Smurfit WestRock PLC (SW) 2006 Q4 法說會逐字稿

Welcome to Smurfit Kappa's Q1 financial performance and trading update conference call. This conference is being hosted by Smurfit Kappa's CEO, Mr. Gary McGann; Mr. Ian Curley, CFO; and Mr. Tony Smurfit, President and COO. For your information this conference is being recorded.

I will now pass the call over to Mr. McGann for opening remarks. Please go ahead, sir.

Thank you, operator. Good morning or good afternoon, ladies and gentlemen, and welcome to the Smurfit Kappa group trading update conference call. As many of you know, this is the first such call of Smurfit Kappa group PLC and the first since the successful conclusion of our IPO in mid-March. Before opening the call I would like to preface our remarks with Safe Harbor disclosure.

During this call our remarks may include forward-looking statements, including statements concerning expectations about future financial performance, economic and market conditions. These statements are neither promises nor guarantees but are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

As the operator said, on the call with me today is Tony Smurfit, who is the Group COO; Ian Curley, the group CFO; and I would also like to introduce you to our new Investor Relations Manager, [Berton Polet], who is on the call with us today and who many of you will meet as we hit the road.

As we said, the purpose of today's call is to discuss the financial performance for the quarter ended 31 of March 2007 and to provide you with a trading update for the four-month period ended 30 April, 2007.

In terms of the trading update, as many of you know, we discussed current business conditions during the course of our IPO roadshow. This discussion extended to much of the first quarter. So for this call, we will discuss business conditions through to the 30th of April to make it current and relevant for all market participants.

Our Q1 EBITDA of EUR254 million is both a solid and expected performance for the quarter. It represents a 40% increase on the comparable period in 2006. Now while we are reporting a significant year-on-year increase, this financial performance does not yet fully reflect the expected earnings momentum within our business. There were a number of factors specific to this quarter which limited EBITDA and EBITDA margin growth. These factors do not, however, cause us to change our view on the overall expected EBITDA outturn for 2007. These factors included higher input costs for both wood and recovered fiber. For example, recovered fiber prices increased by an average of approximately EUR20 a ton or 30%. It also included a weakening U.S. dollar. The growth in U.S. exports of paper was 39% in March on year-ago levels and the consequent impact on the European kraftliner market of these factors is evident.

Let us look in more detail at our financial performance for the first quarter. For the first three months of '07 Smurfit Kappa Group is reporting net sales of EUR1.79 billion, which represents a 3.6% increase on net sales of EUR1.73 billion in the first quarter of '06. This also represents a 2.6% increase compared to net sales of EUR1.75 billion in the fourth quarter of '06. EBITDA before exceptional items of EUR254 million increased by 40% against EBITDA of EUR181 million in the first quarter of '06. This represents an EBITDA margin on net sales of 14.2% and 10.5%, respectively. Exceptional items in the first quarter of '07 were EUR85 million, of which EUR75 million related to once-off IPO-related costs, primarily in respect of the early paydown of debt.

Turning to our capital structure, we successfully returned to public equity markets through the completion of an all-primary IPO on March 20. The Group raised gross proceeds of EUR1.495 billion through an open institution offering which was significantly oversubscribed. This comprised an initial public offering of EUR1.3 billion and the full exercise of overallotment arrangements, which raised an additional EUR195 million.

Proceeds from the IPO were applied to optimize Smurfit Kappa Group's capital structure. Following debt paydown net debt at March 31 was EUR3.55 million compared to EUR5 million at March 31, '06 and EUR4.88 million at December 31, '06. Net debt to EBITDA at March 30 was 3.7 times which compares to 5.5 times at December 31, '06. As we outlined during the IPO, this metric will continue to improve throughout the year, as we continue to pay down debt in line with our expected EBITDA growth.

Our target leverage range is 3.25 to 4.25 times EBITDA. Now while we are now within that range our financial objective is clear and compelling. That is equity accretion through debt paydown, which will be delivered at the expected benefits of the positive price environment flow-through.

Before turning to the trading update for the four months through April, I'd like to provide some perspective on the progress of both our synergy and capacity management programs. In the first quarter of '07 we delivered an increased level of synergy benefits of EUR34 million; that's against EUR9 million in the first quarter of '06 with new projects contributing EUR3 million in quarter one. The momentum behind the synergy program continues and the Group is confident of delivering total synergy benefits by the end of three years, ahead of the original 160 million estimate.

