Earnings Transcript for SMFKY - Q2 Fiscal Year 2024

Operator: Welcome to Second Quarter 2024 Financial Results for Smurfit Westrock Conference Call. My name is Alan, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Ciaran Potts, Head of Investor Relations at Smurfit Westrock. Please go ahead.

Ciaran Potts: Thank you, Alan. This call will include certain forward-looking information regarding our current plans, beliefs, and expectations, which are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those set out in our earnings release and our filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date indicated and, except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events, or otherwise. In addition, today's call will reference certain non-GAAP financial measures. Definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our presentation as well as in our filings with the Securities and Exchange Commission and the U.K. Financial Conduct Authority and our reports available on the U.K. National Storage Mechanism and our website. Given time constraints and demand, I would ask that you keep the two questions and hold detailed modeling questions. I will now hand over to Tony Smurfit, CEO of Smurfit Westrock.

Tony Smurfit: Thank you, Ciaran, and good evening, everyone. I am delighted to be with you this evening and I thank you for taking the time to listen to this call, which is held together with Ken Bowles, our CFO. July 5th was a truly momentous day for our company and our stakeholders when we concluded the combination of Smurfit Kappa and Westrock and then on July 8, when we commenced trading on the New York Stock Exchange with our primary listing, Smurfit Westrock. And in doing so, we became the largest listed packaging company in the world. Interestingly, you'll see from this slide a picture of a gigantic corrugated bull, which attracted worldwide attention from everyone who saw it and posted it online. Not only is corrugated packaging highly interesting, creative and innovative, it is of course recyclable, renewable and biodegradable. The vision of our company is to be a globally admired business, dynamically and sustainably delivering secure and superior returns for all stakeholders. I think, over the years, we have shown that we are well on our way to realizing this vision. As part of that journey, we've taken certain steps over many years. These include continuous investments, selective acquisitions, development of innovation and service for our customers and the extensive training and development of our people. Along the way, we have had many defining moments, including the merger with Kappa Packaging in 2005, its subsequent IPO in 2007, navigating the financial crisis of 2008 and 2009, the successful defense of the unsolicited approach by International Paper, and of course, the defining moment not only for our company, but also for the industry by combining with Westrock all the while, while delivering outstanding operational and financial performance. The combination gives Smurfit Westrock the opportunity to give our customers world-class packaging solutions across four continents and 40 countries with unrivaled innovation and a unique footprint for our customers. Our combination to form Smurfit Westrock will be run by a management team that has a proven track record and has consistently delivered superior performance. Moreover, it is also a management team that has a track record of identifying, acquiring and optimizing the performance of undervalued assets. In that context, it is important to note that the transaction was concluded at an optimal time, whereby both sets of stakeholders will benefit from and participate in the go-to sustainable packaging company in our industry. I would like to briefly recap on the factors that have sustained Smurfit Kappa success. While you've often heard me say that success is never a straight line, what you will see here is a structural growth story. This slide also shows the continuing benefits of our medium-term capital plan. Since 2015, we invested some $6 billion to optimize our integrated operating model. We also acquired complementary businesses with an aggregate value of $2 billion. Outperformance has generated substantial free cash flow while delivering a progressive income stream for our shareholders. Those capital allocation decisions, together with ongoing operating excellence, have over the last eight years to the end of 2023 delivered 100% increase in EBITDA, a 470 basis-point increase in EBITDA margin and a 520 basis-point increase in ROCE, all the while building balance sheet strength and sustaining a highly-attractive income stream. This performance has continued where we have again delivered a strong set of results against the backdrop of higher recovered fiber costs and lower corrugated costs, which are now being recovered. Ken will take you through these results in greater detail in a few minutes. For those of you that don't know the company, we've been able to deliver consistently through a fundamental element of our business and that is our people and our culture. The only true differentiating factor in any company is culture. And we and Smurfit Kappa have fostered a winning owner-operator culture and adherence to our core values of loyalty, integrity, respect and safety at work. Along the way, we have provided our customers with more and more sophisticated and innovative packaging to meet the various demands of sustainability, innovation and merchandising. Through performance, we have transferred the perception of our product away from being merely a transport medium towards being seen by customers as a vital value-added product in their supply chain. This came into sharp focus during COVID when corrugated was deemed as essential and critical to the supply chain. And while the past is no guarantee of future success, it is, however, a good guide. The Smurfit and Westrock combination marries up extremely well. We have more product ranges in sustainable packaging. We're more integrated, we have significant synergy potential and we have a unique global footprint. Our significant project range is diverse with high-margin product areas and we occupy number-one or number-two positions in most of the countries and markets in which we operate. The uniqueness of Smurfit Westrock cannot be underestimated and the coming together of the two organizations brings incredible expertise to be harnessed with far broader opportunities for every stakeholder. Clearly, the question is what is next for the combination. We intend to follow the model that has been successful for Smurfit Kappa across our world and operations. As I said before, the next phase of our journey will take time as we focus on the execution of putting these two excellent companies together as we develop a cohesive performance-led culture within the new Smurfit Westrock and as we focus on putting our customers at the heart of everything that we do. What I have seen so far within the legacy Westrock business is impressive. To date, together with my colleagues, we have seen in excess of over 100 operating units and met with thousands of energized and excited employees, providing an excellent foundation from which to build. I'm also encouraged by the energy, enthusiasm and resolve across the organization to realize the success that the combination will present for all stakeholders. Now, I'll pass it over to Ken to take you through some of the financials.

