Good day and thank you for standing by. Welcome to the Smurfit WestRock 2026 Q3 results webcast and conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Ciaran Potts, Smurfit WestRock Group VP, Investor Relations. Please go ahead.

Thank you, Sarah. As a reminder, statements in today's press release and presentation and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the earnings release and in our SEC filing. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures where applicable reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the accompanying presentation, which are available at investors.smurfitwestrock.com. Before I hand you over, please note that Tony and Ken are stepping away from the board this morning and rejoining after our call. In the interest of time, I therefore request that you ask no more than two questions. I'll stay on the line should we have any technical issues in Brazil. I'll now hand you over to Tony Smurfit, CEO of Smurfit WestRock.

Thank you, Ciaran. As Ciaran has just said, we're hosting today's call from our Três Barras mill in Brazil, Latin America's largest country with a population of some 213 million people. Trace Barris is a state-of-the-art craftliner mill with an annual capacity of approximately 700,000 tons. This operation is a great example of successful investments of approximately $350 million over the last five years delivering superior returns. It is integrated downstream into our Latin American box system, primarily in Brazil, Argentina, and soon to be Chile, and significantly integrated upstream into our sustainably sourced forestry operations. As you will have seen, we've announced third quarter adjusted EBITDA of 1.205 million with an adjusted EBITDA margin of 14.8%. These results show great resilience in the face of unprecedented and greater than anticipated cost inflation, predominantly but not limited to energy and freight. To counteract these cost increases, we have, by necessity, implemented price increases across most paper grades, which are being passed on with the normal time lag. The period was characterized by a number of one-off events, such as extreme heat waves in Europe, earthquakes in Colombia, and a significant contamination issue in the agricultural sector in the United States, affecting our volumes both there and in Mexico. Since the formation of Smurfit WestRock, I'm incredibly proud of the many achievements we have accomplished, especially the way we have brought the two companies together and formed one culture. Operating in 40 countries, we have unified the company under one banner with the focus being the owner-operator model, which resonates and is well understood both internally and externally. We have developed a strategic plan, which we presented to you in February, that takes the company to a different level through our own actions and investments to improve efficiency and they're offering to our customer base. And we've refocused the company at our end customer through innovation, quality and service. Turning now to a regional overview, our North American business continues to improve in most areas, although this improvement is masked by the amount of increased cost that we have incurred. The third quarter showed sequential improvement in our corrugated volumes with a continued and developing strong pipeline. Our people have embraced our new Smurfit WestRock performance-led and owner-operator culture, and this is reflected by our improvements across all customer service metrics and our attention and retention of talent. Today, our mill system across practically all grades remains sold out, allowing for us to prioritize orders and improve our business mix. The real benefits of this will be apparent as we move into 2027. In our converting businesses, We are progressively getting better through continuous investments with teams of highly motivated people across both business areas of corrugated and consumer. As we roll out our innovation centers, we continue to benefit from our cross-selling opportunities as a major competitive advantage. In another business area, we've seen a large structural shift towards our paper bag and sack business, where we are the largest producer in the United States. Finally, while demand in our Mexican business is as weak as I have experienced it in recent years, our footprint is continually being strengthened by significant cost takeout initiatives and rationalization measures. Now turning to our EMAA and APAC region, where we continue to outperform our integrated peers. Our innovative offering delivers solutions to our customers that help them navigate an increasingly complex regulatory environment, especially in Europe. By partnering with Smurfit WestRock, our customers take regulatory compliance as a given, solving a key supply chain issue for them. As in other regions, we have implemented paper price increases to recover costs, which are being progressively passed through. These increases are primarily a consequence of the spiraling cost of energy that has shown no signs of abatements during the year and is reaching levels that we have rarely seen. Over the last number of years, we have made many investments in both our mill system and conversion operations that have considerably improved our quality and service KPIs, giving us further competitive advantage. Some of those investments are also targeted at continuing to reduce our cost base and drive operating efficiency, which have helped somewhat to offset some of the cost pressures we have seen this year. We have also continued to rationalize our footprints. making our asset base more efficient which will enhance future returns. Our experience management team in this region has the skill to both navigate the current difficult macro environment and continue to outperform. In Latin America, while the region faces many of the same challenges experienced in other regions, our returns and in particular adjusted EBITDA margin remain at excellent levels. We have strong market positions, a well-invested world-class asset base together with again skilled and experienced operators. We continue to look for ways to develop our offering in the region and I was particularly happy to announce our agreement to acquire the world-class packaging assets of CNPC during the quarter. This acquisition will strengthen our position in both Chile and the wider region as well as adding further paper integration to our system. Also during the quarter, we started up our circa $100 million investment in our biomass boiler in Colombia, which is helping to offset energy price increases in that country. Paper prices are rising in the region as international shortages feed into the market. For the full year 2026, we now expect adjusted EBITDA margin of approximately $4.7 billion. This primarily reflects the unprecedented cost inflation We continue to experience across the business. Freight and energy costs alone are expected to represent approximately $700 million year-on-year headwind in 2026, materially above our earlier expectations. As we move into 2027, we believe the actions we've taken during the year will more than offset these costs. What I'm most satisfied with is the great work that has been done across the organization in every region, to improve efficiency, reduce our costs, further develop our innovation offering, and improve our asset base. As a truly global paper and packaging company with an unparalleled product portfolio and the widest geographical reach, it is ultimately our customers who benefit most from our extensive offering. As we develop the company through our investment program and through our culture, I am confident of the foundation we are building for 2027 and beyond. and with that operator we will hand it over to questions.

