Smurfit Westrock Q3 2023 TU Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 11 speakers on the call.

Operator

Hello, and welcome to Smurfit Kappa Group 2023 First 9 Months Trading Update. My name is Alicia, and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. I will now hand you over to Tony Smurfit to begin today's conference.

Operator

Thank you.

Speaker 1

Yes. Thank you, operator, and good morning, and thank you for taking the time to join us today. I'm joined on the call by our group CFO, Ken Bowles. Before commencing, we would refer you to the note on forward looking statements as set out in our trading update. This also applies to our discussion today.

Speaker 1

Just to remind you, on September 12, we announced an agreement to form Smurfit WestRock, a global leader in sustainable fiber based packaging. We said at the time and we reaffirm now that we believe That the combination represents a unique point in time opportunity to create significant value. We have now had the opportunity to visit a number of their operations and to spend time with the teams and organization. I said at the time of the announcement that I'm incredibly excited by the potential of this combination and I'm increasingly so following this interaction. We look forward to meeting more teams from Smurfit WestRock over the coming months.

Speaker 1

Today is a Smurfit Kappa Trading update. So we don't propose to take any specific questions related to the combination with Restock, but we remain on track to complete in the Q2 of next year. Smurfit Kappa has delivered an excellent performance for the 1st 9 months with EBITDA of 1,625,000, An EBITDA margin of 19%, a ROCE of 18% and a leverage multiple of 1.4x. This performance reflects both our operating excellence and the effectiveness of our capital spend. Over the last number of years, we have invested to improve our operating efficiency and to strengthen the integrated model.

Speaker 1

We have also invested in our capabilities around innovation and sustainability. We have found that our ability to innovate, Advance our customer's sustainability agenda while providing secure supply has been increasingly valued and a point of differentiation for the group. Alongside that internal investment, we've also acquired businesses that have further strengthened the integrated model Our diversify our product portfolio. In summary, we have built a high quality business that continues to deliver superior performance. A business, as you've heard me say before, is quite simply unrecognizable from years past.

Speaker 1

I think it's worth putting in context both the performance for the year to date and indeed for the remainder of the year in context. We expect to deliver EBITDA of approximately $205,000,000 for the full year, A year which has been impacted by a negative growth environment with corrugated demand in 2023 substantially below the longer term trend. And yet, our expected full year 2023 outcome is essentially where we expected it to be at the beginning of this year. More than anything, this underscores the quality of both our business and our people. Of particular note is that our Americas business has performed well with our EBITDA performance in line with last year.

Speaker 1

This demonstrates the geographic diversity and strong product offering we have in the region combined with the implemented investment programs. Quarter 3 demand levels for the group were approximately 2% behind 2022 levels versus a negative 7% 5% In quarters 12, respectively. We expect this trend to continue with Germany, in particular, which has been a true laggard this year, Showing improved order books in the coming in the last month or so. We remain excited about the opportunities for paper based packaging In a world that needs sustainable solutions, with our over 1,000 designers implementing new ideas in innovative packaging, Together with the replacement of fossil fuel based packaging, our products are well positioned for the future. As legislation changes, our customers increasingly look to us to help them in their own sustainability goals, Which sets a great foundation for future growth of our business.

Speaker 1

Our capital allocation decisions over the last number of years, Together with the quality of the Smurfit Kappa team have clearly contributed to a structural change within our business, Delivering a better, stronger and higher quality business. Set against a difficult operating environment in 2023 An expected EBITDA outcome of approximately $2,050,000 reflects With that statement, I will now hand you back to the operator, and she will ask you for your questions. Thank you, operator.

Operator

Thank We'll We'll take now our first question from Justin Jordan from Davy. Your line is open now. Thank you.

Speaker 2

Thank you and good morning everyone. Tony, just a quick question on Q3 trading. Back at the interim results in August, you told us that I think July volumes were minus 3%. You just reported minus 2 for Q3 overall.

