Mayr-Melnhof Karton AG ($MMK)

Good morning, ladies and gentlemen, and welcome to the Annual Results 2025 Call of Mayr-Melnhof Karton AG. [Operator Instructions] Let me now turn the floor over to your host, Stephan Sweerts-Sporck.

Good morning, and welcome on the part of MM Group. I'm Stephan Sweerts-Sporck, heading Investor Relations and Corporate Communications here. It's a great pleasure to have you joining this Q&A conference call on our '25 annual results, which we released this morning. Besides the press release, a video statement from our Management Board has been published on our website, mm.group. In this call, we want now to provide you with the possibility to ask questions on today's communication to our CEO, Peter Oswald; and CFO, Franz Hiesinger who are here with me. Since this call addresses an international audience, we would very much appreciate your questions to be asked in English in the following Q&A session. Before we go for that, Peter, may I ask you to start with a short summary of our key messages.

Yes. Thank you, Stephan. Welcome, everyone, and thank you for your interest in MM Group. So I will be fairly brief in my summary to have enough time then for your questions. Despite our divestiture of TANN, we could marginally increase our adjusted operating profit in 2025. And if we look what I think is more meaningful at our numbers on a like-for-like basis, so excluding TANN, and this is on Page 4 of our press release, you can see that we increased our adjusted operating profit by 15% in the last year. And this is quite an achievement in this challenging market environment. And the key driver was our Fit-For-Future program, which added around EUR 70 million to our last year result. And so that's really meaningful. The good news is that we feel confident now to increase our forecast for the effect of Fit-For-Future by 2027 from what originally said more than EUR 150 million to now more than EUR 250 million. The project is well progressing on all fronts, be it operations, SG&A, top line and procurement and also supply chain. Now if we look specifically at our 3 divisions, Food and Premium Packaging had, I could almost say, like always, a very solid performance. And given our Fit-For-Future program, I personally all feel very positive about future development. Now if we look to our Pharma business, adjusted operating profit increased by 25% by quarter. And the good news is that there is a lot of upside potential going forward. Given the long sales cycle of 2 to 4 years, one needs a lot of patience in this business until actions show results, but we will get there. We are very strongly positioned in the GLP-1 weight reduction segment. And we could sign here and also in other areas, some long-term contracts, and that will support our growth in this segment going forward over the next years. Now coming to Board and Paper, we managed to increase our results and finally show a green zero or more dramatic black zero. Everyone following our industry will probably share my view that this was quite outstanding and outstanding achievement. And again, Fit-For-Future gives us the confidence that despite the difficult market environment, and I will come to this is -- will be positive. Now probably you are most interested in our outlook. So I won't repeat what we already distributed. Definitely increased energy prices mainly gas but also diesel, et cetera, for transport will negatively impact Q1 and Q2 results. And it's then anyone's guess what the impact will be on half year 2, depending obviously how long and how severe the war will be and the closure of the Strait of Hormuz. The positive thing or what I hope is positive is that this cost shock may lead some players to rethink whether running mills at high losses or even negative EBITDA makes long term any sense, but again, who knows. We are well booked at this point in time as our customers appreciate our superior products and services. And so despite all the headwinds and they do exist and the overcapacities do exist, both on the converting side and also mainly in the board and paper area. Despite all that, we do remain confident because our markets continue to offer attractive long-term potential. So the underlying trends are the right ones. And as a strong team, we are committed to doing whatever it takes to advance the profitability of MM for the years to come. And with this, I would like to finish and hand over now for Q&A, and we're looking with interest to your questions.

[Operator Instructions] The first question is from Michael Marschallinger, Erste Group.

I have 3 and do them one by one. And firstly, on your Fit-For-Future program. So you said you see an additional or more than EUR 100 million versus initial expectations. Could you give us a bit more color where you see these additional savings come from? Walk us through here? And what are your expectations in terms of cost in 2025? You booked now EUR 29 million restructuring costs. What do you expect over the next year 3 years with this.

I'm not 100% sure. I got it right. So our effect on an adjusted operating profit basis was about EUR 70 million, and we booked quite substantial restructuring costs. Going forward, so we think that another -- so if we say more than EUR 250 million 2027 compared to 2025 means obviously that we have to deliver another EUR 180 million to get there. I believe that the restructuring costs per se will be, let's say, roughly in this year, '26.

Sorry, I didn't understand. Can you please repeat it?

