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Good day and thank you for standing by. Welcome to the Smurfit Westrock 2026 Q1 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 one one on your telephone. You will then hear an automated 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 Ciarán Potts, Smurfit Westrock Group VP Investor Relations. Please go ahead.

Thanks, Evan. 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 uncertainties include but are not limited to the factors identified in the earnings release and in our SEC filings, as well as those discussed in our investor update presentation. The company undertakes no obligation to revise any forward-looking statements. Today's remarks will 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. In addition, today's remarks include statements about Smurfit Westrock's medium-term financial goals and capital allocation priorities.

These goals are aspirational and actual performance may differ, possibly materially, and no guarantees are made that these goals will be met. To ensure that we have time to hear from as many of you as possible, given time constraints, we'd appreciate it if each analyst could limit themselves to two questions. I'll now hand you over to Tony Smurfit, CEO of Smurfit Westrock.

Thank you, Ciarán, and thank you to all participants for joining us today. I'm joined on the call as usual by my colleague Ken Bowles, our Executive Vice President and Group CFO. Set against a challenging environment, we delivered a solid first quarter performance essentially in line with plan with adjusted EBITDA of $1,076 million and an adjusted EBITDA margin of 14%. Our adjusted EBITDA outcome for the period was impacted by weather events that started in January and continued into February, costing approximately $65 million across the group. We continue to make progress both internally with our people, our operating model, and our capital plans, and externally, where we continue to provide customers with the broadest offering and the widest set of tools and applications.

Our recent innovation event in the Netherlands was a clear example of where Smurfit Westrock is truly differentiated from the competition. I'm particularly happy with how the integration and culture of Smurfit Westrock is progressing with excellent networking and people development, which was on display last week in Amsterdam at the aforementioned innovation event. Back in February, we were happy to launch our medium-term plan. That plan demonstrates an accelerated path to growth to 2030 and beyond. The goal of the plan is to deliver significant adjusted EBITDA growth with a CAGR of 7% and margin expansion of over 300 basis points. Consistent delivery against this plan, which is our collective focus will, we believe, realize Smurfit Westrock's true potential. Our scale is a core competitive advantage for Smurfit Westrock, and a key reason customer are more and more choosing to partner with us.

We think global but act local. Operating across regions allows us to support customers consistently while combining global capability with strong local execution. Our footprint enables us to serve our customers seamlessly across geographies, sharing best practice, providing security of supply, delivering consistent service levels while remaining close to local markets. Equally, our footprint gives us better visibility across markets, enables optimization of assets and capital deployments. In summary, our presence underpins how we compete and how we win, whether that be in corrugated, consumer, bag and box or any of our other niche businesses. It allows us to support customers across regions, scale innovation quickly and build deeper, more durable partnerships, supporting our statement that we are the go-to packaging partner of choice locally, regionally or globally.

Of course, having so many talented people across the world means better and better innovation, which in the interest of time, we will expand upon at the second quarter results. Turning to our region, starting with North America. The quarter delivered adjusted EBITDA of $597 million and an adjusted EBITDA margin of 13.3%. This result was heavily impacted by weather issues of approximately $55 million, which primarily occurred in February, and downtime costing $74 million, of which approximately half was unplanned. The quarter was also characterized by generally tepid demand as consumer confidence remained muted, as well as experienced some logistical difficulties in Mexico as a result of local domestic security-related issues. We begin the second quarter, we are seeing much improved demand with strengthening order books across all grades of both paper and converting products.

Price increases have been announced for all containerboard grades and some specific consumer grades. We continue our progress to our owner-operator model, and we are seeing the success and benefits of our approach both in terms of recruitment of talent and motivation within the company. During the quarter, we entered into contracts with over 600 new corrugated customers across a wide range of sectors and segments. This has continued at a stronger pace in April. These customer wins offset, in part, less economic business, and we expect to see growth during the latter part of the year as we onboard our new partners. Bringing together our global knowledge in packaging is having a material benefit as customers see the suite of our capabilities through our experience centers, which are currently being rolled out in the U.S. In our consumer business, we have seen great success.

We've seen great success in our grade agnostic approach with over 250 million converted or in the process of being converted to our SBS and CUK offering. Finally, we continue to invest in our system for growth and cost takeout, with a number of new and exciting projects being implemented across the region, as well as continually optimizing the system through considered capacity rationalization decisions. Turning now to our EMEA and APAC business, which delivered a very solid quarter with an adjusted EBITDA of $421 million and an adjusted EBITDA margin of 15.2%. We are significantly outperforming our peers as our innovation platform delivers great value to our customers, whether they're looking to grow, reduce costs, or be more sustainable.