Thank you. If you would like to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced and to withdraw your question please press star 1 and 1 again. We will now take the first question. This is from George Staffos from Bank of America. Please go ahead.

Good morning, everybody. Good afternoon. Thanks for taking the question in detail. I'm here with Reinhart van der Waal in Europe. So I guess two questions, Tony. First of all, can you talk about the progression on volumes in North America? At one point, you expect to be up. At some point in the back half, is that still the projection relatedly? I think you had a profit improvement in terms of the bridge from volume, even though volumes were down in third quarter in North America. How do we reconcile that? And then second, Thank you very much, George.

With regard to progression, as I said, that we expected either in the third or the fourth quarter that we would start to be there or thereabouts with the previous year. Obviously, the third quarter has been very heavily impacted by this cyclospiro and E. coli situation that affected our agricultural region very significantly. and you know I think from the good news point of view is and one swallow doesn't make a summer but for October we are line ball with last year and it looks like our order books are reasonably good for November at this stage so I mean again as I say one swallow doesn't make a summer but I do think that we have you know our progress each quarter has been a bit better and as we see the volumes that we gave up last year Thank you very much. Thank you very much. I see, you know, us getting, you know, going where we want to go to. Maybe sometimes a little bit slower because the underlying market is not as strong as we would have liked. But overall, I think it's going exactly as we would have anticipated. With regard to your bridges, I'll hand it over to Ken.

Hey, morning, George. Morning, Reinhard. Yes, keep it simple, George. The net positive volume in North America is, remember, we have a lot of third-party sales. So the positive growth you're seeing there is around third-party paper sales.

Okay, and then on the pricing and the pressure sink and converting?

Yeah, on the converting, I mean, I wouldn't say there's anything different. We are having to go to our customers and sort of recognize the fact that we've got other costs than just paper, and clearly we have to recover those as we go through the year, and either through negotiation or through through making sure that we have a special tag on for certain customers. We're continuing to develop our margins in our corrugated business. We have reduced our loss makers very considerably. I think we're less than 30 loss makers. It's a bit difficult when the paper price goes up. Obviously, there's a period of time where the corrugated operations slip backwards because they have to go into the market and get those paper prices up. to see where we are right now. But overall, I think that we are making very good commercial progress across the business and I'm really happy with our commercial team and the customer wins, they're winning. I'm getting pricing going forward.

And George, I think you can see that, George, a little bit. If you look at the North American margin, quarter one, two, and three, you see progression on the margin bill there. And equally, while we're dealing with the normal time lag, you can see progression in pricing also, right? So sequentially... Thank you very much for joining us.

