Mayr-Melnhof Karton AG (MMK) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Mayr-Melnhof Karton AG. At our customers' request, this conference will be recorded. [Operator Instructions] After a short statement, there will be an opportunity to ask questions. [Operator Instructions]. May I now hand you over to Stephan Sweerts-Sporck, who will lead you through this conference. Please go ahead.

Hello, good morning, and welcome on the part of MM Group. My name is Stephan Sweerts-Sporck, Head of Investor Relations and Corporate Communications. It's a great pleasure to have you joining this Q&A conference call on our '21 annual results which we released this morning. Besides our press release, a video statement by the Management Board has been published on our website, mm.group. Please have a look at it if you couldn't do so far. In this call, we want to provide you now with the possibility to do direct questions on today's communication to Peter Oswald, our CEO; and Franz Hiesinger, our CFO. Since this call addresses an international audience, we would very much appreciate your questions to be asked in English. Before we go further, Peter Oswald will give you a brief summary of our key messages. Peter, may I ask you to start with your summary.

Thank you, Stephan. A warm welcome to everyone to this conference call about our results '21. We have seen a significant increase in sales and profit, thanks to our acquisition of Kwidzyn and Kotkamills. And as a consequence of that, we will propose to increase the dividend to EUR 3.5 per share after EUR 3.2 per share last year. We see a very strong demand across the board, so both for Board & Paper and virtually in all Packaging segments. We are continuously fighting strong cost inflation, which we can pass on but sometimes with a delay. Strategically, we are very pleased with our acquisitions Kwidzyn and Kotkamills. The integration is on track. And in terms of synergies, I think we are sure by now that we will exceed our original plans. So the orientation of our group towards a sustainable long-term growth strategy has proven successful, and we want to pursue it further. Very important also, ESG and sustainability, which is in our DNA, we've made good progress on a number of topics or our reporting will be much better, as you will see in our annual report and we have really a strong focus on it especially with regards to plastic waste avoidance. Last word before I hand over for questions. A few remarks on Ukraine. So our overall exposure to Russia, Belarus and Ukraine in terms of EBITDA is 7%, so it is rather important. We have stopped cartonboard deliveries last week to Russia. In terms of the operations, our 2 plants in Russia are producing. We cannot foresee really over the next weeks and months how this will develop because it's a question, do we get the input material cartonboard inks, et cetera, so this is unclear. With one plant in Ukraine, which we have stopped because that was the order in Ukraine when the war broke out on the 24th of February, we have started up the infrastructure and plan to have production by today or tomorrow. However, it's very unclear if we -- if logistics will work out. Obviously, some of our local customers are in war zones and we cannot deliver any more to them. And we will reorientate most of the production to be delivered to Western Europe. It's a real tragedy and it's quite unclear at the moment what work will happen. I think with this introduction, we are -- Franz Hiesinger, our CFO, and myself are looking forward to your questions. Thank you.

[Operator Instructions] The first question is from Matthias Pfeifenberger, Deutsche Bank.

Three questions from my side, please. Firstly, I think in terms of what we've seen from others like Mondi and statements from the Russian administration, what if you have to stop operating because you're lacking, I don't know, spare parts or energy is becoming too high, you have to mothball or suspend production, and basically, is this the risk of nationalization? So can you also remind us of the asset values in -- at risk in Russia? And then also maybe just to update us on absolute energy costs for the group, the energy mix and then also some hedging of forward purchasing that you have engaged in? And then lastly, the contract structures in packaging but also in cartonboard, how will you disrupt those? Will they go from semiannual to quarterly, is that the plan?