Speaker 1

So I know I'm

Speaker 2

sort of delving into the detail here, but it would appear like or infer that maybe September volumes or something like minus 1 is Can you just give us some help on that? And thank you very much for the improving commentary on Germany. Clearly, the largest packaging market in Europe, It's very important to Smurfit Kappa. Can you give us any more color on different geographies in Europe and Americas, please, in terms of demand may have changed over the last 3 months? Thank you.

Speaker 1

Thanks, Justin. I mean, I think the trend is, as we said, in Germany, Taking it specifically, our order intake is quite a bit higher than it was in the summer, somewhere between 8% 10%. I don't I'm a bit reticent to say that that's a long term trend because we saw that in April of last of this year where we did see an up Taken orders and then it didn't fail to it failed to materialize for the rest of the summer. But there definitely seems to be more confidence from Some sectors in our business. And in addition to that, I think we are winning business in Germany because of Many of the things which I talked about in that script.

Speaker 1

With regard to other territories, I mean, it's a bit like the purest egg, To be honest, I mean, there are some markets that are doing much better. Brazilian market is doing better. Mexico is stable. Colombia seems to be improving if you Take the Americas. If you go to Europe, overall, I would say it's similar to what it was with some ups and some downs.

Speaker 1

So really why we wanted to highlight Germany is because as you said a few seconds ago, it is an important market for packaging, and it's the first Real sign of life that our guys have seen for 6 months now or so. I do always issue a health warning, but We try to report the facts as we see it, and that's what we see at this juncture. So hopefully, it will continue, And we'll start I think the figures of yesterday out of inflation were encouraging from the IFO, I think it was. And I think that Germany is in those lines. So I think there's at least some cause for optimism that wasn't there, I would say maybe 3 months ago, 6 months ago.

Speaker 1

So that's why we wanted to highlight it that order intake is good. That doesn't mean that it's going to stay good. We can't guarantee that, but I think it's encouraging.

Speaker 2

Thank you, Jenny.

Speaker 1

Thanks, Justin. Okay.

Operator

We'll take now our next question from David O'Brien from Good Boy. Your line is open now. Thank you.

Speaker 3

Good morning, guys. Thanks for taking my question. If I could start maybe just on the guidance and Some of the commentary around the cost book. I was just trying to understand how the cost book has performed in the Q3 and what your guidance assumes they do For the Q4, if you could maybe give us some color on that. And then if I could follow-up on Germany just a little bit, Are you actually seeing sequential activity up month on month in Germany?

Speaker 3

Or is it orders are getting Less worse. And when you talk to Boris and the team, is this An end of destocking or is there actual signs of improvement in the consumer? Can you just give us a bit more color on what's maybe driving the improvement as you see

Speaker 1

I'll take the second piece of that and let Ken take the first piece. I mean, I think They're certainly not back to boom levels or anything like it, but I was at a customer event this week or not last week in Germany. And there is certainly more optimism with our customers. We are winning business in the country. I think our model is showing that Through innovation and through solving our customers' problems, that is helping us win business.

Speaker 1

And so there's probably some market share gains in there. In addition to that, I think that you're seeing the normalization of, Let's say the Food and Drink business, I don't think we're necessarily seeing any of the durables coming back yet, but the normalization of the Food and Drink business And FMCG business in general coming back to some more normalized levels. And as I've said before, David, the one thing about Germany They have a lot of money. There's a lot of money being saved by people in Germany. So when confidence returns in any way, shape or form, There's capital there in people's bank accounts to spend it.

Speaker 1

It's just a question of when the government gets its act together with regard to some of the policies That they've been implementing when inflation mitigates itself, which it seems to be in Germany right now as said yesterday. So there is I was really taken by we'd have 100 customers at an event and you've been to a couple of our events and you know how Engaged they are, and it was really engaging with those customers and quite optimistic, frankly. Cam, do you want to take?

