Mondi Plc (OTCPK:MONDF) Q3 2019 Results Conference Call October 10, 2019 3:00 AM ET
Peter Oswald - CEO
Andrew King - CFO
Conference Call Participants
Matthias Pfeifenberger - Deutsche Bank
David O'Brien - Goodbody
Alexander Berglund - Bank of America
Mikael Doepel - UBS
Barry Dixon - Davy
Lars Kjellberg - Credit Suisse
James Twyman - Prescient
Cole Hathorn - Jefferies
Ladies and gentlemen thank you for standing by. Welcome to the Mondi Group Trading Update. At this time participants are in a listen-only mode. After the speaker presentation, there'll be a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday the 10th of October 2019.
I would now like to hand the conference over to your speaker today, Peter Oswald. Please go ahead.
Good morning and welcome. Thank you for joining this call. I’m Peter Oswald, Chief Executive of Mondi and I am joined by Andrew King, our CFO. I would like to briefly summarize this morning's announcement, and then we will be happy to take your questions.
As outlined in our half year results, demand in the third quarter remained generally softer across the markets in which we operate and prices for key paper grades were below those of the first half. Consequently, underlying EBITDA for the third quarter was €383 million, down 18% on the prior year and 9% below the second quarter.
Lower average selling prices from the highest reached towards the end of 2018 and into early 2019 coupled with anticipated lower forestry fair value gain more than offset the benefits of our ongoing profit improvement initiatives. Pleasingly we are making good progress on our previously announced major capital investment project in Central Europe.
So let's now turn to our business units. In fiber packaging, container board markets showed signs of stabilizing during the quarter following the sharp price erosion seen in the first half of the year. Corrugated packaging saw good volume growth and continues to benefit from an innovative product offering and lower input paper costs.
Sack kraft paper demand was generally weaker during the quarter in particular export markets. Demand for specialty kraft paper remains good. In line with expectations, price reductions in selected kraft paper grade became effective at the beginning of the quarter although prices remained above 2018 levels.
We’ve taken downtime at certain operations in order to manage our inventory levels in response to softer demand. Industrial banks volumes were lower than in the comparable prior year period. However, we have seen an improvement in order books over the past six weeks, and by this we mean, it's not just consequentially but year-over-year in that something in 2019.
Consumer packaging made steady progress, benefiting from product innovation and continuous improvement initiatives, and we continue to work with our customers, suppliers and other stakeholders to find innovative solutions that improve the sustainability of plastic packaging.
In Uncoated Fine Paper compared to the previous quarter, we saw lower average uncoated fine paper prices, significantly lower pulp selling prices, and as anticipated a materially lower forestry fair value gain. Strong cost control and shorter planned maintenance shuts could only partly offset these pressures.
We also have announced today a reorganization of our business segments. Why? We want to enhance our offering in sustainable packaging solutions and improve the way we partner with our customers. Therefore, we organized long side value chains. The group will be organized across four business units.
Corrugated Packaging consisting of container boards and corrugated solutions so the downstream business; Flexible packaging consisting of kraft paper, paper bags and consumer flexible; Engineered Materials made up of personal care components extrusion solutions and release liner; and Uncoated Fine Paper as before.
Restated segmental information will be published during the fourth quarter and the new structure will mean more disclosure for you. The reorganization has actually no impact on the overall growth besides.
Turning now to the outlook. As we entered the fourth quarter, prices were, on average, marginally below those of the third quarter. If sustained, the impact of these lower pricing is expected to be largely offset by an easing of pressure on the cost base, supported by our ongoing profit improvement initiatives.
The group's robust business model centered around a high quality, cost advantaged asset base. Our portfolio of sustainable packaging solutions, clear strategic focus and cultural continuous improvement gives us confidence in continuing to deliver a strong and industry leading performance. Thank you for your time. Andrew and I would now be happy to answer any questions you have.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Matthias Pfeifenberger. Your line is open.
I've got two. The first one is really on corrugated. Maybe you can shed some light on really the demand development there. Has it become a little bit weaker? Because it's astonishing, how this business holds up where when something like a third of ones, all are driven by industrial [indiscernible] and light goods and also pricing has been very resilient even with containerboard price is going down, maybe some color there? And then basically the second one will be on the reorg. It seems like you split the flexible packaging business and we saw your efforts in the HPC business over the years and now the release liners are a separate division. Is that also a basis for potential disposal of the HPC business?
