SMURFIT WESTROCK 2026 Q3 RESULTS - SMURFIT WESTROCK PLC

Good day and thank you for standing by. Welcome to the Smurfit Westrux 2026 Q3 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Kieran Potts, Smurf at Westrock Group VP, Investor Relations. Please go ahead. Thank you, Sarah. As a reminder, statements in today's press release and presentation and the comments made by management during this call may be considered forward-looking statements. these statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainty include but are not limited to the factors identified in the earnings release and in our SEC filing. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures where applicable reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the accompanying presentation, which are available at investors.smurfitwestrock.com. Before I hand you over, please note that Tony and Ken are stepping away from the board this morning and rejoining after our call. In the interest of time, I therefore request that you ask no more than two questions. I'll stay on the line should we have any technical issues in Brazil. I now hand you to Tony Smurfett, CEO of Smurfet Westrock. Thank you, Kieran. As Kieran has just said, we're hosting today's call from our Três Barras mill in Brazil, Latin America's largest country with a population of some 213 million people. Três Barras is a state-of-the-art craftliner mill with an annual capacity of approximately 700,000 tons. This operation is a great example of successful investments of approximately $350 million over the last five years delivering superior returns. It is integrated downstream into our Latin American box system, primarily in Brazil, Argentina, and soon to be Chile, and significantly integrated upstream into our sustainably sourced forestry operations. As you will have seen, we've announced third quarter adjusted EBITDA of 1.205 million, with an adjusted EBIDDA margin of 14.8%. These results show great resilience in the face of unprecedented and greater-than-anticipated cost inflation, predominantly but not limited to energy and freight. To counteract these cost increases, we have, by necessity, implemented price increases across most paper grades, which are being passed on with the normal time lag. The period was characterized by a number of one-off events, such as extreme heat waves in Europe, earthquakes in Colombia, and a significant contamination issue in the agriculture sector in the United States, affecting our volumes both there and in Mexico. Since the formation of Smurf at Westrock, I'm incredibly proud of the many achievements we have accomplished, especially the way we have brought the two companies together and formed one culture. Operating in 40 countries, we have unified the company under one banner, with the focus being the owner-operator model, which resonates and is well understood both internally and externally. We have developed a strategic plan, which we presented to you in February, that takes the company to a different level through our own actions and investments to improve efficiency and our offering to our customer base. And we've refocused the company at our end customer through innovation, quality, and service. Turning now to a regional overview, our North American business continues to improve in in most areas, although this improvement is masked by the amount of increased costs that we have incurred. The third quarter showed sequential improvement in our corrugated volumes with a continued and developing strong pipeline. Our people have embraced our new Smurfit Westrock performance-led and owner-operator culture and this is reflected by our improvements across all customer service metrics and our attention and retention of talent. Today our mill system across practically all grades remains sold out, allowing for us to prioritize orders and improve our business mix. The real benefits of this will be apparent as we move into 2027. In our converting businesses, we are progressively getting better through continuous investments with teams of highly motivated people across both business areas of corrugated and consumer. As we roll out our innovation centers, we continue to benefit from our cross-selling opportunities as a major competitive advantage. In another business area, we've seen a large structural shift towards our paper bag and sack business, where we are the largest producer in the United States. Finally, while demand in our Mexican business is as weak as I have experienced it in recent years, our footprint is continually being strengthened by significant cost takeout initiatives and rationalization measures. Now turning to our EMAA and APAC region, where we continue to outperform our integrated peers. Our innovative offering delivers solutions to our customers that help them navigate an increasingly complex regulatory environment, especially in Europe. By partnering with Smurf at Westrock, our customers take regulatory compliance as a given, solving a key supply chain issue for them. As in other regions, we have implemented paper price increases to recover costs, which are being progressively passed through. These increases are primarily a consequence of the spiraling cost of energy that has shown no signs of abatement during the year and is reaching levels that we have rarely seen. Over the last number of years, we've made many investments in both our mill system and conversion operations that have considerably improved our quality and service KPIs, giving us further competitive advantage. Some of those investments are also targeted at continuing to reduce our cost base and drive operating efficiency, which have helped somewhat to offset some of the cost pressures we have seen this year. We have also continued to rationalize our footprint, making our asset base more efficient, which will enhance future returns. Our experience management team in this region has the skill to both navigate the current difficult macro environments and continue to outperform. In Latin America, while the region faces many of the same challenges experienced in