Edited Transcript of MMKV.VI earnings conference call or presentation 11-Aug-22 8:00am GMT

Half Year 2022 Mayr Melnhof Karton AG Earnings Call Vienna Sep 29, 2022 (Thomson StreetEvents) -- Edited Transcript of Mayr Melnhof Karton AG earnings conference call or presentation Thursday, August 11, 2022 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Peter Josef Oswald Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board * Stephan Sweerts-Sporck Mayr-Melnhof Karton AG - Head of IR & Corporate Communications ================================================================================ Conference Call Participants ================================================================================ * Cole Hathorn Jefferies LLC, Research Division - VP * Markus Remis Raiffeisen CENTROBANK AG, Research Division - Financial Analyst * Matthias Pfeifenberger Deutsche Bank AG, Research Division - Research Analyst * Michael Marschallinger Erste Group Bank AG, Research Division - Research Analyst * Paul de Thierry Arke Advisers Limited - Founder ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Hello, ladies and gentlemen, and welcome to the Mayr-Melnhof Karton AG conference call about the results of the first half year in 2022. (Operator Instructions) Let me now turn the floor over to your host, Stephan Sweerts-Sporck. -------------------------------------------------------------------------------- Stephan Sweerts-Sporck, Mayr-Melnhof Karton AG - Head of IR & Corporate Communications [2] -------------------------------------------------------------------------------- Good morning, and welcome on the part of MM Group. It's my pleasure to have you joining this Q&A conference call on our '22 first half year results, which we released just this morning. Besides the press release and the half year report, a CEO video statement has been published on our website, mm.group. In this call, we want to provide you now with the possibility to direct questions on today's communication directly to our CEO, Peter Oswald, who is sitting next to me. Since this call addresses an international audience, we would very much appreciate your questions to be asked in English. Before we go for that, Peter, may I ask you to start with a short summary of our key messages. -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [3] -------------------------------------------------------------------------------- Yes. Thank you very much, Stephan. Welcome to everyone, and thank you very much for your participation. I do not want to repeat anything more from the announcement or the video statement, which is posted on Internet on our web page but just make a few personal comments on the first half year. First, our sustainability service to our customers, so life cycle analyses, commitment to CO2 zero target, joint product development to avoid plastics, unbiased advice on whether we use recycle --- whether they -- our customers should use recycled or virgin cartonboard, this is really gaining traction and gives us a good position in the market. Second, our packaging customers really appreciate our backward integration. And especially now, not just with recycled board but also with virgin boards. And in times of supply chain problems, this is really something which gives them more comfort. Third, the integration of Kotkamills and Kwidzyn is done. Especially in Kwidzyn, it was a complex carve-out with regards to the IT systems, and this was finalized -- successfully finalized in June. And the synergies are well beyond what we have expected both Kotkamills and Kwidzyn. And finally and most important, I think Essentra Packaging, also in connection with Eson Pac is a game changer for us. We will enjoy good organic growth because of global aging. We can offer novel products with a better environmental footprint and supply chain security to the global pharma companies. And we will have many opportunities to make bolt-on acquisitions to increase our geographic footprint. And this is again something over the next years, and we have a long-term thinking. And we shouldn't underestimate that it's very good that we have now also a presence in the U.S. with this acquisition. Yes. That's all from my side, and I'm looking now forward to your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And the first question comes from Michael Marschallinger from Erste Group. -------------------------------------------------------------------------------- Michael Marschallinger, Erste Group Bank AG, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Congrats to the strong results. I have three questions. I would do them one by one. The first one is on your video interview, you said there you do everything to mitigate the cost inflation via price increases. But in some cases, it's not necessary and you target machine standstills. Did you also already experienced that in the second quarter? Or is that more on a third and fourth quarter? And what products are that where you can't pass it through? And what volume are we talking about here? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [3] -------------------------------------------------------------------------------- Okay. So should I answer immediately. -------------------------------------------------------------------------------- Michael Marschallinger, Erste Group Bank AG, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- I would do it one by one. -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [5] -------------------------------------------------------------------------------- Okay. Fine. Yes. So the situation is such that so far in the second quarter, we were in the situation that all our customers, so to say, accepted the price increases. It's an open dialogue with customers sometimes to say, look, we could supply additional volume, but we have to pay extra freight costs, et cetera. What we see now in some instances, mainly in uncoated fine paper and in packaging -- in our packaging kraft paper is that in some cases, the additional, the surcharges, energy surcharges would be such high that the customers basically says, yes, I don't want to afford that. And in this case, we will have some standstills. Overall, we talk about -- I mean it's difficult to forecast, but as it looks today, we talk about rather small volumes. So we are producing 2.5 million tons in rough terms and per annum, and we will talk -- as it looks today, about 10,000, 20,000 tons, which we have to take out. But that obviously can change, but that's the situation currently. -------------------------------------------------------------------------------- Michael Marschallinger, Erste Group Bank AG, Research Division - Research Analyst [6] -------------------------------------------------------------------------------- Okay. Understood. Then my second question, you said you built some gas storage. For what capacity would that be? How long would that last, this storage? And what is the working capital impact here? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [7] -------------------------------------------------------------------------------- So I just want to say here, because we don't also want to inform our competitors, it will be enough. So let's say, there is -- basically, there are three scenarios: one scenario is that there is no state intervention in the gas supply, so there is full supply; the second other extreme would be that the whole economy more or less breaks down because a lot of companies can't produce any more. I don't believe in that scenario, but a highly likely scenario is that there is some curtailment of gas period will help us that we will not be the first to a cutoff because we are critical for the system as we produce for the food and pharma industry. But if we are cut to a certain extent, let's say, to 60% for a certain period of time, then we can put in our own -- we can [use to save] our own gas. And yes, it means a certain working capital buildup, but in the overall scheme of things, I think it's justifiable. And it serves our policy because the supply of our customers has always absolute priority. -------------------------------------------------------------------------------- Michael Marschallinger, Erste Group Bank AG, Research Division - Research Analyst [8] -------------------------------------------------------------------------------- Okay. I understood. And my last question on Russia. On the last call, you said that the business was fairly stable. How was it now in the second quarter? And you say you prove all options. Can you be a bit more specific? And will there be a decision now in the second half of the year? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [9] -------------------------------------------------------------------------------- So the business in -- so we have to differentiate. We've obviously stopped all supplies of cartonboard and paper ahead of when we were requested to do so by the international rules. And we've successfully placed this volume mainly in Western Europe, but also some in overseas. And our two operations, which we have, our packaging operations, they are continuing to do fairly well. And yes -- and considering all options, I think, is a euphemism which frequently used, and it means we look at all options. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- The next question comes from Markus Remis from Raiffeisen Bank International. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [11] -------------------------------------------------------------------------------- My first question would be on the packaging business. You indicated that pricing cycles will be shortened. I mean is there already some sort of initial customer feedback to this intention that you can share with us? And I mean I guess it's mostly the multinationals you're dealing with. Is that just MM trying to change the kind of pricing cycle? Or is that more of an industry-wide phenomenon? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [12] -------------------------------------------------------------------------------- Yes. Thank you for this question. I think it's an industry-wide phenomenon. It's a difficult -- it's a different environment than what we had over the last 30, 40 years, basically what anyone working today can remember that we've moved from, let's say, fairly stable prices with some commodities going up and down to an environment where all sorts of commodities fluctuate even more. And also costs like, say, wage -- salaries and wages, personal costs, et cetera can -- are not moving between 1%, 2% or 3%, but can have all sorts of numbers. Our customers accept that, some of them obviously reluctantly, but they accept situation. And we just wanted with the statement to highlight that we are implementing that in a very consequential way. So if a customer insists on a 3-year contract without price adjustment clause, we would simply walk away. And so far, it has been -- in the negotiations where we had longer-term contracts to be renewed, this was accepted. And the solutions are different. Some of them say, okay, then we make just a 1-year contract instead of a 3-year contract. Some of them -- with some of them we have agreed on inflation clauses going beyond raw materials. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [13] -------------------------------------------------------------------------------- Right. So is that then becoming effective on -- the pricing negotiations are usually done at the end of the year as far as I know. So does that mean there will be a kind of a big chunk of your business to be transferred to shorter-term pricing than as of the beginning of 2023? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [14] -------------------------------------------------------------------------------- I think we have to differentiate on the paper and cartonboard side. We have now this typical cycle that we have quarterly contracts for WLC for a recycled cartonboard and half year contracts for folding boxboard, for virgin cartonboard. And with regards to our packaging contracts, if we have longer-term packaging contracts like for 2 or 3 years, they would not -- typically, they don't coincide with the calendar year. So it can be -- there were contracts which were renewed now, let's say, in April and some will be renewed in September and some will become due next February. So it's a continuous flow and just depends when the last contract was made. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [15] -------------------------------------------------------------------------------- Right. Okay. And is that a kind of a quarterly pricing? And if it will be based on certain kind of industry cost indices or how kind of transparent that is to your customer? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [16] -------------------------------------------------------------------------------- So without revealing too much about our pricing policy, we have to be cautious for competition reasons. But typically, we would have a quarterly adjustment of raw materials, so cartonboard and maybe energy. And also quarterly or half yearly adjustments according to a consumer price index or producer price index for the remaining positions. The difference to the past is that in the past that where it was mainly only cartonboard adjustments and the adjustments were sometimes only done half yearly or yearly, and they were not point-to-point, but what, let's say, like the price of the last half year average divided to the previous half year average. And that just had a too long lag effect, which we can't accept anymore. So now it will be whatever last months available compared to a quarter before. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [17] -------------------------------------------------------------------------------- All right, very clear. I mean, staying with pricing, looking ahead into next year, I mean there is a lot of kind of headwinds coming from personnel costs, presumably, I mean, although energy will creep in again. I mean how should we think about it? And I'm not talking about more about the board and paper segment, about the ability to further hike prices. I mean, you've got a, I would say, exceptional trajectory, looking at the average prices of the last quarters how that developed, do you think that there is more room in terms of pricing? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [18] -------------------------------------------------------------------------------- So the pricing will mainly be dependent on what costs are doing. And obviously, I don't want to predict where energy costs will be. So if one looks at forward rates, they will gradually come down after the winter, but who knows at the end of the day, what will change. In terms of personnel costs, we have for sure to expect higher settlements with unions in the new year, again, to what extent is unclear. The big unclear question is, obviously, I think everyone agrees by now that we're going into a recession. But will this be a dramatic recession, will it be a mild recession, will the employee representatives of the trade union, so to say, are willing to factor this in or not, these are all open questions. But overall, I think we will come from a period where it was easier to pass on cost increases to a period where it will be somewhat more difficult. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [19] -------------------------------------------------------------------------------- Okay. And then on the demand side, I mean, you're saying -- you're flagging still solid demand. But do you get a sense of a certain pull down maybe, I mean we're hearing that from a couple of other industries. Is that something you would share that probably, I should say, the momentum is cooling off also in your industries? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [20] -------------------------------------------------------------------------------- So if we talk about 90% of our business, which is folding cartons and cartonboard, there the order situation is very strong. But let's say, the supply chain problems are easing a bit. But it's a very strong situation. If we look to some other grades like liner or ultra uncoated fine paper, there, we definitely see that the situation is easing. So I think the big advantage of MM Group is that we are in a generally very resilient market. So yes, we will be affected by recession, but maybe not to the extent than other businesses, which are more volatile. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [21] -------------------------------------------------------------------------------- Okay. Last question will be on the working capital development, I mean, the increase we saw across the board in the reporting season. I mean, can you give us a sense of how that should then develop going towards year-end? I mean I understand there is a safety buffer of built in cash storage and so on. Is it fair to assume that the kind of reduction towards year-end will be less pronounced than in previous years? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [22] -------------------------------------------------------------------------------- Yes. I think in terms of working days, and so we are stable. The target is obviously to reduce it to the extent it doesn't (inaudible) like our safety stocks, et cetera, if we want to stay conservative and rather have a bit too much stock and are able to supply. So -- and then it depends on how prices develop overall, but I would expect more flattish development. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Next question comes from Matthias Pfeifenberger from Deutsche Bank. -------------------------------------------------------------------------------- Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [24] -------------------------------------------------------------------------------- Firstly, on board and paper, I'm looking at an 18% margin. It's obviously not anything we've seen in the past. It seems like you have overpriced. You have achieved a very positive price over cost spread maybe just from the necessity to catch up quickly from the margin compression we saw at the back end of '21. So how sustainable is that? I mean, are you looking to reverse that a bit in the second half to approach more normal margin levels again? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [25] -------------------------------------------------------------------------------- Yes. Thank you for the question. I think we've highlighted very softly with the word extraordinary second quarter that it was also -- it wasn't just, let's call it, over pricing, there were also some positive effects like we benefited from, the CO2 certificates were paid out in a large amount. We had still some hedging in place, some fixed costs. So the situation of Q2 is nothing, which one should [write in] any way into the future. So the situation -- simply from our cost, then we had an extremely good production in the second quarter, which was quite outstanding in the way because of COVID and all the problems we have. So it could have easily somehow different. And as we already said, we were highlighting that in some cases now demand of some products are [opposite]. And so we might have also lower volumes. And with some spot prices of energy and wood and other products, we might just say, okay, we can't ask for that price anymore, and therefore, we have to stop machines. So the second quarter is not something to perpetuate in the future. -------------------------------------------------------------------------------- Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Yes. Okay. And the second one is again on Russia. Most of the companies I know have initiated disposal procedures. You've elaborated last time that you might be running out of spare parts, if you don't get access to channels from Asia. Could you just update us a bit what's holding you back in terms of discontinuing the operations, selling them or are you just trying to kind of sit it out and keep operations running? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [27] -------------------------------------------------------------------------------- I think the main difference to many Anglo-Saxon companies is just that we are less outspoken about what we are planning to do. Because it's just bad for prices you achieve. So we are, unlike many others, not under pressure. The operations are working. So they get their spare parts from -- mainly from China, et cetera. And so we are relaxed. So we really look into the options. It's not that we sit idly but we do not want to commit ourselves at any point in time because it is a question of the price which we will get. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- The next question comes from Cole Hathorn from Jefferies. -------------------------------------------------------------------------------- Cole Hathorn, Jefferies LLC, Research Division - VP [29] -------------------------------------------------------------------------------- I'd just like to follow up on two questions. The first one is around wood availability, sourcing and pricing. Could you give a little bit of commentary around how the wood market is developing in Poland and Kwidzyn. And then also for your Kotkamills up in Finland. And any divergence in the wood pricing environment. And then secondly, I mean over the years at the various businesses, you've always focused on making sure your mills are in kind of a better position on the cost curve. Could you talk about how Mayr-Melnhof is positioned. And no matter what happens to the energy environment, I know it's going to be challenging for gas, but how will you be placed relative to the industry? Because I imagine everyone is going to be experiencing those gas costs and how will you be positioned for that? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [30] -------------------------------------------------------------------------------- Yes. Thank you, Cole. So on -- wood prices are on an upward trend. So we've seen fairly high increases in Poland. And we see them now also -- or subsequently, they also have happened in other locations, like Czech Republic or Germany. And we also see a wood shortage, so I would not be surprised if there are standstills of several companies. And that links into this question what we've discussed, if you have high wood prices and your alternative would be to get this wood from faraway places at very, very inflated costs and you have high energy costs, it's better that you stop your machines for -- or one machine for a week or so. So wood prices -- the wood availability is generally bad. The reasons for that is that some wood is now used for -- there's actually several reasons. One reason is that wood is used for -- people are collecting it to be safe for home heating that -- so everyone wants no pellets, et cetera. So if there's a gas stoppage, at least they can fire their chimney. The second reason is that the sawmill industry is under pressure and is reducing volumes, and we have a byproduct of saw-milling is one of our sources. Yes -- so yes, wood prices are on an upward trend. With regards to the cost curve, so we haven't updated the typical cost curves one gets from the consultants. But as I said before, we are generally well positioned on the cost curve (inaudible). I would -- my guess would be that it has somewhat deteriorated now because wood price increases have been higher in Poland than, for instance, in the Nordics. We will see now what the effect of Russian -- the stop of Russian exports to Finland mean in Finland. So we see already -- also in Finland, we see more pressure there. So it's always a bit difficult. So Poland was taking the lead in the increases. But now we see also in other places, Slovenia, et cetera, that other places are somewhat catching up. So I think we are still in a -- especially with regards to Kwidzyn, maybe we've moved from the first quartile to the second quartile. -------------------------------------------------------------------------------- Cole Hathorn, Jefferies LLC, Research Division - VP [31] -------------------------------------------------------------------------------- And just a follow-up. When do you see the wood costs effectively peaking? I understand in Finland with kind of Russia bans, we're probably going to see that development carry on for a while. But do you think we're going to kind of hit peak wood prices in third or fourth quarter? Is there a timing when you feel we're probably at kind of the peak wood prices? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [32] -------------------------------------------------------------------------------- Yes, I simply don't know. I guess the answer is yes. Because there will be some temporary or maybe permanent shutdowns of mills. And so demand will be reduced and the supply will come back. But with no wood coming from -- neither from Russia nor from Belorussia, the situation, the wood supply will be somewhat tight for some time. Whether there is already a peak in third, fourth quarter, that's difficult to say, maybe it takes a bit longer. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- At the moment, there seem to be no further questions. (Operator Instructions) And the next question comes from (inaudible). -------------------------------------------------------------------------------- Unidentified Analyst, [34] -------------------------------------------------------------------------------- Congratulations for your results. My question is on energy hedging. And when you comment on your gas stock, I didn't understand the 3 different scenarios. So could you please come back on the 3 different scenario and the -- I mean the possibility that will bring you your storage of gas? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [35] -------------------------------------------------------------------------------- Yes. Thank you. So I think there is a very realistic probability that we will have no gas shortage in a sense that there is a curtailment of gas to the industry, which would be the best case, which we all hope for. And I think it is -- it has a fairly high likelihood. The other extreme scenario would be that there is a very big shortage of gas and that whole industries are forced to shut down for an extended period overall. In this case scenario, there wouldn't be a help if we had our own gas because then we will probably -- our customers cannot produce, our chemical suppliers cannot produce, et cetera. So I think this probability is extremely low but nothing can be excluded. I think the one scenario, which is as likely a scenario one, which means no gas stoppage is that some industries will be requested to reduce their gas consumption, in which case, there will be other industries like steel, cement, which will be reduced before we are forced to reduce our gas consumption because we have critical infrastructure because we supply to the food and pharmaceutical industry. In this case, it might be that our gas is reduced by some volumes, like whatever that we get 80% of the gas or 70% or 60%. And in this case, we will have our own gas reserves to complement it. So if the government in Austria and Germany says, yes, you only get 70% of the gas then we could, for a certain period of time, produce still 100% because we have our own reserve, which we've built up. -------------------------------------------------------------------------------- Unidentified Analyst, [36] -------------------------------------------------------------------------------- Okay. Very clear. And maybe a second question on the capacity transition to packaging that you were mentioning after the last acquisition you have done. Could you please come back on the timing of those capacity transition? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [37] -------------------------------------------------------------------------------- So may I ask -- so are asking about the transaction of Essentra Packaging or are you asking about the capital expenditures, which we have done in our packaging business or are doing in our packaging business? -------------------------------------------------------------------------------- Unidentified Analyst, [38] -------------------------------------------------------------------------------- No, no. About the transition to packaging. I mean, from -- on the last acquisition you have done on paper, the transition to the packaging business. -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [39] -------------------------------------------------------------------------------- Okay. So what do we supply internally. Look, we have the philosophy, as I said in the last video conference. So we are not driven by this integration thinking. We have our cartonboard, and we have our folding cartons. And for -- each business does what is best for it. So it's not per se a target to say we want to be integrated to such and such extent. We buy where we get the right products. But yes, of course, both in Eson Pac and in Essentra Packaging, which is not yet closed only -- we expect it to be closed in Q4, but it gives us the opportunity to integrate more FPP. Because we are already a big supplier to the pharma industry, especially from Kwidzyn, but now more and more also from Kotkamills. But that is not the primary driver of the acquisition, it's a positive side effect. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- The next question comes from Paul Thierry from Arke Advisers. -------------------------------------------------------------------------------- Paul de Thierry, Arke Advisers Limited - Founder [41] -------------------------------------------------------------------------------- I've got a couple of specific questions and a couple of more general questions. You mentioned the resilience of the end markets for MM Group. How much of the current demand do you think is due to your customers maybe building up inventory as they see supply issues over the next couple of quarters? And would you expect that then to unwind once the supply problems resolve themselves? And then the second of the specific question is on the packaging contract side, how much of the business are long-term contracts, 2- to 3-year contracts that you mentioned earlier? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [42] -------------------------------------------------------------------------------- Yes. Thank you, Paul. So question number one, resilience. So we definitely know and also discussed with some customers very openly, they are building up stocks. What I do not know is, is this buildup in stocks really something for the moment and will be released whatever, in November or February next year, or is it more a change of philosophy that companies generally keep a somewhat higher stock in order to be better prepared. So if they are unwinding this, it will mean short-term lower demand, but I would not be worried. I think the real dangerous in fluctuating market is that demand is substantially down for an extended period because people are not building houses or not buying cars or whatever. In this case, it would be a temporary lower demand and that we would talk here about a few weeks or so. So I'm not worried about it. If it happens, yes, then maybe we have to stop one or the other machine for a week. On the contract side, I think we have with most multinationals typically 2- to 3-year contract. So probably half of our contracts in packaging are above -- with contracts more than 1 -- longer than 1 year. -------------------------------------------------------------------------------- Paul de Thierry, Arke Advisers Limited - Founder [43] -------------------------------------------------------------------------------- And just as a supplementary question then to that last comment on the packaging contracts. I mean, how many of those contracts are due for renewal in the next 2 years as opposed to the next sort of year? I'm just trying to get an idea of how many on sort of the old pricing structure, so to speak, for the next -- say, the next 12 months. -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [44] -------------------------------------------------------------------------------- Yes. I think for a variety of reasons, a lot of contracts are up for renewal. So I think by spring next year, we will not have any -- it's a bit now too general, but we will have very few old contracts for a better term. So some of them have been renegotiated and that comes into effect now in summer or in autumn or in summer now under renegotiation because they expire somewhere between November and March. So this November and March next year. So it will be a fairly small percentage, which -- and it's nothing to worry about, so to say. -------------------------------------------------------------------------------- Paul de Thierry, Arke Advisers Limited - Founder [45] -------------------------------------------------------------------------------- Okay. And then just a couple of general questions, and you are welcome to be brief in your answers, but looking at the -- so to give you a chance to talk about the key upsides of the group. You've done a lot over the last [few] years. What would you regard as sort of the three key upsides for the near term, medium term and long term? And maybe give you a chance to talk about an M&A pipeline, but just very briefly, what do you regard as the upside for the MM Group in particular? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [46] -------------------------------------------------------------------------------- Yes. So because at the MM, we think long term, I want to start with the long-term upside and the long-term upsides are that we have not yet fully optimized for instance, our Kwidzyn mill, which offers a lot of potentials in terms of energy savings, better energy supply, but also potentially expansion of the mill. That goes also for Kotkamills, but especially for Kwidzyn. So there should be upside for a number of years. The second one is that we -- also with this acquisition now of Essentra Packaging, we have multiple opportunities to reduce our specific costs. So just to give you one example, we have lowered our personal costs in sales and supply chain compared to 2 years ago by 1/3. And this is a consequence in board and paper. And this is a consequence -- it was very helpful that we made the acquisitions. But the acquisitions give us, for instance, in board just an upside of 20%, and we could do more than that. Then we have the topic of automation and digitalization where we are at the beginning of a learning curve. That's another potential. Then we have historically been, let's say, very decentralized. And while we want to stand decentralized, there are a number of issues where we should create more synergies also within our legacy business and obviously, including now the acquisitions in -- I think, especially about procurement. And that will also -- that is more the short term over 1 year, 2-year horizon, whereas the CapEx to reduce energy, et cetera, in our mills is more a 3- to 4-year situation. I hope it gave you a flavor. -------------------------------------------------------------------------------- Paul de Thierry, Arke Advisers Limited - Founder [47] -------------------------------------------------------------------------------- Yes, it does. No, it's really useful. And then my final question, so I'm looking at your statements, you seem to be very capable at sort of managing difficulties in the industry very well. The group appears to be quite agile for the industry. Can I just ask you what are the one or two things that keep you awake at night at the moment? I mean, clearly, we're in a volatile time in terms of supply constraints, changing pricing structures. Is there anything else that we should be aware of that maybe you worry about? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [48] -------------------------------------------------------------------------------- What kept awake at night was the strength of our team after the acquisitions, but that doesn't, now I sleep very well, because we really have broadened our management structure. So yes, what keeps one awake is to make wrong calls. It's -- thank you for your complementary words. But obviously, we also did things wrong. For instance, we should have hedged much more 1 or 2 years ago, would be fantastic, and we haven't seen this development. And now we have to do such things like getting some gas storage, which is fairly expensive. Because we store it at the time when prices are high, and we get it out at a time when prices will probably be lower when this situation is finished and maybe it was a waste of time. So -- but I think we've a strong team, we look -- we act fast. So we don't shy away to take decisions. And hopefully, most of them are brighter ones. But overall, there is nothing which -- there isn't one big, big topic, which keeps us awake. I think we are better diversified now also from plant or mill point of view. But yes, there are constantly new developments, which are unforeseen. And that causes then the one or the other sleepless night how to solve the one or the other issue. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- There is a follow-up question from Cole Hathorn from Jefferies. -------------------------------------------------------------------------------- Cole Hathorn, Jefferies LLC, Research Division - VP [50] -------------------------------------------------------------------------------- It's basically on a longer-term view, I mean, you timed it well to get more into the virgin grades and consolidated that market being a top 3 player. But has something changed, do you think, on the industry if we look forward from here? I mean wood availability is going to be a little bit more scarce with the Russia [outer] markets. Energy price is going to be a little bit more volatile. Do you think the risk of new entrants or conversions from graphic to cartonboard are potentially a little bit less because some of these mills will need to invest more in energy and it makes it less attractive and then new investments consuming wood with availability being a little bit more restrained, become more challenging? Or was that too optimistic to think that the longer-term view of new supply coming in being more challenging is true? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [51] -------------------------------------------------------------------------------- Yes, I mean maybe now I could go also back to Paul's question, what does keep me maybe awake at night is that there is too much optimism in the expansion of new capacity. FPP is something which is worrying, especially for other projects, which are not yet finalized, decided. We see, on the one hand, the positive momentum in a bit more growth because of plastic replacement. But equally, our growth rates are still not -- are still like whatever it is long term 2% or something like this. And so if -- there will be now capacity expansions, which are already underway, and there are also potential new capacity expansion. And if especially the one in Finland materializes, I'm very worried about the market. So the danger is always in the paper industry that people get too carried away in good times, expanding their capacities. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- And there is another follow-up question from Markus Remis from Raiffeisen Bank International. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [53] -------------------------------------------------------------------------------- On the M&A synergy realization, you indicated you're well above this EUR 25 million and you provide us an updated figure here and also related to Essentra, where would you see synergies coming out, say, over the next 1, 2, 3 years? -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [54] -------------------------------------------------------------------------------- Let's say, on Kotkamills and Kwidzyn, where we have now obviously good visibility, the number is above EUR 40 million. But again, things are fluctuating and therefore, I want to stay also cautious, maybe it's a bit more. But this always depends then also on how things develop. The statement we had on Essentra, I'm now looking to Stephan to ask what did we say officially. -------------------------------------------------------------------------------- Stephan Sweerts-Sporck, Mayr-Melnhof Karton AG - Head of IR & Corporate Communications [55] -------------------------------------------------------------------------------- We said that there is substantial synergy potential... -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [56] -------------------------------------------------------------------------------- Yes, but we didn't give any number. You see it's always ahead of time, difficult, so only if you open the books -- by the way, Eson Pac which is not a fairly small acquisition, but we found many more synergies. It's just when you compare for the first time your procurement prices, it can be that you end up that they are very similar. It can be that one or the other has much lower prices. And then again, it depends on market circumstances, how you can leverage it. But I think it's -- at this point in time, it's a high single-digit number. And we really have to go into detail then to see what can really be achieved. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- There are no further questions. -------------------------------------------------------------------------------- Peter Josef Oswald, Mayr-Melnhof Karton AG - CEO & Chairman of the Management Board [58] -------------------------------------------------------------------------------- Yes, then if I may take the word, so thanks very much for joining the meeting. And thank you very much for your questions. I think as an outlook, it's very difficult to predict -- it's always difficult to predict the next quarter or half year. And at this time, maybe it's even more difficult. But the important thing at the end of the day, yes, we will have many surprises on our way. But we have cost-efficient mills. We have a strong team. We have diversified operations. We have a track record. We've shown that also despite COVID supply chain crisis, et cetera, that also our CapEx programs are well underway in packaging with no cost increases compared to budgeted all in. In board and paper, there are some. But at the end of the day, it's in the single-digit percentage, which in these times, I think it's also quite an achievement. And so we are confidently looking into the future, and we'll also be very careful how we expand capacities. Because probably we will have now some 12-month or whatever, which will be a tougher time. So thank you very much for listening to us, and have a good day.