Yes. Thank you very much. So with regards to logistics, Russia is a big import of cartonboard, so they only produce a limited amount themselves. The question will be, whether a cartonboard can be obtained from -- can be delivered from China. That's the big question. So my gut feeling is that -- and who knows if this prediction is right, that in 2 to 3 weeks, we have to reduce our production substantially because we will not have enough cartonboard and problems with some other materials. But I would expect that we can continue to produce just with a reduced capacity. Obviously, it's so complex in terms of logistics and also some other material. Let's say, if a machine breaks down, we probably won't get the spare parts. So that's a risk. You see on nationalization, we -- I mean, your guess is as good as my guess. We simply don't know. What we've done, there could be -- because we have stopped to deliver cartonboard to the country, this was -- we've clearly shown that we -- on which side of the fence we are. But equally, we continue producing because we have been -- our products go to food, to pharma. And we would immediately -- even if we order it to be stopped, I think it would be continued, so with no insight if there will be a nationalization or not. In terms of our assets, it's -- all our assets in Russia and Ukraine are below EUR 100 million. Second question in terms of hedging, there we are somewhat hedged obviously with energy. We do not want for competition reasons to give an exact number because, otherwise, others could exactly determine what prices could help us or could work for us. On contract structures, if we differentiate here between Board & Paper on the one hand side and Packaging on the other hand side, so in -- with regards to coated recycled board or called WLC, we have -- we continue with quarterly contracts, our customers need some visibility on it. And I think that works. With FPP, some players in the market have a lot of 1-year contracts. We've basically cut them down to a single-digit percentage of our overall sales. So typically, we have here quarterly or half yearly contract but also with clauses to add energy surcharges if necessary also in this period. In Packaging, we do have a number of 3-year contracts, and they are partly already negotiated or they will anyhow run out. And the improvements we have to make is that, first of all, all costs are included and not just cartonboard costs because also energy in chemicals, et cetera, are important in the converting process. And secondly, the adjustments have to be maximum every quarter and not any longer periods. So in this way, we get more flexibility.

The next question is from Markus Remis, RBI.

Can I maybe start first with the pricing side in cartonboard? You said that as of Q1, price increases have been implemented, like another one for the second quarter already. So I'd be interested to get the sense about the -- of the magnitude. And related to that, maybe you can also remind us of the price hikes you've implemented in the last year and kind of how much growth will purely come from the pricing side, kind of the spillover of 2021 plus the new price increases of 2022?

Yes. So we have increased prices last year anywhere between EUR 200 and EUR 300 based on a price basis of between EUR 550 and EUR 800, so it was fairly significant. On the other hand, it's -- this is not improving our profits because the cost increases have been very substantial, more or less everywhere, whether it's pulp wood, energy, paper for recycling, you name it. And now we have had an increase in the first quarter of around order of magnitude also EUR 100 to EUR 150. And in the next quarter, it's -- it will be more. But it's a bit difficult to generalize because it depends on the product structure with, in some cases, price increases. And then with energy surcharges. The energy surcharges are sometimes very transparent towards our customers with a clear link especially to the gas price, where we say if the gas price is so high, then we have so much surcharge. So it's a bit difficult to say exactly how high the price increase also will be because we would like to say for the second quarter that's your price increase for various stuff from transport to chemicals, et cetera. And there is another energy surcharge which is monthly adapted to where the gas price is. So that makes it a bit complex. But you're absolutely right that there is a strong price inflation which, in the average, I'm now looking to our CFO, is currently about 40%, something in that range.

Okay. That's very helpful. And then on the energy costs, following on Matthias' question, if you could help us maybe give us an idea of the total value of your energy purchases in the last year so that we have some sort of base to start from.

Yes. So last year, on a restated basis, so if we assume -- because that's more useful, I think, for you. If we assume that Kotkamills and Kwidzyn had been in the group for the total year, so on a like-for-like basis, it's about the EUR 0.25 billion.

EUR 0.25 billion, okay.

Yes. Rather in terms of EUR 250 million.

Okay. Can you break that down into natural gas and electricity as well?

Yes, I mean I don't want to break it down in detail, but the biggest chunk is gas and -- but also electricity and also coal for our Kwidzyn mill are other important factors. . And we shouldn't forget that we produce our own energy with our recovery boilers, and that's obviously not included also in the energy cost. So they would be even higher. So we have biomass is also a substantial part, but it's not included because we use it from our own forest residues.

Very clear. Then coming to Kotkamills and Kwidzyn, you stated that basically you're happy with the synergies and that you will exceed the original plans. I mean is that -- to a significant extent, I recall, if I'm not mistaken, it was about 3% of the cost space you intended to take out. Is the synergies or the more uptick were mostly related to cost synergies? Or is it also top line synergies?