So, on the question of corrugated, I mean, as you can see from industry statistics, the demand isn't great, but European markets are growing in the range of let's call it 1%. The number, so we are growing more than that, which is simply a consequence of our innovation work we've done and done specific contracts. So, in terms I think you're also alluding to the questions of prices. Prices have in the held up fairly well, so the price decline which we've seen in containerboard has only been partly passed on. But it's also obvious what we see most recently that the willingness of some box producers to pass on more of that that is increasing.
In terms of reorganization, yes, you picked it right. So we split basically consumer Packaging into the two parts, which we think it should be split, there was a historic reasons after the acquisition of Nordenia that this was one business units, but it always consisted as we've highlighted in all our presentations always of two parts. One is the genuine plastic business, so a business which would find a company like Barrier Plastics in, and the other most the genuine consumer flexible business where the global market leaders is Amcor just to give reference to other groups. So that made, just from a -- just made sense.
And so finally we have done it. And this enables us also, as we see very good development of our eco solutions project, which is basically about how to make packaging more sustainable. So, in some cases moving plastic to paper, in some cases, making plastic recyclable, that it's very favorable that our paper bag business and our consumer flexible businesses record them going forward. So, the CTP business historically are within one business unit because we see a lot of pro tricks and where we constantly where we didn't know where to put it.
So I think it makes this more efficient. It's clear a targeted towards our customers. I don't care at the end of the day how we are organized. And I think it will make us stronger and make our product offerings stronger. And then you said, you asked on, is there a potential disposal? No we have very strong markets position in our engineered materials, or leading market positions from extrusion coating, release liner, strike film, label film. So it has nothing to do with disposal, but just making it clear that one is the materials business and the other is packaging business.
The next question comes from the line of David O'Brien of Goodbody. Please go ahead. Your line is open.
Firstly, if I just come on the ongoing improvement initiatives, can you give us some color on them and maybe quantify what the impact of those are going to be in Q4 to offset the pricing pressure we're seeing through the numbers? And secondly, just on the downtime on the kraft business that you're taking, could you quantify the amount of time you're taking there and the financial impact? And given that the environment persists, that you feel the need to take the downtime, should we expect more price pressure in that space? And then finally, on containerboard, you intimated during the last conference call that order books were improving through Q2? Had that manifest itself in a better delivery number in terms of volumes in Q3? And how are you seeing order books at the moment -- I'm sorry, maybe finally, I’ll chance my arm. Could you quantify what corrugated pricing have done sequentially on a like for like basis Q3 versus Q2?
So, these were four questions, if I may. So Andrew if you start with…
Yes, sure. I think, David, obviously, it's always a huge multitude of things that we do to on a ongoing basis and I think there needs to be stressed, it's not as if we suddenly accelerate any issues or anything, we continually working on the cost base. I think it's clear that we are now also seeing some benefit come through lower input costs. So we saw in the Q3, generally speaking, the key input costs of wood obviously a little bit of the paper for recycling side as well.
But energy chemicals, all of these did show some sequential decline in the cost of those inputs. And we certainly, as we said today, expect more that in the fourth quarter, and then we simply saying on top of that, we would obviously be looking to continue our, what we call our profit improvement initiatives, because it's not just cost take out it's also efficiencies and pricing strategies et cetera, which will complement that reduction in the key input costs.
It's as always very difficult to quantify exactly that amount, but what we are suggesting in the outlook statement is that it would largely offset any pricing erosion we seeing which goes into the fourth quarter given the current spot prices.
Okay, and then you the second question was the takeover of volume in kraft paper, obviously that's also difficult to say. You've seen in softer environment, what happens is that you get lower order book and used to make trade-offs between volumes and prices. And so we, pragmatically, so to say, sized upon it. And therefore, we can't really give an outlook.
Yes, it is a soft environment as is reflected in the figures. What does it mean for year-end negotiations, it's too early to tell, but and it's different according to different grades, different according to different continents. We should always keep in mind that given our good position of forward integration, obviously a kraft paper price reduction doesn't need necessarily to be a reduction in impacts.
On your question with containerboard order books, our order book and containerboard is very good. It has filled improved, yes. It's well improved and then another question maybe for you. And Andrew, that was on corrugated prices.
Yes, I think the box prizes we're not going to give a quantification because it's frankly, it's a bit misleading because it's all a function of the different markets in which you operate as a the currency affects clearly we operate in some markets like Turkey where the currency movements are quite significant.
