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Good day, and welcome to the Mondi Trading Update. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Oswald, please go ahead, sir.
Good morning. I am Peter Oswald, Chief Executive of Mondi, and I'm joined by Andrew King, our Chief Financial Officer, who is dialing in from Johannesburg, where he's attending today's AGM. I will start off by briefly summarizing this morning's announcement and then we will be both happy to take your questions.We are very pleased with our first quarter performance, underlying operating profit of EUR 295 million, was 15% up the past restated prior year period and 6% up on the restated fourth quarter of 2017. Higher average selling prices and profit improvement initiatives across the globe more than offset higher operating costs, the impact of maintenance shuts and negative currency effects. Now let's look at our performance in more detail. Like-for-like sales volumes were stable on the comparable prior year period, with growth in Packaging Paper offset by lower volumes in Uncoated Fine Paper due to the expanded maintenance shut at Richards Bay.Selling prices for the group's key paper products were, on average, above both the comparative prior year period and the previous quarter as the upward pricing momentum witnessed last year continues. Costs were generally higher with the comparable prior year periods and the previous quarter. Cash costs, cash fixed costs were higher, largely as a result of the impact of maintenance shuts. The estimated impact on operating profit of maintenance shuts completed during the period was around EUR 35 million. Based on prevailing market conditions we estimate that the annual impact of maintenance shuts on operating profit will be around EUR 115 million, split roughly half and half over 2018. Currency movements had a net negative impact on operating profit versus the comparable prior year period, driven mainly by a weaker U.S. dollar and Russian ruble relative to the euro and the net negative impact when compared to the fourth quarter of 2017, mainly as a result of the stronger South African rand. Now let's look at our business units. In Packaging Paper, containerboard markets remained robust and limited industry capacity additions continuing to support prices. Volumes were up due to the timing of maintenance shuts and the ramp-up of production from expansionary projects completed in 2017. The sack kraft paper market remains tight. Fiber Packaging made good progress in implementing price increases to compensate for the significantly higher Packaging Paper input costs with efforts in this regard ongoing, in particular, in Corrugated Packaging. Industrial Bags also benefited from good volume growth, particularly in emerging Europe and the Middle East. Consumer Packaging benefited from the ongoing initiatives to improve the profit mix and restructure the cost base. Also, near-term performance continues to be held back by declining volumes in personal care components and the generally challenging trading conditions in this part of the business.Uncoated Fine Paper continues to perform strongly. Also, the first quarter was impacted by ongoing cost pressures, the extended maintenance shut at Richards Bay and the lower forestry fair value gain, which more than offset the benefit of higher average selling prices during the quarter. Now very important with regards to our capital investment program, we are making good progress on our previously announced major projects at our Steti, Ružomberok and Syktyvkar mills, and the small expansionary projects at a number of our packaging operations. Technical challenges remain in the ramp-up of our rebuilt paper and inline coating machine at Steti. Now moving on the financial metrics. Cash generation continued to be strong during the period, contributing to our robust financial position. In April, we issued a 1.625%, EUR 600 million Eurobond, thereby extending the group's maturity profile in insurance from liquidities. During the quarter, Standard & Poor's upgraded the group's credit rating to BBB+ from BBB, while we retained our Baa1 rating by Moody's Investors Service. So to summarize, our outlook for the business remains positive. We continue to experience a strong pricing environment in a number of our key product segments, supported by good demand growth. Also we do continue to see inflationary cost pressures across the group and currencies are currently a headwind. With our robust business model, our clear customer focus and culture of driving performance, we remain confident of sustaining our track record delivering value accretive products. So thank you for your time. And Andrew and I would now be happy to answer any questions you may have.
[Operator Instructions] And our first question today comes from Myles Allsop from UBS.
Just a few quick questions. Could you give us a little bit more clarity on what's happening, these technical issues at Steti and when will we see that resolved and sort of the contributions start coming through from that project? A quick update on Powerflute, is that still due to complete in the first half? And what should we kind of expect in terms of contribution to EBIT? Is this going to be more of a 2019 impact? Or could we see some positive effects in the second half of the year? And then maybe just on the key growth projects. When you look at prices today, what sort of returns should we expect over the next 3 years, in 2019-2021, as the 3 big projects ramp-up? It would be great to get a sense of the incremental EBIT contribution at today's pricing.