Speaker 4

Good morning, Dave. On the cost focus, I suppose the net net is that you can see where guidance is versus It was a half year. So no real material change to any of the cost lines. Small bit of ups and downs here and there, things like distribution, which would have been small tailwinds to be flat. Similar to Which would have been small tailwinds to be flat, similar reward which would be flat.

Speaker 4

I suppose the one that maybe people might Top of continuing to Q4, we rent OCC where we've probably seen all the benefit of that. So Q4 for OCC probably not showing either, so maybe broadly flat, no headwind, tailwind. Well, I think broadly what we said at the half year is kind of playing out. Clearly, still some small elements of Of inflation coming through particularly in things like labor, but fundamentally I think when you look at the progression box pricing versus where it still remains very resilient And tell me that more positive at least optically demand environment, but no material change in the big cost buckets.

Speaker 1

And the energy

Speaker 4

Energy well, no, energy kind of broadly where we were in, maybe 250, so again, no material change.

Speaker 3

If I could just follow-up on one part that you talked about Box price resilience, I guess we're only 2 months from the start of 'twenty four. Should we expect any Large incremental kind of box price resets in the 1st January or how do you think the trajectory looks there maybe on a

Speaker 1

I think, I mean, as you know, our contracts are in Different ways with different customers. So there will be some continued movement downwards in pricing as we go through this quarter and next quarter. It's obviously the big move down has happened already, so it will be incrementally lower. But there will be still some movements downwards in Pricing. But the interesting thing, David, is that the paper prices are really in bad shape for recycled paper and We already see a number of projects postponed.

Speaker 1

We see a number of closures announced as you know. So There will there is a lot of pain in the paper in the free market paper industry right now. So we'd expect to see some further Either delays or closures in the future. So that will lead to another movement at some point. We obviously can't Predict when that will hold or will reverse and we'll start to see different movements at some point upwards.

Speaker 3

That's great. Thanks very much guys. Appreciate it. Thanks David.

Operator

We'll take now our next question from Cole Hathorn from Jefferies. The line is open now. Thank you.

Speaker 5

Good morning, Tony and Ken. Thanks for taking the question. Maybe just a follow-up on that. I mean, On the kind of the box price mix, just to give a bit of comfort into 2024, I mean containerboard prices have been stable now for 5, 6 Should we read this as in you've pretty much negotiated most of your big contracts or have good visibility Where box price mix is going into 2024, all else equal, for containerboard, so now it's about where volumes go from here, your efficiency programs And kind of managing your cost base is the first question.

Speaker 1

Yes. I mean, obviously, we do have a good visibility. We have, For the most part retained all of our business that we were under contract with. Obviously, there's still We're still negotiating with a number of customers, but that for the most part, we're done with most of our Contract negotiations. With regard to do we have visibility to where pricing is going?

Speaker 1

Basically, yes. We have I don't foresee paper pricing moving down much more. As I say, it's at Really pretty well at the bottom and certainly the middle to high cost producers are losing cash at this stage, especially if they're not integrated. So I would say that we have good visibility as to will pricing move down more? Yes.

Speaker 1

But is it going to be significant? Probably not. And then we'd expect that trend to reverse As soon as volume growth starts coming back into the market and but when that happens is obviously a function of a number of different macro factors That are way outside of our control. But this is an unusual scenario. We've never seen the kind of falls In corrugated box consumption, as we never saw the kind of growth that we saw in corrugated box consumption in 2021 2022.

Speaker 1

I think we're just reverting to normality and then the major trends of Sustainability are still there. We're still continuing to see legislation moving away from fossil fuel Base product packaging products towards us, and I think that's going to be a big long term advantage. Obviously, in this kind of demand environment, there's a lot of noise covering that up. But clearly, the with our design tools and with Our knowledge, Cole, I think we've got a really fantastic story for the future, but we need some degree of normality in the general world for that to be seen To

Speaker 6

full effect.