In terms of our capacity management program during 2006 we rationalized 495,000 tons of high-cost or uneconomic recycled containerboard capacity. In March '07 we announced the further closure of a recycled paper mill in Alaincourt, France, which comprised capacity of 90,000 tons of recycled containerboard. We will use the machine from the Alaincourt mill to replace another of our machines in France, with the net reduction in tonnage a minimum of 60,000 tons.

We have also reached and implemented the closure of two corrugated plants, a solidboard machine and a solidboard packaging plant. Operating cost reduction and further improving the quality of our existing asset base will be the subject of ongoing projects in 2007 and beyond.

We will also continue to make investments to enhance the quality and the efficiency of our system. Recent such investments included increased white top kraftliner capacity at our Facture mill in France, our cost improvement initiative in the Roermond mill in the Netherlands, and a major [bark] boiler investment at our Pitea mill in Sweden. We will also continue to assess opportunities to expand existing operations in Eastern Europe and Latin America, where we believe we can enhance our market position and earnings profile in what are attractive and high-growth markets. Our capital spend for '07 is expected to be approximately 90% of depreciation.

Turning now to an update on market conditions for the four months to April 30. Trading for the first four months of '07 is significantly ahead of the same period in '06. This is a continuation of tight market conditions for recycled containerboard in Europe and the benefits of increased product prices. While the overall momentum is positive, our Q1 performance was largely characterized by margin compression for our mills system. Today we're experienced margin pressure in our corrugated system as current corrugated pricing has not yet recovered the higher containerboard costs.

Latin America's strong start to the year has continued. This region is currently performing very satisfactorily and is as you know a central element of our growth story. Demand growth is generally positive in the countries in which we operate. Overall corrugated volumes were up 10% on the comparable period in '06 and containerboard volume growth increased by 6%. Our performance improvement was limited by capacity constraints in certain of our mills in the region, in particular Columbia and Mexico. Combined with the generally favorable pricing environment, earnings within this region continue to grow at a very satisfactory level.

In terms of European corrugated pricing, we estimated that the shortfall in price increases carried over into 2007 was approximately 3% of which we recovered just over 2% to-date. A further 6% is being solid by Smurfit Kappa Group to recover the paper price increases achieved or announce so far in '07.

Current conditions are supportive of these increases. Overall market growth was in line with our expectations. Market demand for corrugated in Europe in quarter one increased by approximately 3% according to RISI. The Group's year-on-year volume growth in Europe is below market growth rates as a consequence of capacity closures, yield mandated disposals and our disciplined stance on pricing, in effect the cost of price leadership.

Market demand for corrugated in Smurfit Group's countries of operation within Latin America in Q1 increased by a very healthy 10%. For the first four months of 2007 the group's European containerboard and corrugated volumes were relatively flat year on year for the reasons we just discussed. As a consequence revenue growth in the Packaging business primarily reflects the improved product price environment. Higher recycling containerboard volumes were offset by lower kraftliner volumes, primarily as a result of a temporary shut of our PM-6 brown kraftliner machine at Facture following a fire in early January, the financial impact of which is covered by insurance.

The machinery started production in early April. Approximately 90,000 tons of production were lost during this closure period. Facture's tonnage is now being successfully reintroduced with no disruption to the market.

The positive momentum during 2006 continued into 2007 with a EUR30 ton price increase for recycled containerboard during the period. This price increase was accelerated due to an increase in recovered fiber prices of over EUR20 a ton in the first four months. A further price increase for recycled paper of EUR30 per ton has also been announced for May/June. Recovered fiber prices are now relatively stable at a current price range of 90 to EUR100 per ton depending on the market. As we have consistently said, stable and higher recovered fiber costs are generally good for this business.

While our mills have benefited from containerboard price increases, as an integrated producer, this has resulted in increased input costs for our corrugated operations and some near-term margin compression. The Group needs to implement a 9% increase in '07 to fully recover all of the announced or currently proposed price increases. Market conditions in Europe are currently supportive of such price increases and the group is committed to sensible product pricing and our objective is to recover all of the required price increases to maintain our margin progression.

In Latin America while business conditions vary from country to country, demand growth was generally positive across the region. Overall containerboard and corrugated volumes were higher than the comparable period in 2006 and are contributing to increased earnings growth from our Latin American operations.

Turning to our Specialties business, which consists of those European mills which produced grades of paper other than containerboard together with related packaging operations. These principally comprise the Group's graphicboard mills, boxboard, solidboard and paper sack businesses and the Group's bag-in-box operations and represent approximately 9% of the Group's EBITDA.

