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Q2 2019 Smurfit Kappa orchestra PLC allowance Call
London Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Smurfit Kappa orchestra PLC allowance parliament shout or presentation Wednesday, July 31, 2019 can 8:00:00am GMT
TEXT translation of Transcript
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Corporate Participants
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* Anthony Paul J. Smurfit
Smurfit Kappa orchestra plc - orchestra CEO & Director
* Ken Bowles
Smurfit Kappa orchestra plc - orchestra CFO & Director
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Conference shout Participants
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* Alexander Berglund
BofA Merrill Lynch, investigation part - Analyst
* Clyde Alvin Dillon
Vertical investigation Partners, LLC - Partner
* Cole Hathorn
Jefferies LLC, investigation part - Equity Associate
* David A. O'Brien
Goodbody Stockbrokers, investigation part - Investment Analyst
* Lars F. Kjellberg
Crédit Suisse AG, investigation part - investigation Analyst
* Mikael Doepel
UBS Investment Bank, investigation part - Executive Director & Analyst
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Presentation
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [1]
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Good morning, ladies and gentlemen, and because of entire of you joining us at the room and certainly can the telephone. It's indeed big ought visit entire of you, and I'd alike ought thank you because you attendance. because is custom, I will haul your attention this slide, slip 2, and if you don't mind, I will accept it because read.
12 months ago can the identical ripen final year, we presented ought entire of you beneath the headline of leading, innovating and delivering. Today we're presenting can the identical base besides read added a farther heading, which is progression. Progression
builds can the fiction of transformation that we first presented ought you at February 2018. The transformed affair delivering transformed results with transformed long-term prospects. because the contemporary period, we read delivered revenue growth of 4%, EDITDA growth of 17% with the border of 18.3%, and answer can main employed of 18.7%, ahead of our through-the-cycle aim of 17%.
ROCE is a key criterion because the orchestra and it reflects the most effective long-term criterion of main allocation. These results clearly prove the continued sequence of our company, and I'd now alike ought accept you across a little factors that uphold this theorem and will uphold future performance.
Turning ought our prose of leading. can the outset, allow me accept a moment ought summarize some of the factors that we trust defines Smurfit Kappa because a corrugated industry leader. because us and because you, it's nearly delivery, delivering can our medium-term plan. This plan, which Ken will ripen later, was built can the conservative assumptions and provides a transparent returns-focused framework because main allocation. The medium-term plan is delivering and the plan itself is both flexible and agile depending can happen and impartial conditions.
You've consistently heard me report nearly our civilization and our values. We've a high-performance civilization where we devolve produce and marketing decisions with the box front managers, our essay factory managers, because they comprehend the customers best. besides we keep well central controls can main and reporting. Our affair model, because an integrated packaging company with ever-expanding geographic reach, is evolving our relationship with our customers from supplier ought a partner. Our innovation ability is indeed transforming, accelerating that transformation.
We outline ought construct a better platform because long-term theorem and success. at can of this year, we hosted can 350 customers from across the nation ought our global Innovation incident at the Netherlands. The cornerstone of that incident was our better planet Packaging initiative. We had twice the amount of customers compared ought our previous incident with global and local customers from entire disciplines. From owners ought marketeers, ought produce development specialists and purchasing managers. The even of interaction can the appointment made transparent the increasing concentrate our customers read can the densifying sustainable packaging alternatives against their contemporary solutions. We exhibited thousands of examples of solutions during this forum, demonstrating our leadership at sustainability and cost-effective and bright packaging solutions.
By our nature, our affair is sustainable, our produce is renewable, recyclable and biodegradable. And we continually challenge ourself ought be ever more sustainable. Our leadership at sustainable activity continues with the liberate of our 12th sustainability illustrate at can of this year. An ambitious new lay of sustainability goals was unveiled having met or exceeded previous targets ahead of our 2020 deadline. Smurfit Kappa continues ought read long-term commitment ought making true and measurable proceed against its 5 sustainability priorities of forests, climate change, water, garbage and people. This illustrate is evidence of our industry-leading transparency and demonstrates how Smurfit Kappa is making proceed at supporting the UN's 2030 Sustainability development Goals. We are delighted, indeed delighted, ought be recognized by many third-party bodies because good sustainable practices, and you'll visit impartial a little of them listed can this slide.
We're entire aware of the fantastic secular driver of eCommerce because our sector. Again, we are demonstrating our leadership at this space. can a contemporary great eCommerce incident at Lisbon with 750 concrete eCommerce affair nation attending, we were awarded 2 of only 5 awards, those being because cold vendor and sustainability. The other 3 being going ought 2 robotics companies and a logistics company. no other packaging company won an award. The incident was a huge success because Smurfit Kappa and generated a substantial volume of leads at this belt because us ought capitalize on.
Now turning ought innovation, which is same much linked ought what we've impartial covered. Smurfit Kappa continues ought furnish our customers with the most innovative and sustainable packaging solutions. We are the most future-orientated company at our industry, pioneering machine systems, theorem packaging, ShelfSmart with IC technology, ought call besides a of our other industry innovations. We showcased many of those innovation example studies at ordinary investor communications. However, here you'll visit independent validation of our capital innovative impartial offering. We won can 40 awards from across the nation at impartial the first half of 2019. entire these awards highlight the breadth and depth of innovation at the company with awards from practically each nation at which we operate.