So I think it would be wrong to pin it down to some specific kind of index number that, as Peter rightly says, I mean, we obviously you've seen quite a significant decline in the containerboard price. Box prices have come off sequentially if you try and index it. Look through all the currency effects, but clearly not nearly to the extent of the drop in the input costs in the key input costs being the container board side.
Okay, just one follow-up. Just on the current stats, the order book in containerboard does look very good. How do I weigh it up of first the efforts to increase containerboard pricing during the summer, not really coming to fruition?
Yes, it seems so we can't speak for the industry, but as we have not got any support. And as I think that order books throughout the industry might not be as good as our order book. What we know from individual cases, we see at the moment, no possibilities in the very near future to increase containerboard prices.
Thank you. Your next question comes from the line. The next question comes from the line of Mikael Doepel of UBS. Please go ahead, your line is open. Next question comes from the line of Alexander Berglund of Bank of America. Please go ahead. Your line is open.
I think most of my questions have already been answered. I just want to try to get a bit more color on containerboard, just if you see currently any difference in the market environment for the different grades, I mean, talking both kind of virgin versus recycled, but also kind of the niche spreads, SC fluting and white kraft liner. And then my second question is kind of on the kraft paper Industrial Bags portfolio. I mean if we think about our portfolio, given that we're having -- it seems like we're having a little bit different trends on the kraft paper side versus specialty kraft, can you just remind us, if you look at the whole portfolio, what percentage currently is specialty kraft? Those are my questions.
Yes, thank you, Alex. So, with regards to grades or container board and individual movements, we see still some weakness in recycled content. Of course, we are well booked but for reasons which are not so clear to me, the market doesn't think about the paper price increase. There are even rumors about at a €10 euro reduction. Kraft liner is, brown kraft liner is pretty stable. And we're happy with white paper kraft liner and thus, basically, semi-chem fluting is absolutely constant.
So we had we shouldn't forget that 40% of our volume is specialty, a container board which would define us white to kraft liner and semi-chem fluting. And in this area we really had, we have more like minus €30 minus €40 as opposed to about €100 for the other grades. There are sometimes for the normal grades even higher numbers mentioned, which we can't follow exactly. It is not 140 for us, which is sometimes mentioned. So, we are the range of 120.
And on the other question of kraft paper, so as we said, so three quarters of our volume is it a kraft paper and one quarter that is specialty kraft paper. We should however, be aware of the fact some machine can produce both, only some and only for some grades. And so this composition can also change marginally over time. The rough split at the moment.
As a follow-up on that, so if we continue to have this trend, we cannot demand for specialty kraft is relatively better. You could potentially increase that a little bit better.
Yes, we have already done it to it to a small extent and with the new machines. And end of 2020, our flexibility increases again.
Thank you. We will now take our question from Mikael Doepel of UBS. Please go ahead. Your line is now open.
Thank you. Good morning everybody. I have a couple of questions. First of all on the fine paper business, we've seen demand trending well being below trend you could say this year. Is this something you think will continue? Or is this reflecting de-stocking? How should we think about demand declines in fine papers going forward? And also on fine papers, how do you view the pricing situation now? We have seen some erosion during the summer, do you expect that to continue or are prices stabilizing?
So, the demand declined, yes, that’s anyone's guess. So, we think given the overall weakness of the economy obviously this year declined, which was in Europe around 4% to 5%. We don't believe this is the new trend. We've always guided in Europe minus 1% to minus 2% current just opinion is probably around to the range of minus 2%.
With regards to pricing, I wouldn’t expect two big movements but obviously the weak pulp price has as a trend a negative implications but we know from the top the correlation between the two prices has weakened, so you can't translate drop in lower pulp price, one to one into a lower angle defined paper price but equally it will be wrong to say that we're completed that.
So I think we'll see some softness and we shouldn’t forget that supply site has been reduced and gain good news also from the U.S. but also from Europe, and this is supportive.
That’s clear, thank you. And just a final question on your gains from investments, is the guidance still impact for this year? I think it was 45 million or so and can you say anything about 2020 what we should expect to see there? Thank you.