Ken Bowles: Thank you, Tony, and good evening, everyone. Turning now to Slide 10 and Smurfit Kappa Group's second-quarter 2024 results, which are reported in U.S. dollars and prepared under U.S. GAAP. As outlined in the release, due to the timing of the completion of the combination of Smurfit Kappa and Westrock, the GAAP results for the combined company of Smurfit Westrock will be reported from the third quarter of 2024. These results, another strong set, should be seen in the right context which is against the backdrop of higher input costs, particularly OCC, but also before the expected recovery of those input costs through box price increases. As you can see, not only by the EBITDA outcome but also the margin of 16.2%, we are in excellent shape as we enter the second half of the year. And now just some more detail on those numbers. In the second quarter, net sales were approximately $3 billion or 3% lower compared to the same period last year, with the decrease primarily driven by lower average box pricing in our European business year-on-year. However, this was partially offset by an increase in group targeted volumes of 3.1%, a $28 million net positive impact from foreign currency fluctuations, and a $4 million positive impact from acquisitions. Adjusted EBITDA of the group was $480 million with an adjusted EBITDA margin of 16.2% in the second quarter of 2024 compared to $556 million and a margin of 18.1% in the second quarter of 2023. In Europe, adjusted EBITDA decreased by $77 million year-on-year, $355 million in the second quarter. This decrease was primarily due to a $143 million reduction in net sales and increased costs for labor, distribution and recovered fiber. However, these cost headwinds were partially offset by a decrease in energy and other raw material costs. The adjusted EBITDA margin in Europe was 16.1% in the second quarter of 2024 compared to 18.4% in the same quarter of the prior year. Conversely, our Americas business saw an increased adjusted EBITDA compared to the prior year of $6 million, reaching $146 million in the second quarter of 2024. This increase was mostly due to a $36 million rise in net sales, partially offset by higher costs for raw materials and labor. The adjusted EBITDA margin in the Americas was 19.2% in the second quarter of 2024 compared to 19.3% in the same period of the previous year. Net cash provided by operating activities increased by $33 million, $340 million in the second quarter. The increase was primarily due to a reduction in tax payments and a positive change in working capital and net cash interest, partially offset by a reduction in consolidated net income adjusted for non-cash items. Including capital expenditure of $177 million in the second quarter of 2024 compared to $224 million in the same period last year and excluding transaction costs paid associated with the Smurfit Westrock combination amounted to $23 million, adjusted free cash flow was $186 million in the second quarter, up from $83 million in the same period of last year. Net debt was $3.1 billion at the end of June, resulting in a net leverage ratio of 1.6 times compared to 1.3 times at the end of December 2023 and well within the stated leverage range of 1.5 times to 2 times for legacy Smurfit Kappa. And finally, on July 26th, Smurfit Westrock's Board declared a quarterly dividend of $30.25 per share payable in September. While not part of these results we are reporting today, we felt it might be useful, particularly for comparative purposes to illustrate on a very simplistic basis legacy Smurfit Kappa and Legacy Westrock for the first six months of the year. I don't propose to dwell on the numbers, but based on the numbers here, the legacy Westrock business delivered on a Smurfit Westrock adjusted EBITDA basis $669 million for the quarter to June. Further detail on the calculation and reconciliation can be found in the appendix to this presentation. When we announced the conversation back in September, we had aligned a synergy number of $400 million to be achieved by the end of 2025. Now that we are one organization, the detailed work in relation to those synergies has begun with teams validating that number. The teams are also beginning to scope out other areas of synergy and value creation or indeed dive deeper on initial areas such as Mexico to explore further opportunities. We will update you more formally later on this year around synergies, but for now, we feel ever more comfortable about the initial estimate and excited about new areas of opportunity. And looking now at Slide 13 on capital allocation. For anyone who is new to the Smurfit Kappa side of the story, our capital allocation framework is well-established. Returns focus at its core, both flexible and agile, it has been and will continue to be a key underpin to our success. From Tony's earlier slides, you can see the evidence of that. That framework will now be the basis of the capital allocation at Smurfit Westrock, that's probably not a surprise. At Smurfit Westrock, we believe that capital allocation to internal projects will be central to our future success. Today, more than ever before, we are seeing the benefits of having well-invested asset bases with integrated mill systems and box plants sitting along the cost curve and primed for future growth. Well-timed and well-executed capital expenditure programs were a hallmark of SKG and we are bringing the experience and tenure of the senior management team who executed those programs to Smurfit Westrock. The dividend is another cornerstone of our capital allocation strategy. As a reminder, Smurfit Westrock intends to pay a dividend in line with the progressive dividend policy of SKG. And as we seek to harmonize the different dividend streams and payment cycles for the remainder of 2024, as noted before, we are paying a dividend for this quarter of $30.25. As we begin the first full year of Westrock in 2025, we expect the base for that dividend to be indicative of the last full financial year of Smurfit Kappa Group and very much in line with our progressive dividend policy subject to the appropriate board review and approvals. In Smurfit Westrock, we plan to be disciplined with M&A and benchmark those opportunities against all other capital allocation alternatives. The combination between Smurfit Kappa and Westrock, the integration of which will clearly be our focus was undoubtedly transformative in nature, rooted in our history of discipline and best illustrated by combining both companies on equivalent enterprise multiples to create a global leader in sustainable packaging. The balance sheet of Smurfit Westrock begins its journey with a significant strength and flexibility. A ratings upgrade from all three agencies on legacy SKG and positive outlook from two is testament to that. The track record of SKG was to deploy capital towards internal investment, be disciplined around M&A and grow the dividend over the years, while also managing to reduce our leverage. And given the strength of the balance sheet and the improved business profile through scale and reach, we do not believe our current rating will be the summer to our ambition. And the expansion of our capital allocation framework to include other forms of shareholder returns underscores the flexibility and agility of this framework and ensures that all avenues to create and return value to our shareholders are considered and benchmarked against all options. Ultimately, the framework at its simplest is about creating long-term value for all stakeholders. I'll now pass you back to Tony for some concluding remarks.