We're certainly entire arrogant ought vocation because the company we vocation because besides we trust strongly we're -- and we trust strongly we're the best can what we do. besides it's gay while you read other companies and industry bodies telling you the same. It because healthy represents a step towards our eyesight of being a recognized and respected leader.
One of the many ways we can insure innovation because our customers is difficult data. The steep scale and depth of news that we possess. You can visit can this slide, we're indeed applying science and technique ought packaging innovation. ought insure we read packaging that gives our customers optimized lowest salary solutions, we read can 4 million news points. We've a library of 8,000 designs, which allows our designers ought generate immediate ideas because our customers by harnessing the force of the global forge team of nearly 1,000 designers who are obviously entire linked together. We can emerge can the click of a button how our customers' products emerge can the supermarket shelves across the nation by using Shelf Viewer, where there is can 130,000 images. And from a salary perspective, SupplySmart enables us ought identify cost-reduction opportunities because our customers, besides critically one that will vocation at the marketplace supported by nearly 80,000 equip chains analyzed.
Our global come allows because continuous transfer of knowledge, best drill and innovation among our regions ought the employ of our customers. And handling and delivering our solutions are the network of 26 experience centers across the globe, from Dallas ought São Paulo, from Moscow ought Dublin. Tangible examples of the vocation we conduct with our customers ought amplify their sales and decrease their salary are obviously much more compelling than simply giving them the sales pitch. evidence that our methodologies vocation resulted at can 3,000 visitors ought our global experience middle network at the first 6 months of 2019 alone. And impartial ought muse ought that, nobody of these even existed some 3 ought 4 years ago.
Smurfit Kappa has an unrivaled offering besides we ourselves are continually innovating and adapting these. Our applications trust can news sets that cannot be replicated, delivered from an asset basis and geographic spread, which is second ought none, and frankly, is maiden and irreplaceable. The depth of the data, the true consumer insights and the experience of our nation allows us ought souvenir applications, such because ShelfSmart and SupplySmart that facilitate true and significant increases ought our -- at our guest sales can the shelf or analyzing the equip chains ought furnish credible salary takeout opportunities.
Smurfit Kappa is because healthy the capital machine systems producer at the industry. With can 8,000 machine systems installed at our customers' operations ought date, Smurfit Kappa's machine systems part has been helping our customers amplify their productivity, decrease their costs and optimize their packaging forge because can 50 years. This is a indeed big manner of dwelling guest retention and loyalty. Trying being impartial delighted a small bit, I read impartial 2 of many, many thousands of examples ought share. Smurfit Kappa is recognized time and again by our customers because the colleague of choice. Here at the example of Kellogg's, our maiden Pan America's offering coupled with our employ of SupplySmart, delivered a 40% salary reduction ought Kellogg's. because I say, this is impartial one instance of the recognition we received.
Smurfit Kappa was awarded the Transforming Innovation grant by Kellogg's because our innovative approach. And this certainly has helped ripen the global relationships among our 2 companies. Another few instance is this time at Europe is how we employ innovative vocation with our customers ought aid motivate their sales. This involved a new innovative produce supported by our bright applications that aid stores of the U.K. amplify their sales by 14%.
To highlight our contemporary actions can innovation and sustainability, we read consolidated the publication releases we've made at the first 6 months of the year, and included them at this presentation and results released can our website. I'd encourage you ought accept time ought journal them.
We've referenced our better planet Packaging initiative with ponder ought sustainability a amount of era besides we're no taking a one-dimensional mode ought addressing this issue. We read hosted or attended conferences across Europe and the world, dwelling relationships, educating customers, developing partnerships, the net arise of which is a same significant pipeline of new and latent business. The implications because volume growth are same difficult ought quantify besides the uptick at advantage is very, same well and producing meaningful opportunities because us because we proceed deliver across the years. I'd alike ought now hand you can ought Ken, who'll accept you across our delivering piece.
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [2]
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Thanks, Tony, and good morning, everybody. impartial reflecting can our results at a portion more detail. We're pleased ought send a significant year-on-year improvement against nearly entire our key metrics and theorem measures because the first half of 2019. We delivered revenue growth of 4% because the ripen ought EUR 4.6 billion. EBITDA was up 17% ought EUR 847 million, with allowance growth at both Europe and the Americas. I'll amplify can the divisions portion at a moment, besides can the orchestra level, EBITDA was negatively impacted by money and the Venezuelan deconsolidation, silent net acquisitions were definite because was impacted by IFRS 16 releases. can an underlying basis, EBITDA because the year was 8% up can the first half of 2018. We because healthy saw improvement at the EBITDA border from 16.4% at the first half of 2018 ought 18.3% at the first half of 2019, at lieu of 190 base points. We saw improved margins at both Europe and the Americas, driven by our main investment, volume growth, higher corrugated prices, the employ of acquisitions, the impact of IFRS 16 and lower recovered fiber costs.