The European Specialties division experienced some of the general conditions that affected our Packaging businesses, together with some conditions specific to its particular business. The recycled paperboard businesses, incorporating solidboard, graphicboard and boxboard all implemented price increases in quarter one, reflecting in the main the increased cost of energy and recovered fiber. We continue to seek further price increases.

The sack kraft mill in Spain has and is implementing price increases, reflecting a tight market for this product in Europe. In solidboard, further price initiatives are underway to recover higher input costs. An improved performance for this business is expected in the second half as the benefits of higher pricing and rationalization actions are realized. Our Bag-In-Box business continues to perform strongly.

In terms of outlook, while we are experiencing near-term margin compressions we expect to deliver a full-year 2007 outcome in line with current market expectations. This would represent full year-on-year EBITDA growth in excess of 25%, representing significant and continuing earnings momentum. Across our markets demand is strong and capacity is increasingly coming into balance. Inventory levels for both OCC and recycled containerboard are significantly below prior-year levels. The combination of these factors should sustain a positive product price environment.

So thank you again for being on the call and we're now happy to take your questions. And if you could, keep them to general questions and we will deal with detailed questions and give you whatever guidance we can off-line. So thank you, operator.

(OPERATOR INSTRUCTIONS). Myles Allsop, UBS.

My question was (technical difficulty)-- with the containerboard price increases. With kraftliner it looks like you have not achieved any price increase so far this year. Do you think we could hope for an increase later in the year or is that market still looking pretty tough for the time being?

Let me ask Tony to take that one.

I think as you say, the first quarter right now is still relatively tough. But I think that there is generally speaking a more positive view to the second half of the year. The Americans, which have increased their imports or their exports, last during the first quarter seem to be backing off at this stage and the market seems to be tightening up over there. So we would be much -- would be more hopeful for the second half on kraftliner.

We are -- we have implemented some price increases at the lower end of the pricing range but not obviously at the higher end, so at the moment there is an imbalance but I would say it is more on the positive side as we see it right now.

And then how much of the May/June kraftliner increase has actually been implemented so far?

EUR15 with -- effectively it will all be in by June 1. It depends on the market and the country but the whole EUR30 will be implemented June 1 and a lot of it has gone in already in May, depending again on the country.

And then for the further 6% for corrugated prices that is from the second half effectively when (multiple speakers)

That effectively will start clicking in probably from June onwards and because the first increase was really effective -- the first 30 was really effective on March 1 and the balance is now coming in. So therefore our sales team are out there beavering away trying to get the increases as we speak.

Okay and then on the synergies, how much more than the EUR160 million do you think is realistic now?

I think as you can appreciate, one of the things we don't want to do is front run things. But I think as we've said on the roadshow we have got good momentum going and we started with our gross number of 180 which we netted down to 160. And so we are confident that our number that we set as a target is achievable. So I suppose what I'm saying is, it is more looking like 180 in the three years rather than 160.

Okay. Maybe just last question, how do you -- I mean with these prices kraftliner producers have there been any more murmurings that you have heard in terms of new capacity starting up in '09/'10?

I think every time you get a price increase in this market you hear plenty of murmurs and rumors. But in terms of solid, substantial facts, there is nothing fundamental that has changed. The two that were announced at the time of the roadshow, [Proel] and Mondi have not really advanced their position. Mondi have confirmed I think more clearly that they have an investment program over a number of years, which incorporates that machine. Back I think they will also and have also indicated their belief in a balanced market. And Proel, we have not heard anything further. [Sikov] obviously reconfirmed their interest at some point in some location in a further machine but nothing more substantial. So there's nothing really more concrete than what we had when we last spoke to you on the roadshow.

Barry Dixon, Davy Stockbrokers.

Just a couple of questions. One is in terms of capacity utilization. Can you give us some sense as to where that is now say relative to three or four months ago if there have been any changes versus a year ago?

And secondly in terms of the demand, I mean you mentioned a 2% number from -- is that sort of consistent with what you're actually seeing on the ground? Is there any -- have there been any changes in that at all in the past the last couple of quarters?

And then just finally in terms of pricing on the corrugated, I mean the 6% remaining. Are you getting from -- I know you probably normally get kickbacks from customers anyways, but is there anything different in terms of -- is it easier or more difficult to get price increases through on the corrugated side?

Just on capacity utilization and then I will get Tony to talk about the RISI numbers and indeed corrugated. I will just say one thing on corrugated to start with.