Speaker 5

Antonio, and then maybe on the containerboard prices, I know the higher cost producers are under pressure, and I don't think we should forget that when your operating rates are a bit lower, you absorb much more fixed cost overheads and we've got OCC staying Decent levels. We've got gas up a little bit into winter. Are you still seeing significant amounts of commercial downtime In the industry, can you give any color of where we are kind of inventory levels wise? And do you have any

Speaker 1

There's been a lot of downtime thing. We've actually taken much less downtime because of our integrated model, but we have taken downtime ourselves During Q2, less so in Q3, but and we'll continue to take a bit of down especially around Christmas because As you know, most of the box plant shut and mills tend to stay open. So we'll take some downtime around Christmas as I assume the industry will. But you're right. I mean, if you're not fully integrated and you're having to find Distant chores to sell your product or you don't have product you don't have anywhere to sell, downtime is a very expensive proposition.

Speaker 1

And but The reality is with demand levels across the industry and as I think we're sorry, I know we're taking market share across Europe. So we're outperforming. So with the industry not doing that well, I think that people have no choice but to take downtime. And That's putting a lot of pressure on a lot of producers, and I think we're going to see that Play itself out over the next 6 months, 9 months, a year or so. And eventually, eventually, we will start seeing prices go up again because these levels are unsustainable.

Speaker 5

And then maybe on the essentially the trigger for those prices to go up is hopefully demand led, but have you seen any Incoming from your customers on the promotional side, I imagine some of the bigger brands do want to protect some of their market share. Will you kind of benefit from kind of mix and some volumes on that side on the food and beverage? Thank you.

Speaker 1

Well, we will do So when it happens, I mean, there has been signs of it in certain of the markets. I think you'll have seen from The large FMCG producers, their margins are generally pretty good and their volumes are pretty bad. So that's generally a trend. And when they Start to want to promote to protect our brands, then obviously we will be a beneficiary of it because we operate in all sectors of the business.

Speaker 5

Thank you.

Speaker 1

Thanks, Col.

Operator

We'll take now our next question from Kevin Fogarty from Numis. Your line is open now. Thank you.

Speaker 7

Hi, thanks very much. Good morning, everyone. Just apologies to sort of get back on pricing again. But I guess when we at the interim stage, about sort of 3 months or so ago, There was some discussion about some industry players kind of seeking to raise prices at that point, obviously, given the dynamics they were seeing in terms of costs, Sure. I just wondered if there was any given where containerboard prices have been in recent months, it doesn't suggest any kind of upward Momentum on that front, but I just wondered if other noise is any kind of stronger now in terms of some of those independent people Looking to kind of raise prices in the near term?

Speaker 7

Or do we need to sort of get back to a kind of Demand led environment for that to take place, do you think? And just secondly, just on the Americas, You called out financial delivery there kind of in line with last year. I just wondered from a volume perspective, obviously, that So it seems to be lagging what you're seeing in Europe. Is that purely the fact that it was later into the down cycle and therefore kind of the volume dynamics Take longer to recover there or just lagging Europe? Or is there anything else happening there?

Speaker 1

I'll let Ken take the first part, but just On the Americas, Kevin, I think what we've seen in Americas is we operate a portfolio of businesses and we've been making investments. So I think our performance there is, to be honest with you, it looks pretty exceptional when you look at all The various businesses around the world, when you're having a like for like basically line ball performance, I think is an exceptional performance. We have seen volumes fall. They're not materially different. They're about 3% down in Q3 versus Last year, so they're not materially different to the group overall.

Speaker 1

Europe is 1.8% and then blended is around 2%. So it's a so we're sort of line ball with them, but They have some countries that really grew very, very strongly during the pandemic, like Colombia in the '30s. And obviously, that has come backwards. Mexico has been fine, not didn't grow as strongly as, say, a country like Colombia, but You know, it isn't falling as much as Colombia at the moment. So overall, it's the blend that works and I wouldn't say that we're later cycle or anything like it.