Thank you very much, George.

Thank you. We'll take the next question today. This is from Hilary Cacanando from Deutsche Bank Securities. Please go ahead.

Hi, thank you for taking my question. Just going back to the North American converting business, last quarter you mentioned that corrugating converting margins were roughly 3% to 4%. Can you update us on where that converting margin is today?

It's a little bit lower than that now, Hilary, because we take in the paper price into our converting business. We transfer at the market price, so therefore it'll be a little bit less than the 2% number now because we have to then go to the market and get that increase into our boxes. But the underlying trend of margin improvement within our corrugated business is quite significant. and you'll see that as we go into Q1 and Q2 of next year as we pass through this latest paper price increase.

Got it. Thanks, Tony. And then as a follow-up, with 2026 EBITDA now expected at roughly $4.7 billion, how should we think about that lower starting point relative to the medium term plan? Is the shortfall predominantly timing? around price cost recovery such that the underlying 2030 earnings opportunity is largely unchanged. How should we think about that relative to the 2030 plan?

Hi, Hillary. It's Ken here. Yeah, essentially, it's timing. In reality, the plan was set up to bring us from call it 26 to 2030. Nothing within the plan from a structure perspective has changed. And if you recall, when we talked to you in February, that plan was largely built on internal actions and a lot of kind of internal opportunities that we had to kind of get through like kind of working through the unprofitable contracts and getting to positive volume growth in North America for example so pricing wasn't necessarily part of that kind of proposition if you like but clearly the backdrop and cost for 2026 has kind of impacted the timing but not the recovery or achievement of the target but only the timing in terms of when we'll get there but the 2030 target is still bang on in terms of Timing will just be kind of flexed in between the years with how we get there.

Great. So no change to 2030 plan. Great. Thank you so much.

Thank you.

Thank you. We'll now take the next question. This is from Phil Ng from Jefferies.

Please go ahead. Phil Ng from Jefferies. Your line is open. Please ask your question.

We can come back to them, Sarah.

Sure. Let's move on to the next question. This is from Mike Roxland from Truist Securities. Please go ahead.

Thank you, Tony, Ken, Ciaran, and team for taking my questions. First one I had, the industry has gotten about $170 per ton of price this year. Of that amount, how much do you estimate is for cost recovery versus margin for you guys in particular?

I would say that the first 100 is really, really just basically recovering the costs. I mean, you know, obviously, Mike, the cost thing is a moving target, as you have seen from our numbers, because when we were here three months ago, we did not expect TTF gas to be at 97 or 98 as it is this morning, nor did we expect diesel to be where it is or some of these other So, you know, we would have thought that the first 100 would have had some margin improvement in it, but clearly I'd say the vast majority of that has been gone in these current high prices. As we translate the other increases through the more recent increases, that would probably be all margin enhancement, I would say, broadly speaking.

Yeah, and I think Tony kind of referenced it there. The July increase is that and the $100 a ton we put back end of July. I think up to that point, the increases to that date would have really dealt with the cost recovery piece and probably a bit of recovery on margin. That $100 would have overcome any remaining piece, but also purely margin. But as Tony just said, since then, clearly the cost backdrop has continued to be elevated and unanticipated. So still a lot of cost and a bit of margin there, but probably again, pushing out the timing slightly in terms of 27 versus where it might have been, but still on track.

Got it. I'm very clear. And just one, you know, when you think about 27, given in terms of EBITDA, given the lower stepping off point, can you provide us with an initial peek at what you're expecting in terms of either demand, you know, maybe some of the larger buckets or guideposts around what's going to drive EBITDA next year? Thanks.

Mike, we haven't done our budgets yet, so I do know that our guys are very comfortable and confident that our numbers will be significantly better based upon the run rate that we're going to come out of last year, but we haven't actually got to do our budgets yet. We're doing those next week. But I would say that the early view is that we are very comfortable and confident that next year will be a very good year for us if everything stays relatively where it is today. I mean, clearly... Thank you Mike. Thank you.