Okay. On your first question with regards to Steti PM6 coating unit, the good news is we have made [ excellent ] progress, but it's still too early for us to determine if the online or offline solution is more profitable. With regards to Powerflute, we are still confident that we get a decision of the European Commission rather early, but at the end of the day, we cannot absolutely predict it. And with regards to your question on the EBIT and especially your question is what the profit outlook is on our 2 key projects, I would ask Andrew to answer this.
Sure. Myles, as Peter said, firstly, obviously, on Powerflute, always difficult to predict the European Commission processes. But we still, hopefully -- we're hoping to complete this, this half. But irrespective of that, the EBIT contribution for 2018 won't be particularly significant because, by the time we've done all the take on accounting and obviously run through the order book and run through the stock levels, which are revalued to the present -- to the market value, et cetera. You'll probably see fairly limited EBIT contribution in 2018 irrespective of completion date. From now on -- clearly from 2019 onwards, you see the full contribution from that project. As I remind you, the EBITDA for 2017, that we highlighted at the time we made an announcement, was around EUR 42 million. Lately, we've also seen some upward momentum in [ silicon fluting ] pricing since then. So we're obviously confident of a good contribution going forward. On the projects, obviously, they come in at different phases. So the first project to come on and start contributing will be the modernization of the Steti pulp mill, and that, in itself, comes on in phases, so you get the immediate benefit of the recovery boiler upgrade, et cetera, from the back-end -- well, end of this year. So it starts to contribute in 2019 and in -- comes in phases from then on. The number of projects we -- obviously underway on the pulp mill side of that project, but the paper machines still remain subject to final permitting, but that starts and it contributes into 2020 and onwards. In terms of the overall returns, we've guided to mid-teen type return on capital on those projects. We're still very confident in that. Clearly, at current price levels relative to the price levels we saw and we were factoring in at the time we made those announcements. You could probably see some upside on those levels. But frankly, it'd be wrong for us to sort of revisit those expectations until these projects are actually contributing and then we see the pricing dynamic at that time. But obviously, the projects continue to look very strong and strongly -- if anything, stronger in the current pricing environment than when we originally approved them.
Our next question today come from David Roux from Bank of America Merrill Lynch.Apologies, our question comes from David O'Brien from Goodbody Stockbrokers.
Just a couple from me, please. Firstly, just [indiscernible] statement points to inflation and cost pressure. I wondered if you could give a sense across the key costs, what you're seeing in terms of year-on-year growth in cost there. And has there been any acceleration from what you've seen in Q4, please? Secondly, just as well, you talk about FX. Can you give us a sense of what the headwind to EBIT was in Q1? And also maybe just on corrugated boxes you talk about some increased competition and maybe your pricing discipline there. Are you seeing competition move up substantially in Q1? And maybe where is that coming from?
So I will cover question 3, and then Andrew should pick up on question 1 and 2. So in corrugated, the good news is that we have made really good progress in increasing our prices. However, we see that some other integrated companies are more reluctant to do that. So it is getting a bit more difficult. But overall, it's a strong and healthy situation in the market. Andrew, could you take on inflation and FX, please?
Yes. Sure. And, yes. I think, David, in terms of the cost pressures, I mean, obviously, there's some quite big moving parts in that. I mean, so setting aside the paper for recycling, which obviously has got a very different dynamic at the moment. In general, the other costs, I would say, there's been ongoing inflationary cost pressures. Clearly we saw that through the second half of last year, and it's continued into this year. So it certainly hasn't abated, but I wouldn't say it's accelerated at all. But we still see an ongoing cost pressure through the rest of this year. We don't see that as abating at all, but it's very much in line with our expectation when we put out the full year results, where we're seeing that cost inflation and that has manifested itself in the first quarter, but we certainly believe it will continue through the year. And, of course, costs don't just go up in 1 go and then stay flat through the year. You would expect to see ongoing cost inflation. But it's not -- and I think we highlighted at the full year, it's manageable. And clearly from the numbers you see, we are getting margin expansion as a consequence of the increases, in particular, and the follow-on impact on the [ converting ] businesses as well. But those costs hasn't -- the cost inflation hasn't gone away, and we don't expect it to go away. It will continue to be there through the course of the year. In terms of -- clearly the one exception to that as we highlight and clearly it's very visible for everyone to see is the paper for recycling because of the issues to do with Chinese imports, et cetera. That clearly has been something of a windfall, which frankly, I don't think most people would have anticipated back end of last year. So we've said we've benefited from that through the first quarter and into the second quarter. Obviously, it's very difficult to predict where that moves next. As we've discussed in the past, our base assumption is, of course, that we'd expect that to stabilize, if anything, to go back up over time. Because ultimately, the world requires this recycled material. And as the new production comes in, and obviously, as things stabilize in the Chinese situation you would expect upward pressure on that paper for recycling price over time. But exactly when and timing-wise is extremely difficult to predict. But obviously, that was the 1 anomaly in the quarter relative and, otherwise, cost inflation very much as we expected, and we expect it to continue. On the FX side...