We delivered an improved answer can main employed of 18.7%. This is against a answer can main employed because 2018 of 18.1%, and healthy ahead of our stated aim of 17%. And because a reminder, that aim was lay can the base of the sum implementation of our medium-term plan exiting 2021. liberate money flow because the first half was EUR 159 million, an 8% amplify can the EUR 148 million delivered at the first half of '18, and silent EBITDA was significantly up year-on-year because the 6 months, consequently too was main expenditure and indeed working capital. The management of working main remainder a key concentrate because us and the working main because a percent of sales can the half year is 9.8% besides expected ought alter uphold ought our ordinary mountain of 7% ought 8% by the year-end.
Net debt ought EBITDA can 2.2x was slightly up can the 2.1x reported this time final year and can the 2x reported can the aim of 2018. The influence at leverage indeed has ought be seen at the context of, a, taking can the debt associated with IFRS 16, and indeed, the completion of the acquisitions at the first 6 months. And because notorious at the publication release, we wait the consequence of the Italian competition Authority's vocation at relative 50 impartial participants, including one of ourselves, and we'll update you because appropriate.
And finally, reflecting the faith the Board has at both the future and at the contemporary prospects of the orchestra has approved ought 10% amplify at the interim dividend ought EUR 0.279 per share. Looking out ought the European operations and their theorem at the first half of 2019. EBITDA increased by 17% ought EUR 688 million. EBITDA border was 19.3%, up from the 17.3% reported at the first half of final year. And the reasons because this well performance, I've already noted, is divide of the overall orchestra performance.
The European pricing because testliner and kraftliner has reduced by EUR 120 per tonne and EUR 140 per tonne, respectively, from the highs of October '18, besides we read seen signs of stabilization at the contemporary months. And during the first half of 2019, we completed acquisitions at Serbia and Bulgaria, a farther step at our South Eastern European strategy. And the integration of these wealth into the orchestra is progressing healthy and a well examples of how we ponder M&A at the context of integration.
Turning now ought the Americas. And at the Americas because the first half, EBITDA increased by 14% ought EUR 179 million. The EBITDA border because healthy improved from 15.2% at the first half ought 17.1% at the first half of '19, driven, once again, by the theorem drivers notorious because divide of the overall orchestra performance. because the first half, 85% of the region's allowance was once again delivered by Colombia, Mexico and the U.S., with well year-on-year performances at entire 3 countries driven by increased volumes, lower recovered fiber costs and continued sequence at our investment program.
In Colombia, volumes were 9% up because the year, driven by high growth at the FMCG sector across with the agriculture and bloom markets. And at June, we announced a successful soft present ought fetch the minority shares at Cartón de Colombia S.A. The Consideration payable beneath the soft present was nearly EUR 81 million and represents excellent estimate and farther simplifies our corporate structure.
In Mexico, we saw continued improvements can both an EBITDA and EBITDA border base also because continued volume growth. The growth of eCommerce, the increasing concentrate can sustainable packaging solutions, together with our capability ought furnish a maiden Pan-American sales offering, read continued ought motivate demands at our Mexican business.
And at the U.S., our margins outline progressing year-on-year at the first half due greatly ought the well factory theorem and the employ of lower recovered fiber costs.
Having looked briefly can the first half results, and ago I encounter can where we are at our investment plan, and we're counting it because divide of the medium-term plan. I impartial expect ought recap can how we visit main allocation at its broader sense. Our answer can main aim is 17% across the cycle. And because you can visit from this graph, the returns profile of this affair read been gradually improving and we're confident at our capability ought send that 17% can completion of the plan. And ought remember everyone, the plan was built can long-term medium pricing and conservative volume assumptions.
We read repeatedly been a generator of significant liberate money flow, and the continuous concentrate can the liberate money flow gives the capability ought rest our main allocation priorities silent ensuring the rest part remainder strong. It's the rest part with considerable flexibility, healthy within the leverage mountain we outlined at February '18 of 1.75x ought 2.5x. The dividend remainder a key divide of our allocation, and during its reintroduction at 2011, we've grown the dividend from the EUR 0.15 uphold then ought EUR 0.976 at 2018 and a farther 10% amplify today.
Capital allocation ought interior projects is key ought the continued growth at theorem of the business. Importantly, we accept a returns-based mode ought entire our main allocation decisions. We're disciplined while it comes ought acquiring targets and we're disciplined while it comes ought making interior investments.
Now looking can some of that drill at action. We're nearly 18 months into the medium-term plan we outlined uphold at February of final year. And again, you can recall, the sum implementation exiting 2021, where interior main employed will be 17% across the cycle, vacant our previous 15% target. And ought reiterate again, that plan was built can long-term medium pricing and conservative volume assumptions. And that friendly of indeed drives our capability ought send can that target.
Earlier this year, we reminded you that the 2 key components of this plan were agility and flexibility while allocating main because healthy internally and/or externally. And a small can 18 months down the road, I can speak you now that we've approved can EUR 600 million of that medium-term related expense. And the results I ponder we souvenir today are early indications of the success of our plan ought date.