Next question today is from Mark Weintraub from Seaport Research Partners. Please go ahead.

Great. Thanks very much. Obviously, we're in a pretty extraordinary period from a cost standpoint. And so I was just hoping if we could maybe get a little more color on some of the sensitivities and things like hedging, as well as the timing on price recovery as you roll container board through into boxes in the different regions. It was kind of a big picture stuff. Wouldn't normally be asking this, but again, we're in a really volatile market and it's hard for us on the outside to get our arms around some of the timing in particular around these items.

We have said that we expect to get the full cost recovery of the latest increase in Q1 of next year and all of the paper price increases as we deal with some of the earlier taken orders, as we get rid of those out of our system, those will translate into much higher export prices. I mentioned in my script We see very strong paper bag business that's growing very strongly because of some structural shifts. So all of that will start to feed through into later in this quarter. All the paper stuff was later in this quarter, but really strongly into early next year. So as we go through Q1, Q2, we should start to see material increases in our numbers based upon these increases that will be passed from from paper into corrugated and into export markets and into other grades of paper. And that would be a normal situation for us. Europe has been a little bit more volatile in up and down pricing. And so this is completely normal for the European business to have this time lag period and Obviously, when prices go down, that is also a benefit for the company holding on to margin. We're not seeing anything different other than the fact that if costs, as you say, Mark, it's a time when all of us are dealing with these escalating costs. If they continue to escalate, we'll have to do something about it because clearly, they're affecting our numbers and we need to recover. So Q1 will be, you know, a continuing benefit from what we've seen in the announcement of the $70 and then we'll keep an eye on what we have to do based on costs.

Hey Mark, it's Ken here. I think, you know, we're complicating either sensitivities on energy or freight. I think when we think about energy and hedging, clearly coming into the year and where prices were, we still had a decent bit of hedging in the tank. clearly at these levels we've taken a different view across the year we've stepped into the market every now and again when the price has come to a level where we think it makes sense to hedge but not hedging at these kind of levels because in reality that can go against you if the price drops so the energy committees in both North America and Europe and indeed Latin America have been smart about how they've incrementally added small hedges along the way but we would not be at the levels where we would normally be and that's clearly as a function of the market and where we see cost. But clearly that's why the price increase we've announced on paper in both regions, you know, net 170 in North America, net 140 in Europe, are designed to kind of take account of that situation too. But still a level of hedging, but not to the levels we'd like and the ranges would be quite wide in terms of the spot prices for that. And we look at the forward curves equally. You wouldn't be stepping into this market given where the forward curves for energy are. I think on the freight side, probably the most meaningful sensitivity for you is around where diesel sits with us. So we kind of estimate that, call it every dollar on diesel, probably has a direct impact to the business of something like $80 million. But then when you add in the downstream impact of that through the rest of the system, that's probably more like kind of $120 to $130 million in total impact for the year for a North American system. That's probably the most meaningful sensitivity for that region versus, say, energy for Europe.

Super, that's super. And Ken, could you give us a sense of, The sensitivity to nat gas in Europe, either how much you're consuming or similar to like the dollar translates into X million dollars.

It's a trickier proposition given the fact that we do a lot of our own internals through CHPs and our own kind of takeoffs. It's a much trickier. What I'll do is, Mark, I think we'll deal with that one separately because it's a much deeper modeling question given you can't take the total energy piece and kind of model it out. It has a lot of moving parts around internal energy, where we use renewables, how we step into renewables, the CHP and the corrugated systems. It's quite a different, more detailed answer, if that's okay.

I think, Mark, it's very interesting. At the current levels, just put into an American context, the TTF is about $30 per BTU for natural gas in Europe. In North America, it's Call it $3. So it's a 10 to 1 ratio for the European industry. And, you know, like the reason why we're getting paper price increases in Europe is not because of the capacity situation. There's a lot of people that actually can't afford to run the mills. And, you know, that's why the prices are absolutely necessary. And if this continues, there will obviously have to be other actions, either by closures or other pricing actions, because there's just no way that's at these cost levels that our European industry in paper but also many European industries will be able to continue to operate in any way profitably. So obviously from our perspective we have our craft liner mills which don't use as much gas and generate themselves so that's making them very profitable and as we get these box paper price increases we have to pass them on through the box system which we will be doing and are doing and you already see the prices moving up in Europe step by step and we'll start to see a big benefit of that in Q1 as we pass through the contractual price increases that we have.