Yes. So the estimate is depending that our restructuring costs, I understood your question was what the restructuring costs for the FFF program will be. And this will be this year about at the same level than last year.

Okay. And also for '27.

Also for '26. For '27, it's a bit too early to tell. I would expect or I would hope it's less, but there could be individual bigger restructurings, which we can't foresee at this point in time.

Okay. Understood. Then coming back to the market conditions and you acknowledged in the press release, overcapacity still persist. So could you provide a bit color what you saw in the last 2 quarters since the last call? And what are your expectations here in '26 also with new capacities from your Nordic competitors coming online? Would you expect this situation to intensify over '26, if you could give some comments, please.

Yes. So one major addition in Finland came on stream and is now fully already in the market. So they started up this spring. And that obviously creates a lot of pressure for all participants because no one wants to lose any volume. I mean we know from various investigations that a number of players are EBITDA negative. And of those who are published, you can even look at the numbers. And let's say, the hope is that one or the other just face the consequence finally because now we know that this new capacity is here, and it will obviously stay. And now someone has -- someone or some capacity, so to say, have to be closed, and that's obviously always a difficult decision to make. But finally, if you run your mill at a negative EBITDA, your free cash flow loss is so high that at a certain point in time, you have to do it. And we have to wait now until this happens.

That's very clear. And lastly, on the energy cost side, given we see now this Middle East conflict and another wave of inflation is expected, how would you expect to pass on this additional cost in the current environment?

Yes, that will be different for different grades. So in some grades, we will be able to pass it on and in some grades where we have the overcapacities and where our judgment is that competition is only driven by volume and not by profits, there probably we have to take the fight.

And could you also make a comment on how you're hedged on the energy side for '26?

Yes, we are hedged between 1/3 and half of the volume.

The next question is from Markus Remis, ODDO BHF.

A few questions from my side. Firstly, coming back to the Fit-For-Future first question, between Q3, the EUR 150 million and now the EUR 250 million, can you elaborate where this incremental savings potential was found? And also, I'd be interested to get a sense of the timing of the remaining EUR 180 million. So anything you can share regarding the breakdown '26, '27 would be very helpful.

Yes. Of course. So the good news -- I think we made interim in the third quarter already the comment that it will be significantly more than the EUR 150 million. So it's a gradual development. You see the way this program works is that a lot of ideas are generated and then they are worked out. And obviously, some turn out to be nonfeasible, some cases, you find even more potential than what you thought. So it's always very difficult to evaluate this pipeline. And definitely, we wanted to be on the conservative side. And as the project progresses, we see that many more projects are worked out in greater detail. And obviously, we've implemented now already a number of projects well above EUR 100 million, which had this positive effect last year. The timing is a bit difficult always to evaluate, but I would roughly say that the balance will be equally split. So the EUR 108 million plus between this year and next year. But again, that's a very rough estimate because you have delays for one reason or another, you have setbacks customer doesn't sign the contract as quickly as you want in procurement, your supplier, you have to wait until the old supply period runs out and the new term starts.

Okay. And can you -- because you're putting the savings kind of conditional, of course, to market conditions. Can you give us an idea of how much of the EUR 70 million you were able to actually retain in the P&L in '25?

These EUR 70 million, so are retained. They are there. But let's take an example. If the raw material price the index decreases by 5%, and we can achieve a reduction of 12%, then the 5% is what we don't book into FFF. The 7% we take as a credit because we say this is our own achievement. And sometimes that's obviously a question is obviously a judgment call. But the important thing is that we have very strict rules here in order to not overreport in any way. So the EUR 70 million, you could say, if we hadn't started this project, our result would be, I would say, more in line with the industry and would be really EUR 70 million on an adjusted operating profit lower. Obviously, the operating profit effect was less because you have to deduct then the restructuring costs, which are shown in our attachments.

Sure. So would you say that kind of a walk down 2024 EBITDA of EUR 420 million plus EUR 250 million savings, less 50 million tonne equals EUR 620 million EBITDA by '27 that this is then what your...

That's the right way to calculate it, plus/minus changes in the market. So for instance, this, let's say, energy costs are sustainably EUR 50 million higher. But by example, that would come off if our prices are in all cartonboard is lower than they were last year. And so this needs to be taken off. We can't predict. So it's mainly about our selling price and about the procurement of our most important raw materials.

Okay, so less cost inflation and less pricing concessions.