Could you remind us what tonnage you consume of recovered paper?
We consume about 1.3 million tonnes a year. 1.3 million tonnes a year, roughly, of paper for recycling. On the FX impact, I mean, as we highlighted, was clearly a negative. Now it's always difficult when you look at period-on-period [indiscernible] because the moving -- the movements and the incremental number. Clearly, what we saw versus the first quarter of last year was the big moves in the ruble, with the devaluation of the ruble relative to the euro, that is a negative effect for our business. And I've always -- given the sensitivity of around EUR 1.5 million to EUR 2 million EBIT impact for every 1% devaluation of the ruble. Obviously, largely due to do with the translation effects of our Russian profits. And certainly, obviously, the weaker dollar, we are nondollar on a transactional basis. And obviously, partly on a translational because we do have a U.S. dollar business. And that is nearer EUR 3 million to EUR 4 million for every 1% movement in the dollar/euro. Obviously, the dollar/euro not being quite as volatile as some of the emerging market currencies, but clearly, we have seen a devaluation of the dollar, which created something of a headwind. And as we sort of make clear in the statement, clearly that hasn't changed and we certainly feel a continuation of that effect through the year.
Our next question comes from David Roux from Bank of America Merrill Lynch.
Just 3 questions from my side. I think, just broadly, on the previous question on cost inflation, can you give us a sense of how much higher your chemical and energy costs were year-on-year for the quarter? The second question extends to your box customers. I think, just given where containerboard prices are, do you think that your box customers are at their limits of how much recycled containerboard versus virgin? And then just lastly, on your forestry fair value gains, I appreciate there are a number of factors determining fair value here, but is it possible to give a sense of the sensitivity of fair value to the rand -- a change in the rand?
Yes, thank you, David. So on the box customers and how can they substitute between virgin and then recycled containerboard, I think, for those who wanted to or already had the opportunity to move to recycling to save costs, they have done so. So we believe that those consuming virgin really need virgin grades or would need, over proportionately, recycled containerboard grades. So we believe that the virgin containerboards demand and the demand growth is very robust. On to your 2 other questions, I'll hand, again, over to Andrew.
To remind you, it's a trading update, it's not our whole quarterly numbers. So I'm not going to give very specific numbers in terms of each cost item. But I mean, safe to say that if we look at, holistically, at our cost base and try and strip out the volume effect and the effect of that paper for recycling, which is a sort of a bit of an anomaly, as I mentioned, you're looking at somewhere around 4% or 5% cost inflation across the piece, clearly chemicals and energy are part of that. A lot of that driven by the oil price increases. Always difficult to predict where you're next on that. But, clearly, if you're assuming a rising oil price environment, you have to assume that there will be some pressure on those costs going forward, because clearly, there's a correlation between the two. So we have seen that rise -- those costs rise very much driven by the rising oil price environment, which, again, is nothing new. It's been happening for some time now, but it's an ongoing process. Just on the fair value gain. The rand impact is not a direct correlation. To remind you, the fair value gain clearly is driven largely by the -- it's the domestic cost of timber or price of timber that determines that fair value gain. But of course, that, in turn, is impacted by the export price of timber in rand terms. And hence, there is an impact of the value -- the movement in the rand, but you can't say it's a 1-for-1 correlation. So I think that -- and any forecasting of that number is fraught with risk because, of course, you have to take a view at the spot price at the time -- at the close of the reporting period. But I think that's why the only real guidance I can give at this stage is clearly with the stronger rand impact in that export price in rand terms, that is clearly going to have a knock-on effect on the domestic price of timber. And as a consequence, we certainly see the gain this year being lower than the prior year. Exactly the quantum of how much lower it is, is, as I say, I would hesitate to speculate on that right now because of all those moving parts. But if you see a continuation of the strong rand, and ultimately, you will see lower number than the 40-odd that we booked last year for that gain.