Appreciate it, Tyler. Thank you.

Thanks, Mark.

Thank you. Next question comes from Anthony Pettinari from Citigroup. Please go ahead.

Good morning. Tony, hey, in North America, I think you indicated you're sold out in most consumer grades. And I'm wondering if you could give any more detail on where, you know, the consumer business is in terms of cost recovery or just sort of overall performance versus expectations. And, you know, I guess we've gotten these hikes in container board, but in consumer, we haven't necessarily seen the same kind of pricing traction. So just kind of wondering if you can comment on that.

Yeah, on consumer, I would say that it's steady. She goes on the C-U-K market. That's carrier board market. There hasn't been any real decreases nor has there been any real increases there. We try. We had a look at that way back when and it didn't seem like the right time. as you remember went down about a hundred dollars we're in the market with increases currently and you know we're sold out in that grade so therefore we believe that there it merits some increases to get more than back what we lost in the last quarter of last year as we move into next year as we move into 2027 so that is a very strong grade for us we have A very differentiated offering. We are a little bit in the commodity side of that business, but we tend not to try and be in all the commodity side of that business in plate stock and cut stock. And we've got some specific areas which we've grown. And as we've talked about before, we've made some switches away from CRB to SBS and indeed to CUK with customers and giving them benefit for that. So I think I feel good about the SBS market right now, the way that we're positioned at least. And then the CRB market, our mills are not the strongest in that area and we continue to be an alternative supplier for customers and our own internal usage. And that's an area which we don't necessarily see when I talk about CRB. Most grades, that's the one area that we don't really see any pricing momentum. You'll know the reasons why that is, Anthony.

Yeah, I think Anthony and Ken here, I think to follow on to that too, at the converting end in terms of consumer, we've seen reasonable progress in terms of volumes Q3 over last year. I mean, you know, for food and beverage, broadly flat, but most pleasingly probably in our HBH segment, you know, broadly volumes up about 2% year-on-year. So, kind of aligned that kind of sold out position on most of the consumer grade forward wise but also seeing progress in terms of violence on the converting side is equally pleasing.

Okay, okay, that's very helpful. And then just quick follow up on Europe and kind of your response to Mark's question. You know, given the spike in energy and freight and I'd imagine some volume pressure for the industry, are you seeing changes in industry supply demand in terms of Supply coming off. Has that, I guess, has it surprised you that you haven't seen more supply come off? I'm just wondering if you can give any kind of general commentary on supply-demand situation in Europe and what's obviously kind of a stressed environment.

I think it's inevitable that it will happen. I think we've seen a lot of people taking a lot of downtime because, obviously, if you're going into the market and selling at the old prices, you're losing supply A lot of money on every ton, and as this price continues to rise for energy, then you're going to see continued stress, either through downtime. As you know, Anthony, in Europe, governments don't like to see paper mills shut down, so they try and keep them open as long as possible, and they give all sorts of subsidies and help. You'll have seen some of our competitors announced Thank you, Anthony.

Thank you. Next question is from Andrew Jones from UBS. Please go ahead.

Hi, gents.

Thanks for the call.

I just wanted to ask about the situation in Europe. We've had large price hikes, obviously driven by that cost pressure that you've mentioned. But I'm curious what your thoughts are on as we go into the next year, some of this new capacity is coming online in Italy and obviously that shot a million in the UK. I mean, are you seeing...