I think there is a lot of noise in the market about it is getting tougher on corrugated to increase prices. Every price increase in any business in any market is tough as you compound one on another. But for sure it is probably certainly not tougher to be going for pricing in the current climate than it was this time last year when we were in a fairly lonely position leading from the front with nobody following, certainly earlier in this time last year. So I think the general sense that some people have that corrugated market is running out of appetite for price increases has got nothing to do with customers having an appetite for price increases. It is the pricing power of the supplier that actually dictates it always and will continue to be so. And that clearly from the fundamentals have not changed at all.

Just in terms of operating rates before I hand over to Tony, I think the bottom line is that the market is very, very tight. The stock levels in recycling containerboard are much lower than they have been historically and are well down on last year. We are about 350,000 tons short of recycled containerboard. So when you add all of those factors together I think what you come up with is tight. The problem with the operating rates, Barry, and I think we mentioned this to a number of people on the roadshow is, people differ in terms of their view on it in terms of what 100% is. But I think what we're saying is the operating rates are at a very strong level and there's no question that the pricing power is with the suppliers, which is I think the key issue that the operating rates drive. (multiple speakers) --

So call it 95%, call it 96%, call it 94% I don't really know. I can tell you each of our machines depending on its performance, depending on its situation, has different rates but overall we are very tight.

Okay, that is fair.

Let me hand over to Tony just on the RISI question.

I think to add to what Gary just said on capacity, effectively, we are sending out paper directly from our paper machines to the box capacity because we're very short of paper and the market is in the same situation.

The RISI demand situation around 3%, again it depends on the market. I would say that the German market is generally stronger than 3% and whereas say the French market is a little bit weaker than they 3%. But on an overall figure around 3% is around -- probably around the right number for the moment.

Thomas Brodin, Citigroup.

Yes, two questions for me please. I was just wondering about first of all, numbers, depreciation, if you can give a number on that for the first quarter? And the second question is after this taste now that we have seen substantial capacity closures in corrugated case materials, do you think now we're entering a period, particularly with the margin squeeze situation with more closures in corrugated?

I think as you know, around the edges, there tends to be openings and closings of corrugated. I think in terms of the margin compression there is two ways of solving it. One is that people go and recover the cost inputs in an increased market price or the second one is if they are to do so erode their margins and run themselves into difficulties or inefficiencies or non performing plan.

There are some specific ones which I'm going to get Tony to just touch on in a moment. But as a generality I think you need to bear in mind certainly the way we look at the market, and that is that the corrugated market is not like the containerboard market where there is if you like a regional or indeed even a global market in kraftliner terms. But they are all local markets and so supply/demand balances tend to be a very local and specific issue and where there is huge excesses you see problems for some of the smaller players. And where it is reasonably tight and balanced, people do very well. And we have all aspects of that in our portfolio. But Tony, you have seen some specific --?

Yes I think we have had a couple of small bankruptcies in the UK over the last six months. And clearly, the guys that have not been raising their prices in the environment of higher paper prices or are unable to raise their prices will have some problems as we go into the next round of price initiatives on paper. So whether or not we will see bankruptcies or closures it is a bit early to say, but I would not be surprised that some of the weaker players start to feel some pain.

And you're beginning to see [Tom breaking] up or consolidating some of his operations into bigger, more efficient ones, which is a view on life as well. Whether you have some super operations with big volumes and fast throughputs and better results, or whether in our case we try to cover the market and give the customer service differentiation as a business proposition. So it depends, Thomas. I'm sorry to be not more definitive. Let me just ask Ian to deal with the depreciation question.

Well the depreciation for the first three months of the year was EUR89 million.

Mathias Carlson, Deutsche Bank.

(multiple speakers) regarding the guidance that you're giving on the full-year that you're confident reaching the current market expectations, does that include unchanged costs? I mean does that include the recovered paper prices remaining at current high levels?

Basically we have a view that -- a couple of comments. I think first of all, there are, as you have indicated, there are some different variables at play than the specifics we would have started this year on. There is no question that one of them is recovered paper costs, which are stabilized and where we are beginning to see some stock growth in terms of higher collections on the easing of the type of export pressure into China. There is a sense in our mind that it may well ease off, but we are not totally dependent on it.

I think as we have said to you and certainly have been saying to a number of audiences over time, that we basically believe that if we have sustainably higher input costs we believe in the current supply/demand environment, we recovered them and we do better in that type of climate than in lower-cost. And so the type of things we are basically looking at the full year on in broad terms without kind of getting it down to a reconciled position is the recovered paper price is somewhat at the type of level they are at. Corrugated price recovery we will not get the full price recovery in the year but we will go a long way towards it because the more the containerboard cost increases are the greater the momentum behind corrugated pricing.