Yes. Specific cost inflation. So our savings are different to how many others do it on a nominal basis. So we are not saying costs would have gone up by 3%, and we have avoided any costs that would not count. A reduction needs really to be in nominal terms disregarding the inflation. So if we reduce prices by 5% and have inflation of 3%, only 5% nominal decrease comes and not 8% against an inflated price.

Okay. And coming to Board and Paper, I think you're very clear what kind of market repair would look like. So competition closing capacities. Are you also considering capacity reductions? I mean, when I look at your -- the Board and Paper development of the segment, I mean, it's -- I guess it's fair to assume that not all of your plants are in a breakeven or positive territory now with more pressure coming presumably from the energy side and who knows how long that will stay. But is that something you have in the drawer, so to say, is not short term, but maybe...

I think it should be a good practice amongst management in general to have for all worst cases, some projects. But overall, our mills are very, very competitive. And we know, for instance, I can't give any names. We know, for instance, we have one mill, which is EBITDA breakeven, but competition is minus 10% EBITDA. So to close our mill, which is much more efficient and there's better energy supply, et cetera, et cetera, would just not make sense. We don't understand why this mill still exists from the competition, particularly we are sure nobody can work against the market. So it's as Warren Buffett said, if the tide goes out, you can see who is swimming naked. And I think some people are swimming naked and they will be firmed up.

Okay. One more question, please, before I get back into the line related to the energy bill. Can you kind of give the granularity how much energy cost you had in 2025 in absolute terms?

I hand over to Franz Hiesinger.

It's below EUR 270 million.

We are moving on to the next question. The next line is Cole Hathorn from Jefferies.

Peter, I'd just like to follow up on how you think the market might play out with the disruptions that we've got ongoing in the Middle East. I mean the last time we saw disruptions like this, we saw supply chains extend procurement managers wanting safety stock. I'm just wondering, it might be too early, but have you seen any kind of pickup in orders? Or have you seen any kind of change in how your customers are managing their supply chain? -- is the first question. And then secondly, on how you're thinking about the energy shock. I know you talk about 30% to 50% of your business being hedged from a gas perspective. But I'd like to understand how you think the cost curve develops in the recycled cartonboard or the white line chipboard space. In containerboard, it's much easier for me to say that the cost curve really steepens as some people have made more energy investments than others. But the recycled cartonboard side is -- it looks flatter when you look at the industry provided cost curve. So I'm just wondering how do you think the cost curve steepens with the high energy prices? And how is -- not positioned?

Yes. Thank you. So these are very difficult questions. So the customer reaction, we haven't seen anything which we saw in the Ukraine, but maybe it's too early. But so far, there is neither panic nor anything else. We will see some price increases or even limited surcharges have been announced in the industry, and we will see now how the customers react to that and what it means. But overall, it's very calm, but it's probably also because it's early days. On the cost curve, my guess is that the cost curve would also become steeper because, I mean, I take our WLC mills, we've invested quite a lot in energy. And we would expect that we benefit from that now in terms of we've lowered our specific energy consumption, as you will see in our annual report. So it was again minus 3% on a like-for-like basis. So less energy and we've changed the mix and with much less 11% less CO2 and this is a consequence of, amongst others, the Fit-For-Future project and very specific CapEx, which we have done over the last years. And that should benefit us and make the cost curve steeper compared to competitors in the WLC market, to my knowledge, have hardly invested anything over the last years.

And then maybe following up on the cost curve. On the virgin cartonboard side, just a little bit of color of how your business is performing there because we do have finished wood costs going down, which should help the old Kotkamills. I'd just like a little bit of color on how costs are developing for your Finnish assets and then in Poland as well.

Yes. So in Poland, wood costs are rather flat. So I mean, they are lower than in the Nordics, but the gap might narrow. In Kotka, so we have, on one hand, wood costs, which have come definitely down, which is positive for us. The other product, so to say, the other product factor is pulp. So we make our own CTMP, and we may have our own pulp mill for the saturating kraft paper, but we buy the pulp for FBB. And there, we expect a rather stable to increasing trend over next months.

And then just the final one is we talked about the cost curve steepening in the recycled side, but there are also some unintegrated virgin cartonboard producers. And with higher energy costs, I imagine that pushes them further into the red. And I'm just wondering where do you see most likely that we see capacity rationalization? Is it on the recycled side or the virgin side?