Tony Smurfit: Thank you, Ken. Just to remind everybody, as I said, the new Smurfit Westrock is a company that has a global leadership position in sustainable paper-based packaging products. As you can see from this slide, we cover every area that any customer, large or small would require, complemented by the best R&D and innovative tools in the industry with a world-class R&D center in Virginia and 36 innovation centers or experience centers solely focused on giving customers optimum packaging solutions. As you will have seen from the Smurfit Kappa results, we have delivered another excellent performance with the market now turning in our favor as we look forward. The current quarter looks like a low point with plenty of scope for both cyclical and structural growth as we recover and improve pricing and as we invest in the business in our usual disciplined way. As we conclude the Smurfit Kappa journey and embark on the next and exciting phase of our journey, I would like to thank our shareholders for the support they have given us through those many defining moments, which I mentioned earlier. To remind you what has made us the success that we are, we will continue to optimize our integrated model. We will continue to put customers at the center of every commercial decision. We will foster a broad-based performance-led culture that is decentralized in its nature, simplifying the business with quick decision-making and making every manager responsible for their own P&Ls treating capital as their own. As always, we will be measured, disciplined, and returns-focused in our capital allocation decisions while keeping sustainability leadership at our core. As we drive this forward in the new Smurfit Westrock through a performance-led culture, but never at the expense of our core values of loyalty, integrity and respect, and of course, safety at work. These values have delivered and will continue to do so on a much bigger platform. Smurfit Westrock has the right market positions, the right products at the right time, and most importantly, the right people. 2024 through the creation of the global leader in sustainable packaging marks the next and most exciting phase in our journey. Thanks for taking the time to listen to this. And now, we will turn it over to you to ask any questions that you have. Thank you, operator.

Operator: [Operator Instructions] We will take our first question from Charlie Muir-Sands, BNP Paribas Exane. Your line is open. Please go ahead.

Charlie Muir-Sands: Hi, good evening, good afternoon, guys. Congratulations, first of all, for closing the deal and listing. I have two questions, have plenty, but I'll limit myself to two. The first question is, apologies for the short-termism, but Tony, in your remarks, you said you thought that the current quarter looks like a cyclical low point. I just wanted to clarify, were you talking now about Q3 or Q2, do you think?