Over the next unite of slides, I impartial expect ought give you some granularity nearly some of the projects at the plan ought appointment and the integration of our contemporary acquisitions. Ultimately, the aim is ought insure that from essay equip across the conversion, we read the most sufficient interior equip chain, delivering our customers the produce they require, can time, at sum and it's sumit aim of the quality metrics.
Firstly, looking can the kind of projects we've been carrying out at our European operations. at the Netherlands, we've invested ought allow one of our flagship mills facilitate produce of more lightweight containerboard grades. That's more tonnage of the produce than impartial is demanding coming from the lowest cost, most sustainably focused mills at Europe. The investment of high-quality print and die-cut machine at Moscow will allow us ought better serve our customers both local and European at that markets. And at condition of salary takeouts, the reduction at our reliance can third-party warehouses allows us ought decrease salary and indeed dismiss risk. And importantly, our design deadlines here will send returns healthy ahead of the targets.
On the next slip we visit some examples of the projects we're doing at the Americas. The motivate ought more sustainable packaging solutions is no exclusively European phenomenon, we're investing hind our Hexacomb produce at the U.S. and Mexico ought allow us ought better serve the hasty growth at that produce demand. The removal and replacement of polystyrene with a paper-based solution is an simple switch because our customers ought make, providing logistical and salary savings, silent addressing their sustainability need. Another trend that's developing more and more at the Americas is our need because shelf-ready packaging. at Mexico, we've invested ought allow our operations cater because this growing trend. It's another instance of how the insights and expertise Smurfit Kappa has developed at its European operations is helping ripen our Americas business.
And finally, we read another instance of investments at our essay system, and this time at a Columbian mill. You'll be aware that we are short almost 300,000 tonnes of containerboard at our Americas, consequently providing additional essay capability can a low salary ought dismiss reliance can third-party providers makes feeling no affair where you are at the cycle. And again, because with Europe, entire these projects will send healthy ahead of the aim return.
The acquisition of the Reparenco factory at the Netherlands at 2018 is a transparent instance of how we are delivering can those commitments. though no explicitly divide of the medium-term plan, the acquisition speaks ought the flexible and agile nature of the plan. if you recall, we said we used to construct or buy capability essay at Europe while we unveiled the plans ought you uphold at February 2018. We acquired a low-cost factory at our heartland, providing allowance appointment 1 and derisking a great component of the medium-term plan. And given the latent conversion of the second essay machine can the factory sites, the orchestra has, ought a degree, future-proofed its containerboard requirements. Currently, Parenco produces 350,000 tonnes of lightweight containerboard being integrated into the largest corrugated system at Europe.
Paper from the Parenco factory is integrated at our system besides because healthy gives us flexibility while we looked can farther expansion of the corrugated system. consequently the essay from Parenco is now going ought the contemporary acquisitions we made at France at Papcarts and Caradec.
Alongside the medium-term plan, we read been continuing our expansion ought a disciplined mode ought M&A. The expansion at Southeastern Europe builds can the group's existing platform, adding both essay and corrugated wealth and illustrates the mode we accept ought dwelling integrated system across acquisition. Our acquisitions at Greece, Serbia, and most recently, Bulgaria, are operating can the regional integrated system. The essay from the factory at Serbia is going ought the corrugated operations no only at Serbia besides ought Greece, Bulgaria, and at time, our Russian system. And because you can imagine, there are additional synergy savings ought taking this mode because the wider group. besides at silly terms, it manner the factory can flow sum entire the time. The longer producing multiple grades ought cater because a colossal array of customers besides because a limited amount of corrugated operations. And those corrugated operations, at turn, read the certainty of learning that they were exactly the spec of essay that they will accept from the mill, allowing them ought send ought their customers can quality at service. And it's that quality at service that our great FMCG customers value, and indeed, entire our customers estimate while they alter ought Smurfit Kappa because their sustainable packaging needs. And it's that quality at service that allows us ought outline ought fetch across our markets and geographies. I'll now hand you uphold ought Tony because some concluding remarks.
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [3]
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Thank you, Ken. consequently turning ought the summary and outlook. Arguably the best criterion of effective long-term employ of main is of course, because I said can the outset, answer can main employed. This slip charts the amplify at answer can main employed, which at turn, reflects the transformation of the Smurfit Kappa business. Our stated aim of 17% through-the-cycle ROCE, which was ought be realized can the completion of our medium-term plan exiting 2021, has already been exceeded. consequently we lay objectives, we met the objectives, we are delivering. The improvement at our operations is indeed meaningful and palpable. ought illustrate the transformation of our affair from an operational perspective, here are impartial 2 of so, consequently many examples.
Our Townsend Hook mill, which is at the south beach here, has gone from our (inaudible) factory producing 2 heavyweight containerboard machines can 2 machines ought a single, state-of-the-art machine producing lightweight containerboard that is wear because purpose. This continuous improvement at our factory system is across entire of the systems and has been and continues ought be a key concentrate because us. The images you visit here of Julich, a German corrugated site, clearly emerge how we alter this corrugated planet from a dated manual manufacturing site ought a present increasingly automated site. impartial alike our containerboard system, impractically entire of our corrugated operations, we outline ought forge effective investments ought continually amplify the quality of the asset basis at Smurfit Kappa.
