Good morning, ladies and gentlemen, and a warm welcome to this analyst and investor presentation on yesterday evening's news, MM Group to sell a majority stake in its Packaging business to KPS Capital Partners, and the plan for a special distribution to shareholders. My name is Stephan Sweerts-Sporck, heading Investor Relations and Corporate Communications here at MM Group. Yesterday evening, we gave you the press release with the accompanying presentation. Today, and now, we want to take you through the decision, the strategic company decision via this live presentation by our CEO, Peter Oswald. At the same time, I welcome our CFO, Franz Hiesinger, who will be delighted to answer your finance questions. Subsequent to the presentation, we will enter into a Q&A session, and you may already queue for questions during the presentation, pressing the blue live Q&A button in the webcast and following the instructions.
Alternatively, you may join the conference via telephone. Please dial one of the country-specific numbers and enter your individual PIN, followed by the hashtag. You can then register for asking a question by pressing zero, followed by one on your telephone keypad. I also want to inform you that this webcast will be recorded. Now, I would like to hand over to Peter to start the presentation.
Thank you, Stephan. Welcome to everyone. Thanks for your interest in this, I think, really important step for MM, for the MM Group, and for the shareholders. I think for all of us, it's a great day. After many months of long negotiations and short nights, we have reached, I think, a very smart solution which has a number of advantages for our group. You've seen the basic facts, if we go to the first page, that we will sell 70% of our Packaging business, and this means our two divisions, both food and premium, as well as pharma, with the exception of our business in Iran and our small minority stake which we have in North Africa. So, the enterprise value was EUR 2.4 billion. This equates to an enterprise value adjusted EBITDA multiple of about nine times.
So, we see that as a premium valuation, which is justified because what we've done actually over the last years, if you go back to about 2000, we had a business with a significantly lower EBITDA, but most importantly, this EBITDA was mainly driven, about 60% was the cigarette business. The pharma business was only about 3%, and it was not particularly profitable with an EBITDA ratio of below 10%. Today, we have a business which is 33% pharma business, strong growth, strong focus on GLP-1, really good prospects for the next years. A fantastic food business which has significantly improved its margins over the last years. Our cigarette business is a much smaller part of the equation, and therefore, we can see that we've created a lot of value over the last years.
The question would be then, okay, but why the hell are you going out of a business which is developing nicely, which has good growth prospects? The simple answer is we didn't have the capital basis to pursue the growth which we want to grow. We became aware that actually, we cannot develop the group, the packaging group, the way we want to develop it.
Therefore, it seems smarter to say, let's rather have 30% in a growing, developing business which takes all opportunities which are today available in the market, than just stay, sit tight, and say, "Yeah, we don't have the money to move on." As a contractual, an important point is that we have a clause in it's like a reverse earn-out, that in case we do not meet our 2027 targets, we would be diluted down to a minimum of 20%. It's pro rata. That's something which needs to be considered in the whole deal. We will reinvest because the leverage is a different one, you understand that close to EUR 400 million to have a 30% equity stake. That was very important for us because our partner, KPS, is a highly successful group, a private equity group.
It is really focused on industry, so these guys know what they are doing, that they are not on a learning curve. We've met fantastic people. It's also not so big. We really have access to founding partners, and we can discuss eye to eye. It was important for us. We do believe that if you can grow the packaging business, there is enormous value to be gathered from, and they wanted to participate. We will come then to the bridge a bit later. I don't want to do it, but here, just to summarize, to say the focus will be repay debt, pursue some strategic smaller options, and with the clear plan to distribute to our shareholders between EUR 500 million and EUR 600 million following the completion of the transaction. When will the transaction be consummated or when it be executed?
That will be the first half of 2027, and it's obviously subject to a variety of corporate and regulatory approvals and customary closing conditions. For the French business, to highlight this, the acquisition is subject to a consultation process with workers' representatives. After the completion of the transaction, MM Group will account for its 30% stake in the packaging business using the equity method. Here we have the overview, just to visualize it. We will continue to hold 100% of our Board & Paper business, and the remaining packaging operations, which, as I already said, is basically our plant in Tehran. Here you have, just as a reminder, the numbers of 2025, EUR 2 billion turnover, EUR 138 million EBITDA. That's a number which will come down, as you've seen from the first three quarters.
Then we have packaging business, which consists of the food premium packaging business, excluding Iran and Tunisia, and the pharma and healthcare packaging business, which is basically the former Essentra plus the Eson Pac what we bought, plus a very small business which went before Packidis. Overall sales in 2025, EUR 2 billion, adjusted EBITDA EUR 260 million. Here, KPS is in the driver's seat with a 70% stake, with some minority rights as a 30% partner, and obviously we will support the further growth of the business. We also have a long-term cartonboard supply agreement, which will secure that we keep the volumes over the next, and the conditions over the next five years.
At the same time, with the enormous possibilities of presenting ourselves as an independent supplier, that was a big dissynergy which we had until now, that we sell basically 80%-90% of our cartonboard to other packaging companies. Even though we had strict Chinese walls and the two businesses were always run very independently, some of them were concerned that they are buying or become dependent on a competitor, and I think that's gone. If we look to, on the next page, to the value creation, I've already Ah, sorry, that's the next page. Yeah. Here, just again, the three key rationales for the transaction. We have developed, as I said, over the last six years, the packaging business in a very positive way. I think it has created something like EUR 1 billion of additional value.