Tony Smurfit: Q2, Charlie, we expect prices -- price rises to be following through Q3 and Q4 and those box prices to be moving forward in Q3 and Q4 and into next year. And so clearly, with the paper price increases that are already in the marketplace and the assumption that nothing bad happens in the world but say that this seems to be the low point.

Ken Bowles: There is one question mark that we have to just continue to look at is some of the maintenance downtime that is in New Westrock -- sorry, in Old Westrock, I should say legacy Westrock is substantial in the second half, but we still think that should be dealable with as we look forward.

Charlie Muir-Sands: Then just looking a little bit further forward, at this stage, what would you envisage could be the combined run-rate for CapEx for the new business, particularly as we think into the full year 2025?

Ken Bowles: It's a little bit early for us to button that down, Charlie. I mean, as we've said before, there is some things to be done in legacy Westrock. I mean, Smurfit Kappa is in very good shape, although we do have some expansion projects and things like our bag and box business, which is doing very well. And we do -- we are going through legacy Westrock now as we -- as we're starting to get into the weeds a little bit. But you know, as I've said, I think to you, we've been very happy with many of the things that have already occurred in legacy Westrock. There are still some things to do and we just need to check those out over the next quarter or so before we be definitive. But you know, it won't be 1 million miles away from the model, probably it's a bit less in the year one and as a couple of projects we're still looking over as to whether or not they make sense. But overall, I would say, very happy with the asset base that we've seen. Some things to fix, but Westrock had already done quite a bit of it, especially in some of the converting areas.

Charlie Muir-Sands: Many thanks.

Operator: We will take our next question from Justin Jordan, Davy. Your line is open. Please go ahead.

Justin Jordan: Thank you. Good afternoon, gentlemen. Again, well done clearly on the merger, many decades in the planning and well done on the execution thus far. I've got, I guess, two slightly related questions. Firstly, Ken, you talked about old Smurfit Kappa having a sort of target leverage ratio of 1.5 times to 2 times net debt to EBITDA. Can you give us any early thoughts on what target net debt to EBITDA we should be thinking about for Smurfit Westrock going forward? And secondly, related to, I suppose Charlie's question on CapEx, I just wanted to clarify clearly old Smurfit Kappa had CapEx guidance for calendar '24 of about EUR900 million or approaching $1 billion and Old Westrock, as it were, had CapEx guidance of $1.2 billion to $1.5 billion. So that would imply a pro-forma CapEx of something in the neighborhood of $2.2 billion to $2.5 billion. Is that the sort of zip code shall we say we should be thinking about or is there anything in particular you want to call out positively or negatively within that range?

Ken Bowles: No, I think -- just take the second one first, Justin. I think you're probably right, certainly for the remainder of '24 to kind of keep with that kind of run rate. As you know, we're coming to the end of our kind of four-year capital program. Westrock, as Tony said, has done a lot of good work. Our normal cycle will be through October and November, we start to look at budgets for '25 and then in February '25, we give you very clear size of what we think the CapEx requirements would be for '25 and then beyond if we need -- if we think that's relevant. But for now, I think you're not going to be a million miles away if you kind of stick to that kind of a zip code in terms of numbers and to keep it really simple. On the first one, I suppose, look, on a kind of simple pro-forma basis, we start off about 2.5 times. I don't think that's necessarily reflective of the enhanced business profile or reach. I think it's, you know in the rating agency world of Smurfit Westrock, while both being investment-grade companies is a new issuer in that sense. And so I think that if you like, the ambition is to be below where we currently are. But again all-in the fullness and times in terms of when we sit back and look at that kind of broader plan. But I think if you like out of the box strong investment-grade credit rating, but clearly the ambition to be north of that and that -- clearly that means sub where we are now, if you like out of the box, just 2.5 times. But again, it should be able through the year end give you better clarity and more target on that.

Justin Jordan: Thank you, Ken.

Ken Bowles: Thanks, Justin.

Operator: We will take our next question from George Staphos, Bank of America Securities. Your line is open. Please go ahead.

George Staphos: Thanks so much, everyone. Good evening and congratulations again on the transaction. A two-part question, Tony and Ken, recognizing it's early days, as you look at the legacy corrugated and consumer businesses of Westrock, recognizing that a lot of good work had already been done by David and Alex and the prior management team, which of those two businesses is already more closely aligned to the Smurfit model, which of those businesses has maybe more opportunity to track to the Smurfit model over time to create opportunity? Relatedly, how do you feel about the systems and information that you're getting regarding Westrock? Are you getting the data, the analytics that you need? It wasn't that long ago that Westrock had had some issues in terms of its information systems or ransomware. How do you feel about the state of systems there? Thanks so much and good luck in the next period.

