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

Welcome, ladies and gentlemen, to the Audio Webcast interview on the MM Group's Interim Results for the First Quarter of 2025. I'm pleased to have the company's CEO, Peter Oswald, with me for some firsthand insights.

Peter, could you please share with us your reflections on the start of the year '25 for the MM Group?

Yes, I am pleased that results were nicely up compared to the start of last year, but still not at an acceptable level. The improvement was mainly driven by our Board and Paper division. Also, Food and Premium Packaging increased profits and showed again a strong performance. Pharma Packaging came in somewhat below last year's level due to smaller one-off effects and delayed rollout of weight reduction products. Overall, market demand remained soft.

What were the drivers of the significantly improved Board and Paper operating profit?

Interestingly, the improvement of our results was to a large degree, driven by our internal profit improvement program. This means we had only marginal market tailwind for volumes and prices. Our main costs, energy, wood and paper for recycling were broadly in line with last year and personnel costs were up in Europe in general. And I think that's very important because it proves that we can step-by-step improve our results by self-help even if we have no tailwind from the markets.

Capacity development in the European cartonboard industry has been a key topic of discussions for quite some time. How do you view this in the context of the current year?

Yes, the overcapacity issue has turned significantly more severe for virgin fiberboard, whereas it has somewhat eased in recycled board. In the case of virgin fiberboard, we are now talking about roughly 1 million tons of excess capacity after net new capacity has been added in Finland. For recycling board, the figure will be around 0.5 million tons after a mill closure in Spain. And we shouldn't forget imports are rising. Therefore, further capacity reductions in Europe are an absolute necessity for both grades. However, we shouldn't be too optimistic because experience tells us to expect that these obvious capacity reductions take much longer than rational behavior would dictate. And this is for all sorts of reasons like overoptimism about markets and plastic substitution. It's overestimation of one's strength. It can be indecisiveness or procrastination. At MM Board & Paper, we have done our homework with machine closures in Austria, Slovenia and Poland, and we have no longer any obvious case for consolidation. We enjoy a strong network of mills and excellent products. And our top priority continues to be to reduce costs in order to be the clear cost leader in every market.

U.S. tariffs have been very much on the agenda throughout the past weeks. In how far is or could be the MM Group affected?

Fortunately, our Board and Paper exports to the U.S. account for less than 1% of our total sales. So we are currently hardly directly affected. We are also operating 6 converting plants in the U.S. in packaging -- in Pharma Packaging, which purchase locally and sell within the U.S. As such, we are also not impacted by the tariffs in packaging either. However, we do plan to expand our exports to the U.S. and if tariffs are imposed, we would have to slow down that plan. Additionally, it is expected that overcapacity in virgin fiberboard in Europe will continue to rise as Nordic producers are currently exporting significant volumes to the U.S., which they may want to redirect back to Europe, obviously, depending on the tariffs in the U.S. Fortunately, as for recycled board, U.S. tariffs are practically relevant because recycled board isn't in any significant way exported to the U.S.

Covering shortly financials. Your gearing was up and your cash down after 3 months compared to year-end '24. What is the reason behind? And do you expect CapEx to continue also at around EUR 55 million throughout the subsequent quarters?

Yes, we shouldn't overinterpret the quarterly numbers. End of '24, we probably overdid our working capital management. And in Q1, we were not focused enough and we reduced our factoring. Also, the share buyback cost us around EUR 25 million. So the correct figure is somewhere in between the 2 numbers. With regards to your question on CapEx, we are sticking to our full year guidance of approximately EUR 300 million.

At the end of last year, you announced the divestment of TANN Group. How is this proceeding?

It's proceeding well. We are on schedule to close the transaction in the first half of '25, and this will make our balance sheet even stronger.

Looking ahead, how do you assess further progress this year?

Yes, given the current soft demand situation and the high levels of uncertainty, especially with regards to the U.S. tariffs, we expect market conditions to remain challenging, and this is the basis for our management actions and management plans. Our top priority is to consistently strengthen MM's competitiveness by pursuing cost, technology and innovation leadership. And our comprehensive efficiency and optimization programs are well on track and will provide MM with stability and support even in a difficult market environment.

Peter, thank you very much for this interview.