I think the reality is that of all the new capacity coming on, they're all people who have skin in the game already, if you like, in terms of a system in play. So you've got to think about this from a pure capital allocation perspective, or at least I would, in the sense that it wouldn't make any sense logically you know to be kind of trying to capture volume for a new mill on lowering price given the amount of capital that it takes either to convert these mills or they'd start up a new one so for like the shot somebody mentioned there or even the palm mill equally in the UK in the early part of next year you'd have to assume the kind of similar logic or pattern that we've seen in the last number of years which is around you know Antonio's reference downtime you know prioritizing maybe downtime in the mill system over Thank you very much. You know, it may have predominantly going to take additional downtime in order to manage that kind of market better than it might have done before. But equally, the lack of independent players means that idea of a rogue mill trying to capture new volume on price is not really there anymore. It is a lot of systems who have a bigger game to play in the context of how they manage overall market share.

Yeah, I think, Andy, Ken just made a good point. Two very large independents have gone out of the markets, one to SICA and one to Mondi in Germany, Schumacher and Tim Group and so the independent market per se is shrinking so therefore independent mills that are coming into the market like the two that Ken has mentioned have a less and less market to go for other than they go for export and that's not that's a road to perdition really so I think you'll find that for them to be chopping pricing will be as I say it will be It'll be a disaster for them. And you see that already with one of the larger competitors, free market competitors who make nothing in their container board system. And that's before the recent price rises. So I think I worry less about that than how the energy price affects the demand outlook for our end customers. And that's something that we don't obviously have a crystal ball on. but so far at least because of our offering in Europe, we've grown this year, we continue to see in October reasonably good growth in October so I'm very comfortable with our own system but the overall environment, how energy affects Europe is something that we have to think about at least.

Okay, that's quite clear, thanks a lot.

Thanks, Andy.

Thank you. And the next question comes from Detlef Winkelmann from JP Morgan. Please go ahead.

Good morning, everyone. Maybe my first question, you did call out, I think you said something to the effect that, look, price increases always lagged. Cost inflation has come first. That's fine. But over the next, you know, on an annualized basis, price cost is firmly positive or price will more than offset cost inflation. Just curious, I mean, is that only on the North American side, or should we be thinking the same thing in Europe as well, just after considering your kind of craftliner kind of mix in there and the energy efficiency, that kind of side on that as well, please? And then I've got a follow-up, please.

Hey, that's Ken, and morning. No, you should assume that for all regions. The mechanism, if you like, in terms of paper price increase into the index or indeed the freedom negotiated, is probably slightly quicker in North America than Europe by a couple of months, but ultimately it's exactly the same pattern. And indeed in Latin America, you'd argue, maybe even quicker again, given it's a region that generally deals with inflation quite well. So no, the pattern in terms of normal time lags that we talked about, very similar for North America and Europe. And given the level of indexed versus non-indexed is probably slightly higher in North America, you tend to get it quicker, but overall you end up in the same place.

Okay, cool. And then one more follow-up just on Europe. We've been hearing in the last couple of company releases that there's a bit of discounting downstream at the box plant level. It does seem to be isolated to certain regions. But just curious, are you seeing anything of that sort that could hurt you down the line as you pass on the price increase through to the box prices?

I mean, there is one player particularly that is Thank you very much. because of your quality of service. When you look at the quality of service that we bring to our customers and the complexity we deal for them and look after for them, we expect to get paid for that. Clearly, our whole innovation offering is making a difference. I wouldn't worry too much about that per se, Detlef. Cool. Thank you. Thank you.

Thank you. Next question is from Louis Roxburgh from GoodBody. Please go ahead.

My question is on holding on to pricing.

So cost and energy inflation has clearly been challenging, but it will turn at some point. So I guess what degree do you believe that you'll have to give pricing back? Is Europe in particular more vulnerable? Thank you very much for your time.

I don't think that will be the case per se in Latin America or the United States or the North American market. I think the structural change that's happened in North America has been very significant. And as I say, we've been in a sold-out position for the last number of months, and we have still orders to fulfill from April and May. And so I have no idea about the others, but I assume they're in the same sort of situation. We have a window into Latin America, and while Latin American customers tend to have larger supplies, prices are going up in Latin America, and that is going to feed into a better situation next year and beyond, irrespective. So unless something really bad happens in the world, I think that your statement is correct.

