Earnings Call: Q3 2024

Nov 7, 2024

Welcome, ladies and gentlemen, to the Q&A audio webcast on the Mayr-Melnhof Group interim results for the first three quarters of 2024. I'm delighted to have the company CEO, Peter Oswald, with me for some first-hand information. Peter, could you please share with us your initial reflections on the Q3 results? Yeah. In Q3, we saw sales continuing at a similar level to the previous quarters amid persistent weakness of consumer demand in Europe. Our MM Food & Premium Packaging division showed again a strong performance with a Q3 operating margin above 11%, this was supported by productivity increases, cost reductions, and product innovation. MM Pharma & Healthcare Packaging could slightly improve profits. It was held back by weak demand due to the current destocking in the pharma and healthcare industry and extra costs which we had from the startup of new machines. In our MM Board & Paper division, results were negatively impacted by the costs of the annual maintenance shutdowns at Kwidzyn in Poland and Kotkamills in Finland, the impact was roughly EUR 25 million. Whilst we could increase some prices in Q3, the overall price level remains still at a very low level. Like in the first half year, volumes were significantly ahead of last year. What steps have you taken so far to address the weak earnings situation in board and paper? Yeah. As you imply in your question, the market is weak and so everything is about self-help. We were concentrating on what we can really influence. We have launched a comprehensive profit and cash protection program already several quarters ago, and we've initiated a very broad range of cost reduction measures with a special focus on energy savings, procurement, personnel and operating expenses. The majority of these savings are expected to materialize in 2025, even though we see already some impact in the second half of 2024. Additionally, targeted price increases are being implemented with a major impact also anticipated next year. In your Q3 report, you stated costs for paper for recycling, wood and people were pretty much up. What are your expectations on costs looking forward? I think it's pretty clear that costs for fibers and people will continue to stay at an elevated level. That's why the implementation of higher pricing reflecting these higher costs is now imperative, as many of our prices are still at a lower level compared to a year ago when costs were lower. Your packaging activities have been a strong anchor in these challenging times. What will be your approach moving forward? Yeah. A key advantage in packaging is our ability to adapt much more quickly and at a significantly lower cost to changes in the markets, like taking shifts selectively out or adding additional shifts. There's much more flexibility. In Food and Premium, our volumes have picked up in Q3, which was less the overall market, but it was more driven by a number of innovative products which we introduced. In Pharma and Healthcare, the overall market activity was reduced due to destocking in the industry. We ourselves took also the focus on our higher value added products and positioning us, that's the most important, as market leader in Europe and the U.S., for GLP-1 analogues for weight reduction, which have an excellent growth prospects, even though this growth will materialize to a high extent only in 2026 basically. Operationally, we are in the midst of a transition period in this division with a particular focus on the ramp-up of our newly invested machines and on increasing operational efficiency to meet our ambitious profit improvement program. On top of that, we are developing new exciting products for our customers. Earlier this year, you commented that your cash protection program also affects your CapEx planning. Where do you expect CapEx to land this year? Yeah. CapEx in the first three months was around EUR 190 million, and for the whole year, we expect them to be at around EUR 250 million, so substantially below our previous guidance. Finally, what are your expectations for the fourth quarter? We expect weak consumer demand to continue and see our business in line with the last quarters. Peter, thank you very much for this interview.