Yes to go out, I think what it is mean gains for investment that’s organic capital and expansions as the first acquisition gains. As you likely said we said that the half year around 45 as our expectation for the full year. We hold by that I think it is probably, it will be a little bit below that’s clearly because obviously the big exposure there is the expansion of the kraft paper operations which came through the beginning of the year and obviously that also brings good brought a bit of pulp as well clearly with the current spot process of pulp and a lower pulp paper product that could come up a little bit given that we so far along in the year it's not going to be a material impact in the year.
Next year, obviously the big incremental expansion comes through in the Slovakian operations with the gain of pulp expansion in Ruzomberok, which then get integrated into that new white top kraft line of machine or white top hybrid machine and that’s so clearly in the first instance of the pulp price being a bit low guidance we probably be but lower than it would have been 12 months ago, but it still very robust returns because you think we getting very low cost incremental pulp part of that operation being a de-bottlenecking project.
We haven't fully quantified the full effects of next year given current pricing etcetera but I guess somewhere in the range of 30 million to 50 million would be the expectation for next year's incremental gains from CapEx.
Thank you. Your next question comes from the line of Barry Dixon of Davy. Please go ahead. Your line is open.
Two questions please. First, Andrew, maybe you might just help us to bridge the fair value gain for Q3 and for H2 given the out performance that you had in the first half and possibly you might same for the maintenance cost. And second more general question on that sort of demand environment and reorg of the business. And I suppose just trying to think as to; A, how much this sort of shift from plastics to paper is driving that thinking around the shift and the reorg of the business? And of course, more importantly, can you try and give us some sense as to where we are in that trend in terms of that shift from plastics to paper and how that sort of informs your capital allocation thinking within the business on the consumer packaging side of the flexible side versus the corrugated or the specialty kraft side? Thank you.
I'll take the first prosaic question and Peter can take the more visionary second question. On the fair value gain is to be very explicit. I think we took 52 million off the top of my head in the first half of the year on that. And that was second quarter weighted in terms of the way it was booked. As we said at the half year very, very clearly, we didn't expect anything like that you repeat in the second half, because we got the big call it price increase on the export timber, which is really the big determinant there in the first half of this year. And that is certainly what's played out in the third quarter. If we don't explicitly say it, but it's somewhere between 5 million and 10 million we booked in the second, third quarters, sorry, on that.
I would expect something similar again in the fourth quarter, there's no reason to believe it can be materially different to that. But of course, I always say that under advisement because, in the last minute moves in key variables that affect that valuation, of course, that can have a short term impact, be that decline in there rand or increase in the export price of timber again or something like that. But in the absence of something like that, I would expect it to be something similar again in the fourth quarter that could be our best guidance at this stage.
And Andrew sorry, just -- what would that have been in Q3 last year the fair value again?
It was also pretty low number of gain I don’t have it off the top of my head, but it was a small number last Q3 as well, very similar number.
Yes. Okay. Thank you.
Yes, then on the question of plastic to paper. Actually, what we see very clearly now is that this trend is gaining momentum. So that is also, was one of the reasons why we did the reorganization that is just inseparable. So who does what and it puts us into a very strong place, because we have thanks to our consumer flexible still very good access to the effort cities and the retailers. We have the paper solutions. We are developing this paper solutions.
So we think that this is the secular trend, which will be very important for our growth prospects in kraft paper, but also in paper bags. And finally also, in consumer flexible since the lines are blurred we can see where it is. Having said that, it is also clear that we work from a very low base, so it's like e-commerce being a driver of corrugated boxes 10 years ago. So we got now several exclusive deals for individual countries, where retailers or FMCG companies make tests with our products. So for instance, paper trays instead of plastic trays.
That's all very promising, but if I told you about the numbers involved. So it's 1,500 tons here and it’s 2,000 tons there. So, the numbers are still small. But if going forward, if these tests are successful, and with every reason to believe in it, then the numbers will finally get bigger. But over there for 2019 and 2020, it doesn't have any material impact, but it's very important because it has better margin and interesting product. And EcoVantage is gaining momentum with supply problems there because the machine isn't operating. We have to wait for a year.
And your next question comes from the line of Lars Kjellberg of Credit Suisse. Please go ahead. Your line is open.
Sorry, Lars. The line is very bad. I can hardly hear you.
Okay. Can you hear me better now?
Much better, yes. Could you please repeat?
So I’d say, yes. So the, your comments about improving order books on the sack kraft side, are there any particular regions this is happening and what do you see is driving that?