Tony Smurfit: Well, thank you, George. I'll take the first one. I think there are elements of both businesses that are very similar or will track with our businesses. I mean, if you take the CUK business, it's fully-integrated or practically fully-integrated and is a very good business and that's -- the thinking and the mindset is similar to ours. Much of their corrugator business is in line with us and obviously, some of the synergies that we're going to get is going to make it even more integrated business. There is still some work to do, George, in some of the legacy corrugated box plants and in legacy Westrock due to some of the takeovers they've done. So there's some work to do in the corrugated business there still. With regard to one of the things that is an open question is a sense is SBS Board because they don't really integrate forward fully in that business and we need to figure out over the course of the next little while is how to do that? If it's possible to do that, what is our market positioning in that? As you know, there's a lot of movements in that space with regard to a couple of acquisitions that have just been made by others in the space. So that's something that is a little bit away from where we sit in our legacy corrugated businesses and our specialty businesses. So that's something that we're going to have to take a look at. But you know they do have reasonably good or good assets in that area. So I just need to analyze that over the next period of time, so -- and to figure out where that market is going, frankly.

Ken Bowles: Hi, George, on the IT systems one, I think first, you mentioned the cyberattack that Westrock had a couple of years ago. I think it's fair to say that the team in Westrock responded fairly strongly to that in terms of the security architecture that they put around the organization following that and I mean, the simplest evidence of that is that we both get third-party assurance on our security frameworks. And both of us have a NIS score, which is well above the average for paper packaging and quite well set. So from that perspective, they've clearly invested in the security architecture. From a broader systems perspective, I suppose there is a bit of work to be done simply because Smurfit Kappa has had an SAP ERP environment since 1998 in reality. So whereas Westrock was really only beginning that journey in terms of win ERP system and they had chosen SAP HANA as that system, as has Smurfit Kappa for the next phase of it. So there are no burning platforms in terms of accounting systems or data systems within Westrock. I think it's as much what Tony talked about the decentralized model and if you like, aligning the kind of rollout and transition to those IT systems following the operational model who can support the best. But in the interim, access to data, the roll up of data, the aggregation data, not an issue given the current systems in Westrock, but clearly, as we begin to kind of redefine and define that operating model, the IT systems are far behind and will make that process more efficient. But a lot of commonality of systems, which is a great starting point and carrying two projects around the next version of SAP as for HANA, which means that certainly there's a lot of good work already done on both sides of the organization in terms of the next phase of IT deployment.

George Staphos: Thanks very much.

Tony Smurfit: Thanks, George.

Operator: We will take our next question from Lars Kjellberg, Stifel. Your line is open. Please go ahead.

Lars Kjellberg: Thank you and thanks for taking the questions. So coming back to what you just said Ken about decentralized operating model, which is obviously something that's been very successful at Smurfit Kappa and a few years ago, Westrock did the opposite centralizing that. What sort of actions are you taking to roll-out your sort of your business model into the legacy Westrock system? And what sort of timeframe would you have us think about that? And also on the metrics of value-based pricing on your commercial success in boxes in Europe, what are the opportunities you see in the U.S. to get to that same stage where you in a way sort of take away the strong link between containerboard and corrugated in the U.S. business as you have to a degree, at least in the European side?

Ken Bowles: Let me take the second question there, Lars. I mean, I would say that we have a very strong link between containerboard and corrugated. That's with why the integrated model works for us. What we intend to do is have a very clear focus on unit profitability and empowering people to ensure that they are able to make their own decisions, but overlaying that with some centralization, I mean, there is no question that we in Europe and they were in the Smurfit Westrock will always have some centralized functions that are important to support the local businesses. And that could be in areas of purchasing, it can be in areas of Pan-European or Pan-American or global accounts. There is a legal accounting. There are things that are very, very important to give to local management. But at the end of the day, at the heart of it is to empower local management to develop businesses in their own areas, to deal with their own issues in their own area and become profit centers. And that's what has worked for us through decades. And frankly speaking, the number of facilities I've been to in legacy Westrock are very excited by this because that's where a number of the operations came from, whether it's Southern Container, MeadWestvaco, people -- Gondi, those operations were very focused on central -- our decentralized profitability. And I think that's going to be a very good thing for the organization and very good thing for profitability. And ultimately, yes, that does bring higher margins and higher profitability because you go after more local accounts and you look after local accounts rather than just centralized big accounts and that unleashes entrepreneurialism, which we intend to do. We won't get it right in every factory. Not every manager is going to be able to make a transition. And but as I say, what I detect so far is huge enthusiasm for everybody for this kind of model.