No. We are only talking about cost synergies. So we have taken out basically the distribution network of Kotkamills and Kwidzyn. In terms Kotkamills, worked a lot with agents, and we have replaced them with our own sales force. And obviously, we -- given our size, so to say, we don't need a proportional increase of our sales force. Then a lot is in procurement, which is obviously these days very tainted because you have no real basis to calculate it from. But it's also internal delivers, fixed costs -- taking out fixed costs, et cetera. So we will achieve -- I mean we never gave a precise figure. We only said it's -- for Kwidzyn, it's double-digit medium teen numbers, so let's call it EUR 15 million. And Kotkamills was planned around EUR 10 million. So EUR 25 million, and we will in year 3 run rate -- obviously linked also to one-off costs and some CapEx. And we are confident to achieve this year between EUR 15 million and EUR 20 million run rate, however, offset to a certain extent with one-off costs and also some CapEx. So for instance, going back again to our agents, you have to pay for several years fee to terminate an agent, which we -- which were mostly done last year. But also this year, we have some one-off costs, redundancy costs or change in costs for computer systems, et cetera.

All right. Okay. That's quite a prelude to my next question. Any further restructuring of your industrial footprint plant, anything of significance?

It's difficult to say. I mean at the moment, markets are very strong. But equally, we do have some underperforming plants. And it's not foreseen for the first half year, but I wouldn't want to make any commitment for the second half. I mean we are just constantly looking at our footprint and want to get more sized -- bigger sized, more competitive plants. And in some cases, this might needs -- may require restructuring but not in the first half year.

All right. Okay. Last question from my side would be on the sourcing from the war regions or Ukraine or Russia, any dependence on certain supplier, any sourcing apart from the whole energy topic?

Yes, we have stash from Ukraine, and we have to replace it, and we will replace it. But it will come at a certain cost.

The next question is from Michael Marschallinger, Erste Group.

I would do them one by one part. First, going back again to this Russian-Ukrainian situation, could you give us a top line number in sales exposure you have in these countries? And you said in 2 to 3 weeks, you have to reduce production substantially if it's going on, the situation. So do you also see them in this moment there are already some situation where you have to adjust the goodwill or the asset base there or how long in the situation if you go on until you have to adjust here?

Yes. I think it's a bit too early. We are obviously in close contact with our auditors on this subject. For the time being, we have running plants. Eerbeek, it was a bit too strong. I didn't say we have to substantially reduce in 2, 3 weeks. I think the downside risk is that we have to adjust it substantially. At this point in time, it could well be that the material is organized, so we simply don't know it. And as you know, any write-off or -- so first of all, we will be always on the conservative side. So in question if there is doubt, we will write it down, but it's simply too soon to assume that it's -- whether it's -- so to say, permanently unprofitable or even nationalized or something. So we will give obviously for the first quarter, but especially after, I think we won't be so much smarter in the first quarter. But I think for the half year results, we will look very seriously into how the Board and the sanctions and everything has developed. We will have learned by then was our reduction reduced by 50%, by 100% or by 20%, and we're very conservative value. We said all the assets there, including Ukraine, are below EUR 100 million. And we will take them into our books as required. In terms of sales, our sales, it's a bit difficult one, we have to differentiate between the sales which we are generating in the country. And there we are in an order of magnitude of EUR 150 million. So I'm always talking about Russia and Ukraine. But by far biggest part is Russia. Then we have -- or we had sales, I have to say, from today's point of view of cartonboard, and that was very substantial. And this is reduced to 0 for the time being, but we could place it in other markets already. So for the time being, that's not the problem. And then we also sell some packaging products to Russia, which we think we will lose. But again, we will look for other markets. So there will be a negative effect, but if it's more substantial or less, it's very difficult to predict.

Okay. Understood. Second question, are there any integration costs from Kotkamills and Kwidzyn in the fourth quarter? And can you remind us what was the amount of integration for the financial year '21?

Yes, I hand over to Franz Hiesinger.

Integration costs depends on what you comprise under that, but was about EUR 25 million including inventory valuation at the acquired plants.

In the fourth quarter?