other regions, our returns, and in particular our adjusted EBITDA margin, remain at excellent levels. We have strong market positions, a well-invested world-class asset base, together with, again, skilled and experienced operators. We continue to look for ways to develop our offering in the region, and I was particularly happy to announce our agreement to acquire the world-class packaging assets of CNPC during the quarter. This acquisition will strengthen our position in both Chile and the wider region, as well as adding further paper integration to our system. Also during the quarter, we started up our circa $100 million investment in our biomass boiler in Colombia, which is helping to offset energy price increases in that country. Paper prices are rising in the region as international shortages feed into the market. For the full year 2026, we now expect adjusted EBITDA margin of approximately 4.7 billion. This primarily reflects the unprecedented cost inflation we continue to experience across the business. and energy costs alone are expected to represent approximately $700 million year-on-year headwinds in 2026, materially above our earlier expectations. As we move into 2027, we believe the actions we've taken during the year will more than offset these costs. What I'm most satisfied with is the great work that has been done across the organization in every region to improve efficiency, reduce our costs, further develop our innovation offering, and improve our asset base. As a truly global paper and packaging company with an unparalleled product portfolio and the widest geographical reach, it is ultimately our customers who benefit most from our extensive offering. As we develop the company through our investment program and through our culture, I am confident of the foundation we are building for 2027 and beyond. And with that, Operator, we will hand it over to questions. Thank you. If you would like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star one and one again. We will now take the first question. This is from George Staphos from Bank of America. Please go ahead. Good morning, everybody. Good afternoon. Thanks for taking the question in detail. I'm here with Reinhart VanderWaal in Europe. So, I guess two questions, Tony. First of all, can you talk about the progression on volumes in North America at one point you expect to be up at some point in the back half? Is that still the projection relatedly? I think you had a profit improvement in terms of the bridge from volume, even though volumes were down in third quarter in North American. How do we reconcile that? And then second, given that energy and freight would seem to be largely a box-related expense, certainly it's going to affect both converting and production, but does the fact that you're seeing so much pressure on where you had the least amount of margin headroom to begin with in converting, does that change your philosophy in terms of how you try to push pricing and improve commercial terms over time? Thank you, and good luck in the quarter. Thank you very much, George. With regard to progression, as I said, that we expected either in the third or the fourth quarter that we would start to be there or thereabouts with the previous year. Obviously, the third quarter has been very heavily impacted by this cyclo, I have to remember the name of it, cyclo-spiro and E. coli situation that affected our agricultural region very significantly. And, you know, I think from the good news point of view is, and one swallow doesn't make a summer, but for October, we are lying ball with last year. And it looks like our order books are reasonably good for November at this stage. So, I mean, again, as I say, one swallow does not make a Summer, but I do think that we have, you know, our progress each quarter has been a bit better. and as we see the volumes that we gave up last year come out of our business and the comparison is becoming easier, we would say that we are going to be there or thereabouts in Q4 unless something happens with regard to the market that we don't expect. So I think the progression is as we expect it. What I'm very encouraged about, honestly, George, is when I see the customer wins we're having, They're smaller in size than when you lose one of the big ones, and it takes a lot of them to replace the big one. But our quality and service levels have improved very significantly. Our attitude, because of the owner-operator model, is very well liked by our customers and liked by our internal people and our innovation offering as we start to roll that out is really a very big positive. So I see us going where we want to go to, maybe sometimes a little bit slower because the underlying market is not as strong as we would have liked. But overall, I think it's going exactly as we wouldn't have anticipated. With regards to your bridges, I'll hand it over to Ken. Hey, morning, George. Morning, Reinhart. Yes, keep it simple, George, The net positive volume in North America is, remember, we have a lot of third-party sales, so the positive growth you see in there is around third-part paper sales. Okay. And then on the pricing and the pressure sink and converting? Yeah. On the converting, I mean, I wouldn't say there's anything different. We are having to go to our customers and sort of recognize the fact that we've got other costs than just paper. and clearly we have to recover those as we go through the year and either through negotiation or through making sure that we have a special tag on for certain customers. So there's nothing, we're continuing to develop our margins in our corrugated business. We have reduced our loss makers very considerably. I think we're less than 30 loss makers and some of them, it's a bit difficult when the paper price goes up, obviously there's a period of time where the corrugated operations slip backwards because they have to go into the market and get those paper prices up to see where we are right now. But overall, I think that we are making very good commercial progress across the business, and I'm really happy with