall, you haven't hedged your energy costs. I suppose that's a direct hit. The one question that has really come in a bit somewhat more opaque is the wood cost development in your wood catchment area. As you already called out at the half year point, availability, and I've seen some comments from Mayr-Melnhof, for example. They even talked about suspension of production because of wood supply issues.
If you can elaborate a bit on the sequential moving parts for that EUR 32 million drop in EBITDA versus the prior quarter, given the strong price environment. Also how we should view the various components, cost, price, and volumes heading into Q4. Those were my questions. Thank you.
Lars, it's Andrew here. First, I mean, that seems to be a very generalized question. I think we could unpick it into a couple of things. I mean, firstly, the wood cost progression, which Mike can follow. I mean, more generally, the progression on earnings, as I mean is all about a rising cost base more generally, and wood and energy being the two most specific of those. As you rightly say, energy is not hedged. What you see is what you get on our energy bill. We are effectively structurally hedged.
Even though you've seen a massive increase in natural gas and electricity and all the related energy costs in Europe, clearly our bill has gone up as a consequence of that, but not as much as you might have expected, simply because we have a lot of our own energy generation. You know, the sequential basis, there's a high increase in variable costs.
Clearly offset to a large extent by increasing sales prices because we entered the quarter with higher prices and in particular in things like kraft paper as we flagged at the half year, we implemented further price increases going into the third quarter. And we've got overall volume growth, albeit it's mixed in different segments. That's the overall picture. In terms of the wood cost story, maybe Mike can give you a bit more color on that.
Yeah, I mean, listen, we're talking about the delta is a good quarter and a good year-on-year increase. The wood, probably at half year, our wood costs were half year on half year up, about 40% probably. Energy obviously was a lot more than that, and we flagged both. Wood costs continue to inflate, as Andrew has said. We see wood being used for other sources of energy, of course, in some parts of Eastern Europe in particular. Wood costs continue to inflate through the quarter.
As Andrew said, the real quarter, despite it being very strong, you know, you do see that delta 'cause we entered the quarter at very high prices and they've relatively been flat through the quarter, but costs have inflated and therefore, you know, if you wanna look at the downside on the quarter-on-quarter, it's very simple on that basis.
Yeah, sorry.
Yeah, sorry. I think I was gonna add on the availability issue. Yeah, I mean, wood resources in Central Europe are particularly tight. I think it's particularly in the hardwood segment.
Yeah.
Because hardwood is an alternative energy source. It is really linked to this whole energy game because in certain Central Europe, well, in a number of Central European countries, you're finding, you know, households and the like are burning hardwood in, as a fuel source instead of gas. People have the alternative to switch between the two. Clearly with these ultra-high gas prices and of course concerns around security of gas, people have been switching to burning wood in their homes. That has been a different demand source which has arisen.
Of course, it's extremely difficult to predict how that might continue because of course, gas prices actually seem to be coming down in the spot market and maybe there's a sort of sense that actually the availability issue isn't as chronic as people might have expected. You could easily see that switch back over time.
Undoubtedly at the moment, that is causing pressure, particularly in that Central European wood. We've been managing that, the wood and energy situation. We've also taken some modest downtime in certain of our mills, particularly in the fine paper mills, so it's Slovakia and Austria, in order to manage what effectively balance off, the high wood cost and availability issues with the demand picture.
There has been some modest downtime that we've taken as a consequence of wood availability and simply the energy pricing, particularly relevant to Austria because as you know, we have an integrated facility there which consumes a lot of energy.
Based on those comments, I suppose, you know, unhedged energy, somewhat softer energy prices, at least for now, wood continues to rise. How should we think about cost inflation and your ability to offset that by pricing?
I guess it seems as if containerboard prices are broadly speaking stable, fine paper stable, if not slightly up in kraft paper. I guess we'll find out. Is that an area where you called out still strong demand trends or at least resilient demand trends in kraft? Does that continue to see that positive price progression? That was my final question. Thank you.
Yeah. Well, I think firstly on the cost side, and of course it's all, these things are all linked. I guess it depends which day of the week you ask me because.
