Good day, welcome to today's Mayr-Melnhof Karton AG half year results 2023 conference call. This meeting is being recorded. At this time, I'd like to hand the conference over to Stephan Sweerts-Sporck. Please go ahead, sir. Good morning. Welcome on the part of MM Group. My name is Stephan Sweerts-Sporck, Head in Investor Relations and Corporate Communication here. It's a great pleasure to have you joining this Q&A conference call on our 2023 first half year results, which we released this morning. Besides the press release and the half year report, our 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 to our CEO, Peter Oswald, and our CFO, Franz Hiesinger. 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? Yeah, thank you, Stephan. Welcome, everyone, to this conference call about our first half-year results. I assume you've read the announcement, and you might have listened to the video message, so I'm not repeating all the stories. In a nutshell, in the first half-year of this year, the market declined significantly, and as a consequence, our EBITDA was around EUR 240 million and we achieved an operating profit of just above EUR 100 million. Packaging performed well, with an operating profit of EUR 86 million, especially considering that this was without our very profitable Russian business, which we divested successfully end of last year, and the EUR 60 million one-offs for a plant closure. Very pleasingly, the development of our previous year's acquisition of the Essentra Packaging and Eson Pac are as planned, and this should progressively contribute to our operating profit growth going forward. With these introductory words, I would like to open the floor for questions, either to Franz Hiesinger, our CFO, or myself. Please ask your questions. Thank you, Peter. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star two. Again, please press star one to ask a question. Our first question comes from Michael Marschallinger from Erste Group. Please go ahead. Yes, good morning. Thanks for taking my questions. I have three. The first one on the CapEx, CapEx related at the same time. As understood, Frohnleiten is now finished in early March, now it's mid-May. Could you maybe provide us some color on the current capacity utilization at these two mills and what they expect now going forward in Q3? Should I respond to every question? Okay, then... Yes, please. Individually, or do you want to ask all three? I will do one by one, please. Okay, one by one. Fine. Yeah. The rebuild in Frohnleiten was extremely successful. The machine is fully operating to the requests. In Neuss, we had some delays and some complications. Finally, the machine is also up and running. Given the current market circumstances, the capacity utilization is more or less in line with the overall picture. Obviously, for competition reasons, we do not want to give a concrete breakdown of the various mills. Okay, understood. Then maybe in Q3, you have this rebuilding Slovenia. When we look now in Q3, should we expect any improvement in earnings, that there's some room with lower input prices, some operational excellence, or should we expect, and also you said in the video, recovery will be slower and will take longer. How should we think of this board and paper division in the second half of the year, and in Q3 especially? Maybe I, I, I, I split this question. The one thing is, is the rebuild in Slovenia. Unfortunately, this should start mid of, of this month. We, we were unfortunately affected by the floods. It looks quite good at the moment that we can still progress as, as planned with this downtime, this this rebuild downtime, but, but it's not 100% confirmed yet, because parts of the mill are still affected by the floods. On the other questions, what, what can we expect from this quarter? One thing is that the order book is, is, is still low, so we will have the same still in various parts... of, of, of our organization in terms of pricing, the, the, the inspiration pricing, obviously, but equally, we, we found some input costs are, are coming down as well. It's, it's also from a timing perspective, very difficult to say exactly how this will work out. Mm-hmm, mm-hmm. Okay. Maybe I one last one and some more general question, because in your video statement, you mentioned you still believe in the strength from plastics to cartonboard. Currently, we see this discussion in the European Union to change the Packaging and Packaging Waste Regulation. This change has seems of favor more recyclable plastics. Some of your peers, they are already voicing concerns about these changes. I would like to ask you, how do you see this, and how would this affect the business if it comes into force in this current version? Yeah. Several things. Number one, I, I strongly believe that the trend from plastic to paper will