Yeah, that's clear. Thanks.

Thank you. Next question, we are going to retry the line for Phil Ng from Jefferies. Please go ahead. Your line is open.

Hey, guys. Sorry about that. I had some technical issues this morning. Tony, I think you addressed this already. I apologize in advance. I think, Ken, you were talking earlier at the question that in Europe, you feel pretty good that your box prices would catch up to container board pricing. You would offset inflation. I guess the one variable that would be helpful to kind of give us some color is net gas hedges, just because you had some hedges. So based on what you have in place in your traction you're seeing, how do you feel about that dynamic? And how should we think about that hitting your P&L and your ability to kind of be on a positive spread next year?

Hey, Phil. With the price increases we announced, that net 140 on test liner would have ultimately taken into account A lot of what we've done on hedging and in effect, generally the hedging would be a net incremental positive to anything you do on that paper price. There's no incremental P&L hit in that sense. They're not featured out. Ultimately, you're just contracting gas at kind of standard set prices rather than spot in that sense. So everything we've done and built around price increases around test liner, particularly in Europe, takes into account where we sit in the hedging curve. Generally, a conservative view on where that might go. but always with the idea that hedging plus the price increase should land you in a slightly better position overall at the end of the game. So in reality, not that the hedging doesn't necessarily matter in that sense. It always acts as a better moderator or better basis in terms of how you get through in terms of full margin recovery but the price increases do take account of all the hedging we have and had in place before these two.

I'd just add some color to that though. We wouldn't hedge at these levels because If the energy price falls backwards in a hurry and you're stuck at 100, you are going to be really seriously uncompetitive for a period of time. We don't believe that anyone in the industry, to any great extent, is hedging at these levels because they're so remarkable that nobody would have actually ever anticipated that gas could get to this level. You know, people would be very afraid, like us, that if you hedge at these levels, you could get caught with your pants down. So we're not going to be in that situation and we'll ride it. And as I say, if it stays at these levels, either there'll be a lot of downtime or there'll be further increases or there'll be closures because it just can't. You know, you're a 10 to 1 ratio versus the United States and gas, which is just unsustainable for European industry.

Phil, really what you're thinking about in the context where hedging sits in an integrated system like Europe, which is broadly 100% integrated, it's about cost certainty at the mill side, that you don't, as Tony said, get trapped on one side or the other of that kind of hedging curve. And if you go back to kind of, you know, very high prices eventually back in 21-22 equally would have stepped out of the hedging market while that happened and then brought back in when we needed so it's about through an integrated model it really does cost certainly to start and recover at the end so hedging tends to be a bit we flex in the middle it's been a wonderful friend in the past but and it will be in the future at the moment though as Tony said it's not a place to go.

Okay helpful call and I guess bigger picture Tony you've owned the WestRock asset for some time now in terms of your journey in terms of You know, some of the goalposts that you would want to call out and things that you still want to work on as we think about 27 and beyond. What are some of the things you want to highlight? You know, it might be your customer mix in terms of the mix of regional versus national, but anything to just call out just because obviously profitability has been masked a bit by the inflation. So just kind of give us some goalposts where you are and what are some of the next things we should look forward to as we look out to 27 and beyond?