So I was specifically referring to bags that here we see the up tick, and interestingly more or less around the globe. We haven't seen it yet in paper, so in our kraft paper, but normally it's a good indication if the one got stronger and sooner or later, the other will follow. I think the major reason is that in the stock, they're very high stocks, which typically cement companies, but also retailers have built up have been worked off.
And therefore we are more coming back to a normal situation. And again, it's not like, it's not a boom. It's just a return to normality, but it is very encouraging that if you look week after week, how you did against last year that we see now for six weeks or to seven weeks an improvement. So it's de-stocking in bandwidth, it's I think the main reason. I can't see an acceleration of overall business.
And you obviously have a number of investments ongoing and Ruzomberok to take one, but you also talked in the past about Syktyvkar multiple projects that we're doing there with various I guess, de-bottlenecking impacts. Where are you with that? And what exactly are you doing, if you share some color on that please?
Yes. So, in Syktyvkar, we are continuing with smaller de-bottlenecking so that we're on the energy side on pipe. And we will see more effect, so they take this year and also next year is fairly limited, the major effect will flow through in 2021, because obviously the de-bottlenecking depend on each other. So it's pipe and energy mainly.
And exactly what is the impact on pulp then that you expect in 2021?
Yes, overall, we say its 100,000 tons and that's half of that will be, it depends on the de-bottlenecking of the paper. Let say the majority will be more than 50% will be more paper and the rest is market pulp.
And finally, can you comment anything about the operating environment in South Africa? I mean, it seems to be on and off again. There is load shedding and issues. How are you doing in South Africa? Is that still a good place to operate?
Yes, so overall, we have no specific problems in South Africa, what we have in general is that and we're working very hard on this, somewhat lower operational efficiency. So more machine stops or maintenance works to do, and we have now assigned a number of expatriates to, and trainings program for local people to improve it but overall it's let say we are doing operationally clearly better than we did two years ago.
I think Lars it's very important to note that obviously Richards Bay the core of the South African business and that is energy self sufficient. In fact, we could produce surplus energy at Richards Bay, so we are less exposed to those issues around the grid. Although obviously if it affects your suppliers, key suppliers, et cetera, then of course it can have an impact but certainly we haven't been impacted by that in a way we've been able to operate.
Thank you. Your next question comes from the line of James Twyman of Prescient. Please go ahead, your line is open.
So firstly, on the sacks business, you're talking about downtime. But you've also mentioned that you're seeing a pickup in orders. So are you expecting downtime to be happening in Q4, as well as Q3? And if so, what sort of size of volume decline you expecting in Q4? Is it marginal or is it 5% or what? And secondly, kraft liner, are you seeing any demand for kraft liner from China due to the wastepaper issue there in terms of fiber shortages if I know something that's been discussed before? And then finally just on box prices. I know you're not being specific about the fall in prices that's happening there. But given the fall that we've seen in containable prices, has the fall in box prices been half what you expected, quarter, three quarters just some sort of idea of scale of that please will be great, thank you.
Yes, James. Maybe I could just quickly take the first question on the downtime in particular. So just to be very clear, I think, as Peter said in the last discussion, the pickup in order book is on the industrial bags front. The downtime you refer to them the kraft papers are the one is the upstream activity being the kraft paper side. And in the industrial bags is where we've seen a slight change in the trend of the order book over the last six weeks or so.
So, clearly, they have a natural effect on each other but there is always a delayed reaction to that. But it's obviously encouraging that the end demand which is in our case, illustrated by the order book on industrial bags, is showing improving trend now having softened over the last two quarters or so. How that then translates upstream into the kraft paper demand is obviously one that seems it does over time, that it's too early to call that at this stage.
So, there is a difference between the upstream and downstream activities just at the moment, but there will be a link over time. So, it's encouraging that that pickup has happened but we'll have to see how that translates up the value chain. I think the second question on.
Yes on kraft liner to China. So, there is a lot of interest in China but according to our knowledge, the situation in China is obviously worse than that we all appreciated. And therefore the there is a bit more demand but it's not the huge volumes which we would have expected. And obviously there are shortfall is also split between recycle containerboard and kraft liner. So kraft liner is, so China is marginal positive for kraft liner, but unfortunately not the main positive.
With regards to box prices, it's very difficult to generalize also across different markets in Europe. And you know that we've also limited footprint and country and talk about Europe overall. But generally, what we have seen and we've explained that in the half year results is that normally you would see prices dropped with a three to six month delay. And we were positively surprised from what we could see with our prices that the price pressure really started in around August, which is actually eight months after the paper prices had fold, which is positive.