Mm-hmm.
Because we're seeing, I mean, I'm sure you guys also track the spot gas prices in Europe. They're all over the place. I mean, more recently they have come down actually the last literally few days. Clearly in our case that gives immediate relief because we don't hedge. Particularly for example the unintegrated obviously more generally it gives relief to those players who are more exposed I suppose to the external price of energy.
Of course one looks at the recycled containerboard cost curve. This links into pricing I suppose because you're seeing some cost relief actually taking place just at the moment, because 'cause energy prices have come off to some extent. As you well know PFR prices have come off to some extent.
I guess that some of the cost pressure that existed literally a few weeks ago is probably alleviated to some extent. That in turn is clearly feeding through to the fact that, you know, generally speaking the price increase that the recycled containerboard industry we're talking about not that long ago has dissipated.
It's dissipated because it was premised on higher cost inflation which seems to have modified a bit. I mean, as I'm sure you could all appreciate, you know, this is a highly volatile world and one simply doesn't know from one day to the next what the spot price of energy and PFR and the like might be.
Mm.
You know, related to that is also the whole issue of the capacity that was taken out on a temporary basis as an industry over the sort of summer months. Seems like some of that is coming back as people have got confident in their cost basis being mitigated to some extent. Of course that will have an impact on the supply demand balances going into the back end of the year.
On the kraft paper question, just on resilient demand, positive pricing.
Kraft paper, you know, as I mentioned, we got a meaningful increase at the half year. That's held very well. We've had a very good quarter in our kraft paper and more generally in our flexibles business. Going into the final quarter, obviously, bags has a seasonally weaker quarter normally. You know, and I stress it's seasonal because-
Mm-hmm
The sort of construction period is through the height of construction in Europe is obviously through the summer months in Europe. Generally, seasonally you expect a weaker quarter. Of course, we also take a lot of our kraft paper downtime, the maintenance shuts and stuff in Q4. Quarter-on-quarter is always dangerous to look at, because there's always a sort of seasonal, and as a consequence, that's the way we time our shuts as well into Q4. Q4 is normally a slower quarter than Q3 for seasonal reasons, not necessarily driving, calling on the cycle.
No, I get that, but the kraft paper price, that was more what I was referring to if that's-
Kraft paper price
kind of momentum.
The kraft paper price is holding steady, yes.
Okay. Thank you.
Thanks, Lars.
Thank you. Now we're going to take our next question. Please stand by. The next question comes from the line of Cole Hathorn from Jefferies. Your line is open. Please ask your question.
Morning. Thank you very much for taking my question. One, just following up on the demand question Lars raised. Is there any commentary you can give on what you're seeing in some of your end markets, you know, the construction end markets for the paper bag side as well as you know, your general, your retail, et cetera, just so we can get an understanding of how that's you know, that's developing on the sack and kraft or flexible packaging business?
Then similarly on the corrugated, any kind of demand commentary you can provide. Then the second question is on you know, the Russia disposal. Could you just clarify the process from here? Hopefully, we get the Russian approvals for the transaction to come through.
What would be the process from Mondi's side once you've got those Russian approvals? Would it effectively be once the Russian approval is in place, then you do the shareholder meeting and then ultimately complete and get the cash just to understand the sequence of events? Thank you.
Cole, thanks for your questions. Let me start with the second one, and I'll let Andrew take the first. Yeah, just a reminder. The approvals that the buyer has to deliver are twofold. One is on antitrust, and the second one is to get approval from the sub-commission. And with that approval for the agreed SPA that we have with them is the agreement on the funds being delivered to an account of our choice in a currency. Once those approvals have been cleared, because it is a Class 1 transaction, we need to have a shareholder meeting, which we would call, and then once that has been done, then we can close the transaction.
Of course the funds will flow. Just as a reminder, we have committed that the net cleared funds would be repatriated to shareholders as soon as we practically can. Hope that answers that one for you, Cole.
Thanks, Mike. Just a clarification. You would kind of get the funds in, I would consider it like an escrow account until the shareholders approve, and then it would flow out. There wouldn't be kind of risks of.
