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

Welcome, everyone, to the announcement of our 2025 half year results. I am really pleased to report a 29% increase in adjusted operating profit in the first half. And this strong performance was primarily driven by our Board and Paper division, which delivered a significant earnings uplift due to our profit improvement program, Fit-for-Future at 2 major mills in a difficult market. And in light of this success, we have now launched the Fit-for-Future program on a group-wide scale to deliver a structural and sustainable improvement in earnings quality. And we are confident that this program will enable us to achieve structural sustainable profit improvements of over EUR 150 million by '27 compared to the '24, excluding TANN baseline and excluding market-related fluctuations. The sale of TANN Group was completed on schedule in the second quarter, resulting in a preliminary one-off income of EUR 127 million. And strategically, this move allows us to concentrate on our core business of consumer packaging, having divested the Tipping Paper business at a time of record profitability. Now let's come to the performance of our divisions. Food and Premium Packaging continued to deliver solid returns, driven by service excellence and innovation. And following the deconsolidation of TANN in early June, we also report figures, excluding TANN for your analytics. A main goal is now to sharpen our competitive edge for more organic growth and higher profitability. Pharma and Healthcare Packaging experienced mixed market dynamics. The U.S. market showed growth. However, Europe showed a slight decline. Nevertheless, the division successfully offset the lack of volume growth through productivity gains as reflected by the margin improvement in Q2. And in addition, a footprint optimization in Southwestern Europe is underway to enhance competitiveness and efficiency. Finally, MM Board & Paper operated in a sideways moving European carton board market, while the uncoated fine paper market experienced a sharp downturn since the beginning of the year. Overall, we could slightly increase sales and production volumes. Input cost developments had a largely neutral effect so far this year. But thanks to the early contributions from the Fit-for-Future program, so our self-help, adjusted operating profit for Board and Paper improved despite this more difficult trading environment. At this point, I would like to thank all my colleagues for their excellent work. Well done, keep on the good work. Now looking at our group balance sheet, it stayed solid with an equity ratio of 47% and a gearing at 50%. Net debt to adjusted EBITDA stood at 2.5, nearly unchanged from year-end '24. The reason why net debt did not reduce following the divestment of TANN was mainly a reduction -- a sharp reduction in trade liabilities driven by a maximum usage of cash discounts. Half year CapEx amounted to approximately EUR 105 million, below both last year's level and depreciation. For the full year, we expect CapEx to stay below EUR 250 million, which is less than originally anticipated. We continue to benefit from long-term financing at low interest rates, which we fixed in '21. Earlier this year, we launched a share buyback program for up to 1 million shares to take advantage of our undervalued share price. And as of August 18, we have repurchased around 436,000 shares, representing 2.2% of all outstanding shares. Now sustainability remains a top priority for MM, and we are proud to report a further reduction in our carbon footprint with a 5% decline in the first half of the year. So our continuous investments really yielded benefit now. And this is also recognized by the outside world. MM received an A rating from CDP in the climate category and maintained leadership positions in the forests and water security categories. And furthermore, our inclusion in CDP's Supplier Engagement Leadership Board highlights our commitment to responsible sourcing. And finally, EcoVadis awarded MM a gold rating, placing us amongst the top 5% of companies assessed. So let's now look at the crystal ball of the future. We expect markets to remain soft. We don't see any upward movement and there will be persisting overcapacities, especially in virgin carton board. Whilst our exports to the U.S. are less than 1% of our sales, U.S. import duties will have significant negative secondary effects, especially on the European virgin carton board market. Order intake in both Packaging divisions are currently flat. In the second half of this year, our Board and Paper division will be impacted by annual maintenance standstills. And in Poland, we will even have a cold outage done every 5 years, and therefore, the financial impact will be higher than usual at a level of approximately EUR 40 million. Two-thirds of the profit impact will be in Q3 and 1/3 will be in Q4. As a result of the standstills and due to the absence of TANN's contribution, earnings in the second half of this year are expected to be lower than in the first half. That said, we remain fully committed to enhancing long-term profitability. And as emphasized earlier this year, we will do whatever it takes to strengthen our earnings base. We -- the whole management team of MM are confident that the Fit-for-Future program will play a vital role in MM's long-term success, contributing over EUR 150 million in structural sustainable profit improvements by '27 compared to the '24, excluding TANN baseline and excluding market fluctuations. So this program is not about some short-term savings. It's about structural cost improvements for the long term. And we will continue to inform you regularly on the progress of this important program. Now in summary, MM is well positioned to create sustainable value, backed by a solid financial foundation, but most importantly, a cost and market leadership position in our core consumer packaging business. Thank you for your attention, and I wish you a good day.