I would expect it in both areas by around mid of the year autumn. That's already what I said a year ago. It's just a gut feeling. People need -- obviously, some manager need the pressure for some time to go on until they do anything. And I think that's now what the time will come.

[Operator Instructions] We are moving on to the next question. There is a follow-up from Markus Remis, ODDO BHF.

A few more from my side. Firstly, on -- a few more from my side, if I may. Turning to the packaging side. We saw volume declines both in the food and in the pharma segment, 2% to 3% stripping out. Do you see any scope of a kind of demand stabilization in the current year? So what would be like the most likely scenario from your point of view?

Yes. So first of all, great thanks to get the question also on packaging because it's quite important for us, but everyone obviously focus on the more volatile board and paper. I think there are different aspects to consider. So I start with the pharma packaging. In pharma, as you know, we took over a real turnaround case when we acquired Essentra. And so we are still -- and I hope this year is indeed the last one in the phase. So the pharma has, on the one hand side, a very stable long-term business with developed together with your customer, you are in from day 1, and it takes years until the product is launched and then you get a contract and you deliver whatever 50%, 80%, 100% whatever it is. And that's a very long-term business and a very good business, but requires a lot of upfront investment. And then you have also a highly competitive short-term business, which is with very mature products where we have basically annual tenders and it boils down more or less to the price. And we are consistently phasing out negative business. So some of it was even contribution margin negative. So we have underlying the numbers, you see overall 2 trends. We have a nicely growing business, and I alluded to GLP-1 business, et cetera, with really good growth rate, even sustainable at 10% or so. And then we have, on the other hand, this legacy business, which is no value-added just price-sensitive business. And this we can either reprice or we get out of it. And this -- I think this process will be mainly finished. It will still go on this year. And therefore, the overall growth is not really visible. But once this restructuring is done and we stay with the businesses which we like going forward, there will always be some commoditization of some businesses. So it's an ongoing process, but the big thing will be ended this year. And then we will -- we are -- we feel very confident that we will see growth. With regards to food and premium, we have to a certain degree, a similar effect. So overall, the food market is a very flat market. There is nothing to make this sound better. And here, it's really about our product offering. And there, I think, again, our Fit-For-Future project, but also other initiatives we took. We are repositioning ourselves. We are especially focusing -- we focus more on midsized customers in order to generate growth. But the overall market in this segment will show also long-term and moderate growth. And obviously, in this environment, didn't show any growth at all. And you have always pleased also to compare some with the numbers we also divested some smaller businesses, which are also not restated. The restatement goes only for the group. So -- but we had a small decline in volumes in Food and Premium last year. We want to turn that positive, but it requires 2 things. One is our own efforts. And secondly, we needed the tailwinds from the market.

All right. And then a few more kind of bookkeeping questions, maybe more for Mr. Hiesinger. The EUR 70 million impairment in Board and Paper, can you shed some light which assets were impaired and why that was necessary now?

[indiscernible].

You look very hard to understand.

Sorry. It was for our Slovenian mill, Kolicevo for the amount of EUR 70.5 million. [indiscernible] And it was basically a review of our mid and long-term expectation of these assets.

Okay. And then if I may turn to the tax rate. I mean, it was low last year, high this year. What would be like a kind of normalized tax rate in the current shape of the group?

Side of the tax loss carried forward, which we have impaired following this asset impairment, it would have been 27%.

Okay. So that's something for modeling purposes we can imply going forward?

Will be -- it could be estimated about 25% in the long run.

Just maybe to add to this. So the storyline in '24 was that when we acquired the Essentra business, we didn't activate capitalized loss carryforwards because the business was just breakeven. And only when we saw that it's generating profit, we could activate it. And now the opposite happened that especially Kolicevo, but that wasn't the only one where we have lost carryforwards and giving our new cash flow projections. We cannot assume that we can use this loss carryforwards.

To add on this, the full difference of EUR 65 million compared to last year in our tax expense is related to capitalization versus release of loss carryforward.

That's very clear. In the last years, you've quite stepped up the factoring levels. So I'd be interested to get a sense of where you ended 2025. I think last year it was close to EUR 380 million.

Yes, it was EUR 377 million last year and -- sorry, in 2024. And in 2025, net EUR 337 million. If I say net, it means deducted by the incoming customer payments, which have already been factored. EUR 337 million.