our commercial team and the customer wins they're winning and getting pricing going forward. And George, I don't think you can see that, George, a little bit if you look at the North American margin quarter one, two, and three, you see progression on the margin bill there. And equally, you know, while we're dealing with the normal time lag, you can see progression of pricing also, right? So, sequentially, quarter two into quarter three, North America pricing up about 5%, and in Europe, equally, pricing up 2%, quarter two to quarter three. So, the impact of the price increases from paper to box is beginning to take hold, and as Tony said, as the bird remarks, you're really setting that foundation for 27. So,the actions we're doing are still on track, so no change in philosophy in that sense. All right. You know, George, we would love it to be quicker, but, you know, the reality is that, you know, we're being whacked by these massive cost increases in energy that we are going to get back. And, you Know, as you know we announced 100 euros a tonne increase. The publication recognized 70 of that and obviously from our perspective we would have expected to get 100, but we'll wait and see what happens going forward. Understood. Enjoy the trip. See you soon. Thank you. Thank you, George. Thank you We'll take the next question today. This is from Hilary Cacanando from Deutsche Bank Securities. Please go ahead. Hi. Thank you for taking my question. Just going back to the North American converting business, last quarter you mentioned that corrugating converting margins were roughly 3% to 4%. Can you update us on where that converting margin stands today? It's a little bit lower than that now, Hilary, because we take in the paper price into our converting business. We transfer at the market price, so therefore it'll be a little less than the 2% number now because we have to then go to the market and get that increase into our boxes. But the underlying trend of margin improvements within our corrugated business is quite significant. And you'll see that as we go into Q1 and Q2 of next year as we pass through this latest paper price increase. Got it. Thanks, Tony. And then as a follow-up, with 2026 EBITDA now expected at roughly $4.7 billion, how should we think about that lower starting point relative to the medium-term plan? Is the shortfall predominantly timing around price cost recovery, such that the underlying 2030 earnings opportunity is largely unchanged? How should we think about that relative to this 2030 plan? Hi, Hilary. It's Ken here. Yeah, essentially, it's timing. In reality, the plan was set up to bring us from, call it, 26 to 2030. Nothing within the plan, from a structure perspective, has changed. And if you recall when we talked to you in February, that plan was largely built on internal actions and a lot of kind of internal opportunities that we had to kind of get through, like kind of working through the unprofitable contracts and getting to positive volume growth in North America, for example. So pricing wasn't necessarily part of that kind of proposition, if you like. But clearly, the backdrop and cost for 2026 has kind of impacted the timing, but not the recovery or achievement of the target, but only the timing in terms of when we get there. But the 2030 target is still bang on in terms of timing. It'll just be kind of flexed in between the years with how we get there. Great. So no change to 2030 plan. Great. Thank you so much. Thank you. Thank you very much. Thank you, Rick. We'll now take the next question. This is from Phil Ng from Jefferies. Please go ahead. Phil Ng, from Jeffery's. Your line is open. please ask your question. We can come back to him, Sarah. Sure, let's move on to the next question. This is from Mike Roxland from Truist Securities. Please go ahead. Yeah, thank you, Tony, Ken, Karen, and team for taking my questions. First one I had, you know, the industry's gotten about $170 per ton of price this year. Of that amount, how much do you estimate is for cost recovery versus margin for you guys in particular? I would say that the first 100 is really just basically recovering the cost. I mean, you know, obviously, Mike, the cost thing is a moving target, as you have seen from our numbers, because when we were here three months ago, we did not expect TTF gas to be at 97 or 98 as it is this morning. nor did we expect diesel to be where it is or some of these other energy costs. So, you know, we would have thought that the first 100 would have had some margin improvement in it. But clearly, I'd say the vast majority of that has been gone in these current high prices. As we translate the other increases through the more recent increases, that would probably be all margin enhancement, I would say, broadly speaking. Yeah, and I think Tony kind of referenced it there. The July increase is that $100 a ton we put back end of July. I think up to that point, the increases to that date would have really dealt with the cost recovery and probably a bit of recovery on margin. That $100 would have overcome any remaining fees, but also purely margin. But as Tony just said, since then, clearly the cost backdrop has continued to be elevated and unanticipated. So still, you know, a lot of costs and a bit of margin there, but probably, again, pushing out the timing slightly in terms of 27 versus where it might have been, but still on track. Got it. Very clear. And just one, you think about 27, given in terms EBITDA, given the lower stepping off point, can you provide us with an initial peek at what you're expecting in terms of either demand, you knows, maybe some of the larger buckets or guideposts around what's going to drive EBITda next year? Thanks. Mike we haven't done our budgets yet so you know I just I do know that our guys are very comfortable and confident that our our numbers will be you know significantly better based upon the run rate that we're going to come out of last year but we haven'T actually got to do our budgets yet we're doing those next week um but but I would say that we still the