This is what we've identified also in our report as, so to say, extraordinary. Of course, we also had operational extraordinary costs like terminating our agency agreement, which we do not show. So this is under normal operating items. So it is only what is in this number are the taxes, transaction taxes, which were very substantial especially in Poland, the lawyers, et cetera, so investment bank lawyers, et cetera, plus the -- post -- the purchasing acquisition...

Purchase price allocation.

Yes, purchase price allocation effects but not the long-term one. So that we have to write off our customer base, for instance, is not included under extraordinary because it will be there for the next 10 years. But the cost of the order book and inventory, which is really a short-term one-off for a couple of months, that's included in the number which Franz Hiesinger mentioned of EUR 25 million and the other costs that we are under normal expenses.

Okay. And one last question, after the Kwidzyn acquisition, you gave a pro forma EBITDA number of EUR 550 for the group. How should we think in the current environment with cost inflation on the one hand side? On the other hand, you said synergies are exceeding expectations. Or should we think about that number in the current environment?

Yes, it's a difficult question. The issue is that at the moment, everything we do with regards to fixed cost reduction, so to say, is peanut, is the overall scheme of things because if gas prices go up by EUR 50 to EUR 100 in a day, it's like a multiple of our cost savings of the year. And we do not exactly know in this, I would say, raise between cost increases and our pass-on of the costs, what will be bigger, so to say, because we increase like for the quote to the costs, and then we are either surprised because -- so if you could tell me where the gas prices in the third quarter and the electricity costs, et cetera, then we could say our cost -- our price increases were higher, lower or exactly at the same amount. So you are right that the pro forma EBITDA would be around close to EUR 550, so to say, on a pre-acquisition basis. We always highlighted that in Poland, we have -- so to say, there were some energy subsidies and so which were running out, it was always clear that we have a headwind, a strong headwind which we have to overcome with, amongst others, also CapEx, which will take some time. Whereas the improvement, so to say, or the run rate in Finland is, so to say, something to be more -- to be quicker improved.

And the next question is from Claudia Hausmann , [indiscernible].

Yes. So we see a production stop in [indiscernible] right now. And do you have any scenarios like this for any of your plants instead of Russia and Ukraine? So are there any scenarios you could stop with production?

So first of all, I'm very disappointed you are not asking about sustainability in ESG, but I hope you have another question on this. But I understand this is very topical now. It's -- if you say any scenario, of course, any scenario could happen like there is no gas anymore. But under normal circumstances, so to say, with the 90% probability, we will not stop any of our cartonboard mills simply because we are partially hedged, and we can pass on the price, and we are with overall competitive mills. So I think what we will see in this crisis is that those mills which are very marginal, making hardly any profit in normal times and which are -- which have less developed energy system, let's call it this way, and maybe also are not hedged, they might have to close for a certain period of time. Whereas stronger mills, which are generally profitable, we have a good energy system like, for instance, our milling from Leighton , I think a lot of other industry players had to shut before we have to shut, let's put it this way. So I think from today's point of view, it's highly unlikely.

Okay. And so perhaps it's, at the moment, not really a nice question, but is it a good time for looking for other competitors you can buy perhaps in 1 or 2 years?

I mean, first of all, we've said it's very clearly in Board & Paper, the absolute focus has to be on the integration of the plants and the realization and, hopefully, overachievement on our synergies. So generally, we would not consider any acquisition on Board & Paper also given the fluctuating volatile markets. But one should never exclude something if a good asset became available at a very reasonable price. However, we will look maybe more on the converting side. But -- so for Packaging, that's a more attractive area there acquisitions are also typically much smaller. And if there are opportunities in this crisis, I think we will look very thoroughly at it.

And your plants at the moment are all going under full capacity?

All our plants are under full capacity. So our biggest fear at the moment that we have due to COVID that too many people are in the one or the other, there's constantly one plant every week which is at the border line to be temporarily shut down because of too many people in quarantine. It hasn't happened, but that's a constant risk we are facing. And we are fighting with all sorts of supply chain. So if we don't get enough transport. We do not get, whatever, enough wood. We do not get chemicals. So we have constant issues to keep up production. So far, I'm knocking on wood, it has worked very well, but it cannot be excluded over the next weeks that we had short term to stop something simply because I don't know, repair team doesn't come on time or a special material we run out of or even an auxiliary chemical product or whatever.