Speaker 1

In fact, I think we penalized our results this year because we had too much stock because we're as you know prior to doing WestRock, We don't have kraftliner in that region or not enough kraftliner in the region. So we had to have a lot of stock. And as we came into the downturn, We've penalized a lot of our operations by having high cost stock and we've had to work that through the year. So clearly, So that's a positive as we move into next year on a comparison basis. But there is definitely signs out of the Americas that things have bottomed there and Demand has picked up and that's they are at the bottom in their pricing cycle, and we would expect that to start turning in the at some point.

Speaker 7

Great. Thank you.

Speaker 4

Hey, Kevin, on your first question, I think, no, I think you need a trigger. I think as we're kind of saying, it's like dramatically this morning Yes, we need that kind of bit of demand to come back before there can be any real push again for box price increases. I think paper prices have come down a lot. Independent box makers will be benefiting from that. There's not necessarily any incentive to seek further price increases based on that.

Speaker 4

I think equally, we have to see it in the context of our own performance, which is how much how resilient the box price has been, Particularly 2/23 and particularly against that backdrop of paper price volume versus the good work that the teams did in getting it to the heights they got to in December last year. So I suppose in short, I think you need a demand trigger before you start to see that kind of turn in box prices and clearly the demand trigger will have a backward impact into We'll cover fiber and paper as you get as you move through the system.

Speaker 7

Sure. Okay, all understood. Thanks very much for the clarity. Thanks a lot.

Speaker 1

Thank you, Gavin.

Operator

We'll take now our next question from Charlie Muir Sands from BNP Paribas. Your line is open now. Thank you.

Speaker 8

Good morning. Thanks. Just one question, sort of stepping away from the pricing costs a bit. Obviously, the EU has Published sort of second draft of the proposed packaging and packaging waste regulation. Obviously, a number of No, just if the hurdles still get through before it ever becomes law, but just wondered if we could share your updated views on that and Whether the latest changes were incrementally better for you and whether you see this as overall Headwind or tailwinds to corrugated demand over the next decade?

Speaker 8

Thank you.

Speaker 1

Very early in the morning for a question like that, Charlie. I think overall, the draft proposals are basically positive for our industry. I think that We feel good about where we've got to. Obviously, there are some wrinkles in there that we need to challenge and make sure that Some of the unworkable things that come out of the PPWR are made clear to the commission They're quite unworkable. But overall, I would say it's a net positive for us, any of the negatives.

Speaker 1

Obviously, it's not finished yet. But out of the last committee, I think we were generally happy with the overall Findings and overall recommendation, albeit that there are some areas that just don't make any sense and we will be working hard to make sure that Our product is still used in those areas where they're trying to make you reuse In some of the durables, which doesn't make, as I say, a lot of sense. So we'll work hard to make it all positive towards our business, but it is generally speaking, Our people are very comfortable with where the outcome has got to.

Speaker 4

I think Charlie too to keep in mind that you have to be Conscious of

Speaker 8

the kind of the law

Speaker 4

of unintended consequences. I mean, while we're used to this, the wonderful idea, as Tony said, it's probably some problems and some of those issues around The incremental carbon necessary for cleaning and the production of those goods that could be reused, particularly thinking in the fossil based alternatives. So as you know, it's got to be a kind of thought through from the entire supply chain rather than just the end product.

Speaker 8

Yes, absolutely. Thank you.

Speaker 1

Thanks, Charlie.

Operator

We'll take now our next question from Andrew Jones from UBS. Your line is open now.

Speaker 9

Hi, James. Just on the modeling. Just for the Q3, so can you just tell us what the Quarter on quarter and year on year change in pricing was for the group. Just give us an idea of your expectations for the Q4, if that's Okay. And just stepping back on the buckets and so forth, should we broadly be thinking costs flat into 4Q and that Decline that you're guiding towards sort of implied $425,000,000 that's that decline all comes basically From price, is that a fair statement?