No, I think the timings may well interact with each other. I mean, you know, we'll work through that. We would need to have the shareholder approval before we can close the deal.
Yep.
Thank you.
Good. Yes. On the demand-
Go ahead.
Sorry. On the demand question. On the flexible side, as I reiterate, I mean, we had a strong quarter in Q3 with very resilient demand across frankly most end users. I remind you in terms of our sort of mix, we have about 400,000 tons odd now of specialty kraft papers and then 900,000-1,000,000, somewhere around there, tons of sack kraft.
On the specialty kraft papers, clearly a lot of that goes into retail applications, from you know that rebuilt machine of producing the paper bags for retail. A lot of it also goes into things like food service and some into industrial applications. I think the retail paper bags is probably a bit softer right now.
I think simply footfall in retail shops is probably a bit lower and you see a bit of that coming through at the moment. Not terrible, but it's certainly a bit softer. Food service, these type of things, extremely resilient, if anything, quite strong. Industrial. A bit softer maybe, but as we look forward, it's certainly, you know, not particularly concerning or anything like that. I mean, when you ask the detail of our end users, you can hear it's a mixed picture, but you really do have to look at the individual end use applications. On the sack kraft side, as you know, a lot of it goes into building materials.
In Europe, that's the building materials for kind of DIY applications and things, not bulk delivery in that. Whereas in what we call our overseas markets, the export markets from Europe, a lot of that is into cement and the like. The export markets holding up very well, very resilient.
Europe, it feels a little bit softer, but just a bit softer than it has been, you know, in what was extremely strong markets for the last couple of years. On the corrugated side, likewise, yeah, I always remind everyone that we are very much a regional business in corrugated solutions. You know, we distinguish, yeah, between corrugated solutions volumes and our containerboard volumes. Containerboard volumes held up very well, continue to do well.
You know, we are a low-cost producer delivered into the markets that we serve, so we do extremely well there. On the corrugated solutions side, you know, we are a regional market in Northeastern Europe and Turkey. Obviously every one period can be a bit different, particularly in the likes of Turkey where it is volatile, so it's more of a regional difference rather than a kind of end use difference.
In terms of end users, as you would expect, the food and beverage and those sort of things are pretty resilient. E-commerce has been, continues to be good, but signs that it's slowing down. Industrial is mixed because again, I think it would be difficult, dangerous to generalize. It's more of a regional differences there than anything else. So I hope that helps.
Thank you. Now we're going to take our next question. The next question comes from the line of Justin Jordan from BNP Paribas Exane. Your line is open. Please ask your question.
Thank you. Good morning, Mike and Andrew. Just two quick questions, if I may. Just firstly, following up, Andrew, on, I suppose your comment on outlook in flexibles. Can you just remind us, you know, you've got clearly a number of, I suppose annual and semiannual fixed price contracts which I believe typically you're renegotiating in Q4 of the year.
Given the index price moves we've seen and the comments you've made regarding further price increases achieved in, around Q1 and into Q3, I assume we should be expecting price increases on those annual contracts post renegotiation, or is that now in question given the sort of slight softness in demand that you're commenting on? Secondly, just, I just want to clarify something on Russia.
I appreciate it's a very complicated situation, but I just want to clarify that the board's intention is ultimately 100% of whatever net proceeds are received will be distributed to shareholders. Is that still the board's intention just on the Russian proposal? Thank you.
Okay. I'll take that easy one first. Yes, that's the intention. I mean, as we stated, and it remains the intention on the dividend story. On the question of flexibles, and you're talking specifically about, well, actually sack kraft paper is the one that has a lot of annual price, some annual price contracts. I mean, it is less than it used to be. More and more, that business is going to either semiannual or if not, floating pricing. The annual contract sort of negotiations aren't quite as big a deal as they would've historically been, but nonetheless, they still are important and it is still the sort of next pricing event, I would say.