With our network of 34 innovation centers across the globe, that innovation offering and sharing of best practices is something our entire global customer base is now benefiting from. We've just recently hosted over 200 customers at a sustainability and innovation event in Amsterdam, where we demonstrated our industry-leading suite of tools, which help customers win in their marketplace and ease the burden of compliance with regulatory issues. Our optimal improvements continue in all businesses as we invest for cost takeout and selectively in growth regions. We also continue to optimize our system with the regrettable but necessary recent announcements of the consultations of closure of four smaller converting operations in the U.K. and the Netherlands, and one paper mill operation in the U.K., which has a capacity of approximately 200,000 tons per year.

While we have not been affected in the last quarter by higher energy prices, primarily as a result of our hedging policy, we expect to see the effect of energy price rises in the following quarters. As a result of this and a generally much better demand environment, we have implemented higher recycled paper prices of EUR 100 per ton, as well as increases in Kraftliner and some specialty grades, which we expect to result in higher prices for our converting products as we progress through this year. Turning to Latin American business, which again performed strongly with an adjusted EBITDA of $109 million and an adjusted EBITDA margin of over 20%. This performance once again shows the strength of our operations in LATAM, where we are the only pan-regional player.

It is also important to remember that as the truly global player in paper-based packaging, our LATAM operations play a key role in supplying both our global and regional customers. During the quarter, we completed a corrugated box plant acquisition in Ecuador, in line with the objective of building on our position in the region through both organic growth and selective acquisitions. This acquisition is also beneficial beyond the region as we will integrate paper from our North American mill system. Our business in our two larger countries, Brazil and Colombia, performed well with good volume growth and further significant growth opportunities. Business conditions remain good across the region, with generally tightening markets and improved pricing. As I said at the outset, our medium-term plan sets out specific targets and performance measures through 2030.

By 2030, we aim to deliver $7 billion of adjusted EBITDA and a group adjusted EBITDA margin of 19%. Over the life of the plan, we aim to generate $14 billion of discretionary free cash flow, providing us with significant financial flexibility to capitalize on growth opportunities within our business, further strengthen our balance sheet, and increase capital returns for our shareholders. Quite simply, our objective is to unlock the full potential of our North American business, continue to outperform in EMEA and APAC, and continue to deliver dynamic growth and strong margins in Latin America. Finally, before I wrap up, you will have noticed our decision to carry out a review of our listing on the London Stock Exchange. The outcome of that review may result in us delisting from the LSE.

The review is focused on ensuring our listing structure reflects where our shares trade while reducing complexity and ongoing costs. We anticipate completing this work during May, and we'll update shareholders when the review concludes. On industry outlook specifically, in February, we said that the year had begun with a generally better industry environment, although impacted by weather and more recently, global tensions. Today, we see a stronger and generally better industry outlook. Assuming these conditions prevail, we expect to deliver an adjusted EBITDA for the quarter two of between $1.1 billion and $1.2 billion. I'm pleased to reaffirm our previous expectation of an adjusted EBITDA outcome for the full year 2026 of between $5 billion and $5.3 billion. With that, operator, I will hand it over for questions.

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by as we compile the Q&A roster. Our first call comes from the line of George Staphos of BofA Securities. Please go ahead. Your line is open.

Hi, everyone. Good morning. Tony.

...from the details, calling here. Reinhardt van der Walt, my colleague in Europe. I just wanna ask some questions on demand and the interplay with pricing, Tony. You mentioned that, and we thank you for the detail that roughly half of the outage or downtime in the quarter in North America was unplanned.

Can you tell us what implications, if any, you think that means for the mill system as it exists today? Do you think that, you know, with all the need to rightly pass forward some of the cost pressures you're seeing, that it might be leading to more demand weakness than you'd otherwise like to see either you or, you know, for other players in the industry? Then I had a follow on.

Okay. Well, you know, what I would say, George, is, you know, in my experience and, you know, unfortunately, I'm a veteran in this business. I've been in the business a long time, and I haven't seen a shift in the whole business demand in a long period of time, in practically my career. We have seen a very strong uptake across really all paper grades, with maybe one exception in CRB a little bit. Basically all paper grades are in effectively sold out position right now. That happened really quickly. I mean, we strengthened up in March, but in April, it's become very strong indeed across everywhere. Now, is there some pre-buying due to price increases announced by us and others in the marketplace? That's very possible.

It's not something that we see a lot of. You know, at some point or another, the capacity that came out of the system has over the last 18 months or so is having an effect. I think this is what we're seeing right now, is that globally speaking, there is strong demand. You know, obviously we're buying in Latin America, we're buying in Europe, and we see very much stronger markets in practically everything. You know, even surprising is how our SBS market has strengthened up in the last month. Again, we're in a sold-out position in that grade at the moment. I think it's changed very radically.