continue. There is was a recent poll in Germany a few days ago, for instance, where the plastic problem was highlighted as a more concerning issue than climate change. It was 62% versus 59% or so. I think it is on everyone's mind, after this plastic in the ocean thing, that this is a very serious issue. However, short-term, we've seen, due to delivery problems last year, that some companies have, some customers have, in some cases, involuntarily switched to plastic because cartonboard wasn't available. I think this, this will change again. We obviously see that some discounters in the market using their own brands instead of FMCG brands have gained some market share, and they tend typically, for simple cost reasons, to, to, to have more preference for plastic or, you know, are not using so much paper. Overall, I think the trend will continue, but for the time being, it, yeah, it's a bit a, a rocky situation. Concerning this, this directive on, on, on paper, on, on packaging and packaging waste, there are some concerning issues in it. [(MM Group) is a leading global producer of cartonboard and cartonboard packaging. The company operates in two main business segments: MM Board & Paper and MM Packaging. **MM Board & Paper** focuses on the production of cartonboard, including recycled cartonboard (WLC) and virgin fiber cartonboard (Frischfaser). They are a significant player in Europe, with a strong emphasis on sustainable production practices, including the use of Altpapierbasis (recycled paper base). Key production sites include Frohnleiten, Gernsbach, and Količevo in Slovenia. **MM Packaging** specializes in the conversion of cartonboard into various packaging solutions for consumer goods, particularly in the FMCG (Fast-Moving Consumer Goods) and pharmacy segments. The company's financial performance is often discussed in terms of key metrics like EBIT, EBITDA, and adjusted EBITDA. Stephan Sweerts-Sporck heads Investor Relations, managing communication with analysts like Cole Hathorn from Jefferies, Markus Remis from Raiffeisen Bank International, Michael Marschallinger from Erste Group, and Oliver Wojahn from mwb research AG. Bridget Seissenberger from ORF Steinmark and Hannes Kagle are also known to follow the company. Recent discussions have included the impact of the Packaging and Packaging Waste Regulation in the European Union, wood costs in regions like Poland and Finland, and market conditions in the Nordics. The company has also addressed operational aspects, such as delays in Neuss and the strategic decision to close a plant in Germany. Franz Hiesinger serves as CFO, and Peter Oswal] Okay, understood. Yeah, thanks very much for answering my questions. Thank you. Our next, our next question comes from Oliver Wojahn from AlsterResearch. Yes, good morning. Thank you for taking my questions. I have two questions left. The first one is on the development in packaging in the second quarter. If I'm not mistaken, you had a roughly 20% year-on-year growth rate there overall. Could you tell us about what part of that was due to organic growth and what part due to the acquisition? Yes. The, the organic growth was actually organic decline of, of 4%, so growth minus 4%. In, in, in volume terms, we see a weaker market in, in food, but also to a certain degree in, in, in beauty. We, we see at the moment. Going forward, it's always difficult to judge how things will develop, especially now, now after the, the summer break. It's a bit a difficult time to answer this question, because summer is traditionally a very, a very weak month. We're willing to see in September how things will pick up. But we expect this year an overall decline of the market. We think that our number is, there are no concrete industry statistics better than the market development, as we've gained market share, because customers just value very highly that we are backward integrated. I think we have, great, we've developed some good innovations. In terms of working closer with our key customers, we see overall a positive trend. Of course, the overall sluggishness in the market and the lower consumption of people, does have some effect. Okay, thank you. My second question would be on the, the cost savings, which you mentioned. Could you maybe put some more color on, what exactly you are planning to do, and maybe the volume in cost savings you are targeting? Yeah. I think we don't want to throw out the ticket because we've to make our judgment calls in a very measured way over the next months. First of all, we have already started with cost reduction, so we've taken out shifts, et cetera. We looking into all various spending categories in order to ensure that we don't overspend. Equally, at this point, wherever it's about strategic, long-term, sustainable spending, we continue or even increase spending, like for IT, as an