Yeah, I think, Phil, that's a really great question. I mean, I'm sitting in the Trades Barras mill down in Brazil, so just take it by region. Take our Latin American region, you know, this is one of the world's great assets and with great management team and continuing to grow and have great ideas for the future. So if I look around our Latin American business, really strong, great, the WestRock combination between the two. I'll give you a very good example because I was here yesterday. Alvaro Henao, Sharon Whitehead, Anthony Paul Smurfit The combination, there was no corrugated assets, but the consumer business has improved radically in Europe and is really set for a very strong growth together with our corrugated business as we move to the owner-operator model and has been a really successful combination. And then when you look to the North American market, what I would say the most pleasing thing for me has been and how the management team have really adopted what we talk about as being the owner-operator model. They are very enthusiastic. We're seeing customer wins in the corrugated area. Our end-market consumer margins are not where we want them to be but we will get there because the plants are in very good shape, the teams are very well organized and so we will and so on, we've progressively moved that margin up without anything to do with the underlying paper pricing as we refocus that business in the future. If you take our mill system, what I would say is we have some really great mills and we have some mills that continue to need work and once we fix those mills that need work, then the mill system will be as good as any that we have anywhere else in the world. So our mill system is progressing. We've got a whole new management team there that is really moving things forward in a positive way. We've recruited some great people into the business. So our people aspect of North America has really progressed very strongly. So if you say, why am I excited? Because I can see the potential of this business. Of course, I'm really frustrated by the fact that we're making all this progress and it's not easy for anyone to see because when you get $700 million of unexpected costs, you're scratching your head a little bit to say, okay, we need to recover that. And we do, but it's pushing the game forward, which is never where we want to be. We want to be winning from the front rather than trying to catch up. We are where we are because we don't have control over things outside of our control. I am very, very excited about the future of this company and the combination of this company because it's going to be very powerful in the years ahead.

Okay. Appreciate the call. Thank you so much.

Thank you very much, Phil.

Thank you. The final question today comes from Pallav Mittal from Barclays. Please go ahead.

Hi, thanks for taking my questions, a couple of them. Firstly, clearly energy and freight costs are much higher than what we were expecting three months ago. And you have said hedging levels are low for very obvious reasons. If we assume spot rates and things stay this way, how much of an increase are energy and freight costs expected to be in 27 versus 26?

Oh, I haven't got there yet. It's sort of back to, you know, we haven't got near a budget yet. I think we have to kind of see that in the round around where we think all those forward curves are. But I wouldn't, given if you like, my forecasting in energy and freight for this year has been kind of changeable as we got through the year. I'm not sure I'd sit here yet and forecast energy and freight for next year. I think our opening assumption would be at some point that cost backdrop has to abate slightly. but for the moment I couldn't give you a view on Fraser Engie for 27.

Sure, and then if I could just check on CapEx, it seems that you've lowered your guidance by 150 million or so for 26. Can you just help us understand what has changed there and does it mean that 27 CapEx goes up slightly?

No, not really. We decided to just slow back a little bit because You know, when we took our number down for last quarter, we said we'll just get the money back in our capex. But, you know, our plans are still the same. It will probably mean that 2031 we'll have 150 million more, or 2032, but we haven't stopped anything that we need to do. It's just that we've delayed a couple of projects by a number of months. There's nothing... of interest there.

Sure, and if I can just squeeze one on Europe, a quick one. You said the growth has been good in October. Can you just help us understand how your order books are looking for the near future?

Well, for the very near future, you know, we're actually okay. I mean, as I said, in North America, this month, you know, as in October, we will be lineballed with last year. I don't want to predict that that's going to be the same in November and December, but November feels okay. But we have a large election happening in November, so we'll have to see how that plays out to demand in North America. I think that Europe, you know, we expect to have a, we're a couple of percent up on the same day basis during the month of October. So, you know, We hope that trend continues for the rest of the quarter, but we don't expect anything for it not to. And Latin America, you know, we have seen weakness in Brazil actually during the last couple of months as the uncertainty of the election down here fed into the marketplace. And, you know, it hasn't hurt our profitability, but, you know, the demand levels were not where we would have expected in the last, Thank you. And there are no further questions.

I will now hand back to Tony Smurfit for any closing comments.

Thank you, operator. As I mentioned on the call, you know, I remain incredibly excited about the future of this company. We've done a lot during the last couple of years and obviously we're not happy with the fact that we've absorbed so much cost so quickly during the last three months and into the next two months. So obviously that has affected our results but we are in the process of recovering those costs and we look forward to 2027 with great confidence and we appreciate your support and we appreciate the time you've given us today. Thank you all for being with us and we look forward to catching up with you either in person or on the next conference call. And if we don't speak to you before your end, we wish you a very happy Christmas and New Year. I know it sounds a little bit early to be saying that, but nonetheless, good luck in case I don't speak to you.

Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers, please stand by.