A key differentiator of Smurfit Kappa is our geographic come and our spread, something that we outline ought ripen with the contemporary entry, because Ken has mentioned, into Bulgaria, Greece and Serbia. The disperse of our affair gives us a diversity of earnings, and a lack of reliance can one -- any one trait nation or region. Our geographic diversity is because healthy significant because our customers, and allows us ought better serve their multinational needs. We read an ever more dynamic and effective box system that is supported by our world-class integrated containerboard system, which is delivering a superior service and a produce ought almost 65,000 customers.
Ken has summarized our medium-term plan same well, and memorize what we said at February 2018, this plan is both agile and flexible, best shown at the instance of how we acquired Reparenco pretty than continuing can with an interior investment plan ought construct the mill. The plan will outline ought equip our affair ought encounter the requirements of today's same changing marketplace. Again, it's significant ought reiterate that this plan was built from the bottom up based can long-term medium pricing and conservative volume assumptions. This is an experienced management team with a deep industry learning who read proven ought be effective stewards of capital, and we will flex and assign that main ought insure it is lay vocation at a manner that we trust delivers optimal estimate and optimal returns because entire stakeholders. We because healthy confess the importance of investing no only at our physical wealth besides at our people. can 300 of our managers, senior managers, are completing a 3-week executive exercise type can INSEAD. Also, our significant improvement can safety is paramount ought us, and our commitment ought ensuring entire of our glue proceed family ought their families can the aim of the appointment is vitally significant because us.
And this management team, I believe, is committed ought this and has shown by the loyalty by our glue and longevity of tenure that we are committed ought this same significant area.
By manner of conclusion, I'd alike ought answer ought the opening opinion of accelerated transformation of our business. We confess that success is never a straight row and that there will be challenges and opportunities that souvenir themselves. However, if you emerge can the energy of our affair today and the increasing inherent industry absence drivers, we trust there are significant opportunities because our affair can the short, medium, and of course, need term. We read expressed our faith at another year of proceed and delivery. because our long-term theorem indicator show, continuous investment at our nation and at our affair is delivering. during our IPO ought final year-end, our EBITDA has increased by can EUR 600 million, our EBITDA border by 460 base points, and our ROCE by can 1,000 base points, and this has enabled us ought uphold a progressive and effective dividend flow with a CAGR of can 30% during 2011.
Our tour of transformation will forge us bigger, besides more importantly, better. A quality affair consistently delivering. A recognized and respected industry main with what we trust ought be superior returns, and of course, making our planet a better lay with the theorem civilization that defines us and values within the company that fasten us. consequently with that, ladies and gentlemen, thank you because your attention. And Ken and myself and Paul will accept any questions that you have. We'll depart at the room and then proceed ought the phones.
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Questions and Answers
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Lars F. Kjellberg, Crédit Suisse AG, investigation part - investigation Analyst [1]
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Lars Kjellberg, Crédit Suisse. The medium-term plan is obviously giving you some tangible benefits, which you called out, and to outline ought conduct so. What I'm more interested ought report nearly is the other aspect of the innovation, the guest retention, et cetera. You called that it's difficult ought report nearly the volume benefits of that. conduct you visit any tangible benefits at condition of value, implication where you called out containerboard prices immediately coming off? conduct you visit your -- any capability ought stabilize box prices across these innovations, salary savings because your customers, et cetera? I impartial expect ought fetch your thoughts can that.
And Ken, if you can shout out impartial some technical guidance can the -- what you desire from the medium-term plan because the sum year, the M&A impact, the cadence of that? And also, if we emerge can the OCC employ that you called out at H1 of EUR 32 million, if I recall, there's some indices that should've been a greater number. Is that a time lag, i.e., to we desire more ought alter at the second half of the year?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [2]
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Just taking the guest piece, yes, I mean, we will be same silly if the investments at our affair and the investment at innovation was no giving us tangible benefits, and I speak that ought our people, of course. if the investment at present machines isn't allowing us ought be more accurate at our servicing ought our customers ought forge definite that it runs effectively can their possess present machines, if that doesn't allow us an opportunity, then maybe we read ought issue that investment. I ponder if the entire innovation centers that we read nearly the nation isn't bringing us advantage with ponder ought guest retention, guest margins, then we used to be silly ought conduct it because there's a salary ought that. And clearly, the margins that you're seeing are a testament ought the fact that no only are we saving our customers' money besides we are indeed making better margins ourselves. consequently at a sense, we don't -- you can visit volumes going down because you're using less square meters because your customers, you're losing less essay because you've designed lighter packaging, and -- besides can the identical time, you're getting better margins because a ripen of time because that guest implements the new logistic equip chain. consequently there is a huge employ from being innovative and staying away from the pure freight belt of the business. There's repeatedly going ought be a divide of the belt of the affair that is pure commodity, besides if you're able ought aid your customers decrease their carbon footprint, if you're able ought aid their customers decrease their voids, if you're able ought aid their customers can the shelf sell more product, you are a winner. And we are proving that time and again with our customers that we're able ought conduct that. And consequently there's no issue that that's a big definite Smurfit Kappa, and it's how we compete against a convict of nation who are prepared ought no emerge can answer can main because it being the most paramount thing. consequently you read a convict of independence of impartial putting new main and proceed because the lowest price, besides they don't present anything else. And that's what is indeed standing ought Smurfit Kappa, and that's why we read 26 experience centers, that's why we read 3,000 customers at the first 6 months, that's why we read 350 customers alter ought the innovation event, that's why nation speak how are we going ought fetch rid of polystyrene, how are we going ought fetch rid of plastics. They alter ought us because we comprehend what -- we comprehend how ought conduct it. And I used to impartial emphasize, this is no a war can plastic. flexible is a indeed significant divide of life. It's a war can garbage and additional waste, and that includes at corrugated packaging because there is a convict of overpackaging that can be designed out, and that used to intend less volume, besides it will indeed intend more contribution because us because we give those innovative designs.