example. We really have to take it market by market, plant by plant, mill by mill to see exactly what measures are possible. For instance, to give you an example, in, in Finland, you, you can do some temporary shuts, which, which, which are subsidized in, in this way from a company perspective. In other mills, you, you can't do it, so it's shift reduction, overworking or reduction. It's, it's, it's various measures. And of course, we are prepared also to do restructurings and close plants if necessary. I think we were, lucky is, is maybe the wrong word, but it was a good decision that we closed one plant in Germany in January this year, because that would have been a big problem if, if we hadn't done it. It was also very good that we shut down a small cartonboard machine in the fourth quarter of last year in Gernsbach. We try to be as preemptive as possible, but equally always thinking about the long term. We don't want to, where we have competitive machines, competitive plants, obviously, we will not sacrifice our long-term development just because the market is temporarily in a bad state. Okay. Thank you very much. Thank you. Our next question comes from Markus Remis from Raiffeisen Bank International. Please go ahead. Yeah, good morning, gents. A couple of questions, please. I'd like to return to the second quarter result in the packaging division. Maybe looking at it from a different angle, when I compare it sequentially, it's been about EUR 50 million top line loss. Nevertheless, you've been able to maintain the EBITDA at about EUR 80 million level, which we also saw in the first quarter on an underlying basis. That actually surprised me a bit to the to to the upside. Can you maybe shed some light on the quarter-on-quarter development, why earnings are flat despite lower revenues? Yeah, thank you. That's a very good question. I think there were two aspects. First of all, if you look to the first quarter, we shouldn't forget that we had this one of EUR 60 million, unlike many other companies, we're not showing a comparable EBITDA or trading EBITDA, or however one might call it, adjusted EBITDA, but a reported EBITDA. This includes, if you want to have it like for like, you have to add EUR 60 million, which were simply affecting the EBITDA and also, to a large extent, the EBIT number. Number two, because especially lifeline cheaper prices, so recycled cartonboard prices declined. We had some price with contracts with our end consumers where we had to reduce our price. Equally, the input costs of especially recycled cartonboard fell as well. Some other costs also fell. Therefore, this was not a volume loss, but it was more or less a price change, which was compensated by cost reductions. What we should not underestimate as a third factor, which is a, has a smaller impact, but a constant impact now is when we took over Essentra Packaging, it was actually more or less a break-even company, so it's a restructuring case, and we do see progressive results here quarter by quarter. That also had some, some positive effects. essentially, you're saying there was a, kind of a tailwind because, input costs were falling quicker than, than, selling prices? Yeah. I mean, if you- Yeah. If you take the, if, if we take EBITDA EUR 62 million + EUR 16 million would be EUR 78 million-EUR 80 million. Yeah. We have more or less a flat result, marginally improved. This means that more or less sales prices and input costs fell, fell, at, at, at, at the same level, some marginal progression in, in pharmacy, and obviously also the closure of the mill had, had a positive effect, so to say, has a positive effect from the second quarter on. Yeah. Okay. This compensated for a small decline in volume. Yeah. Okay. I know, a bit surprised to hear that food demand in the packaging segment is weakening. I mean, I would have assumed that this is probably the most resilient pocket in your end market. I mean, is that just because retailers are or consumers are increasingly leaning towards the retailers' proprietary brands because of, yeah, pressure on disposable incomes? Or is there, I don't know, other factors behind? Yeah, I mean, -4 is, I agree also in this industry, a number we are not, not used to, and I guess that the market was somewhere like - 6. I mean, the retail statistics for food retailing, so for instance, I just get the German number on top of my head, was in the first quarter, minus 8%. It's interesting that people can save so much on buying food. The retail business, the food retail business is weaker. People are, from a volume perspective, are obviously consuming less or consuming cheaper products which are not packaged in cartonboards. Obviously, we have a number of products where instead of your muesli, or, or a chocolate bar or whatever you have, you can just skip it and whatever, eat other