early the early view is that we are very comfortable and competent that next year will be a very good year for us if everything stays relatively where it is today i mean clearly there's still a lot of uncertainty in the world um and and if we have some relief on on cost then that will be very positive to us but equally if we don't have relief on costs you know we will have to look again as to what actions we might take to to mitigate those costs as we go into q1 q2 next year understood thank you thanks Mike thank you next question today is from mark weintraub from seaport research partners please go ahead great thanks thanks very much um obviously we're in a pretty extraordinary uh period from a cost standpoint and um so i was just hoping if we could maybe get a little more color on some of the sensitivities and things like hedging, as well as the timing on price recovery as you roll container board through into boxes in the different regions. So it was kind of the big picture stuff. I wouldn't normally be asking this, but again, we're in a really volatile market and it's hard for us on the outside to get our arms around some of that. The timing in particular around these items. Yeah, we have said that we expect to get the full cost recovery of the latest increase, you know, in Q1 of next year. And all of the paper, the paper price increases as we deal with some of the earlier taken orders. As we get rid of those out of our system, those will translate into much higher export prices. You know, we talked, I mentioned in my script that, you know, we see very strong paper bag business that's growing very strongly because of some structural shifts. So all of that will start to feed through into later in this quarter. All the paper stuff was later in THIS quarter, but really, you know, strongly into early next year. So, you know, as we go through Q1, Q2, we should start to see, you in our numbers based upon these increases that will be passed from paper into corrugated and into export markets and into other grades of paper, and that it would be a normal situation for us. Europe has been a little bit more volatile in up and down pricing, and so this is completely normal for the European business to have this time-like period and obviously when prices go down, that is also a benefit for the company holding on to margin. So we're not seeing anything different other than the fact that it costs, as you say Mark, it's a time when all of us are dealing with these escalating costs and if they continue to escalate we'll have to do something about it because you know clearly clearly they're they're affecting our numbers and and we need to we need To recover so so q1 will be you know a continuing benefit from from what we've seen in in the announcement of the $70 and then and then we'll keep an eye on what what we have to baseball costs a market can't hear I think you know it's overcomplicating either sensitivities on energy or afraid I think when we think about energy and hedging clearly coming into the year and where prices were we still had a decent bit of hedging in the tank clearly at these levels we've taken a different view across the year we've stepped into the market every now and again when when the price has come to a level where we think it it makes sense to hedge um but but not hedging at these kind of levels because you know in reality that can go against you if the price drops so the the energy committees in both north america and europe and indeed latin america have been smart about how they've incrementally added small hedges along the way but we would not be at the levels where it would normally be and that's clearly the function of the market and where we see cost but clearly that's why the price increase we've announced on paper in both regions you know net 170 in north america net 140 in europe are designed to kind of take account of that situation too but still a level of hedging but not not the levels we'd like and and the ranges would be quite wide in terms of the spot prices for that so and we look at the forward curves equally you wouldn't be stepping into this market given where the forward curves for energy are. I think on the freight side, probably the most meaningful sensitivity for you is around where diesel sits with us. So we kind of estimate that, call it every dollar on diesel, probably has a direct impact to the business of something like $80 million. But then when you add in the downstream impact of that through the rest of the system, that's probably more like kind of $120 to $130 million in total impact for the year for a North American system. That's probably the more meaningful sensitivity to that region versus, say, energy for Europe. And Ken, could you give us a sense of the sensitivity to nat gas in Europe, either how much you're consuming, or similar to like the dollar translates into X million dollars? It's a trickier proposition given the fact that we do a lot of our own internals through CHPs and our own kind of take-offs, it's a much trickier. What I'll do is, Mark, I think we'll deal with that one separately because it's It's a much deeper modeling question, given you can't take the total energy piece and kind of model it out. It has a lot of kind of moving parts around internal energy, where we use renewables, how we step into renewables. The CHP and the corrugated systems, it's quite a different, more detailed answer, if that's okay. I think, Mark, it was very interesting. At the current levels, just put into an American context, the TTF is about $30 per BTU for natural gas. in europe and and you know in in uh in north america it's called three dollars so it's a ten to one ratio for the european industry and you like the reason why we're getting paper price increases in europe is not not because of the the capacity situation there's a lot of people that actually can't afford to run the mills and you that's why the the prices are absolutely necessary And if this continues, there'll obviously have to be other actions, either by closures or other pricing actions, because there is