Earnings Call: H1 2021

Aug 19, 2021

Welcome, everyone, to this announcement of our first half year results 'twenty one. I hope this message finds you well. Beginning of August, has undertaken a transformational change. The acquisitions of Kotka Mills in Finland And Kritcin Mill in Poland will make us more competitive, more innovative and more sustainable. Both Kotka Mills and especially Gritzin will provide us with a platform for growth for the next decade. We've strengthened our leading position in cartonboard in Europe and have acquired 2 new core businesses, kraft papers And uncoated fine papers. For this reason, we rename our division from Catron to Board and Paper. As part of our transformation, we have divested 2 smaller mills, Beiersbronn in Germany and Erbeck in Holland. Over the last 12 months, we have substantially increased the bank strength of our management to be well prepared for growth. Based on various pre closing activities and only 2 weeks after the acquisitions, I already hope to serve How well the teams of Kwitzin and Kotka Mills are collaborating and mastering this historic transformation. In the name of the executive and supervisory boards, I would like to take this opportunity to express sincere words of thanks And congratulations to both old and new colleagues. Their dedication and commitment We'll transform into an even stronger group. Market demand has been strong in both divisions since the beginning of The year. Our sales growth has, however, been held back by a lack of free capacity. We've started to address this topic a year ago By starting expansions at several packaging operations. However, these new capacities will only start to come on stream beginning of next year. At our board mills, where the focus was on cost reduction and efficiency gains, the limited expansionary effects of our CapEx will only materialize in 'twenty three, 'twenty four. Our half year operational performance in terms of productivity was strong And fixed cost reduction initiatives, excluding M and A costs, contributed positively. At the same time, we have seen historically unprecedented inflation of all our input costs like Costs for recycled paper, pulp, energy, chemicals, packaging and transport. This marked a complete change to the period of cost deflation or stagnation over the previous 3 years. In our cartonboard business, we've experienced a drop in our margins due to the delay between cost and price increases As our sales prices are fixed for a quarter, half a year or in some cases, even for a full year, this lag will continue into the second half year. However, I'm pleased to report that we could realize a third price increase for Cartonboard for Q4 for quarterly fixed contracts. The Packaging division proved more resilient during the 1st 6 months as cartonboard prices only increased in Q2. However, one off expenses of around €26,000,000 for restructuring measures at a loss making packaging site in Germany Offset the positive profit development. Our Packaging business could increase prices from July on. However, this will not be sufficient to compensate for cartonboard and other cost increases in the second half year. Let me summarize the outlook for half year 2. Profits will be positively influenced by already realized carton board And packaging price increases. Still, we expect cost inflation to overcompensate price increases. Given capacity restraints, sales volume can only marginally increase. There will be an extraordinary capital gain On the divestment of Ehrbeck and Beiers Braun of between €45,000,000 and €55,000,000 partly offset by acquisition costs, including transaction The positive contribution of Kotka Mills and Kvitsyn will be strongly diluted by post acquisition accounting effects for inventory and the high order backlog this year. That's why the new mills earnings will only be fully reflected from 2022 onwards. As for 'twenty two, we are well on track, reestablishing our gross margin via price increases, Lowering our fixed costs due to restructurings, investments as well as organizational and operational improvements, Growing our packaging volumes due to investments and realizing synergies from our 2 acquisitions. Thank you for your attention.