The unplanned downtime that we had in February was a result of, you know, our volumes not picking up as we anticipated, and we had a couple of issues in our mill in a couple of key mills for us. One was to do with nothing to do with weather, actually, but to do with an electricity outage near one of our big mills, a cable, and we lost power for a few days, and that obviously made us go down. You know, we had a couple of issues in February that were, as we say, unplanned, and they are not going to reoccur. We do not anticipate any material downtime in Q2. As I say, we're sold out.

I think that's why we are taking the position we're taking in the marketplace.

Thanks, Tony. Quickly, it's nice to hear about the, if you will, the mixing up of your business over time as you have new customers coming in, both in March, in the first quarter and now in April. I think you said 200 customers or more. Is there a way to dimensionalize what that might mean for your margin, how those customers are coming in relative to your margin expectations? Any thoughts relative to, you know, kind of your longer-term projections in North America? Thank you, good luck in the quarter.

Thank you very much. I think that we're very comfortable with the business that we're bringing in, George, is what I would say. I mean, you know, obviously every customer is different and every innovation that we bring to our customers is different, and every service level that we bring to our customers is different. What I look at is just generally the totality. We've had each month from January, February, March, more number of new customers coming in. April is actually our new customer volume is actually 30% up on March's number in volume terms. I'm really comfortable with the way that we're going. Obviously we still have to wash through some of the business that we lost that we have was uneconomic.

That's why at this moment in time, I'm very comfortable that in the second half we'll start to lap, and of course our comparatives are much easier, but we'll certainly start to show growth against the previous year.

Thanks very much.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Philip Ng of Jefferies LLC. Please go ahead. Your line is open.

Hey, guys. Results in Europe was certainly very impressive given the backdrop. Tony, remind us how hedged you guys are for the next one or two quarters on gas. Certainly, that's come up quite a bit. With the timing of the box implementation in Europe, I think the lag six to nine months, you know, are you in a position you can either drive earnings growth and call it 2Q and maybe 3Q as well and maintain your margins? Just give us some color in terms of the environment you're in and your ability to kind of push price on the box side of things.

Well, let me do the second part of your question, then hand it to Ken for the first part. Basically, we are out in the marketplace today, and you already see the more commodity side of our business, as in sheet feeding, implementing the first price increases, and that's going through in practically all markets in Europe. We are also out there raising our converted products prices to non-contractual customers. You'll see a very minor uptick, I'd say, in Q2. Then Q3 and Q4, you'll start to see the implementation of those increases, plus some of the contracts. Normally speaking, the contracts are three to six months, depending on the customer, and you'll start to see that feeding through in quarter three and quarter four. We'll see full implementation of our paper prices.

Frankly speaking, we and the industry need it, so therefore, it's going to happen. I'd say second half of the year you'll see the benefit of the price increases feeding too into converting products.

Okay.

Sorry. Hey, Philip. Broadly speaking, for the second quarter, about 50% hedged and about a third and a third for quarter three and quarter four. As we sit here today, clearly, you know, it's a very active policy we run, and you're just trying to kind of find spots in the market where you do a bit more, a bit less, but equally you don't overhedge because that can lead you on the wrong side of where pricing might go. Yeah, 50 for quarter two, a third, a third for three and four as we sit here now.

Okay. Great color. Just sticking with Europe, little surprised with the announcement on the potential closure in the U.K., which would certainly be helpful for just the broader market to its oversupply. What does that mean for Smurfit? I mean, does that mean you're gonna have to buy paper in the open market? Are you able to kind of move some production internally? Just give us a little more perspective on the mill that you're considering, and having that consultation. Is it a high-cost mill? Just effective how you're gonna manage through this.

Yeah. I mean, obviously we don't take decisions to close any asset without a great deal of thought. Clearly the supply to our very good and strong U.K. and Irish business is critical to us and that mill in the U.K. in Birmingham played a very important role in that. But it was, frankly speaking, one of our highest, if not our highest cost mill. And it operates in the U.K. and had the wrong width for the long term. So, that mill always had a finite period where it could last for.

You know, once we sorted out the supply arrangements, which we have obviously done both internally and some externally for a period of time, we then decided to conclude it. It needed investment, that mill, and clearly we invest in mills that, you know, we believe have a long-term future and will be low cost. That's been the mission of Smurfit, old Smurfit Kappa, and will be the mission of Smurfit Westrock. This mill unfortunately, you know, just didn't have a long-term future based upon a lot of the constraints that they had, and so it wasn't worth longer term investing in. We don't have a problem to supply the mill because we've organized that.

That's why we didn't announce it, frankly speaking, in February because, you know, we wanted to make sure all the T's were crossed and I's were dotted.