But equally you see that the discipline amongst converters, so to say no to pass their prices immediately on is waning over time. And things are getting a bit rougher. So finally, some part of it will be passed on that's pretty obvious. It's difficult to track because it depends. We have existing products, new product or new product price, but we will see in the corrugated packaging, feel the pressure.
Thank you. If I could just ask the tax question in a different way, are you expecting more downtime in kraft paper in Q4 than in Q3 and then also this latest divisional restructuring…
That's very easy that question. No.
So, it's no worse maybe better?
It's no worse, but yet also not significantly better, I guess, because converters have still fairly high paper stocks. And so, the positive trend in bags is not yet visible in our order book in kraft paper.
Thanks and finally this latest divisional restructuring is, there any cost of that or is it pretty negligible?
It's absolutely negligible. I mean we have below the business unit, business segments and basically they completely identical it's just that the reporting lines and to the business units bosses have changed, so instead of someone being responsible for containerboard and kraft paper is not responsible for containerboard and corrugated packaging and we've moved consumer goods packaging which we now afford consumer flexible to the value chain of kraft papers and bags. So, it's a pure organizational change obviously we have used it also to take a bit of cost out but that was not the main driver.
Thank you. The next question comes from the line of Cole Hathorn of Jefferies. Please go ahead. Your line is open.
Could you give me some color on what you seeing from the U.S. exporters into Europe on karft line end, if you think that at current prices what the exporting to Europe there broadly there by their marginal cash cost of production?
Yes. So, U.S. exports are still below last year, but so to say, the gap to last year, the minus has decreased a bit so we're now about minus 20%. Overall, yes, they are damping at very low prices, we ignore them because it’s a different quality proposition. I mean we -- in terms of the grammages you need, you need much higher grammages if you use lower quality U.S. kraft liner. And so, but overall, it's supportive of the market in terms there are less imports.
And just following up on that, with all the debate on U.S. and European tariffs around different sectors, has that been a question that the industry body, like CEPI has raised at all on kraft liner imports from the U.S. because I mean there is a very big gap between U.S. domestic price and export prices?
Yes, as you say Cole, it’s a clear case of damping. And but Europe is generally a very liberal market, liberal approach. So it depends on the absolute level, but -- let's say if there was a trade war, there will be a direct trade war between Europe and U.S. then import duties will be imposed for sure.
If there is no direct trade war, it will then depend on the absolute level because our requirement in Europe is that companies are significantly hurt by it and it depends then on the profit level, which in Mondi's cases is very satisfying, where some others it’s getting more problem, and that could then trigger import duties.
Andrew, I wonder if you give us some color on uncoated fine paper prices, I mean they held relatively well, but they didn’t rise as much as they did when the top prices went up. Do you have any color or expectations on where uncoated fine paper prices maybe at the moment and where we are versus kind of the marginal cost producer in that grade?
Yes, I think as Peter said earlier, I mean, clearly, the pulp price is a factor as you rightly point out when the pulp price went up very rapidly over 18 months ago, or the paper prices only moved very modestly when you can see in the various index prices etcetera. So while it is a factor it's not the key driver. Clearly people use it as an argument in price negotiations if there is less cost support from pulp with the un-integrated players but we wouldn’t say by any means versus the single biggest determinant of the direction of paper prices.
As Peter said earlier clearly we seen a demand side decline this year in excess of what we would typically we would expect to see. And I think that's clearly, it was a reflection of the macroeconomic slowdown more than a structural issue. I mean is the normal structural or 1% to 2% decline and then on top of that, it's been exacerbated at the moment, but of course, that can also change.
So I think that's the biggest driver behind why you're seeing some price erosion right now on the paper side. That having said that, and as Peter said earlier, we are seeing some supply side reductions. We obviously saw some capacity taken up in the first half. We expect some more from competitors in this half with a machine conversion taking place, which will take sometimes out in the market, which of course is supportive at the same time. So I think that isn't the trade offs, which one needs to focus on. The pulp price is a contributor, but it's by no means the single biggest driver behind the paper prices.
Thank you. There are no further questions on the line, sir.
Yes, I thank everyone for joining and have all a good day. Thank you. Bye.
That concludes our conference for today. Thank you for participating. You may all disconnect.