things. Mm. Okay. That has some effect. Sorry, please continue. Apologies, I, I didn't want to interrupt you. I thought you were done with your remarks. This might be something that's, that's probably here for the next couple of quarters. I mean, pressure on disposable income won't go away quickly, most likely. Yeah, I think it will finally go away, and people will find a back normal pattern. It's also after COVID, people were very fond of dining out, so we see a boom in restaurants, et cetera, for the some time being, which is generally bad for us because it's better if people consume their food at home. By example, some people are in a sort of economic stress due to the overall environment and consume less. Some people have, like myself, I have probably there's not food, but another fast-moving consumer goods, 10 whatever, for personal hygiene, toothpaste has 10 tubes at home, and now I'm using them until I need to buy new ones. This will finally go away. Will it go away in the third quarter and fourth quarter? To what degree will it go away in the third and fourth quarter, is difficult to say. Okay. Can we maybe turn to MM Board & Paper Division? Is, I mean, the volumes we've seen in the first quarter is 470,000, 480,000. Is that a good proxy for the development in the second quarter? Is that accurately reflecting the underlying demand with all these downtimes, is that right? It's probably a bit difficult to assess, say, the underlying trend here, but is that representative of what you're seeing now in Q3, and maybe a bit of an uptick then in Q4 once the downtimes are digested? Yeah. I think what we have in the market is a lot of destocking in the whole supply chain, going probably from retailers, fast-moving consumer goods companies, packaging operations. Everyone was so desperate last year to get their hands on some cartonboards, everyone decided to have higher safety stocks. I think destocking has a big impact, over and above it, it's all the reasons which we discussed in packaging. For us, obviously, it comes in a way, as an additional burden that we have these technical expense bills. On the other hand, if the market picks up, we have these technically downtimes exactly as the time when we, when the market was anyhow sluggish. The final judgment, we will see it next year, how fortunate the timing was. It was indeed very important that we improved the quality of our products. We consider ourselves the leader in, especially in, in WLC, the leader both in technology, quality, and product features. We have enhanced that further, and we do get a price premium for it, and we do see that especially in the narrow market, also our customers turn towards those who have the better quality. Therefore, I think it was the right decision to do these CapEx, even though. They come at the, at an additional, short-term, an additional layer of stress, like also in the third quarter, when Količevo will be de facto closed almost for the whole quarter. Just that's at, WLC, what Peter mentioned, is recycled cartonboard. Mm-hmm. For those who are not familiar... Yeah. with the abbreviation. Yeah. Okay. I mean, asking specifically about the Q3 earnings trend in Board and Paper, I mean, the level we see in Q2, would you say that that is also something we might, you might generate in the third quarter, that is, I don't know, EUR 20 million EBITDA? Yeah, you, you, you see, we do not make a guidance, but I don't want to be too precise. Anyhow, it's, it's, it's difficult to assess because we see a lot of movements also in our input costs. We said very clearly that from the volume perspective, we do not see an improvement in Q3. Okay. Final two questions. Firstly, on the CapEx side, I mean, you said that you want to, or that you've implemented a cash protection program. A question related to that, what would be the CapEx guidance for the current year? Although if you could share some indication on 2024 and maybe with the, yeah, assumed working capital impact, I guess there will be quite a swing because of lower prices, lower volumes. Anything on that? The final question would be, why did you change the reporting structure in the PNL from gross profit to total cost? Yeah. So, if I start with the first question on, on, on CapEx, so we've guided above EUR 400 million for, for this year, and it will be now below EUR 400 million. How much is a bit, always a bit difficult to say because it depends on the startup of the various projects. As, as, as you can read in the report, we also have a number of committed CapEx, so it's not like we, we, we, we, we stop buying. Also next year, we, we will come probably out at, at around, EUR 350 million, and then it will really, become lower in the following years, simply because we just have a pipeline of, of, whether it's, material. This is with regard to, to, to, to