Okay. Really appreciate the color, Tony. Thank you.

All right. Thanks, Philip. Good, good talk.

Thank you. We'll now take our next call. The next question comes from the line of Gabe Hajde of Wells Fargo. Please go ahead.

Tony and Ken, good afternoon.

Hi, Gabe.

I just wanna confirm on the most recent price announcement that RISI picked up for June implementation. It is kind of standard practice for you all to not embed that into your outlook until it's reflected in the formal publication. Then, Ken, at the beginning of the year, you kind of gave us a rundown of some of the key inputs and sort of, you know, tailwind, headwinds associated with those. Would you kindly give us an update on those?

Yeah. No problem, Gabe. Yep.

Just on the, on the first point, you know, obviously that was a relatively recent decision. You know, we're seeing cost increases coming into many of our grades. We're in a sold-out position. I'm not sure that it's necessarily fully bedded in, but then neither are all the costs fully bedded in. I don't think that, you know, we're sort of saying that the $50 that we have announced to our customers a couple of days ago is in these forecasts totally. You know, obviously some of it will to be offsetting some of the very material cost increases that we're seeing, whether that's freight or whether that can be energy or whether it can be anything, frankly, that we're buying today.

You know, you'll obviously have picked up that many of our customers are coming to us with, or sorry, suppliers are coming to us with necessary increases or that they're looking for because of their own supply constraints. One of the things, Gabe, to bear in mind is that I think for the first time in a little while that we are seeing the security supply question come back on the table. You know, during the whole COVID period, we and Smurfit Kappa were excellent with our customer base in ensuring that it gave them security of supply. You know, clearly that's something that we're continuing to emphasize to our customer base that, you know, we are an integrated system.

Therefore, they don't need to worry about their boxes when they get them from us or their consumer packaging when they get them from us. There are obviously many customers out there that are somewhat affected by some of the issues that are going on in the supply chain at the moment.

Hey, Gabe. I suppose look, really, I suppose the one moving part as you can imagine, is the energy piece. I think back in February, if memory serves me correctly, we would have guided energy to about $80 million higher year-over-year for the group. I think that's probably, you know, based on everything we've done, probably more like between $270 million and then $290 million in terms of total impact for the year. You know, there is kind of cost inflation that we wouldn't have had back in February. Equally, really, I think, I suppose an indirect impact of all of that is an increase in freight cost. I mean, even within the first quarter alone, we had a decent impact from just freight.

We expect that to carry through a piece. Probably slight relief in terms of labor, a slight relief in terms of OCC. Broadly, when you think about it, the big moving part is energy. Really then volumes, as Tony kind of alluded to, picking up as we get towards the back half of the year. Pricing, you know, as you say, to come through and be bedded in, really, when you look at the cost inflation piece, and you take the puts and the calls and all the bits and pieces you kind of broadly end up where the range kind of sits. Really the big mover from what it was said back in February, probably energy.

Right. As expected. Thank you. Then just one. Obviously, you talked about pivoting kind of the growth at some point in the second half, given the onboarding of new customers on the corrugated side. Just maybe on more of the, I'll call it open market, piece of the containerboard business in North America. Can you talk at all about what you've seen in the export markets in North America? Thank you.

Well, I would say what we've seen in Latin America, because that has a direct impact is that, you know, literally, as I said at the very outset, to the first question, you know, things have changed really quickly. Now, obviously, I can't put my hand on my heart and say they're not gonna change quickly back again. But, as we sit here today, you know, I've never seen the speed of change so quickly. For example, in Latin America, they were getting paper from Europe for a period of time, at very discounted prices.

If you look for paper in Europe, you're being told, "Well, we can make it in June or July, and we can ship it, and so it can be with you in October or September, October." You know, and by the way, we haven't discussed pricing. You know, and there isn't a whole lot of paper coming out of the U.S. I think the number, if I'm right, Ken, is about 30% less paper being shipped out of the U.S. to-

To Latin America. Yeah.

to Latin America. You know, the market has changed very quickly. I think if you look at it in the context, Gabe, you know, the worldwide containerboard markets, call it 100 million, just to make the math easy. You know, the world still has been growing over the last number of years, 1%, 2%, and that's generally speaking, needing containerboard. There's been a lot of capacity come out. We haven't seen the effect of that capacity coming out, really because the economy hasn't been, you know, strong enough in some of the, some of the North American and European markets. As there's some degree of strengthening, all of a sudden, you see a, you know, a shortage because people have been keeping their stocks low.

That's probably what's happening in the export market, and clearly, that's something that will be beneficial to us as we roll through the year.

Thank you. Good luck.