On the specialty kraft paper, it's much more fluid and it encompasses a number of different sub grades that you would be pricing at different times at different, you know, on a different basis. Going into the annual price negotiations, I mean, we haven't started those simply put, so I think it would be extremely premature to be able to sort of prophesy what might happen.
I think it's incumbent on us to be talking to our customers first, before we tell you what might be happening. I think we're going to be going into those negotiations. I mean, clearly there's a general increase in costs, and that is self-evident for everyone to see. You know, the markets remain resilient, but we need to have those discussions with our customers.
Thank you, Andrew.
Thank you. Now we're going to take our next question. Please stand by. Our next question comes from the line of David O'Brien from Goodbody. Your line is open. Please ask your question.
Morning, guys. Thanks for taking my questions. Just three quick ones, please. Mike, you were good enough to give us a steer around energy costs at the interim stage. I think you said you might be looking at up to EUR 950 million for the year. Just wonder if you could give us an update on where you see that. You know, it's quite volatile.
Secondly, just on the move into Italy with the Duino mill, I guess how should we think about the opportunity to build a more substantial Western European corrugated business over the medium term, when you see moving into kind of paper assets into the likes of Italy. Finally, just on the CapEx projects, what kind of EBITDA contribution are you expecting for 2022? Do you have an early steer on maybe what the contribution for 2023 could be, please?
Yeah. Let me take energy. I mean, it's not a bad number, more by luck than judgment, given the volatility of the markets. I think it's still probably a good guide for the full year number. In terms of EBITDA on projects, I think we said it would be about EUR 60 for this year. I think we've probably, you know, certainly on some calls talked about EUR 50 next year.
I think this year, it's obviously a bit softer just 'cause some of the projects are suffering from the availability of the wood. There's nothing fundamentally changed with the quality of the projects. They're more affected by some short-term dynamics around that wood availability that Andrew has talked about. Bit early to call next year.
There's nothing other than some good in terms of the timing of the projects, and fundamentally the long-term nature and deliverability of the CapEx execution and projects there, David.
Good. Yeah. Just on the Italy ambitions, I think more broadly, you know, corrugated and well, our corrugated value chain being containerboard corrugated, we have an extremely strong platform there. You know, we have a fantastic platform on the upstream containerboard side, you know, with extremely cost competitive production, well located to serve our growing sort of markets around us, and a strong network of converting plants.
In the recycled containerboard space, our belief has always been strong physical integration is very an important facet of that business, by contrast to the virgin grades where you can be an open market player and sell into a broader market, which we do.
On the recycled side, you know, we believe strong forward integration is important. The Duino mill, as we stressed, you know, when announcing it, offers us the ability to backward integrate our Turkish containerboard requirements. We are short of recycled containerboard in Turkey.
This, if you look on a map, where this mill is located, it's right next to a port, which has got very good access into our Turkish network. We are able to supply very cost-effectively, we believe, from this mill into Turkey when it's up and running. Obviously it also opens up avenues for us to be supplying into the regional market where the mill is located. We'll, you know, we like our corrugated business.
We have every intention to continue to grow our corrugated business, and if this throws up opportunities for us to develop further in that region, then of course we will look at those. First and foremost, the priority is to firstly complete on the transaction and secondly to get on with the conversion. That immediately gives us the benefit of integration into our Turkish corrugated network.
That's great. Cheers. Thanks for the color.
Thank you. Now we're going to take our next question. Please stand by. Our next question comes through the line of James Twyman from Prescient. Your line is open. Please ask your question.
Yeah, thank you very much. I've got three questions. Firstly, could you give us the maintenance cost number for Q3? Secondly, it seems to be a bit of kraftliner price weakness at the moment. I'm just wondering in terms of your view on whether this is a trend or whether you're attempting to reverse the weakness that we're seeing. Thirdly, just your opinion on how much downtime has been happening in the industry, mainly on the recycled side. What's your view on what percentage of the industry may have been down and maybe what you're seeing at the moment? That would be great. Thank you very much.
Thanks, James. James, maintenance is about EUR 30. I'd probably expect the same in Q4.