Tony Smurfit: Yes. I think, Lars, look, a lot of other questions wrapped up in there. I think it's about full income statement responsibility rather than the idea that your purpose is to kind of cost push into the box plant, so. But it's not a model that's new to legacy Westrock model they had in place. So the journey to kind of total decentralization is not that long and not fully complete in other of areas. So it's not that the model is not understood. There's lots of people who will remember it, but it's about, as Tony said, it's getting around the pace and pushing that down and getting access to the data. So -- and if you like, understanding that the role of the central function is to support around capital allocation and take away, if you like, take away the pain of governance compliance and those things in the operations, allow the operations to do what they should be doing, which is making paper, consumer packaging and boxes. And in terms of the second one, I think Tony wraps a little up there too, which is that price over volume. In reality, you know the journey we went on there around if you like proving to our customers where we can add value to the chain, but we have to demonstrate that. And I think it's around innovation. I think it's around the ever-increasing push for sustainability and where we can kind of fit into our customers' pictures, around all those things. I think they're relatively new in the U.S. context, particularly I think around ESG and where that sits. I think particularly within that Scope 3 emissions and where we can really play part, particularly in the FMCG space. So I think the pattern and journey is not that -- going to be that dissimilar and from what we've seen in Europe. I think a lot of it though is around, again, like we have to deal with the European model is proven out in terms of the tools, technology, data experience centers, innovation centers, which also have and showing that value to our customers. And by that coming through margin as we made it come through in Smurfit Kappa.

Lars Kjellberg: Thank you.

Operator: We will take our next question from Philip Ng, Jefferies. Your line is open. Please go ahead.

Philip Ng: Hi, guys. Looking forward to working with you going forward. Lot of opportunity here. Tony and team, you guys talked about how you want to run it locally, empower local box managers to kind of help us contextualize how that ramp will happen, call it, the next few years. Appreciating the ERP system, there's work to be done on the harmonization. Those things are usually a little bumpy out of the gate. So is there any disruption that we should be mindful in terms of the P&L unpack? What kind of investments you have to make on the box side? And then from a people standpoint, you know, this is a big cultural shift. Is there a big step-up investment in the sales force and kind of relying the KPIs? So a lot to unpack, but just kind of help us contextualize and think through how this ramp-in integration is going to progress next year?

Tony Smurfit: So Philip, I think as I said, there's already a lot of enthusiasm and a lot of the legacy people within the company are attuned to what we're doing and excited about what we're doing. So I think -- I don't think it's going to be a bigger cultural shift as you are mentioning there. I think as I said, we've seen over 100 operations now and there's a degree of really big enthusiasm for what we're doing and what we're going to do. And we've already started some of the dismantling of some of the issues that are centralized and pushing them back to the divisions first and then ultimately down to the local level. So this is not going to be a massive cultural change for a lot of people, for some it will and some people will get on the journey and some people won't And that's just a fact of the way we're going to run the business. I think with regard to the investments that will be needed, investments are already in there, so to speak. Obviously, there'll be some more investments to be made, but they'll be based upon where we can get the best returns and the best opportunities for developing the business on a local and integrated way. And that's what we've always done, Philip, and that's what we will continue to do. So I don't think it's a -- a lot of it's very exciting journey for our people -- for these people.

Ken Bowles: Yes. I think Philip as well just on the disturbance point, having spent many years in many roles on the SKG side implementing IT systems. I think the one thing that you always need to be mindful of is not disturbing the business because the reality is, as my colleagues will remind me, our job is to sell boxes, it's not to put IT systems. So what we will do is to follow and support the business with as little disruption as possible. But that may mean it takes slightly longer than we might like, but it's about making sure that the business does what the business has to do because that's the most important thing. And kind of like I was saying earlier, there's no burning platforms in Westrock. So those systems can run quite happily and we can manage with them for a good period of time. But I think ultimately the idea of this is these programs and projects which are bumpy or dead rise should happen with as little noise and disturbance to the underlying business as possible. That's always the goal.

Philip Ng: Got you. And you guys mentioned there's work to be done in certain pockets of the legacy Westrock and harmonize Smurfit and Westrock collectively. What are some of the areas that you see the best opportunities to really unlock values on the mill side, is it in the box side? Just give us a little more perspective in terms of the opportunities there and then the $400 million synergies, what are the big buckets and how that kind of phases in?