Thank you.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Mike Roxland of Truist Securities. Please go ahead. Your line is open.

Thank you, Tony, Ken, Ciarán Potts, for taking my questions, and congrats on all the progress.

Thank you, Mike.

First question, just, you know, you mentioned, Tony, seeing much improved demand and strength in order books, and it seems like you sold out on most paper grades. What do you think is driving that, given that the consumer is further stretched due to higher costs? Given that there's some, you know, some of these CPGs are likely to input price increases to cover their costs. Relatedly, can you talk about the monthly volume progression in 1Q in North America, and what volumes have done thus far in April?

Okay. That's quite granular, Mike. I mean, basically, we have been, you know, as you saw, we were down 8.5% or so during Q4. We're down 7% odd this quarter. As we sit here today, we're down 4% in April versus last year. We didn't lose a whole lot of business in Q1 and Q2 last year. We're lapping higher comparators than we would have. What I would say is that we're seeing, as I say, significantly new customer wins. More importantly, Mike, we're seeing good people coming to work with Smurfit Westrock. You know, we talk about our model and empowering our people and having the right culture. For me, that's critical to longer-term success.

You know, I think that's what we're starting to see the benefits of that as people are coming into the company and realizing it's a good place to work and has got the right values and the right culture. I mean, I hope you experienced a little bit of that yourself when you were in Amsterdam recently. I think, you know, I think I would say that we're moving in the right direction. I mean, it's never as quick as you want it to be, let's be honest. I mean, you know, I would love it to be snapping my fingers and getting 600 customers, new customers a month. That's not reality.

You know, you lose a big piece of business, it takes a while to get a number of smaller pieces of business in and remodeled. I'll give you a very good example. When we acquired, sorry, when we combined with Westrock, we had a large facility in one of our Latin American countries, and they were doing about 350 million sq m, and they were losing about $20 million a year. They're now doing 280 million sq m, and they're making $15 million a year. You know, that kind of turnaround is done, but we've lost volume, but we're making much more money. That's the kind of model that we wanna get to with all of our facilities.

Some of that requires some investment, some of them requires people change, some requires a total mix change. We're on the path, we'd like it to be quicker, the reality is, you know, you can only do things at the pace that the organization and people are able to go with. The first part of your question was?

I suppose the drivers of improved demand. I suppose that Tony kind of alluded to it earlier on. Some of that could potentially be the pre-buying, given what's coming up. I think also, Mike, you know, I think we all experience it in our day-to-day lives. Ultimately shelves do need to be refilled at some point. There's only so far you can push things like buffer stocks and every other stock. I think some of that is just the supply chain where it can begin to normalize given the volatility of the world outside. One of the things starting to come back onto our radar as a kind of key strength for WestRock in this environment is security of supply.

I mean, that's something that our customers are beginning to not only push for, but value more in this kind of environment. You know, we've seen it equally true to areas that maybe had been lagging for a while. You know, home improvements, white goods, those kind of areas are showing indicators and green shoots of demand too. There could be an element here of confidence, could be an element here of the world begin to understand the volatility and try and find normalcy kind of through that.

Yeah. The only other thing to add to that, Michael Roxland, would be that we are in a seasonally busier period, so we are April through, let’s say November is a busier period. You know, we should expect to see some pickup. If people have low stocks and there’s pickup, then there’s naturally a, you know, a bump on that. It’s probably it’s a combination of all things. I do agree with you that it is kind of a little counterintuitive given, you know, everything that we read in the news every day. You know, hey, I’ll take it.

Got it. That's a really great color. Just for my follow-up. You know, realizing some of the incremental costs that you're currently experiencing may be transitory, Ken pointed out the, you know, energy. What levers do you have available to you internally to offset those higher costs? Are there cost takeout programs, I believe, to offset inflation? Is there any way to accelerate those programs? This is all aside, obviously, from announcing further price increases, which you know, you just did.

Mike, I think you would have seen again at the event last week. You've seen a lot of programs and plans in innovation where we are designed specifically to take cost out, not just for us, but for our customers. I think the short answer is yes. I mean, we as an organization, we take the view that when you wake up on January the first, general wage inflation means you're already behind for the year that you just had. We always have a very active cost takeout program plant by plant, which is part of our budget process to primarily at offsetting inflation.

I think when you get, you know, areas of volatility like this in energy, I think some projects that might have been, you know, slightly on the long finger probably become much more valuable around cost takeout for headcount reduction. Those kinds of underlying projects are some projects in mills which have a direct impact on energy consumption. Those kinds of things we try and bring through. They don't come through quickly, but some we will have started two, three years ago. As they come online this year, they have a better impact. I think we've always taken the view that if you're looking at earnings, you've got to look right down the P&L. There's no point just stopping at sales and the margin.