Our next question comes from James Twyman from Prescient Securities.
I've got 3 questions. The first one is Uncoated Fine Paper prices, I've seen that 1 or 2 producers are looking at a very substantial price rise in June, July. And I was wondering whether you decided to join that as well. And also on the export side there, are exports growing for Uncoated Fine Paper? And it would be great to get an idea about whether your pricing is better than domestic pricing or whether it's at lower margin? The second question was, could you give an idea of the full year impact of the accounting changes on the EBIT line and the net income line? And thirdly, are you exporting any containerboard to China? Have you heard much about it? There's a lot of talk, but I'm just wondering how much reality there is in that.
Yes. Thank you, James. So on your first question, Uncoated Fine Paper prices, are you joining? I'm not sure who joins whom, but it's generally not of our policy to say -- to speculate on future price increases. So you can just be assured that our average price is at least the price of our competitors. So we will see how successful that will be. We have to see, however, against the backdrop of, let's say, a solid demand but not a strong demand. On your question with containerboard export to China, it's -- I'm sorry, and then you asked on exports for Uncoated Fine Paper, that's relatively irrelevant for us. So we like to sell in our main markets because these prices are typically lower. And containerboard sales are immaterial within our group. And with regards to your question on accounting changes, I refer again to Andrew.
Yes, James. We, as part of the year-end disclosure, we did give an estimate of the impact of IFRS 16, which is the real material change on the 2017 numbers if they had been implemented in 2017. So we think that's a good indicator. Obviously, at a net income level, it's very minimal. At a EBIT line, it's affected simply because you're taking out the operating leases essentially out of EBIT line and replacing it only with the depreciation charge. And then the interest line will be negatively affected by this adjustment. But as I say, I would refer you to the detail we provided as part of the disclosure at the year-end on the effect of that restatement. But in terms of order of magnitude, if I look at the restated last year's first quarter, we're saying EUR 256 million restated. It was EUR 252 million, if you can look back at your numbers on the old basis. So the quarter was up by EUR 4 million as a -- at the operating profit level as a consequence of FRS adjustments.
Our next question comes from Lars Kjellberg from Credit Suisse.
Just wanted to come back to the fair value gains on the forest to start off with. What was it in Q1? If I recall last year, it was about EUR 10 million in the quarter. And also, if you want to bring us through a bit on your thoughts on what's going on in the bag markets, which continues to look very, very strong. It seems as if -- continue to drive higher, if that's what you're seeing also in your -- where you operate. And I guess, Consumer Packaging, terribly boring to talk about this anyway, because it continues to be the weak spot within your group. What is actually going on there? Because there's a -- clear differences between companies, some do quite poorly and you seem to be directionally in that category. But if you can comment a bit about what progress you are making on the cost base to mitigate and what we should expect this to turn to, to be positive performance? And underlying, what is actually happening in the marketplace, are you losing share to someone else or is it your more higher-end categories, but it's losing to some lower-end? Because the business cycle is pretty good. So the question is really, how should that improve that product mix, if it is, indeed, downgrading that's going on?
Yes. Thank you, Lars. Andrew, could you take #1 on the fair value [indiscernible], please?
Yes. Lars, your memory is better than me, I can't recall exactly what the first quarter last year was. We don't normally disclose the quarterly number on that basis because, I mean, frankly, it's better to look at the half year but -- because of the way it's accounted for. But it probably was of that order of magnitude, it wouldn't have been much different the first quarter this year. But as I say, if you look at it holistically for the year, I would expect it to be down year-over-year as we said today given the spot pricing.
And if I take your second question on the bag market, yes I can confirm that the back market is strong. And we had highlighted, also, that we are seeing good volume growth in our [ FX ] and this upstream for our sack kraft throughout the value chain. So yes, it is a very healthy situation. As we've highlighted previously, a lot of our contracts, let's say, 2/3 are fixed for the year. So one should not expect. One can expect that we are fully loaded on our paper machines and have a very good capital utilization -- capacity utilization, sorry, in our bag operations. But from a pricing perspective that you need the scope to move that up. With regards to Consumer Packaging, I see our -- I agree that, given the aggressiveness of FMCG companies, it's a somewhat more difficult market irrespective where we are in the overall cycle -- business cycle. Looking at our various competitors, and I don't want to name them, I get the feeling we are performing very well. So I believe [indiscernible] where you see that we are losing ground because I actually -- I see more the opposite that some others are truly declining profits. And you could elaborate a bit on that, Lars?.