Then onto the much easier question of what's happening with kraftliner prices next. I mean, firstly, kraftliner prices are currently stable. I mean, clearly every market, and I know everyone looks risky in different markets and things like that, you know, we'll have to see how that develops. I mean, clearly there are, and this, I guess, comes linked into your other question around the downtime.
As I said earlier, I mean, a lot of capacity was taken down through those summer months. We would estimate it was probably something like 15%-20% of European recycled containerboard capacity, which was idled for some period of time. Obviously we don't have total transparency on that either. We can also, you know, just read the same things that you probably do.
That would be our sort of estimate. It was a meaningful reduction in, or short-term reduction in capacity. Clearly, it's extremely expensive to take that downtime because you've got a fixed cost base and no revenue essentially while you're doing it. It typically doesn't last very long.
As I said earlier, I suppose some of that capacity has been incentivized to come back on because of the lower PFR prices, which are ironically as a consequence of those downtime being taken because obviously demand for PFR then reduced, and so hence the price has come down sharply. I mean the price of PFR is probably down over EUR 100 a ton, over the last month or so. Clearly that has given the higher cost recycled containerboard produces some cost relief.
At the same time, and more recently to that, even, energy prices or gas prices have also been coming down to some extent. Again, who knows where the next move is on that, but at the moment, they're coming down. I think that is that's what's given the kind of relief to the high end of the cost curve to kind of allow them to come back into the market.
Clearly, it's coming back into the market increases supply. And one would have to assume that that's gonna make it very difficult to get further price increases at the least. They might, you know, we'll have to understand whether that gives rise to some of these guys giving some of this, the cost relief they've seen back to their customers.
It's early days, and that we'll have to see. Of course, the kraftliner prices ultimately are, you know, have a link to the recycled containerboard prices. We'll have to see how that then plays out. I'm afraid I can't give you any more definitive answer to that because I simply don't know because these are some big moving parts that one will have to continue to watch. Yes, I think that answers both the pricing and downtime questions you had.
Great. Thanks for the color. Thank you.
Thank you. Now, we're going to take our next question. Please stand by. We have the next question from the line of Sean Ungerer from Chronux Research. Your line is open. Please ask your question.
Good morning, everyone. Thanks for the time. Just to hop on the sack kraft and bleach sack kraft price increases. Just to confirm, so post the H1 results, there was a bit of a price increase that went through your spot business.
Can you just confirm that, please? Just secondly, the non-cash gain in the Uncoated Free Business, if you just commented on that, please. Lastly, I'm assuming the commentary around the sort of cost control initiatives is the usual sort of stay in business, how you guys practice, or is there any specific sort of cost savings programs that you guys have introduced? Thanks.
I'll take certainly the paper price question. I think your phrase was a bit of a price increase. I would suggest it was a bit more than a bit. I mean.
Yeah.
It was a meaningful price increase at the half year. Yes, it was fully implemented and it's been in place throughout the quarter. To be clear, that's on the sack kraft business. The specialty kraft paper business has a number of other different levers, and there's also been various movements in there. Obviously the primary, you know, half year increase was on the sack kraft side. Maybe just touching on that cost control question. Yes. I mean, you know, we're not believers in grand statements of cost reduction processes. We believe we should always be working on our cost base.
Clearly, in these times, you redouble your efforts because every efficiency gain you can make when input costs are on the rise as they are, just gives you even more of a payback. It's the imperative around driving efficiencies, driving productivity and the like are just, you know, that much more enhanced.
It's not about some grand restructuring program, which typically, frankly, you kid yourself that you're actually delivering on these things. We believe in constantly driving our cost structures, driving our efficiencies and the like, and that's that puts us in good stead. We'll continue to look at that. Obviously, we also have some capital expenditure programs which also facilitates cost optimization, particularly around this whole energy situation.
As you know, we've invested a lot of money over a long time, not because we saw the current energy crisis in Europe, but just because it was good business, even at lower energy prices. Clearly, it makes it even more. Those return on those investments are even better now with the current spot energy. We, you know, we think there are other things we can do on the energy side, which will enhance our cost effectiveness. We'll continue to look at those and exploit those.