Speaker 4

I think, Andy, on the second one is The absence equally of a kind of a tailwind in OCC as you move to the 4th quarter is probably a big impact there. But broadly, what you're seeing in the bridge is like Q3 to Q4, probably all is price driven at this point, Given that most of the bookings have remained fairly stable since the half year. In terms of pricing itself, I suppose context is equally important here. And if you think about The box price raised in December last year, which is in the order of something like 50%, as we sit at the 9 months, the 9 months on 9 months box price move is negative 4%, Negligible. The quarter on quarter move is close to the kind of minus 11%.

Speaker 4

And I think as you move to the Q4, then your math will probably take us maybe 2 or 3 there To kind of get you towards the

Speaker 9

$425,000,000 So 2% to 3% lower quarter on quarter is the sort of price difference?

Speaker 8

Yes, exactly Andy.

Speaker 9

Yes, yes. Okay. And in the Q3, we're down, I guess, somewhere around 6% or something like that. Is that fair

Speaker 4

Quarter on quarter. Quarter 'twenty Q1 'twenty three on 'twenty three or 'twenty four on 'twenty three, Andy?

Speaker 9

That was a Q3 of 23% on the second quarter. It was probably down about 6% is that fair?

Speaker 8

Yes. Sorry. Yes.

Speaker 9

Yes. Okay. Cool. And I think the alarm is at bad when you mentioned the energy tailwind for this year. Do you say somewhere around 2 53 year level or something like that?

Speaker 4

Yes, broadly, yes, about 250. And that's in context that also includes a kind of A negative impact from hedging year on year, which you would have the benefit of last year. So Still a net tailwind of about 250.

Operator

We'll take now our next question from Brian Morgan from Morgan Stanley. Your line is open now.

Speaker 8

Good morning, gents. Just following up on that one, are you able to give us any steer on energy costs into 2024 yet?

Speaker 4

Only to say that we're kind of we're very much in line with our policy. We're probably about 30% hedge for the year, which would be normal at this point of the year. Listen, energy is clearly open position. We're kind of driving the piece, but we're not at this point, I would probably say to you, there's no material impact year on year from energy as we sit here today, 24 over 23.

Speaker 1

But it is kind of volatile, Brian. I mean, yesterday it went down 20%, over the last month has been up 30%. So it's Kind of a very volatile situation, as you can imagine.

Speaker 8

Pleasure.

Operator

We'll take our next question from Gaurav Jain from Barclays. Your line is open now.

Speaker 6

Hi, good morning. Thank you for taking the questions. A couple from me. So one is that Q4 EBITDA is 425 And I heard that Q1 'twenty four pricing could also be down over Q4 'twenty three. So does it mean that Q1 'twenty four EBITDA will See another step down or are there offsetting cost factors or fixed cost absorption factors, which will drive EBITDA sequentially?

Speaker 4

That's quite a detailed question, Gabor. I think the detailed modeling question is probably better to help with the guide. But I think It's important to remember when you think about Q4 or Q3, you do have December there, which is generally shorter work at month. So there's many, many impacts. I think the better way to think about it is the way you kind of characterize it.

Speaker 4

You think about the year as we sit now at 16.25 and outcome of 2,050, We've given you the big cost buckets and we've given you directional travel on box pricing. That's and then anything beyond that, I suggest maybe for more details, I'll go to Kieran and Frank if they can.

Speaker 1

And I think, Jane, it's important to remember what I said in my summary that At the start of the year, we're sort of forecasting around the $2,000,000,000 mark and we haven't had anything to say other than We're going to be around the $2,000,000,000 mark and we do what we say. And I think that is One of the things, the hallmarks of this company is that we try and make sure that we take any surprises out of the situation. Obviously, as Ken said, December is always a funny month. It's a very short month. At this moment in time, profitability comes from The corrugated division and as I've always said, we have a seesaw type of business.

Speaker 1

Sometimes you make more money in paper, sometimes you make more money in corrugated. And when you make more money in paper in December, you have basically a full month of profitability. When you make your money in corrugated, Which is where we're at, at the moment, you've only a half a month of profitability. So that affects your month during that month of December. So At different points of the cycle, you'll have better Decembers and this year we'll have a worse December than we would normally have.