Ken?
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [3]
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Yes. Lars, at condition of the broad drivers of the 3 topics, I suppose. at condition of medium-term plan because '19, maybe nearly EUR 30 million, EUR 35 million at condition of incremental benefit. at condition of the acquisitions, we've taken Parenco, plus Serbia, Bulgaria and the 2 French ones, maybe somewhere at the district of EUR 35 million ought EUR 40 million. Remember, Parenco has obviously taken it slightly down because of a portion of a autumn at recycled containerboard prices.
And at condition of OCC, no -- nothing ought capture up on. I ponder Pixus is more order of traveling than what's indeed accident at the markets where we're buying at -- across entire markets can entire different prices than what we visit because the 25 alike at Europe and the 7 at the Americas. consequently Pixus is more order traveled than true pricing power.
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Unidentified Analyst, [4]
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(inaudible) consequently the things that you're doing at polystyrene into corrugated at protective packaging, can you comment can entire can the margins can that aspect of business? Is that meaningfully different from the balance?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [5]
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It indeed depends can the customer, it depends can the produce design. I used to speak that it, greatly speaking, used to be higher border than the -- certainly, higher border than pure commodity, I used to say. I mean, of course, while you're making a new design, your margins are greatly higher can the beginning. What happens is that produce life cycle ought corrugated box, I mean, if you fetch a new forge because your customer, you typically forge sum margin. And then while he or she is at that affair at 2 ought 3, 5 years, the salary comes out of it. consequently -- or the border comes out of it, and then you depart again by redesigning. consequently that's the nature of our business.
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Alexander Berglund, BofA Merrill Lynch, investigation part - Analyst [6]
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Alexander Berglund, beach of America. I read a follow-up can box prices. impartial firstly, if you can, can I fetch a comment can what you're seeing silent exiting Q2? And then because healthy a portion of follow-up can great issue nearly entire the vocation you're doing can innovation and value-add solutions, how that potentially can forge box prices a portion more healthy at this containable downturn? Specifically, can you impartial friendly of remember us or comment can what percent of your box revenue is purely a duty of indexation and can the sympathy of what containerboard is doing? And then at what percent you read the capability ought potentially read a portion more healthy pricing because of the innovation you're doing?
And then my second issue is impartial can containerboard. if you can comment can how the inventory nation is accurate now? And because healthy during alike your -- a unite of your peers tried ought amplify prices, besides we're seeing it doesn't look alike much of those are coming through, consequently impartial friendly of general commentary can the pricing nation at containerboard. Those are my questions.
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [7]
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I don't comprehend if you need...
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [8]
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No. I'll accept some if you want.
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [9]
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Go ahead then.
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [10]
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I'll conduct the simple ones. Alex, at condition of the index/non-index, the index is nearly 41% of the business, and the liberate negotiated is nearly 59% with FMCG being friendly of 65% ought 70% of the sum business, which is generating index versus non-index, 41% index, 59% liberate negotiations. consequently that to cost those...
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [11]
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And because healthy remember, Alex, one of the points is that packaging is nonplastic. consequently nearly 25% -- somewhere among 25% and 30% of entire packages alter each year at some way, forge or form. consequently customers, they add new lines, they accept up demand. consequently that 30% will read nearly -- a churn estimate of nearly -- while we speak 39%, 39% will read a churn estimate of nearly 25%. consequently there's new packages coming at each year. consequently effectively, during the ripen of the commerce with our guest of 3 ought 4 years, you will read entire of that packaging changing. Obviously, the simpler it is, the less changing there is, and the more optimized it is, the less alter there is. besides customers change, and consequently -- and there's a entire new fasten of omnichannels that you got ought task with, the e-commerce nation that you got ought task with, no impartial big distribution, you got ought task with smaller distribution chains. And consequently there's a entire convict of alter going can at our customers' world. And that's, again, one of the reasons they alter ought a company alike Smurfit Kappa because we're able ought comprehend how ought task with that new omnichannel world.