It is every piece of cost that goes into your mill is something that or box plant that you need to kind of look at and take a view on. No, cost takeout is kind of a basic principle for everybody in the organization, 'cause quite frankly, you know, if you think about beyond these years of inflation, before that, we were dealing with low inflation environments where we were trying to get price increases, too. The only way you can manage that cost base and grow margin is by taking cost out fundamentally.

Very clear. Thanks, guys, and good luck.

Thanks, Mike.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Anthony Pettinari of Citi. Please go ahead. Your line is open.

Good morning.

Hey, Anthony.

Hey. In North America, I'm wondering if you can talk about, you know, when you would expect to see the most recently realized price hike, the, you know, the $50 a ton net from Pulp and Paper Week, you know, in April. Like, when should that flow through for you? The $50 a ton that you've just announced, I believe it's for June. Assuming that that would be fully implemented, like, what month or in terms of quarterly cadence, when should we expect to see that in the results?

The first 50, you should fully see it implemented by July 1. Practically speaking, you know, there might be one or two that don't happen. By and large, the first 50, or I should say the -20 +70, it should be fully implemented by July 1. There'd be progressive through May and June. The second 50, if it's to be successful, we will wait and see. I mean, obviously that's early days. You know, I would suspect that by the end of September, it will be fully implemented if it goes through.

Okay. That, that. Yep. Yep. No, that's helpful. And then in North America, you know, there's a comment around, you know, the substrate agnostic approach, delivering for you. Can you just talk a little bit about your consumer business and, you know, how that is performing relative to your expectations around profitability, you know, CRB, SBS kind of substitution dynamics? I just wonder if you can talk kind of how that business is performing.

It's interesting. I mean, I think when you talk about that business, you have to go through the very different substrates of the business. I mean, SBS, as you will all know, has been a very challenged business. As I mentioned, you know, we are now in a sold-out position in SBS, because we won a lot of customer wins and the, you know, a lot of our projects have come through. We're in, you know, a good position, except obviously our pricing isn't as good as it was two years back. Demand has picked up, and we are selectively pushing prices up in certain areas of SBS. In our CUK business, that's a solid business.

It's a system business and continues to do well, we're comfortable and strong about that business. We're investing behind it. In our CRB business, obviously our mills are a little bit older in that area. You know, we are actively moving from some CRB products into CUK and SBS, giving the same performance, a better performance for our customers, that's working very well. Is obviously beneficial to us as well as a company. You know, overall, I think we are, with perhaps the exception of CRB, we're in a very good space.

You know, I would say that if you, if you ask me about the results, I don't think we make enough return on some of our assets in that, and that's something that is work in progress. Some of it's to do with our own planning and, you know, we have some work to do still. But it's fundamentally a very good business with very good people. I have been incredibly impressed with some of the assets that we have and some of the people that we have in that business. There's no reason why we can't be very successful in that business for the long term. Work to do on our CRB mills.

Some facilities we still have work to do and reliability. Our positioning is very strong, and we have really good people.

Okay. That's helpful. I'll turn it over.

Thank you very much, Michael. Anthony.

Thank you.

We'll take our next question. Please stand by. Our next question comes from the line of Mark Weintraub of Seaport Research Partners. Please go ahead. Your line is open.

Thank you. Just first, I think on during the investor day, you talked about maybe getting about half of the business back in corrugated by the end of next year, maybe like the fourth quarter. As you said, you were down high single digits or, you know, close to 10% in the fourth quarter. Does that mean you could potentially be up 5% in the fourth quarter? I mean, it sounds like you're doing really well in regaining business. Are you on the trajectory that you hoped you'd been on?

I think I would say I don't, I don't know about sticking to a 5% number, but 'cause a little bit of that will depend on where the market is. I think, you know, I am really happy with the trajectory of our sales team and sales organizations and how we're moving. Not all our plants are perfect yet, Mark. We still have some work to do. We still have some investments to make. We still have some people to bring in. You know, we'll always be work in progress. I mean, you know, corrugated box plants are their own organism, so to speak, that they actually, you know, each one is its own business. You know, they don't all act the same and perform the same.

Overall, the direction of travel with the people that we have is really strong. As I say, I'm really encouraged by the quality of people we're bringing into our organization. I mean, you know, I won't say management training course, that's the wrong word. We're bringing every single manager from North America into a, you know, this is how to operate type course. Everybody seems to like it and likes the direction that we're taking the company internally. That doesn't mean to say I can wave a magic wand and everything will change automatically. It won't. It just takes a little bit of time. You know, we have some standout performers and standout managers and, you know, we just need to have everybody to be a standout performer and standout manager.