just no way that at these cost levels that our European industry in paper, but also many European industries, will be able to continue to operate in any way profitably. So obviously, from our perspective, we have our craft liner mills, which don't use as much gas and generate themselves. So that's making them very profitable. And as we get these paper price increases, we Have to pass them on through the box system, which we will be doing and are doing. And you already see the prices moving up in Europe step by step. and we'll start to see a big benefit of that in Q1 as we go into, as we pass through the contractual pricing increases that we have. Appreciate it, Tyler. Thank you. Thanks, Mark. Thank you. Next question comes from Anthony Pettinari from Citigroup. Please go ahead. Good morning. Hey, Anthony. Tony, hey, in North America, I think you indicated you're sold out in most consumer grades, and I'm wondering if you could give any more detail on where, you know, the consumer business is in terms of cost recovery or just sort of overall performance versus expectations. And, you Know, I guess we've gotten these hikes in container board, but in consumer, we haven't necessarily seen the same kind of pricing traction. So just kind of wondering if You can comment on that. Yeah, on consumer, I would say that it's steady. She goes on the C-U-K market. That's carrier board market. There hasn't been any real decreases, nor has there been any real increases there. We try. We had a look at that way back when, and it didn't seem like the right time. SBS, as you remember, went down about $100. dollars we're in the market with increases currently and you know we're sold out in that grade so therefore we believe that there it merits some increases to get more than back what we lost in the last quarter of last year as we move into next year as we move in to 2027 so that is a very strong grade for us we have a very differentiated offering we're not in the we are a little bit in the commodity side of that business but we tend not to try and be in all the commodity side of the business in plate stock and cut stock and we've got some specific areas which we've grown and as we've talked about before we've made some switches away from CRB to SBS and indeed to C-U-K with customers and giving them benefit for that. So I think, you know, I feel good about the SBS market right now, the way that we're positioned at least. And then the CRV market, you know, we don't have our mills are not the strongest in that area, and we continue to be an alternative supplier for customers and our own internal usage, and that's an area which we don' t necessarily see. When I talk about most grades, that's the one area that we don''t really see any pricing momentum, and you'll know the reasons why that is, Anthony. Yeah, I think Anthony Hey, Ken here. I think to follow on from that too, at the converting end in terms of consumer, we've seen reasonable progress in terms of volumes Q3 over last year. I mean, you know, for food and beverage, broadly flat, but most pleasingly probably in our HBH segment, you know. Broadly volumes of about 2% year-on-year. So, it's kind of aligned that kind of sold-out position on most of the consumer grade forward-wise, but also seeing progress in term of the volumes on the converting side is equally pleasing. okay okay that that's very helpful uh and then just quick follow-up on europe and kind of uh your response to mark's question you know given the spike in in energy and freight and i i'd imagine some volume pressure for the industry i'm just are you seeing changes in industry supply demand in terms of supply coming off has that uh i guess has it surprised you that you haven't seen more supply come off. I'm just wondering if you can give any kind of general commentary on supply-demand situation in Europe and what's obviously kind of a stressed environment. I think it's inevitable that it will happen. I mean, I think we've seen a lot of people taking a lot of downtime because obviously if you're going into the market and selling at the old prices, you're losing a lot money on every ton And as this price continues to rise for energy, then you're going to see continued stress either through downtime. You know, as you know, Anthony, in Europe, governments don't like to see paper mills shut down, so they try and keep them open as long as possible, and they give all sorts of subsidies and health. And you'll have seen some of our competitors announce their results, and their making zero EBITDA on brand-new assets. So the question is how long they can continue to do that for. And, you know, I don't have an answer to that because, you know, there is often government support that keeps them going. But inevitably, if economics will trump out, then there will be some closures at these levels. Okay. That's very helpful. I'll turn it over. Thanks, Anthony. Thank you. Next question is from Andrew Jones from UBS. please go ahead hi gents um thanks thanks for the color um i just wanted to ask about the situation in europe we've had large price hikes obviously driven by that cost pressure that you've mentioned but i'm curious what your thoughts are on as we go into the next year some of this new capacity is coming online in italy and obviously that shot a million the uk i mean are you seeing pricing sort of holding if the current cost environment lasts or do you think that we'll start to see some pressure as we go into 2027 i think more than andy uh i i think the reality is that you know of all the new capacity coming on they're all people who have skin in the game already if you like in terms of a system in play so you know you've got to think about this from kind of a pure capital allocation perspective or or at least I was in the sense that it wouldn't make any sense logically, you know, to be kind of trying to capture volume for a new mill on lowering price given the amount of capital that it takes either to convert these mills or they'd start up a new one. So for, like, the shot somebody mentioned there or even the palm mill equally in