[indiscernible] there's some in the U.S. base saying, they have, for example, in the flexible packaging [indiscernible] with strong volume and pretty good profitability. Some others are doing poorly. [indiscernible] is, for example, they're doing comparatively poorly, but they're calling out, specifically, LatAm as a weak spot for them, right? But obviously, there's a very large number of private companies, involved here as well, which I do not have a look at. So again...
[indiscernible], you mentioned them, but also some others in the U.S. My reading is that, yes, their reports may be nice volume growth, but our focus is on profit. And from a profit perspective, it is, at the moment, somewhat more -- that's my reading at least, is it's a more difficult market than, for instance, corrugated for the time being, and things will change again. So if you're -- but maybe to ask you a question this way. So we are making good progress in how we restructure our business. We equally have the issue that some of our products -- and we were fairly explicit on that place, they're declines, so we are not losing market share, but these products are just moving to other projects in the personal care component segment. And that is a headwind we have to face. But in all other ways, we think we'd make -- we actually make good progress. [indiscernible] highlighted, and I want to reiterate that we shouldn't expect, overall, I mean, an underlying progress in the business, but overall, if you just look at the bottom line, one shouldn't have big expectations for this year.
Okay. Final one from me. You -- entering this year, you were comparatively cautious in Uncoated Fine. That market, from a pricing perspective, seems to be doing really well, potentially, slightly above what you had expected. And you called out, Peter, not great demand. A question that I really have is, are you actually seeing any option in the business that prices rise because we haven't really been accustomed to that -- well, buyers haven't really been accustomed to it? And the second question is, when you talked about cost inflation in some of your Central and Eastern European book, as it's moving up more quickly than in the West, you're also talking about your ability to push prices in local currency to compensate. So if you can give us any update on your ability to do that in, for example, Russia, as we speak?
Yes. So we're getting fairly granular now. But Uncoated Fine Paper is -- is it right to phrase it, it's a good demand. So we are well booked, but it's not overwhelming. If you look at industry statistics, you see a year-on-year decline. Therefore, I just wanted to add a small note of caution to huge expectations for price increases, but again, it's great if we prove to be too conservative. With regards to cost inflation, as Andrew has outlined, overall, there hasn't been a lot of changes, if anything, then we see a bit less of them. And we feel, at this point in time, it's all manageable. So some highlight figures one also sees in the newsprint, I think, are exaggerated So yes, they are -- they have just returned to more normal, and we are, overall, successful in passing it on. And not just passing it on, we see from our margin expansion that we can increase prices somewhat above the cost inflation.
And maybe -- sorry, just to add from my side, Lars. I mean, clearly Uncoated Fine Paper is probably the one being most impacted -- negatively impacted by [indiscernible]. So while you can get domestic pricing up, obviously, hopefully, to compensate for domestic cost inflation, you clearly saw, in a weaker currency environment, that's still, for the bottom line, net negative. So one has to be cognizant of that. So -- and recognizing that, I think, the most visible pricing to use, clearly the European pricing of which people talk about a lot. We obviously operate in 3 different, sort of effectively, geographic segments, Europe being 1 of them. But the price increases there are, if you look again at the index, are relatively modest, it's not major price increases.
Our next question comes from Gerard Moore from Investec.
Just 1 follow-up question from me, please. Could you talk a little bit [indiscernible] more about the rationale behind your recent bolt-on acquisition in Egypt and also your disposal in the U.S.? So just your thought process behind both of those transactions. And I guess, when you put them together, is it fair to say there'd be fairly neutral impact on the group this year?
Thank you, Gerard. So the rationale in Egypt is pretty straightforward. We like our integrated business model. So, [ as I said ], kraft paper and deliver a lot in [indiscernible] to own converting operations to our bag plants around the world, where we have more than 40. And we see very a healthy development, very strong growth in, especially, in Middle East and Africa. And the opportunity has opened up to expand into Egypt. So we are not betting the farm with the amounts being involved, and you have seen the valuation was below 6x EBITDA. So we think that's a very -- both -- it's value accretive both for our Fiber Packaging business and also value accretive for our Packaging Paper for our, I said, kraft paper business because we secure the offtake long-term even though in this strong market today it actually doesn't play any role. But in case the times different again and one day they will, then it's good to have the bigger integrated volume. On the U.S., the mill which came as part of our graphic packaging acquisition, it was never core in a sense that it was part of the overall business. We are very focused on having cost-advantaged paper mills. This was a paper mill in the highest-cost quartile and also [indiscernible] which had required bigger investments. And so we were looking for it at the parent -- if I may call it like this, it's going into the [ speciality ] niche segment and that markets are now very strong. We found a buyer, and I think it's better for the future of this mill. We want to concentrate more on bigger cost-advantaged mills, but also in terms of products on extensible sack kraft paper. So the high-porosity extensible sack paper with [indiscernible], where this was a flat-back kraft paper mill, which we do use, but we're also happy to buy it from the market. And with regards to high-quality paper, we both buy it from outside this and deliver it from Europe.