That's what's behind the drive, as I've said, to go from, you know, zero or negative in our corrugated system to margins of between 8% and 12%. You know, that's where we will get to. The question is when. You know, obviously, we're trying to drive it as quickly as possible.

Super. Just as the second question, you talked about how in the consumer business, it, you know, still tough in SBS from a profitability standpoint. I'm kind of curious; you're sold out, you're not making enough money in that business relative to what you think you should be. You've announced price increases broadly in a number of the other grades. You did mention you've done some in SBS. Maybe you could clarify, you know, is that just in the extruded grades or is that more broadly?

If not more broadly, what is it that we need to wait for till we can start seeing the SBS business making a lot more money and hopefully lifting up CUK or at least protecting CUK and CRB as well?

I mean, I don't think I should be really talking about forward pricing. I mean, you know, obviously, as I said, what we've done is selectively increased some SBS pricing or announced increases of some SBS pricing. You know, we'll just have to wait and see, Mark, when we believe or maybe the market will believe it's not just up to us. It's when we believe the time is right. I mean, it's a relatively new phenomenon that we've got sold out. I mean, when we were together in February, we wouldn't have imagined that we would be in this position, and we are in this position as we go into May.

You know, as on the assumption that that position stays stronger and on the assumption that it'll stay the same and on the assumption that we're not comfortable with our profitability, that's something that we will obviously keep a weather eye on as a company and then take it from there.

Makes sense. Thanks.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Detlef Winckelmann from J.P. Morgan. Please go ahead. Your line is open.

Hey, guys. Thanks for taking my questions. Maybe my first one would be, I mean, we know Q2 is obviously going to have a lot of costs. We've seen that through the Middle East inflation coming through. At the same time, we've seen a raft of price increases both in Europe and the U.S., 30 in the U.S. so far since IREN started, and let's say about EUR 100 cumulative in Europe. I would just love your thoughts in terms of price costs, where you think we've kind of landed at the end of this, assuming you don't get the other $50 per ton price increase that you just announced. My sense is that you probably recovered more than cost inflation in Europe and maybe matched it in the U.S. so far. Is that a fair statement?

Any color on that would be great.

Well, Detlef, it's Ken here. It's a tricky one because we tend not to go into the segments for quarter-on-quarter. Broadly, I think when you look at price, I mean remember, price increase in Europe for paper only last number of weeks. It takes a bit of time to work through the system, particularly given the levels of integration we have. I think you're seeing probably a couple of impacts. You're right to point out, energy continues to be, as you get to the second quarter, is when it begins to kinda hit a little bit. Energy may be slightly higher for the group in the second quarter. Recovered fiber is definitely higher for the group in the second quarter, probably around $20 odd million.

I think, you know, I think I referenced slightly earlier on, like freight is one of those things that has an indirect impact of the cost of energy. It, it is showing some increases again in the second quarter, probably another $10 million. I think the big delta we have from a credit perspective, if you like, on the bridge second quarter is around downtime. Fundamentally, downtime in the second quarter last year was a lot heavier than the second quarter this year. In fact, that was quarter one this year. Quarter-on-quarter, you're probably getting the benefit of about call it $40 million lower downtime, year-on-year, or quarter-on-quarter.

I think between the jigs and the reels, to quote an Irish phrase, you probably end up back at if you can get a bit better in volume, if a bit better in price, then it comes true apiece. The underlying cost movements are being broadly offset by, you know, the impact of lower downtime quarter-on-quarter.

I'll just add to that, Detlef. You know, we did not follow any price increases that were announced by the industry in October and neither in February because we didn't think the conditions were viable for that. I'm talking Europe here for a second. Did not think the conditions were correct for that. You know, at that point you only have to look at results of our competition. You'll see that how terribly underwater everybody is in the business. You know, we're still doing reasonably well. Now that demand has picked up and now that our order books are good and they're good in Europe too.

I can tell you that we've won a lot of new business, not only out of the initiatives that we're doing on innovation, but because of our service and our quality and our long-term position in this business. I would say somewhat our stability in this business, you know, that we've won a lot of new business that's coming through as we go into the second half and even into next year. There was an absolute necessity to recover something by the industry, because everybody was dying. Now that there's a bit of momentum, a bit of demand, clearly, we've seen that's the time that we would push.

As I say, just to use my anecdote about Latin America, you know, there was paper available from Europe, you know, basically at any price, three months ago, now you can't get it till September if you're lucky. I don't even know the price.

Okay. Thanks very much.

Thanks, Detlef.

Thank you. We will take our next question. Please stand by. Our next question comes from the line of Andrew Jones of UBS. Please go ahead. Your line is open.