Okay. And I guess the last one would be then on your capital allocation. Now with the new dividend policy, and I understand there are a couple of influencing factors. But when you talk about dividend continuity, should we assume that this EUR 2 level for '25 is kind of the base -- and that, yes, like going forward, there should be no declines being expected, but rather kind of this as an anchor dividend, so to say?

No, I mean the most important thing is obviously the net profit, and we can't forecast the net profit, but we wanted just to give a guidance of these 4 principles within this range, 40% or 60% and their continuity is one aspect to consider, but the others 3 are equally important that if we saw a downturn of the business or if we feel very stretched from a leverage point of view, then we might reduce it. But yes, one principle is to keep it as continuous as possible, but your expression was too strong. So it's not like we guarantee now EUR 2. I mean, especially, we also have to keep in mind that our -- with regards to our goodwill in Board and Paper, this is a fairly high amount. And at a certain point in time, it could be that we have to do their impairments for instance and also the dividend.

Okay. Right. And related to that, the buyback has been closed at the end of last year. Any appetite for kind of smaller buybacks going forward?

No, not for the time being. I mean the share price, so we're not commenting where we think it should be, but it is where it is, but it's not as -- so to say, the main driver was simply that the share price was, I would say, ridiculously low at that point in time and we took advantage of it. And -- but generally now, given all the geopolitical uncertainties, we don't think it's the right money to be spent for the time being that can change.

At the moment, there are a few more questions in coming. Another follow-up from Cole Hathorn, Jefferies.

You can ask any questions, but don't overstretch me in my crystal ball.

No, this is -- it's an interesting one because we've seen a lot of supply disruptions globally around the supply chain. And I'm just wondering, have you seen any product categories that are more challenging to get hold of, be it adhesives, inks or anything like that on kind of your supply side. So the one is supply uncertainty on products. And the second is, how do you think about your commercial strategy from here? Because it's very difficult in your position when you don't know what inflation is going to do to logistics, to chemicals, to inks, et cetera, how you price up your packaging? How are you thinking about the commercial kind of pricing side?

Yes. So on supply disruptions, we haven't seen anything yet. I'm not aware about any problems. I hope that there will be some supply disruptions from some Chinese competitors. That's what I would hope for. But joking aside. But so far, we haven't any problems. But we also have to say that with a fairly conservative policy of, let's call it, close sourcing, not that we don't buy also from other continents, but generally, we are more careful on that. And I think this will help us in this environment. On the commercial side for pricing, we've overall, after the experiences in 2022, changed our pricing policy in the sense that especially with regards to long-term contracts, which are fairly common in our packaging business that we typically have inflation clauses or at least speaking clauses or in some cases, also clauses which say that if certain effects have a bigger impact than XYZ that we can adjust prices or at least can talk about them and could terminate the contract. We also have shortened the adaptation period to mainly every quarter. I mean there are very few exceptions to that. And so it was not unlike in the past where sometimes price clauses only took effect after 1 year or so. So it could, of course, if there were big price shocks, it could impact us for -- in worst case for 3 months. But not much longer. So we are much better protected today from -- in terms of pass on clause, it works both ways, also if prices go down. But generally speaking, it has reduced the risk.

At the moment, there are no further questions. So that I'm closing the Q&A session and handing the floor back over to the host.

So thank you very much for your questions from the part of MM. I think they were all very interesting and very much to the current developments. And to close, I would once again ask Peter for a final sentence what you should take away from this conference call.

Yes. Thank you very much, Stephan. I think my main message is actually we did quite substantial CapEx in '23 -- '22, '23, '24. And that was disrupting for our business also because at the time you do this CapEx, you can't produce and then the start-ups don't always work as you like them. I see now more and more that we get into -- so we -- while others were eating, we were planting. And now we get into the phase where we can harvest these benefits. We have specific mills, which were really not in a great shape a number of years ago. And in this crisis, I think they would have been prime candidates for closure, and we have turned this -- and thanks to our investments into energy efficiency, et cetera, et cetera, we are in a good place. So I think we are a company with a market-leading position with a highly experienced management team, very dedicated employees with a strong asset base. And now we have to turn this and FFF is one of the means to turn this into real results. But probably last year, we showed that in a really difficult market environment, we can deliver. And as things will move in our markets, I think we are in a very good place to benefit from any upturn, which will come. We don't know when, but it will come. And so I think the management looks with high confidence into our future. Thank you.