Tony Smurfit: Well, I think on the -- I'll leave Ken talk about the synergies. But on the operating side, there's a bit of both, to be honest. I mean we are going to continue to operate in -- look at the mill system and make sure that we optimize that mill system; with regard to the supply chain, make sure that the mills run the grades that suit them like we do in Europe, make sure that the whole organization is focused on ensuring the lowest costs to the box plant from the integrated mill system. And obviously, with the synergies that we're bringing in the mill system, I think that's going to allow us to do that even better as we go into the second half and into the next year. With regard to the box system, there's just a few legacy box plants that really I would say that we just need to develop out to make sure that they are either going to be efficient box plants or they won't be existing. So we just need to figure out which ones those are. But as I say, the legacy Westrock business has already been doing quite a bit of that and we're going to continue on doing some of that maybe with a little bit more speed as we move forward. And on the synergy number, if you track back to the presentation back in September, Philip, you have a lot of detail, but broadly, one of the biggest focus there was around paper integration. If you remember that Smurfit capital was short about 4,00,000, 500,000 tons in -- particularly in our Latin-American business and we bought some of that paper from Westrock, not all of it. So a good chunk around paper integration. A lot of the other synergies and they're all, remember, cost synergies, there's no real revenue synergies in there. A lot around logistics and distribution, particularly around the overlap and cross between both organizations, simple things where Westrock would have shipped paper to Europe and held in external warehouses, we clearly take it into our own locations now and kind of save the cost there, which can be quite significant. So the presentation back September gives you glorious detail, but suffice to say that of those, the biggest one is integration of paper, which was always our strategic priority in the region anyway. And just to remind you that the run-rate of those is to be done by the end of 2025.

Operator: We will take our next question from Gabe Hajde, Wells Fargo. Your line is open. Please go ahead.

Gabe Hajde: Tony, Ken, good afternoon. Thanks for taking the question. I wanted to start, I guess, with Global Paper and similar line of questioning as Mr. Staphos. As you evaluate that segment, I'm assuming that a portion of that is what you're talking about here in terms of forward integration. But maybe the decision tree and how you think about increasing vertical integration across the corrugated system or coming to a conclusion that maybe a mill is better served or more valuable for someone else versus yourself?

Tony Smurfit: Yes. Hi, Gabe. I think when we look at it, you know, I don't see a particular forward problem going forward with the corrugated papers and corrugated -- paper for corrugated. So I think if you take craft liners and white tops and medians out of this, you know, I think then we then look at some of the consumer grades and specifically SBS. And that's something we just need a little bit of time to evaluate. You know, I think there's a very good market for SBS. The question is how good is it going to be and that's something that we need some time to evaluate. I think that others are betting on the space and some are not betting on the space. And as I say, we'll look at it and decide over the next little period of time. But it has been a very good business for legacy Westrock in the past and highly profitable. And it's something that obviously, if we can see a way to integrate forward more and develop this, then we will. And if it doesn't -- isn't in that scenario, we'll reevaluate and look at it. But at the moment, I would say that it's part of the team and we'll continue to look at it as we get to know the business a bit better.

Gabe Hajde: I appreciate it. Thank you. And I guess for the second question, your key learnings in running your North American system, there's a lot of shake-up right now in terms of maybe how corrugated businesses are managed and run. When you look at the, maybe the food value chain specifically the food and beverage value chain over in Europe relative to the United States, there's a little bit closer linkage, I think, from merchandisers over in Europe versus the U.S. Do you see that as maybe an impediment to executing kind of some of this decentralized approach or value-based selling to your customers or more as an opportunity?

Ken Bowles: No, I think, Gabe, I think it's a huge opportunity. I think when you look at the innovations that we brought to our customers who are many of the same customers in Europe as they are in the United States and you look at the innovations that we brought to them in Europe, a lot of them want the same innovations in the United States and that's something that we will, it's not a magic one. We can't just come over and sprinkle some dust in the United States and everybody is going to change their way. But we are going to bring our tools and our innovation to our sales force. And over time, we will sell much more on innovation and value than going after a transactional-type business. And like others in this space, I mean it is funny how other people have been copying what we are doing. Like others in the space, we will be looking to make sure that we extract value from everything that we do. I mean, the last thing I want to be doing is putting in new machines and running lousy workovers and because that's just the way, just it fools errands. So we have always in Smurfit Kappa looked at profitability of accounts and ensuring that we are able to make money on them or if we don't make money on them initially, if we can't turn it into making money on it, we leave those accounts because you know, then you're just being busy fools. So that has been the way, that's why our margins have grown over time. We make sure that we offer value for our customers. We make sure we give them innovation. But if we don't get paid for it, we then don't do it. And that's what we've been doing for a long period of time in our history and that's what Westrock will do. So that's a very clear strategy of ours and will be to make sure that we get paid for the great work that we do.

Gabe Hajde: Thank you.