CapEx, and I hand over to, to Franz, to talk about our change in Gesamtkostenverfahren. But just to add one thing, I'm just a big fan because I think it's more meaningful, but Franz, you can explain it better. Yes, actually, following up what Peter said, we believe it's more meaningful. It gives also more transparency to our results. It also helps the majority of our peers are reporting in that format, and therefore, we have changed in line with our peer group, where the majority of our peer group reports in this format. Yeah. It was support to understand our results better. Okay. Everyone has. Maybe if I just add to CapEx, because Stefan reminded me that I should mention this. With regards to the CapEx, we've said we've postponed the decision to next year, and we think we have to see how the market develops, and, and, and various other parameters to see if we kickstart it, so nothing has been committed on that front. Okay. Thank you. I'll get back into line. Thanks for the explanations. Thank you. Our next question comes from Cole Hathorn from Jefferies. Please go ahead. Well, Peter, thanks for taking my questions. The first one's just on cost inflation and the trends that you're, you're seeing. I'd suck a little bit of color, firstly, on, you know, what you're seeing on the wider kind of wastepaper and OCC markets. Importantly, what are you seeing in wood costs for your kind of key mills in Poland and then up in the Nordics as well? I've got a follow-up after that. I'll take that separately. Yeah. Thank you, Cole. On, on, on waste, so, so we are more using mixed grades than, than OCC, so it's different to, to containerboard. Overall, we, we see a slight increase now. It, it depends a bit by grade. We use some very expensive mixed grades, but also cheaper mixed grades. I, I, I, I think we, we have to be very cautious on, on that front, that we might see some cost pressure, which we then have to pass on in prices. In terms of, of wood costs, wood costs are generally slightly moving up. Fortunately, we've seen in, in Poland now, after extreme high prices, a moderation and therefore convergences to European levels. It's, it's, it's, it's, it's overall difficult to judge because obviously less wood is used. So one might expect a drop in prices. On the other hand, it's also cost-driven, and, and so it depends on oil prices, on, and, and on many, many import effects. Overall, I would, for both, for both grades rather suppose, a slight or, or claim for a slight increase, which necessitates, price, pr- pr- increasing prices for our products, which, which at the moment is, is a bit difficult. Peter, shifting to the, to the demand and, and destocking side, I, I'm trying to understand, you know, where we are, in the destocking and demand cycles across various packaging products. I just wanted to hear your thoughts. I mean, my view is that, you know, on the, on the cartonboard side, it's generally a little bit later cycle, so you only the industry probably only started to destock maybe December last year. You know, you're only gonna start cycling those kind of destocking comps, in the fourth quarter or in the beginning of 2024. Just first understanding, you know, when kind of the destocking and, you know, volume started to, to decline, for the industry, just to, you know, when you're gonna start cycling those easier comparatives. Yeah, I mean, it is, as you said, I, I think a very rational, foresightful person, or manager had started to destock in, in, in September, October last year. People didn't do that because they, they were still in this mood of you can't get your product at the right time. I, for, for, for our industry, I mean, obviously, we don't know about all our customers, but we know it from our own packaging operations. We seriously started destocking a bit too late, either around December, exactly as you say, and the destocking will be finished by end of September. Then- We are at. If, if we are typical for the industry, then we, we, we just from a destocking perspective, we need water more, or, or the time period where we are destocking will be finished. Obviously, we don't know it for our competitors exactly. We've just partly insights via our order pick operation, but it, it, it, it will come to an end. I don't see it yet in any, any statistics. Then, Peter, I'd like to understand, you know, the benefits of having multiple different kind of mill sites and scale and kind of the forward integration at, at this, at this point. I mean, I, I know with destocking and, you know, it is impacting profitability, and you're having to take downtime. Would you mind comparing that to, let's say, a smaller player out there that wouldn't be able to manage their overall mill system? Because I imagine the cost per ton from a smaller player would, you know, they'd be under significantly greater