the U.K. in the early part of next year, you have to assume a kind of similar logic or pattern that we've seen in the last number of years, which is around, you now, Tonya's reference, downtime, you know prioritizing maybe down time in the mill system over reducing price in order to kind of make sure that the returns stay reasonable because irrespective of how you might want to fill a mill the fibring of the mills the energy cost of those mills and that he's trying to find a market in a kind of a you know okay kind of demand environment will all impact the overall return and ultimately it comes down to the ability to generate cash flow you know to be successful so I think we've seen in Europe, two things happened over the last number of years. One, you know, it may have predominance to kind of take additional downtime in order to manage that kind of market better than it might have done before. But equally, the lack of independent players means that idea of a rogue mill trying to capture new volume on price is not really there anymore. It is a lot of systems who have a bigger game to play in the context of how they manage overall market share. Yeah, I think Andy, Ken just made a good point. Two very large independents have gone out of the markets, one to SICA and one to Mondi in Germany, Schumacher and Tim Group. And so the independent market per se is shrinking, so therefore independent mills that are coming into the market, like the two that Ken has mentioned, have a less and less market to go for other than they go for export, and that's a road to perdition, really. So I think you'll find that for them to be chopping pricing will be, as I say, it will be a disaster for them. And you see that already with one of the larger competitors, free market competitors who make nothing in their container board system. And that's before the recent price rises. So I think I worry less about that than how the energy price affects the demand outlook for our end customers. And that's something that, you know, we don't obviously have a crystal ball on. But, you Know, so far, at least because of our offering in Europe, you Now, we've grown this year. We continue to see in October, you Know, reasonably good growth in October. So, I'm very comfortable with our own system, but the overall environment, how Europe energy affects Europe is something that we have to think about at least. Yeah. Okay. That's very clear. Thanks, Bob. Thanks, Andy. Thank you. And the next question comes from Detlef Winkelmann from J.P. Morgan, please go ahead. Good morning, everyone. Maybe my first question, you did call out, I think you said something to the effect that, look, price increases always lag, cost inflation has come first, that's fine, but over the next, you know, on an annualized basis, price cost is firmly positive or price will more than offset cost inflation. Just curious, I mean, is that only on the North American side or should we be thinking the same thing in Europe as well, just after considering your kind of craftliner kind of mix in there energy efficiency, that kind of side on that as well, please. And then I've got a follow-up, please. Hey, that's Ken. Good morning. No, you should assume that for all regions, the mechanism if you like in terms of paper price increase into the index or indeed the freedom to negotiate it is probably slightly quicker in North America than Europe by a couple of months, but ultimately it's exactly the same pattern. And indeed in North American, I'd argue, maybe even quicker again given it's a region that generally deals with inflation quite well so no there's a pattern in terms of normal time lags that we talk about very similar for north america and europe and given the level of index versus non-index is probably slightly higher in north amerika you tend to get it quicker but overall you end up in the same place okay cool and then one more follow up just on europe um you know we've been hearing in the last couple couple company releases that there's of discounting downstream at the box plant level um it does seem to be isolated to certain regions but just curious are you seeing anything of that sort that that you know could hurt you down the line you know as you pass on the price increase of three box prices i mean there there is some some one one player particularly that is is is trying to get a little bit of volume um and so that that has created some noise in the market but overall i would say it wouldn't say it's that much difference to any other pricing environment where people are struggling and trying to get some volume so I wouldn't say it's a particular massively different situation to what it normally is but there are some players that try and use these times to get some volume in the downstream market and you have to because of your quality of service when you look at the quality of the service that we bring to our customers and the complexity we deal for them and look after for them that we We expect to get paid for that and clearly our whole innovation offering is making a difference and so I wouldn't worry too much about that per se, Detlef. Cool, thank you. Thank you. Thank you, next question is from Louis Roxburgh from GoodBody, please go ahead. My question is on holding on to pricing. So, you know, cost and energy inflation has clearly been challenging, but it will turn at some point. So, I guess, what degree do you believe that you'll have to give pricing back? Is Europe in particular more vulnerable to that given the oversupply and container board and energy security and comparatively is the US and LATAM in a better place given the industry consolidation, tight supply, et cetera? Yeah, I think that's a fair characterization, Lewis. I mean, if all of a sudden energy was to fall back, I think that it would put more pressure on the European container board price, but I think, you know, I don't think that would be the case per se in Latin America or the United States or the North American market. I think the structural change that's happened in North America has been very significant, and