Ken Bowles: Thank you.

Operator: We will take our next question from Gaurav Jain, Barclays. Your line is open. Please go ahead.

Gaurav Jain: Hi, good afternoon or good evening. So two questions from me. One is that if I look at your last 12-month EBITDA at $4.5 billion, I think if I combine the peak EBITDA of both the companies, it was around $5.5 million. We had a long-term plan laid out by one of your key competitors, which is talking about doubling EBITDA over the medium-term. So can you frame the long-term opportunity here? And I'm not asking for guidance, but how high can this $4.5 billion EBITDA go in the medium-term assuming sort of normal macro conditions?

Tony Smurfit: Hi, Gaurav That's a question for 11 o'clock at night in Europe. Look, I think the long-term ambition has kind of been wrapped up in a lot of what we said today. I think as we start this journey, we started off with two organizations that have had quite different paths to where we get to in the sense that we're coming probably to the end of our last capital cycle, and by that the Westrock team are coming through their capital cycle, a lot of good work done. But also fundamentally, I think at a point in the cycle, if you like, from where we sit at joining together, you can consider one of the lower points in terms of where pricing is. I think even if you look back from when we did the deal to where we sit now in terms of -- we talked about it and Tony specifically talked about at the year-end in quarter one around the unsustainable levels of paper pricing, for example, in Europe and where companies have got to over the last couple of years. And since then, we've seen not only a kind of push on paper prices both side the Atlantic, but clearly a significant step-up in OCC as well. So the backdrop conditions as we begin the second half of this year and further on are clearly better. And clearly also the backdrop for recovery of those through box pricing is better through the second half and indeed what that clearly means for '25 and beyond. But I think we haven't even begun really to knit together what the total long-term opportunity of Smurfit Westrock is. I think though you've got two companies that are culturally aligned in terms of how they go to the market commercially. I think you got two companies who are innovative at their nature and two companies who traditionally have kind of brought their best up with our customers. I think it's about unpacking that on a global scale to be what we are, which is the largest and the most sustainable packaging partner on the planet. And -- but that also will take time, as Tony has said. But it's clear from our interactions over the -- the soft interactions over the last 9 months, plus the excitement and energy and enthusiasm that we feel as we go around the organization post-close and that there's a willingness, if you like, from the Smurfit side and the Westrock side to make sure the thing is nothing but a roaring success. And that clearly is backed up by the disciplines around capital allocation, internal investment, and the returns focus that brings with the attention to in terms of the end-customer and what they need, not just, if you like, day-to-day, but the longer term as opportunity because we do exist in an industry that is secularly in a good shape with a product, as Tony said, in the right place, right time is what the world needs. And I think that's only ever going to grow because the consumer continues to desire ever more sustainable products and in reality, where corrugated or consumer packaging can replace the less sustainable substrates, it's clearly still making that shift. So I think in time, we probably frame that longer-term opportunity a lot better, but I think it's fair to say that we start off in a great place and a reality with the backdrop of an industry, that's also in a great place.

Gaurav Jain: Sure. Thank you so much. And my second question is that, so we will get the first-quarter next time for the combined company. So what would be the metrics on which you would guide on a quarterly basis or you would not guide at all or would it be something like an adjusted EBITDA number or free cash flow or EPS? Like what is going to be the key metric?

Tony Smurfit: We haven't kind of settled them out. The key metrics are probably the ones you see in this release. In reality, we've tended to focus on Smurfit Kappa on EBITDA, clearly the margin quite specifically. And indeed both organizations traditionally have been strong free cash flow generators. I think whether we guide on a quarterly basis or annual is to be decided, but I think we -- generally, we've always guided annually because I think it gives you a better feel for the year and you stop getting trapped into the weeds of kind of quarter-to-quarter analysis and allows you to focus much more on the longer-term and much more thematic drivers of an industry rather than getting caught up on the kind of [indiscernible], but all three decide on play those.

Gaurav Jain: Thank you so much.

Tony Smurfit: Thank you, Gaurav.

Operator: That is all the time we have for question-and-answer session for today. So I will hand you back to Tony Smurfit for closing remarks.

Tony Smurfit: Yes. Thank you, operator, and thank you all for joining us today. I think we have put together an incredible company. This is going to be a company that will deliver great results as we go forward. And this is a company that is going to be a company that is a leader in its field. It's a company that has got really great people. It will have great assets and it'd be incredibly uniquely positioned to deliver superior returns along with our vision as we go forward. So I thank you all. Thank you for your support. It was a momentous day this July 8th or July 5th, I should say, and we look forward to continuing to deliver for this company going forward. Thank you all for joining.

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