Kraftliner, we're not assuming any phenomenal recoveries but we believe we're seeing some improvements, as Tony has outlined. And we are not going -- we're not hemorrhaging volumes. We're certainly behind the market in volumes but we're seeing reasonable decisions being made in terms of retaining volumes where the pricing is already reasonably good. So in the round, nothing fundamentally different, and no miracles being expected. Just good, strong, sustainable progress and a slight delay if you like on the achievement of the upward momentum.

Okay, one final question then. On the higher pricing implementation on the corrugated side, which Tony mentioned did kick in from 1st of June. What have been the success rate, I mean are the levels that you have been able to get acceptance for?

The second third year is a ton, is it?

No, on the corrugated board.

I beg your pardon, on the corrugated board.

Well it is in early days. We are for the last month or so starting to talk to customers and clearly a lot of our customer base is based on [UID] and PPI so they will click in from July onwards through the rest of the year frankly. And obviously on a local level we're going for a higher number than the 6% but we're hoping to land it around the 6% by year end. But the implementation of that will be starting probably in June in a small way and will kick in probably July/August type scenario.

The thing in thinking about it, it is worth bearing in mind that with the kind of repeat price increases of containerboard what is happening is corrugated price increases are beginning to blend into one another. So it is becoming less easy and less relevant even to be identifying which piece is the '06 paper price increase, which price is '07.

What we are basically saying is we are targeting to recover the whole lot. We don't think we will get it all in '07 simply on a timing basis, and also on some of the top end customers that are already at high prices won't pay the whole lot. Whereas the lower end prices will pay the whole lot and even more, as Tony suggests. But it is progressing on a month-by-month basis, and then on indexed months we get the kickers. So rather than trying to anticipate I think what we can say is we're confident of continued progress and recovery.

[Prierre Vitvanatsan], [Frontline Analyst].

Just a couple of questions. The first one on M&A. I think earlier you have indicated about EUR500 million of M&A and you also have a bank (technical difficulty)

We are having difficulty hearing you. Can you just repeat again?

Sure, is this better?

Yes, that is a bit better.

On M&A, I think earlier you have indicated about EUR500 million of acquisitions that you might look at. And you also have a facility -- bank facility that you could use to [vernic]? That is my first question. And the second one relates to I think the '07 call on your bonds, the remaining remnant of the bonds that you have in the [already] market, so what is your thinking in those terms?

Okay, let me just give you a general comment on M&A and then I will ask Ian to deal with the specific points you make on the 100 million and indeed on the bonds as well. As a general comment we have indicated that we see opportunities for growth in the two key regions of Eastern Europe and Latin America, and that is a focus for us. However, we have also stated clearly that in 2007 in order for us to deliver what we have committed to deliver we would focus on delivering cash for debt paydown to drive down the range of 3.25 to 4.25 times EBITDA and almost if you like to prove ourselves in terms of our capacity to pay down debt and to be able to deleverage. In parallel with that we're obviously in the market seeking opportunities and identifying potential candidates that we might be able to either acquire or greenfield or brownfield. So that is the general position if you like in terms of M&A, but let me get Ian to deal with the specific point.

Yes, on the roadshow we said that we would move the debt to EBITDA and we were at the end of the year 5.5 times. And the end of the first quarter and now we're at 3.7 times. So as Gary says, our focus really is to get between 3.25 and 4.25. With regard specifically within our covenants, there is ability to do acquisitions up to EUR500 million in any one year. But that is the only issue as such. There is no -- we have not made any statement with regard to acquisitions and our focus is on the debt paydown at the equity accretion.

With regards to the bonds that are callable later in this year, as always we look at our capital structure on an ongoing basis, and as we get closer we will look at these bonds like we always do.

Tony [Dalzerion], [Federal Tech Investors].

Tony? Operator, I don't think we have Tony.

[Funity Beforis], [Vola] Risk Capital Management.

I have got a quick question. What would be a good ballpark number from attainments kind of capital expenditures for the full year?

I'm sorry, what would be a good --?

Ballpark number for maintenance kind of capital expenditures on an ongoing basis?