pressure than, than your asset base, because they're gonna have to absorb those fixed costs over even lower tons. I'm just wondering how, how you think you're fearing to some of the smaller players and the benefits of having a bigger mill system to? Cole, are you referring to carton board or folding carton, so package upstream or downstream? I'm, I'm referring to both. The, the benefit of being able to, to firstly manage your mill system, but then also secure those volumes into your, converting operations. Yeah. So, so, so in, in, in packaging, it's, it's definitely an advantage because we, we can specialize our, our plants, to a certain degree, and with more flexibility. If things get really ugly, obviously, if, if you have one plant, you can either stay with it or close it. If you have 10 plants, you can take out the smallest plant, and, and this is what, what, what, what we are doing anyhow from time to time. With regards to, to, to, to cartonboard, it's, it's the same thing. This is why we could say, "Okay, we have a fairly small machine in, in Slovenia, so let's rather close it and take costs well out." We can see that was very beneficial. Yeah, we, we do have more flexibility. In terms of integration, it also helps to a certain degree, but different to corrugated, our integration level is, is, is much lower, for a number of reasons. First, there are many more different grades, and we don't produce all of them. Secondly, there are directories in this market where the end co- consumer, the, the, the packer, so to say, so, so the FMCG company, buys carton board and folding carton separately. It's not always the decision of the folding carton producer to decide where, from whom they buy a carton board. Thank you. Thank you. Thank you. As a reminder, to ask a question, please signal by pressing star one. Our next question comes from Birgit Zeiselberger from ORF Steinmark. Please go ahead. Oh, yes, my name is Hannes Gsell. Ah. Thank you, that I can tell my questions, and I have the answer. Is it possible to speak in German because I need a short interview for our radio? Okay. Is it possible? Okay. Yes. Okay. ... zur Gesamtindustrie hat es marktbedingte Abstellmaßnahmen gegeben. Wie ist jetzt der Ausblick auf das kommende Quartal? Erwarten Sie da auch vor allem mit Frohnleiten, dass wieder gewisse Werke oder Maschinen abgestellt werden müssen? Ja, wenn wir die derzeitige Situation sehen und wir sind jetzt auch im sogenannten Sommerloch, wo also wenig Bestellungen gemacht werden, dann müssen wir für das 3rd quarter davon ausgehen, dass temporäre Abstellungen weiter notwendig sein werden. Wir hoffen, dass nach dem Sommer und vor allem auch nachdem unsere Kunden Lager, fertig abgebaut haben, wieder stärker bestellen. Insgesamt hat man ja in Frohnleiten, glaube ich, eine Belegschaft von ungefähr 570 Mitarbeitern. Kann sich das auch auf die Zahl der Arbeitsplätze in Frohnleiten auswirken? Derzeit gibt es dazu keine Pläne, das, die, die Anzahl der Arbeitsplätze zu reduzieren. Abschließend noch: Es wurde ja in den letzten Jahren sehr viel investiert in das Werk in Frohnleiten, rund oder mehr als EUR 100 million, in Ausbau, in Logistik und auch in Digitalisierung. Da hat es dann eben auch aufgrund der Modernisierung, Stillstände gegeben. Ist diese Modernisierung und der Ausbau jetzt abgeschlossen oder wird da noch was weiter fortgesetzt? Im Moment ist es abgeschlossen und die Entscheidung erweist sich insofern als sehr richtig, weil wir Produktivität gewonnen haben, spezifische Kosten senken konnten und vor allem, was, was wichtig ist, unser Produkt besser geworden ist. Das hat also eine, eine höhere Steifigkeit. Das ist beim Karton das Entscheidende. Vor allem ganz wichtig: Wir können jetzt, und ich glaube, wir sind der Einzige in Europa, 100% auf Altpapierbasis produzieren, während es bisher notwendig war, geringe Mengen von Frischfaser dazu zu mischen. Kunden freuen sich darüber und das wird sich auch am Markt umsetzen. Das ist natürlich nichts, was die Investition ist gerade abgeschlossen, was auch von heute auf morgen passiert. Ja, Solt, natürlich danke vielmals und alles Gute. Danke schön. Ja, danke! Thank you. As said, since there are currently no further questions in the queue, as a final reminder to ask a question, please signal by pressing star one. We will pause for just a moment to allow you to signal. As there are no further questions in the queue, I'd like to hand the call back over to our hosts for any additional or closing remarks. Thank you. We come to an end to of this Q&A session as there are no more questions in the pipeline. Thank you for the questions, the participation and your interest. We wish you a great day and say goodbye, we will be back with Q3 results on November 7th. Bye bye. Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen, you may now disconnect.