In terms of the non-cash forestry fair value gain in Q2 is probably around EUR 20, and therefore sequentially in Q3 it's about EUR 30-EUR 35. That really reflects obviously the increased cost of wood. You know, the value of the trees are worth more and therefore, you'd expect a slightly higher gain. Sat here today, we'd probably expect about the same number in Q4.
Great. Thanks so much.
Thanks, Sean.
Thank you. Now, we're going to take our next question. Please stand by. The next question comes to line of Daniel Isaacs from 36ONE Asset Management. Your line is open. Please ask your question.
Thank you very much. Thanks for this call, guys. Just wanted to ask, it's probably difficult to give more insight on, but just wondering, I mean, we've seen a couple of deals from other companies from Russia being confirmed and paid out, et cetera. I mean, is there any feeling from the guys on the ground there or, you know, what's happening with the process? Is it because the deal size is relatively large that it's usual for it to take a bit longer to get confirmed or anything like that?
Thanks for the question, Daniel. I mean, I really think we're in the realms of total speculation here. I think it'd be wrong for me to comment on any of that. As you know, this is a process where the buyer seeks approval. That process is underway, and I think it'd be wrong for me to speculate on exactly how that unfolds, simply because there is no formal timetable that the, you know, the authorities are under around this, and we need to see how it unfolds. I'm sure you'd understand if I would avoid any speculative commentary on it.
Yeah, yeah, sure. No, was just curious, I mean, if there's any sort of, you know, maybe, deal size, you know, guidance from any department on time or anything like that. But it doesn't sound like it. It sounds like it's all, just up to a certain someone to
Yes. There is no categorization by deal size, if that's your question.
Right. Right. Okay. Thank you.
Thanks, Daniel.
Thank you. Now we're going to take our next question. Please stand by. The next question comes from the line of Saul Casadio from M&G. Your line is open. Please ask your question.
Yes. Hi. Thanks for taking my questions. Just a clarification on your energy bill, 'cause you clarified your fuel mix. But I'd also want to understand a little bit more about your electricity bill, because that is also especially in Europe, linked to gas prices. Wanted to understand if that 10% of gas exposure also includes the electricity billing with some estimate or the, you know, you're treating electricity differently and trying to better understand the link to gas of that one, considering I'm not an expert in utility bills.
Sure. No, it's also I mean, we give that indication because that's the pulp and paper mills where the vast bulk of the energy consumption takes place. We do procure electricity as well. We are largely self-sufficient in energy, electricity, so I think we produce about 80-odd percent of our energy, our electricity needs from our own energy sources. Those biomass fuels, gas, coal, all the other energy sources. You are correct in that electricity costs are also going up. When Mike gave that indication in rough terms, I think we spent EUR 450 million on all our energy input costs last year.
That includes electricity. It includes coal, gas, even, you know, the biomass that we buy in specifically to convert into energy, all of those different sources, but clearly inclusive of electricity purchases. That bill has basically doubled year-on-year. That clearly incorporates, you know, the effect of electricity sort of on the electricity bill of higher input gas and the like. By far the biggest component of our energy, as I say, is made from our own biomass plus biomass energy that we buy in. That accounts for about 80% of our total fuel usage, but it's probably, call it 75% of our total energy usage, including electricity.
The electricity component is, yes, it's relevant, but it's not a significant portion of our total either spend or consumption. As I said, you know, roughly speaking of our fuel requirements, gas is 10% of that order of magnitude.
Okay. Okay, that's helpful. Just to follow up if I can, of that roughly EUR 400 million energy bill, what is the electricity component? Just of that bill, not the consumption in general, but just what, you know, you buy externally.
I don't have that number off the top of my head, but it would be a smallish component of that. Because of that bill, it's everything from the biomass that we purchase rather than the one that comes in.
Okay.
through the recovery boiler.
Sure.
Plus.
Yeah.
light fuel oil.
Light fuel oils.
Gas, obviously. All manner of mix of that. The electricity component, I as I can't have it, and I'm looking at Mike and he doesn't have it off the top of his head, but it's not a huge component.