And of course, the sustainability topic, do you get pushes from the market at the moment? So do you see really perhaps in the food industry that they change their way of packaging and they move to Mayr-Melnhof?

Yes, we see this strength. However, it's at the moment not very strong, simply because we are sold out. So some customers would -- with a big multinational problem with for ice cream, we have a biocoating for ice cream. They want to change. We do supply them, but we simply don't have the volume to -- for them to make a bigger change. So we simply have to wait until things calm down. And we are also busy working on some capacity increases both on the Packaging side as well as on the Board & Paper side with our investments. And up and until these capacities come up, we simply can't supply them enough. But yes, there is continuous interest.

Are you happy with the high oil prices and the plastic will become more expensive?

No, the issue is, in theory, I would be happy about high oil prices because of plastics becoming more, but then also gas prices are higher, and this means that we have to pay more. So it's a double-edged sword. Overall, I like continuity. So the best would be if we had, whatever oil price of 70, 80 being fairly constant instead of going up and down every day.

[Operator Instructions] We do have a follow-up from Markus Remis, RBI.

Yes, 2 short follow-ups, please. Firstly, regarding the expansion plan for your capacity, if you give us an indication how much you will spend in the next 2 years, I'd be interested specifically in the Packaging division by how much you will expand your production footprint in kind of financial terms and how that also kind of develop over the course of the next 2 years?

Yes. I mean it's a bit difficult to generally answer it, but let's say as a rough figure, we will expand our capacity by around, let's call it, 10% really as a ballpark number over the next, yes, 2.5 years, so until end of '24. And then we have also some debottleneck just to say our growth would be a bit higher because we do, of course, also some smaller debottlenecking in various plants which are not included in our overall. But the bigger projects will add about, in very rough terms, 10%. The reason it's a bit difficult because you have like in pharma, it's very low tonnage but high value. And then you have other products in food which are higher in tonnage but -- so is it tonnage, is it euros, is it square meter printed, so it's all a bit different. But 10% is a good number, I think.

Right. Okay. And we haven't talked about the recovered paper. It's -- I mean, there has been a bit of a grant in recent months from already elevated levels. I mean any -- or if you could share your thoughts on the general supply situation. And then, of course, I mean, transportation costs are shooting up, to which extent that is going to kind of add further to the current price levels we are going to see?

Yes. I mean what we've seen in recovered paper is that every quarter, expert said this is -- will now be the peak, and now it will go down, and that hasn't happened. So they are on a -- they have marginally increased even now in the first quarter. But let's say they are constantly flat on a historically high level of, let's call it, 200, it depends on the grade. And you're absolutely right. One of the input factors -- so we always calculate the costs delivered to our mill. One of the effects is that as transport costs go up even if paper -- recovered paper costs go somewhat down, where they originate -- delivered to the mill gate, they might go up because of transport costs. So we expect them to stay at an elevated level for some time. And the reason is simply that there is less and less graphic paper which can be -- which is from virgin fiber and can be recycled then, several times. And therefore, I think supply will be stretched tough.

Okay. Very clear. A final question, please. On -- coming back to energy, again, if you could kind of just outline the general kind of forward buying strategy, how that is kind of shaping up, what are your kind of key parameters here? Is it on a rolling forward basis? Also any opportunistic element to it?

Yes. I think we generally try to hedge and not to be too smart to speculate where those things stay there. But in regular intervals, we hedge. Obviously, we play the market to get days where they are cheaper. But equally, we believe in longer-term elevated prices, generally speaking, even though there will be some pullback also at a certain point in time. So it's at the moment very, very difficult to make forward contracts because prices are very high and one is unsure whether one should look in. And we will just hedge our bets. So we will not be -- we stay completely out of the market, but we also don't see prices where we say now it's the great time to fully hedge '23 or something like that. So we also have to be careful on -- you never can exactly predict the output of the mill, so you cannot get 100% hedged.

Yes. Can you kind of indicate how much of your volumes are secured already for this year and for next year, just a rough indication?

As I said, we don't want for competition reasons because if prices sharply go up, so I would be extremely interested what our competitors are doing because then I could calculate back what prices we could offer. And exactly for this reason, it's a competitive -- it's from a competition law perspective, we cannot share it. And it wouldn't help you because it makes a huge difference as we hedged 6 months ago or have we hedged yesterday.