And in general, I'd just follow on the question on the financial impact. Yes, your right. I mean, between the 2, the acquisitions and disposals, it's pretty immaterial on the 2018 effects.
Our next question comes from Barry Dixon from Davy Group.
Just a couple of follow-ons from me. Peter, you might just give us a sense, you talk about volumes being flat year-on-year in the period. Could you give us some sense or color around what you think the underlying demand growth is in the various divisions? And I'm thinking, I suppose, more particularly around the Packaging Paper side and the Fiber Packaging. The second is that there's been -- you've had, obviously, a very positive pricing environment year-on-year. And I suppose, more recently, you've seen increases coming -- or being announced for kraftliner and recycling containerboard in particular. Any pushback on those pricing initiatives? And we're hearing some sense this mightn't be as strong as people thought. And then the last question on the Ružomberok project. Andrew, you mentioned that you are still awaiting the sort of the permitting issues there. Is that normal or should we -- or is there any sort of any unexpected delays in that process?
Barry, so on volume, we have no new predictions. So we believe that both -- and you should really look at the value chain, so Packaging Paper and Fiber Packaging together. I think, over the next 5 years, one can expect something between 2% and 3% growth in the market. Maybe a bit higher on the conversion side and a bit lower on paper because of [ down-gouging ] and wage reductions. And we see the picture pretty much intact, but there are obviously fluctuations from time to time. And in Uncoated Fine Paper, we've always highlighted slightly positive in South Africa and Russia, and margin, of course, it is about 1% minus in Europe. This year in Europe, it seems to be a bit stronger decline, but we didn't change our outlook based on that. In terms of pricing, it's -- we see -- so our stocks are low, our order book is very good, we have no requests for price reductions. It's really up to anyone's own view, will prices -- how prices will develop going forward. But at the moment, the good price level is underpinned by healthy supply and demand patterns. And Ružomberok, it's -- I would say, is it normal? I like this question, I would say it's the new normal. Because of changes in the European legislation, unfortunately, there are more people entitled to protect and to give their thoughts, and therefore the process is longer. However, we have got permission for the main -- how should I say, there are several permissions to get, and the most critical ones we have got. So if your question is are we worried that this project will not come or will come -- will be seriously delayed? No. It is, unfortunately, as we learned, the new normal.
Our next question today comes from Alexander Berglund from Bank of America.
I guess, 2 quick follow-up ones from me. Firstly, just on the virgin containerboard and the price increases that we've seen in Q1. Is that all done? Are all those negotiations all done? Or is there anything else we could expect into 2Q? And then secondly, on the Uncoated Fine Paper, I mean, I think we've discussed it quite a lot on this call. But just given kind of cost inflation right now, looking at kind of the nonintegrated plays, I'm not sure really how much of your competition in the markets you are in are nonintegrated. But do you think kind of the price levels right now are fine from their view? And if you would see kind of more capacity taken out in the market from the higher cost producers, is there any scope for you to increase kind of volumes? I think you've said you are already quite well booked, but is there any scope there? Or would it be more kind of enjoying a generally tighter environment and potentially higher prices?
Yes. Thanks for the question. So on virgin costs. As I said with another question, there isn't much more to add, is we were very pleased with the price increases -- that the price increases which were announced that we have booked EUR 30 to EUR 40 through, that is done, and now, one has to evaluate the situation. And if I had [indiscernible] internal discussions with my people and saying we believe it will go up and go down, I think that everyone would be all over the place. So we have to assess how the new balance works out and then we will see what happens and how the overall economy is doing. In terms of Uncoated Fine Paper, yes, we guess -- we estimate that about 1/3 is nonintegrated or nonintegrated players which are not specialized, like we are in our [indiscernible] mill, specifically, and where we get with [ specialities ], much higher prices than normal. But I'm struggling to understand how a non-integrated mill can make a profit these days. But what should we really -- we don't have this problem. And I wouldn't be surprised if some capacity came out. But yes, that's speculation, I have no concrete example to note that someone is planning to shut a mill down, but for sure, for them, it's a difficult situation.