Hi, gents. Thanks for all the color. I just wanted to just go back to the bridge for this year. I mean, you mentioned that obviously freight will be up overall. We saw like nearly $50 million in the first quarter. What's the overall number your kind of seeing at sort of spot rates for this year? I think you said some labor cost relief. With the cost takeout on the labor side, you're expecting that to be a tailwind. Was that correct? You know, can you just drill into some of the other sort of cost-related moving parts, specifically things like chemicals where we probably have a bit less clarity on. Can you give us some sensitivity around if gas prices move significantly from where we are on spot today?

Like maybe a rule of thumb with a hedging taken into account for how much of our energy costs estimate could move with like a 10, you know, a EUR 10 move in TTF or a, you know, a $1 move in Henry Hub, something like that. Could you help on that side?

That's one thing with mathematics on gas prices, Andy. I think I'll leave that to Kieran, Darren, and Frank to take you through the mechanics. It's not as simple as given the size of the system and how we purchase and buy and given the level of hedging, it's really not as simple to say if TTF goes up by 10 that equates to X, Y, or Z because that involves where you produce, when you produce, how you produce. It's the system is much more delicate and balanced around that than a straight input/output gas price. I just missed the first part of the bridge you were looking for there, Andy, was on which element?

First of all, freight, but also things like chemicals and just clarify on the labor what you were saying around the year-over-year impact in 26?

Get you now. On labor, it was less a countertrend, it's been a tailwind as we go through the year. Less of a headwind as we work through the year simply because of either projects we implemented, some of those quick win projects we talked about before, or generally good work done around things like CLAs and wage negotiations and quite frankly, some of the rationalizations too. I think broadly, where back in February we might have seen labor be EUR 100 million of a headwind, it's probably more like EUR 50 million as we sit here now, for example. Things like chemicals and starches and all that kind of stuff, really as a bundle, it's not a meaningful driver for the business. We don't tend to break them out.

It's quite low level in terms of the overall cost. Big drivers for us tend to be energy, OCC, labor and freight, as you say. That's gonna enter the picture, but simply as a kind of indirect impact from what's happening on energy. Fiber broadly will be slightly better, you know, probably flat where we'd said in February, so 10.50 still there. On freight though, freight probably, given what we've seen in the first quarter to extrapolate that, freight's probably a $50 million headwind as we get through the year based on where we sit now. That can clearly change. They're really the big buckets.

As I just said to Detlef there, probably the big delta at quarter one to quarter two is around downtime of lower downtime, call it $40 million. I think the guys will be happy to take the more detailed questions on energy. As I would be happy for them to take more detailed questions on energy. I'm fine.

Yeah. No, that's fine. Did you say $50 headwind for the year on freight? Basically, we've seen that in Q?

Yeah, broadly.

Yeah. Okay.

Yeah, 'cause it's really un-unique is the impact there is where you see gas prices. Clearly, you know, as you work through the year, you've got a bit more hedging for price change as a piece. That's kind of where we see it now. Look, at the half year, we'll update for you. We'll update that for you anyway, Andy.

Yeah, clear. Okay, cheers. Thanks.

Thank you. We will take our next question. Please stand by. Our next question comes from the line of Lewis Roxburgh of Goodbody. Please go ahead. Your line is open.

Morning, afternoon. I think most of the main questions have been asked. It's just a follow-up on the North American box system. You've previously talked about around 60% of those box plants, loss-making box plants still to work through. Another 40% is seen as a realistic improvement target over the next few years. Just get a sense of progression of uplift that might be to EBITDA or margins as the next phase is delivered, or whether that's changed given the current cost outlook.

No, Lewis. Hi, it's Tony. I would say that, you know, what we said was that we had got to about 30 or 29 loss makers instead of 60 or 70 at the beginning, and now we've got it down to 29, and obviously that's continued work in progress. That has very little to do with very little to do with the cost side of things. It's to do with the, the operating side of things, and that's something that we're working on, you know, all the time. So, we'll probably always have some that are loss-making for one reason or another, but, you know, I would certainly hope that we would get that into, you know, through the cycle in single digits.

Thanks.

Thanks.

Thank you. There are no further questions. Speakers, please continue.

Okay. Well, thank you all for spending the time with us this afternoon or this morning. You know, it was a challenging quarter, Q1, weather related and, and somewhat demand related. You know, we're out of that now, and when we look forward, we see a lot more optimism than we've seen for a long period of time. Obviously, we're cautiously optimistic, rather than aggressively optimistic, but what we see is pretty good right now, and we're hoping that continues as we go through the second quarter and into the rest of the year. Clearly the world is a little bit of a challenged place, and we all hope that everyone on this call and everywhere stays safe and looks after themselves.

Thanks a lot for joining us, and we look forward to seeing many of you in the coming months.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.