Okay, let's look just define what we mean by maintenance capital just so that we are talking the same language. In terms of maintenance capital we see that as capital investment to -- in the assets that basically maintain them at the current level of performance and keep us if you like operating to the same level. In other words, there is no particular EBITDA return or no particular significant advances in EBITDA return. On that basis, we're talking of 50, maybe 60% maintenance capital. Anything over and above that we expect to get detailed and very specific returns.

And so 50 or 60% of the total CapEx?

Yes.

And the total CapEx plan for this year would be around 323.50 or --?

About 90% so somewhere of the order of 325 max 330.

Gillian Jones, Merrion Stockbrokers.

Just in the context of seasonality and your comments on near-term margin compression, would you see any sequential EBITDA growth in Q2 over Q1?

Obviously, we have got to be very careful in terms of front leading the market. The general comment I would have is that basically the first quarter's results which are effectively line-ball with quarter four, have two factors in it. One, an element of seasonality in the sense that quarter one has a slow recovery after Christmas certainly in the number of the European and indeed Latin American markets and a short month in February and obviously this year Easter. But it also has another factor in it, and that is the start of the margin compression as a consequence of the significant uptick in recovered paper prices and wood prices on the kraftliner side. And also then the kraftliner softness if you like as a result of American imports.

Some of that, obviously, an element of that follows into the second quarter as the containerboard price in recycled increases. But we still as a fully integrated system and indeed a system that is shortened on recycled, have to recover that in corrugated pricing. And as you know corrugated pricing is slower to recover. It as always more painstaking and more slow to recover than containerboard, which is fairly quick in terms of announcement through to completion about a month or two months. So in quarter two we're seeing margin compression as well. In terms of absolute numbers quarter on quarter it is too early to call I think.

(OPERATOR INSTRUCTIONS). Myles Allsop, UBS.

I was interested in your net debt movement from Q4 to Q1, because it looks like it has decreased by EUR1.3 million but the net proceeds from the IPO was EUR1.4 million. So I was just wondering why we did not see any more cash inflow from the operations. If you could just give a little bit more clarity that would be great.

Okay, let me just ask Ian to just give you the flavor.

Myles, just a big number, because the green shoe was not exercised until April, so that would be part of the reconciled item. But typically cash flow in the first quarter of the year is always negative as you got the working capital outflow in quarter one. So it was fairly -- it was line-ball as you expect in previous quarters with the main movement being initially the EUR1.3 billion left on costs and then the green shoe on top of that, coming in, in April.

So let's say coming down more in the second quarter clearly?

That is correct.

And what about the working capital move, how much was that from Q4 to Q1?

In the order of about 30 odd million. Working capital as a percentage of sales say broadly starting.

Campbell Geed, Deutsche Bank.

It's Campbell at Deutsche Bank. I have got a question for you on cost. You obviously talked about costs tendency to go up on recycled paper. You mentioned at the time of IPO 2% to 2.5% general cost inflation in 2007. I'm presuming that is going to tend towards the upper end of that bench now; are you still comfortable you will get it in that range? Because if it is going to creep above is there any additional scope to take cost out elsewhere as you kind of indicated with the cost savings in order to compensate?

I think, Campbell, as you would see from anything else you're following in Europe there is no question about the labor costs pressures, energy-related cost pressures and general cost of doing business in Europe is certainly not abating as a trend. However, in the round and bearing in mind that we operate in 21, 22 countries, we are still confident that we can get in on that type of number. Obviously, in parallel with that we're continuing to look at areas of opportunity for synergies or as we progress well into the combined companies more cost takeout activities. So we still think it is a good enough number.

That is great. And if I can just follow up as well, you talked about volumes and growth in Europe about 3%. Perhaps you are lagging the market a bit because you are obviously trying to hold onto price. Anymore thoughts on where the volumes may drop out this year?

Our volumes?

Yes.

No, I think if you take it in very -- I mean the volumes that matter for us at the end of the day as an integrated player are obviously corrugated volumes is where we effectively make or loss our money. And on a market level of about 3% we're running at about 1%. And we think that the volume, if you like, volume loss from price leadership is reducing obviously as more and more people step up to the plate, and indeed as we get more selective as to (technical difficulty) -- between the full price recovery and general volume performance.

And sir, we have no further questions. I would like to turn the call back to Mr. McGann for any additional now or closing remarks.

Thank you, operator. Well, ladies and gentlemen, thank you once again for your interest in today's call and indeed for your ongoing support. Just to reassure you that we're committed to delivering the expected level of financial performance in 2007. Again, thanks for your attention and we look forward to speaking with you soon, and have a good weekend.

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.