Okay.
Of course it's also been rising exponentially relative to other input costs. I think very importantly for us, of that total energy usage we have a significant portion of it through biomass energy
Sure.
and through our own biomass energy generation, and that gives us the natural hedge. As we've stressed before, we don't hedge our energy input costs, so what you see is what you get, which is also a good thing when prices come off. You'll see it immediately in our numbers as well. The reality is-
Okay. Thank you.
right now, energy costs are coming off. Thanks, Saul. I think we've got time for one last question, operator.
Thank you. Now we're going to take our last question for today. Please stand by. The last question comes from line of Cole Hathorn from Jefferies. Your line is open. Please ask your question.
Morning. Thanks for taking the follow-up. It's a bit of a longer-term question, but you've mentioned wood cost and availability rising through Central Eastern Europe. If we think about that from a strategic perspective and where your mills are located, you know, we're always worried about new supply coming on stream, mostly on the recycled side.
But on the virgin side, does this argue that the availability to put in a new virgin, you know, mill or, you know, conversion machine is more challenging? Ultimately, what I'm trying to get to is, you know, is your asset base in Central Eastern Europe well-placed 'cause new capacity additions can be more challenging 'cause of wood availability. Thank you.
Yeah. Thanks, Cole. I mean, I think we've always said, you know, one of the reasons we like our, you know, call it, significant virgin-based paper production, is because we think, A, that there are higher barriers to entry, and secondly, it's typically a steeper cost curve. If you're well positioned on that cost curve, you know, you can do extremely well on a through-cycle basis. I think we've proved over the years that premise has held true.
You're right in the sense that the current situation, because it's really driven, I mean, it's driven by the Ukrainian crisis, this whole thing, for two reasons. One is obviously the Russian wood basket has effectively been, you know, is now off-limits to European producers. We didn't ever rely particularly on a lot of imports from
Well, hardly any imports of wood from Russia and/or Belarus. You know, it was serving some supply into Europe. Of course then related to that is the whole energy crisis and the fact that, as I say, wood is being used as an energy source. All those things are combined is what's made the markets particularly tight at the moment.
You know, there's always been the structural challenge of accessing, you know, competitive low-cost fiber resources to make virgin products. We are very well-placed because we are the incumbent producers in the particular regions in which we operate, and hence the reason you also see a lot of our expansionary CapEx in this area is around, the incremental capacity expansions that we can achieve at those, cost-advantaged operations that we have.
I remind you, we're spending just under EUR 100 million in Świecie in Poland to produce another 50,000 tons of integrated pulp and paper production, and we know that'll be highly cost competitive.
This new machine in Štětí that we mentioned here is diverting essentially 100,000 tons of market pulp that we have, you know, on the market at the moment into our paper machine, and then we can squeeze out another 100,000 tons of pulp out of the existing pulp operations with modifications. That's where the CapEx goes, you know, to produce then 200,000 tons of fully integrated low-cost kraft paper. These things, I agree with you, are, you know. It's not easy for others to replicate.
In fact, it's virtually impossible. I think that does create a, I mean, a strong structural advantage which we've had. We've always said we've had and we continue to build out on an incremental basis. At the same time, you know, we have a fantastic downstream business as well, which also gives us a real strength because as you know, in kraft paper we are by far the biggest consumer of kraft paper as well, with our extensive bag network, which is a global business. That gives us a real strong integration strength as well. Yes, I mean, we firmly believe that all of these structural advantages are here to stay and if anything, compounded by recent events.
Remembering also that kraft paper, one of the big competitors is based in Russia and obviously cannot now sell into Europe. In fact, the most recent sanctions have explicitly stated that, these products are sanctioned for export from Russia into Europe.
You know, all of these factors, you know, coming specifically to this new paper machine of ours, we see as a significant advantage that we enjoy and will continue to leverage. I think, that's a very good basis on which to end this call. Again, thank you everyone for your attention. Obviously, Mike and myself are here if, any follow-on questions that you may have. Otherwise, have a very good day and I'll pass you back to the operator.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day. Have a nice day.