as I say, we've been in a sold-out position for the last number of months, and we have still orders to fulfill from april and may and so so you know i'm not i have no idea about the others but i assume they're in the same sort of situation and you know we we we have a window into latin america and while latin american customers tend to have larger supplies you know prices are going up in latin America and that is going to feed into a better situation next year and beyond, irrespective. So unless something really bad happens in the world, I think that your statement is correct. Yeah, that's clear. Thanks. Thank you. Next question, we are going to retry the line for Phil Ng from Jefferies. Please go ahead. Your line is open. Hey, guys. Sorry about that. I had some technical issues this morning. Tony, I think you addressed this already. I apologize in advance. I think, Ken, you were talking earlier at the question that in Europe you feel pretty good that your box prices would catch up to container board prices and you would offset inflation. I guess the one variable that would be helpful to kind of give us some color is net gas hedges just because you had some hedges. So based on what you have in place in your traction you're seeing, how do you feel about that dynamic? and how should we think about that hitting your P&L and your ability to kind of be on a positive spread next year? Hey, Phil. But the price increases we announced, that net 140 on test banner would have ultimately taken into account a lot of what we've done on hedging. And in effect, generally the hedging would be a net incremental positive to anything you do on that paper price. There's no incremental P&R hit in that sense. They're not featured out. Ultimately, you're just contracting gas, the kind of standard set prices rather than spot in that sense so everything we've done and built around price increases around you know test liner particularly in europe takes into account where we sit in the hedging curve generally a conservative view on where that might go um but always with the idea that hedging plus the price increase should land you in a slightly better position overall at the end of the game so um in reality not that the hedding doesn't necessarily matter in that sense it always acts as a better moderator or better basis in terms of how you get through in terms of full margin recovery but the price increases do take account of all the hedging we haven't had in place in these before these two i did that so we we we wouldn't hedge at these levels because you know if the energy price falls backwards in a hurry and you've got you're you're stuck at 100 you are going to be really seriously uncompetitive for a period of time so we just think that it would be not and I don't we don't believe that anyone in the industry or to any great extent is hedging at these levels because you know they're so remarkable that nobody would have actually ever anticipated that the gas could get to this level and now you know people would be very afraid like us that if you head to these levels you could get your you could get caught with your pants down so so we're not going to be in that situation situation and we'll ride it. And as I say, if it stays at these levels, either there'll be a lot of downtime or there'll be further increases or there will be closures because it just can't, you know, you're a 10 to 1 ratio versus the United States and gas, which is just unsustainable for European industry. Because you know what you're thinking about in the context where a hedging system, in integrated system like europe which is broadly 100 integrated it's about cost cost certainty at the mill side that you don't just get trapped on one side of the other that kind of edging curve and if you go back to kind of you know very high prices venture back at 21 22 equally would have stepped out the hedging market while while that happened and then brought back in when we needed so it's it's a very through an integrated model it really does cost certainly to start and recover at the end so hedging tends to be a bit reflex in the middle it's been a been a wonderful friend in the past and it will be in the future at the moment though as tony said it's not a place to go okay helpful call and i guess bigger picture tony you've owned the west rock asset for some time now in terms of your journey in terms you know some of the goal posts that you would want to call out and things that you still want to work on as we think about 27 beyond what are some of the things you want to highlight um you know it might be your customer mix uh in terms of you know the mix of uh regional versus national but anything is called just because Obviously, profitability has been masked a bit by the inflation. So just kind of give us some goalposts where you are and what are some of the next things we should look forward to as we look out to 2017 and beyond. Yeah, I think, Phil, that's a really great question. I mean, I'm sitting in the Trades Barras mill down in Brazil. So just take it by region. Take our Latin American region. This is one of the world's great assets and with great management team and continuing to grow and have great ideas for the future. So if I look around our Latin American business, really strong, great, the West Rock combination between the two. I'll give you a very good example because I was here yesterday. You know, they used to have a huge side reel issue in this mill that they would sell at heavily discounted prices. Because of the combination, we now no longer have a side reel issue in this meal. So we're able to run full out and get full contribution for all of the paper that we make and it's made this mill much more profitable and that's just one small example in our european business uh the combination if there was no corrugated assets but the consumer business has improved radically in europe and is really set for a very strong growth together with our corrugative business as we as we move to the owner operator model and and you know has been a really successful combination