And yes, if [indiscernible] are taken out, would that mean that you can increase volumes a bit? Or you're already like running at full capacity at your mills?
We are running at full capacity. So for us, you can see our profitability is strong because we run full capacity. So if capacity came out, any price increase would be more feasible.
Our next question today comes from Kevin Hellegård from Goldman Sachs.
Most of my questions have been answered. But maybe just lastly, if you could give any color of where the margins are heading both versus last year and versus the second half of last year? And then, I think you mentioned earlier on the call that you expect prices to slightly off -- slightly more than offset where costs are going. Is that for all divisions? Or are there any weak spots and strong spots, excluding consumable?
Yes. Kevin, so markets -- where markets are heading -- the margins are heading. I think for the -- it's difficult to predict. We have now very strong margins, and one can speculate either way, one can say maybe they get stronger, maybe they will come a bit down. But at the moment, I can only talk on what I see from external and internal numbers. It's stable where it is. And the second question, sorry, that was on?
[indiscernible] price [indiscernible] and cost, division.
So I think that it's more or less the same as the margin question. So we see -- we believe in, if anything, that the default of stable margins for the year going forward.
Our next question today comes Cole Hathorn from Jefferies.
Just following up on the lower OTC prices, have you had any pushback from -- off the lower testliner prices? Or was the demand strong enough to support both testliner and then, potentially, kraftliner as a link to that?
Demand is strong enough.
Our next question comes from Brian Morgan from Morgan Stanley.
If I can just change tack a little bit. If we can -- could you chat to us a little bit about your 4th question around consolidation of packaging factories in Europe. And potentially where you think consolidation would be beneficial? Would it lend increased pricing power? Would it be a synergistic story? Maybe just give some sort of philosophical high-level thoughts on where you would see benefits.
Yes, Brian. That's a very broad question because it's differently answered whether one talks about sack kraft, virgin container, recycled containerboard. And very briefly, without going too much into detail, so obviously recycled containerboard, there is also possibilities. It's anyone's call if that should be driven forward. In virgin containerboards, I think the market is -- it's, to a certain degree, it is consolidated. Can there be a bit more? Yes, of course. But when the European Commission looks obviously at the various grades. And so I think the potential is limited. And with regards to sack kraft paper, specifically, it is a very -- it's a fairly consolidated market, and Mondi has a good market share in it. So yes, it is a topic but on the upstream, therefore I would not do that so much.
Our final question today comes from Matthias Pfeifenberger from Deutsche Bank.
Just really 1, do want to comment on Bulgaria, on the news we've seen? The USD 600 million means some of these local news wires are considering more or less certain. So do you want to maybe share some color?
Yes, I mean, Matthias, there isn't so much to share. So obviously, we have stated that we are looking at a number of opportunities. We have a fairly small mill in Bulgaria with a favorable cost situation there. So it's naturally that we look at options there. But -- and once we define a purchase and we will communicate it, but at this point in time, it's not a concrete project.
So it's a post-2020 agenda item?
Yes. I mean, if you think at, in term, when would it come on stream, for sure after 2020. When would we come to a decision to set up a project? I say it's 2000 -- so potentially, if we come to that decision, it's around 2019.
We have no further questions. I'll hand back over to you for any closing remarks. Thank you.
Yes. Great. Thanks for all the questions. I think it was fairly detailed. This was just a trading announcement. So I want to reiterate 2 things [indiscernible] quarter. And I think all our cylinders -- we are powering on all our cylinders, even so one is the integrated Packaging Paper, and Fiber Packaging is the strongest for the time being. Encouragingly, I think we have a very nice pipeline of projects underway. And despite some delays, like what we saw in Ružomberok, it's overall very pleasing to see that, that is progressing well, and that will ensure our growth. And I appreciate that markets look more at the current year and next year, but if one takes the look out to 2020, 2021, then we are very strongly positioned. And in this, thanks -- a great thanks for your time in the call and have a good day. Thank you. Goodbye.
That will conclude today's conference call. Thank you very much for your participation today. You may now disconnect.