The next question is from Cole Hathorn from Jefferies.

I'd just like to understand how folding boxboard market dynamics are going to look in 2022. I mean you've done very well consolidating the market and, I think, improved the mix of Mayr-Melnhof becoming more virgin. But can you talk about the imports that go into Russia? Will the exports that go into Russia and how the European market can kind of balance that folding boxboard? And maybe a little bit of color why folding boxboard has been so strong in 2021 and how you see that into 2022 because I don't believe that the imports from Asia are going to be coming back anytime. That's the first question.

Yes. Yes. Thank you, Cole. First of all, I -- folding boxboard has increased less and also CRB less than, for instance, liner. So we are in a more stable market. And the reason is simply that our products are qualified with individual customers, so they cannot change so quickly. So it's difficult to say where we are going and if there will be a recession or anything. But overall, history has shown that our product is very resilient because it's really food, pharma, tobacco, beauty actually is the most volatile of all segments, but it's a fairly small segment. So also people spend a certain amount if there is a recession more time at home, which is positive for cartonboard demand instead of dining out. So we believe that demand will stay very strong. You're absolutely right, all big players in FPP -- in CRB, we were more or less the only export, I think, to Russia or the only major exporter to Russia with no problems to repatriate it. In FPP, we are taking out of Russia and selling into Europe now a much higher volume. And the same happens with our 2 big competitors in the Nordics. And so far, we haven't seen any negative effect. But let's say, I'm very worried especially with regards to some capacity expansions which far exceed any growth, which is possible. We are in FPP, it's a market of EUR 2.4 million in the European economic area. So first, now we have to bring in EUR 400 million or so delivered to Russia, EUR 400 million, EUR 500 million will go into this region, which is -- which would mean that there needs to be a growth of 15% to absorb that. And exports to the U.S. are strong. And on the one hand, you have the favorable exchange rate situation right now. But equally, the U.S. has now a big leg up in energy costs especially. So will these exports be as easy. And if I then hear that both of them plan a big expansion of their capacity, that is something to worry about, and one can only hope that at least one decision which has not yet taken will not be taken because then we have much, too much volume in Europe. On top of that, now without elaborating that too much, we've seen huge capacities in China coming on stream and will come on stream. So we talk about 5 million tons, more than 5 million tons new. That's twice the total capacity of Europe, and they will export. And as the European industries export into Africa, Asia, et cetera, there will be a lot of competition. So short term, I don't see any problem demand will be strong. I think if someone destroys the industry, then it's ourselves.

And then I suppose following up on that, on your expansion plans, would you mind just giving a little bit more color of what's entailed there? I know expansion is probably the -- a really good deployment of capital because it's a higher return. But if we think about your Poland facility, the recovery boiler coal potentially going to biomass, how are you thinking about that to improve the environmental footprint of that mill and the expansion, and would you mind giving us some detail of when you expect to have the greater boxboard capacity out of your either Kotkamills and your Poland plant? Just to understand the time line of when that phase is up.

Yes. So in Kotkamills, we are gradually debottlenecking to increase our volume from the 300,000 to close to 400,000. And that will happen over a period of 2 years. But that's, so to say, existing capacity which would just by debottlenecking need to fill because we lack at the moment second packaging liner and things like that. Increasingly, we currently have no expansion plans with the boxboard exactly for the reason that I see overcapacity in this industry. And there is more about we have successfully now transformed the PM3 is now full and up running, producing kraft paper for medical segment, generally flexible packaging segment. That was very successful. And then we have to think about the 2 other mills over time. But given the current circumstances and uncertainties, we are, so to say, for the time being, delaying any big expansion projects. What we will do, however, is biofuel boiler, so investments in order to get to green energy, that we will do without any delay. But a bigger expansion is at the moment, so to say, we first have to wait and see how the situation works out. And again, on FPP, I'm worried about overcapacity, and therefore, we will not put in new capacity, we will just fill our existing ones.