and then when you look to the north American market, what I would say the most pleasing thing for me has been how the management team have really adopted what we talk about as being the owner operator model. They are very enthusiastic. We're seeing customer wins in the corrugated area. Our consumer business, we need to, our end market consumer margins are not where we want them to be but we will get there because the teams, the plants are in very good shape. The teams are very well organized and so we will progressively move that margin up without anything to do with the underlying paper pricing as we as we refocus that business in the future and if you take our mill system what I would say is we have some really great mills and we have two mills that continue to need work and that's that once we fix those mills at need to have that need work then the mill system will be you know as good as any that we have anywhere else in the world so our mill system you know is progressing we've got a whole new management team there that it's really moving things forward in a positive way we've we've recruited some great people into the business so our you know our people aspect of north america has really progressed very strongly and so if you say why am i excited because i can see the potential of this business but of course i'm really frustrated by the fact that you know We're making all this progress, and it's not easy for anyone to see because when you get $700 million of unexpected costs, you're scratching your head a little bit to say, okay, we need to recover that, and we do, but it's pushing the game forward, which is never where we want to be. We want to remain from the front rather than trying to catch up. But we are where we are because we don't have control out of things outside of our control. But, you know, I am very, very excited about the future of this company and the combination of this Company because, you Know, it's going to be very powerful in the years ahead. Okay. Appreciate the call. Thank you so much. Thank you very much, Phil. Thank you. And the final question today comes from Pallav Mittal from Barclays. Please go ahead. Hi. Thanks for taking my questions, a couple of them. Firstly, clearly energy and trade costs are much higher than what we were expecting three months ago. And you have said hedging levels are low for very obvious reasons. If we assume spot rates and things stay this way, how much of an increase are energy and trade costs expected to be in 27 versus 26? Oh, Pal, I haven't got there yet. It's sort of back to, you know, we haven't gotten near a budget yet. I think we have to kind of see that in the round around where we think all those forward curves are. But I wouldn't – given, if you like, my forecasting in energy and freight for this year has been kind of changeable as we got through the year. I'm not sure I'd sit here yet and forecast energy and Freight for next year. I think our opening assumption would be at some point that cost backdrop has to abate slightly. But for the moment, I couldn't give you a view on freight or energy for 2017. sure and then if i could just uh check on capex it seems that you've lowered your guidance by 150 million or so for 26 can you just help us understand what has changed there and does it mean that 27 capex goes up slightly no not not really we we we decided to just slow back a little bit because uh you know the the when we took our number down for for last quarter we said we'll just get the money back in our capex but our plans are still the same. It will probably mean that 2031 we'll have 150 million more or 2032 but I wouldn't we haven't stopped anything that we need to do it's just that we've delayed a couple of projects by a number of months. There's nothing of interest there. sure and if i can just squeeze one uh on europe a quick one you said the growth has been good in october uh can you just help us understand how your order books are looking for the near future well with the very near future you know we're actually okay i mean as i said in north america uh this month you know as in october we will be lion ball with last year I don't want to predict that that's going to be the same in November and December but November feels okay and but we have a large election happening in November so we'll have to see how that plays out to demand in North America and I think that Europe you know we expect to have a we're a couple of percent up on the same day basis during the month of October so you know we hope that trend continues for the rest of the quarter and but we don't expect anything for it not to and Latin America you know we have seen weakness in Brazil actually and during during the last couple of months as the uncertainty of the election down here fed into the marketplace and you know it hasn't hurt our profitability but you know the demand levels were not where we would have expected in the last three months in Brazil but still as I say it It hasn't affected our profitability, and we're still very well positioned in the country. Amazing. Thank you. Thanks, Bella. Thanks, Bela. Thank you, and there are no further questions, so I will now hand back to Tony Smurfett for any closing comments. Thank you operator. As I mentioned on the call, I remain incredibly excited about the future of this company. we've done a lot during the last couple of years and obviously we're not happy with the fact that we've absorbed so much cost so quickly during the past three months and into the next two months so obviously that has affected our results but we are in the process of recovering those costs and we look forward to 2027 with great confidence and we appreciate your support and we really appreciate the time you've given us today So thank you all for being with us and we look forward to catching up with you either in person or on the next conference call and if we don't speak to you before your end we wish you a very happy Christmas and New Year. I know it sounds a little bit early to be saying that but nonetheless good luck in case I don't talk to you.