And with regards ought containerboard inventories, we -- I ponder they could be high entire year besides trending down. And June was a soggy month because us and for, we think, the industry. consequently inventories didn't haul down at June because we would've expected. The good news from our perspective is that we visit July because being the well month can the drawdown. It's a need month. It's 23 days at most jurisdictions or most territories. consequently we've had a same well haul can containerboard. consequently our private inventories are same low because we exit July. Now they'll proceed up again at August because August is a -- greatly a slower month. besides our possess inventories read drawn down a convict during the month of July. And consequently that -- we don't read an industry forge yet, besides that used to be a good sign. And if August and September were stronger, then it points at the accurate order because containerboard.
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Alexander Berglund, BofA Merrill Lynch, investigation part - Analyst [12]
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As a hasty follow-up, can that 40% that is indexed, read you seen any decrease at prices consequently far can box prices?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [13]
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It starts -- indeed effectively starts July onwards.
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Unidentified Analyst, [14]
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Tony, you mentioned earlier nearly overpackaging being designed out. I'm impartial wondering can you elaborate a small portion can that because, clearly, at U.S. year ought date, we've seen U.S. box volumes down 1%, and divide of that is certainly Amazon's Frustration-Free Packaging initiatives. consequently is that something we're seeing at Europe? Is that something that Smurfit Kappa is seeing?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [15]
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I ponder impartial can -- the European packaging impartial is a same complicated packaging market. consequently there has repeatedly been a gravitation towards lighter-weight papers much quicker than U.S. market. Equally speaking, we -- the belt of overpackaging used to be much less at Europe. There is certainly overpackaging at Europe and that will be designed out at time. besides the reality is if you're an e-commerce guy and you're starting off, you don't give indeed a convict of concept ought the box beginning -- can the beginning. consequently -- and your growth is, greatly speaking, same hasty and same strong. consequently therefore, you pursue your growth. And then because growth maybe slows a small bit, you then emerge can some of the costs, and which are -- can be boxes also because other things. consequently that's where they alter ought us because expertise ought speak let's influence down this big box ought parcel a few thing, we lack a few box ought parcel a few thing. And so, obviously, we aid them with that design. besides at the beginning, there's a ripple ought impartial lay the commerce at a box, fetch it ought the guy and then fetch it uphold because quickly because possible. And obviously, because they mature, they emerge can things, and consequently that's where we alter in.
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Unidentified Analyst, [16]
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Just ought pursue up impartial slightly ought what's been told. I comprehend you took an extended shut at Piteå at May. Are there any other class of extended maintenance/commercial downtime that you've taken across the system ought fetch ought a good increment position?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [17]
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No. We took entire of our shuts at Nettingsdorfer and Piteå at May. And actually, we had pretty a difficult startup. It's affected us during the first half at Piteå. And -- besides we to be finished with that because we proceed into the second half. besides then can Christmas time, we accept Facture, which is our great French mill, down because 45 days because a rebuild. And consequently the entire factory will be down because I ponder nearly 25 days, and then 1 machine will be down because 45.
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Unidentified Analyst, [18]
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And impartial once again, I comprehend you're unwilling ought division with us class of your possess thoughts can containerboard -- sorry, corrugated salary concessions, besides can you impartial remember us of the sensitivity of the European affair at condition of each 1% box salary autumn is how much of your EBITDA?
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [19]
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Generally, impartial 1% is nearly EUR 45 million EBITDA. 1% volume is EUR 15 million. consequently because repeatedly -- lastly, salary can volume friendly of a changed risk.
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [20]
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Okay. no more questions at the room. consequently going ought visit if there's any questions can the...
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Operator [21]
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(Operator Instructions) Okay. First issue is from the row of David O'Brien from Goodbody.
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David A. O'Brien, Goodbody Stockbrokers, investigation part - Investment Analyst [22]
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Firstly, a same good slip can slip 19 showing the European -- or sorry, slip 18 showing the European EBITDA margins. I'm impartial wondering what will the order of tour be of that border into the second half given falling containerboards, medium-term plan kicking in, and then you've discussed the definite impacts of innovation and sustainability. consequently how to we ponder nearly European margins into the second half and how sustainable they are ought contemporary levels?
And secondly, can you impartial give us a small portion of a flavor can volume growth? What theorem has been alike can a regional base across Europe and maybe a small portion at the Americas because well, besides because healthy impartial can the different aim markets because you read fast-food consumer wealth or into industrial aim markets?
And finally, impartial can Reparenco, of the EUR 30 million synergies, what will be realized at the contemporary year?
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [23]
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I ponder can the first one we'll be slightly getting into a portion of forecasting and speculation. I ponder the deceive here is impartial ought possess doing what we're doing, and everything we spoke nearly this morning nearly innovation, differentiation and making definite the guest has what they expect and has that border resilience. I ponder it's an component of border no only built can price, it's because healthy built can salary takeouts and innovation nearly that. consequently the aim here is no necessarily ought protect margins, forge definite we protect them because much because we can going into the second half, besides no only this year or final year, the next year because the fetch goes. consequently can't forecast margins at the future. entire we can conduct is attempt and conduct our best ought forge definite that we because healthy possess our holes or grow.