Speaker 6

Okay, sure. And just if I could ask one more question. Hopefully, this is not a detailed modeling question, but before on net debt. And it is slightly worse than what I thought it will be because I thought that working capital would start becoming a benefit in 2H, Especially as input prices have come down. So is that a benefit which would majorly happen in Q4 of this year?

Speaker 4

You will get an incremental benefit from, I think most people would have probably thought that the bigger month for move to box pricing was Q3, so you probably would have expected A slightly larger working capital. And so you will get some of that in Q4. Now I think equally as box price have remained more resilient And they've remained down. You're probably not getting as much as the unlock of working capital as you might ordinarily think Because in reality, you're not going to get any credibly here. It's all going to be debt relief, which will get through box price decreases.

Speaker 4

So we'll see some of that come through quarter 4. But beyond that, we continue on the capital spend. All the guidance line items for free cash will remain as they would have been as we would have guided the half year. So but there's Nothing is like fundamental within that kind of 9 months free cash out to free cash or either longer cash out to get to where net debt is at the end of the year. It's probably just a little bit of Inter quarter kind of moves, but as we get towards the end of the year, you're

Speaker 8

probably back where we thought we would be.

Speaker 6

Thank you so much.

Speaker 1

Thanks, Jay.

Operator

We'll take now our last question from Geoffrey Belicia from Bank of America. You can go ahead now. Thank you.

Speaker 10

Yes. Thank you very much. Good morning, gentlemen. My question is regarding the CapEx contribution into 2024 and how you're thinking about it. Should we still think about 20% return on invested capital there for the capital that Spent, I guess, in 2022 and some of it in 2023.

Speaker 10

And if you can remind us what projects are kind of coming in line, what sort of projects are coming in line? Is it more

Speaker 1

Yes. Well, obviously, basically, the answer to your first question is yes, we would expect all our projects To pay off, obviously some of them will be a bit delayed because the volume hasn't been there to deliver The benefit on some of the converting machines we put in, some of the bigger paper mill projects, as volume comes back, they will return and they will give us The returns as promised. And we still got some projects like the one in Mexico, which has been delayed by about a year Because of equipment delays, nothing to do with us, but and that will bring Extra tonnage into Mexico, which we are very short of tonnage in Mexico, that will come in really 2025. So the benefit there will be 2025 rather than 2024. So all the projects are on track.

Speaker 1

We're obviously, Growth projects are no longer order of the day, Jeffrey, because we don't have a lot of growth around the place. We do have some Segments of growth and some areas of growth. We're potentially building a new plant in a European country Well, we see operations continuing to grow in that segment. We're looking at building a new factory in Eastern Europe for a particular Product area, we're investing strongly in our Bag in Box business because we continue to see growth in that business and opportunity. So there are segments of growth, but any capital approvals generally now are for cost reduction.

Speaker 1

And we still have paradoxically, As and when wages go up, it makes a lot of the projects to invest in equipment To reduce headcount, much better payback. So clearly, that's an area which we will be focusing on. But overall, I think we're coming to the end of the big approvals that we said we would do This year and so 2025 will be pretty clear with regard to capital allocation and where we put it.

Speaker 10

Fantastic. Thank you very much.

Speaker 1

Thank you, Jaffray.

Operator

There are no Further questions? So I will hand you back to Tony to conclude today's conference. Thank you.

Speaker 1

Thank you all for joining us. We very much appreciate your time being with us and Especially the questions. We remain very proud of the performance of the Smurfit Kappa organization. I believe these are excellent results In the context of a year that we've had, I think that we go forward with continued confidence in this business and Continued confidence in our business model and we look forward to continuing to develop the business into now and into the future. So Thank you all for joining us, and we look forward to seeing you in person or talking to you in person over the coming days.

Speaker 1

And have a good rest of the day. God bless you.

Operator

Thank you for joining today's call. You may now disconnect.

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