Just one last question on your office paper and your kraft paper business, how does the Russia dynamics impact that? Because I see you've got Sylvamo, for example, they have stopped one of their mills on kind of the border. To Finland, office paper is a really tight market at the moment. So just wondering how you're benefiting from that near term. And as well as in kraft paper, Segezha mostly sack crafts but probably not competing with you, but they're probably going to be out of the market for Europe for a little bit. So just wondering if that business that you've acquired, actually, your end products are better placed than what you thought 6 months ago.

Yes, I think you gave the answer. So we have a surprisingly tight market in office paper. What the longer-term solution is, is a different issue, but short term, it's so tight. And as you said, Sylvamo is out, others are out, I don't want to name them because they can't afford the energy costs. So it's an extremely tight market, and that must be used to restore the market, which is very difficult in this industry because everyone has become so used to low margins that it's like a pandemic to fight. But we will increase our prices to get a normal -- to a normal margin.

And the next question is from [indiscernible].

I think most of my questions were already -- have already been answered. I was wondering if you could elaborate a bit more on the potential drivers of the recycled paper price in the next months to understand supply and demand dynamics.

No, I'm not sure it's about the next month, so I see it's more structurally long term. Factor number one is, so the fact that there is more and more tissue and less and less paper and writing paper leads per se to a shortage of recycled fiber because tissue is not recycled and graphic paper is recycled. The second trend is there is move from B2B to B2C, so more and more boxes are not delivered to the Tescos, et cetera, of this world, where they are properly more or less 100% recovered but more in B2C, where the recovery rate is just lower because some of it ends in the general waste bin. And then we see a somewhat higher demand, I think, from Asia, where more and more of these recycled pulp mills are built, so outside of China in order to supply China, and they will lead maybe to an increase in exports again. So after this, supply shock in terms of -- or demand shock from China, we might see a returning actually to a more normal work where there is more export. And for all these reasons, I would be very cautious to predict any reduction of paper for recycling. Short term, there can always be all of this up in some ad hoc moves, but it will be, I think, a limited supply for years to come and actually getting worse.

All right. And in terms of cartonboard mills, could I ask you hypothetically if you were not hedged, what gas price, what energy -- rise in energy prices could have made you stop production in some of your mills considering the price increase we already applied. if it were not a material hedging, could you say, okay, at this level, it could have become an economical or sort of...

I can't really answer it because we would do it in agreement with our customers. You see it at the end of the day, if, let's say, the gas price moves to, what should I say now as an example, 400 or 500, we've seen some forward rates at this level, then most likely it becomes unprofitable. And then we would simply speak to our customers because it isn't then a problem of MM versus other competitors, but it would be more or less as bad for everyone in the industry. And then either our customers accept a certain price surcharge for a limited period of time in a completely transparent way or they say no, it's too expensive, our customers won't pay for it. But you shouldn't forget some of it is pharma, et cetera, so basically, you can pass on any price to a certain degree. That sounds stupid, but that's what it is. The question is then just what is the difference between various mills. And if you have a mill which has a worse mix, then you might be in trouble. That's actually the reason to stop it. It's not because of a high price but because of a high price plus your stronger exposure to it.

And we haven't received any further questions at this point, so I'll hand back to the speakers.

So yes, then, thank you very much. Thank you for taking the time to stay with us. I think we are in extremely challenging times where basically one is used every morning to wake up and have to review what the plan of yesterday was because of all the situation. Equally, I think that the advantage of MM is that we are in food, pharma, tobacco, which are extremely stable markets that with overall very competitive mills. That was exactly our strategic transformation which we had last year. There are short-term all sorts of problems of getting something, not getting something, so no one ever knows even what next week's results would be. But the structural force is, I think we are in a very strong position. It's very helpful that we are forward integrating to Packaging. Packaging is extremely stable that we are also more flexible to react to different circumstances. So our strong balance sheet are very conservative and long-term financing. And in our business model, I think we are -- we feel comfortable that whatever this crisis may bring, we are in a strong position to survive and to thrive. And with this, I -- Stephan, do you want to add anything?

I just wanted to add that we will release our Q1 results on the 26th of April. So here we will be back with more, I would say update, what the next update in this year. And for the rest of this day, we wish you all the best, and thank you for your interest. Thank you for participating in our call.

Thank you. Have a good day. Bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.