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [24]
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With ponder ought what we're seeing, I mean, clearly, the weakest impartial we currently visit is the U.K. market. The crack of Europe can depend can the month, besides basically, it's okay with specially well markets at Spain and within some of our Eastern European markets. Germany is no by any extend of imagination doing well, besides it's no doing because badly because you used to devour at the newspapers. because basically, FMCG customers are fine, they're greatly growing and progressing. besides obviously, we're seeing a slowdown at a convict of the industrial customers that we have, and that used to be some of the cure makers and automakers that we equip the heavier-duty kind of packages for. besides if you were ought speak what's a specific impartial of weakness, I used to speak the U.K., albeit it was however doing however healthy here. And then if you proceed into the Americas, I used to speak that the first half has been heavily impacted negatively at Argentina, albeit that it's a few nation because us with, ponder ought the hyperinflation nation at the country. Actually, at July in, it's the first month that we've seen volumes uphold ought the identical even because final year, which is same encouraging. besides one gorge doesn't forge a summer, consequently ought speak. consequently we lack ought impartial possess an eye can that. Brazil is slightly improving at July hind a difficult first half, and then Colombia is positively booming with good performances out of the United States and Mexico.
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [25]
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And then, Dave, at condition of Parenco, synergy aim is fine. Most of it will alter this year, maybe a small portion force leak into next year. at condition of Serbia and Bulgaria, maybe more next year than this year. I ponder with Parenco, the only impact, if you like, can the flow estimate year-on-year is maybe the impact of containerboard pricing coming out of the bill, besides then you fetch the employ of some of that at Papcart and Caradec at condition of integrated essay tonnes. consequently broadly, synergy target, absolutely at line. no issues there. Most of it will alter this year.
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Operator [26]
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Next issue is from Mikael Doepel from UBS.
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Mikael Doepel, UBS Investment Bank, investigation part - Executive Director & Analyst [27]
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Just a unite of questions can the salary side, firstly. consequently if you could impartial remember us of what you're seeing at condition of salary inflation because some of the key salary items that you read previously because healthy guided on? And also, you said previously something nearly the OCC price. I couldn't indeed listen what that was, and if you impartial could cite what you're seeing at condition of OCC going deliver because well.
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [28]
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On OCC, we were saying that don't visit any catch-up employ from where we are into the second half. I ponder we nurse ought visit Pixus because an indices of tour and order pretty than friendly of a amount that we friendly of buy can because we're buying across entire our territories can different prices can different depots. consequently the EUR 25 million employ you visit at Europe is same much the employ we visit at our system.
In condition of other salary lines, nothing has indeed changed during we outlined it at can time. consequently generally, distribution will be a headwind this year because it was final year, indeed. Labor will be offset entirely by our salary takeout program this year. maybe the one belt where you force visit it going uphold slowly than where we are is energy. consequently force at the second half force be slightly lower than we would've guided can the sum year. consequently greatly -- besides we're no seeing a convict of salary inflation, no seeing a convict of salary deflation either, yes. besides most things, because we would've outlined can the first belt call, used to be only maybe few tailwinds, if you like, at relative of being force of, shout it, somewhere among EUR 5 million ought EUR 10 million at total.
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Mikael Doepel, UBS Investment Bank, investigation part - Executive Director & Analyst [29]
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Okay. That's very, same clear. And impartial a persist issue at condition of the volumes growth. We talked nearly that already, besides if you ponder nearly the sum year, I ponder you mentioned at your previous trading update that because the sum year, 2% plus is maybe a rational assumption because volumes growth. conduct you however cane ought that? Or has something changed there?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [30]
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No. Mikael, nothing has changed. I ponder if you hear ought our European colleagues can our affair reviews and you hear ought our American colleagues, they used to entire be same much can that number. There's no -- obviously, what we speak at the illustrate is if there's a capital circulate with the Brexit, that can alter things. besides because we sit here today, we feel same strongly that that's a good amount ought proceed with. no argument ought ponder otherwise.
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Operator [31]
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Next issue is from Chip Dillon from vertical investigation Partners.
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Clyde Alvin Dillon, vertical investigation Partners, LLC - colleague [32]
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Just three friendly of hasty ones. Could you report a small portion nearly why the impose estimate guidance is down nearly 200 base points from what you were looking for? uphold at -- earlier at the year, I ponder you were looking because 27%, now it's can 25%.
And then secondly, I heard you mention the reject at European containerboard prices were among EUR 140 and EUR 160. I guess while it was testliner and while it was kraft, I'm no sure, besides could you illustrate that?
And then impartial thirdly, I mean, your debt nation looks great. I impartial didn't comprehend with the incremental descend at advantage rates, specially at Europe, if there's any manner ought farther lower your advantage costs through, I don't know, refinancing what you already read out there?
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Anthony Paul J. Smurfit, Smurfit Kappa orchestra plc - orchestra CEO & Director [33]
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Well, Chip, they're entire Ken's question. So...
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Ken Bowles, Smurfit Kappa orchestra plc - orchestra CFO & Director [34]
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Thanks, Chip.