With regards to 70%, we take our chips off the table, but that was not the primary reason. The primary reason was to say there's a lot of potential, and we can only realize this potential with a partner, and have rather 30% in an enlarged growing group than 100% in a stagnating group. We generate a lot of cash, so after the reinvestment, and we will show that in the bridge on the next page, or one of the next pages, we will have cash proceeds of EUR 1.8 -EUR 1.9 billion, and a plan, a special distribution to shareholders of EUR 0.5 -EUR 0.6 billion.
We retain the upside participation, which I already mentioned, through our 30% equity stake, by investing close to EUR 400 million, reinvest EUR 400 million in the business to support then the organic growth, the M&A opportunities, which only open up through these partnerships, and operational improvement. Topics like Fit-For-Future will continue. The next page shows the value creation, which we have done here without concrete numbers. Basically, the highlights were that we had this strong focus on long-term growth. We did strategic acquisitions. The main one was, as I already said, Essentra, which was a hugely successful acquisition where we almost tripled our EBITDA. Since we acquired it, Eson Pac was already very profitable, and we could further grow the business. This was basically created from scratch.
Before that, we were, as I said, six years ago, practically not present in the pharma packaging area with just one position in France, and that was not particularly profitable. We have also pursued select disposals. One of that was TANN, where we managed to get a very good exit. I believe one was not such a good exit, which was Russia, but still, as we moved very quickly, we still got something like 4.7 times EBITDA this time, so we could not realize the full value, but it was still a good deal, at least in hindsight. I mean, it is important to notice if you compare 2019 and then current year figures, once they will be available, it is important to remind that we got more proceeds from selling TANN and Russia than what we invested in Eson Pac and Essentra.
Despite of that, we have a higher EBITDA and we have a better positioning just with a strong business, which is growing going into the future. Specifically the food sector, we could over this year also increase our EBITDA margin in a very meaningful way. Our packaging business is a great business. It is a market leader in attractive segments. This was the reason why we got premium valuation, which is implied by today's transaction, which valued the packaging business at a higher enterprise value than the whole group was valued on the stock market. Believe me, our board business is not a valueless part, but it is obviously not appreciated at that time. On the next page, we can see the waterfall, so to say. We get a debt-free enterprise value of EUR 2.4 billion.
We will have then a number of deductions and one-off costs. For instance, for pensions, severance payments, et cetera, et cetera, that will be around -EUR 0.1 to -EUR 0.2 billion, depending on a number of issues, also working capital. Then we reinvest close to EUR 400 million into the packaging business again, which leads to cash proceeds after completion of the transaction of between EUR 1.8- EUR 1.9 billion. Taking the assumption that our net financial debt position will be about the same as roughly today of about -EUR 1 billion, we will have pro forma net cash after completion of EUR 800 -EUR 900 million. As a consequence, we said that we can plan for a dividend for a special distribution to shareholders in whatever form of between EUR 500 million and EUR 600 million, assuming that we initially keep a net cash position.
That might be very surprising for you, but first, we do not know how quick the market in Board & Paper recovers, and secondly, we want to be in a position to participate, to avoid any dilution in Packaging if there are further acquisitions. We want to keep and defend our shareholding in the packaging business. Let us now go to the next page. How will the new situation after completion then in the first half of next year look like? On the one hand side, we have a Board & Paper business, which has sales of about EUR 1.9 billion, had in the average between 2021 and 2025, a 9% EBITDA margin with seven production sites. We are the global WLC producer in the world, excluding China.
We are the leading virgin SKP producer, so saturated kraft paper producer, lamination paper producer in the world, and we are number three FBB producer in terms of capacity. In terms of sales into Europe, we are pretty equal with our two peers in this market. Very important, on the right-hand side, we will become an independent supplier to the packaging industry. Therefore, we think that we are more attractive for many packaging companies which have always felt that with our MM Packaging, we are a competitor in this deal. We can pursue selected strategic opportunities, so similar like our acquisition of Arnsberg, which is still pending. Of course, we will, with full speed, work on our FFF program to drive operational efficiencies. Overall, a well-invested group currently in a difficult market, but that's the important thing, things are moving.
You know about the procedures of our main competitor who has got into financial difficulties, has closed a number of plants, one in France, one in Spain. We had a transaction now to buy their German plant. Another on the virgin side, unfortunately now, because they were ex-colleagues, two mills closed down, which were formerly owned by MM. the supply-demand balance is moving into the right direction, but it hasn't arrived where it is. Obviously, there was a setback now with the Iran war, with exploding energy costs, which in this short period of time could not be passed on fully to the customers. But once this normalizes again, we are optimistic for next year.
On the other hand, you have the packaging business, EUR 2 billion turnover, 25, 12% EBITDA margin, constantly improving, 52 production sites, close to 70% food and premium division, 31% pharma and healthcare division, which will continue to grow strongly, especially because of its strong focus in the GLP-1 market. The strategy here is to, and it's obviously, I mean, KPS, tasks, so to say, to drive that, but what we can share here is it's about pursuing organic growth, accelerate growth through selective M&A transactions, and also there, the operational improvements with enormous expertise, which KPS brings, will be very positive. To sum everything up, what is the profile of the MM Group after the completion of the transaction the first half year of next year? We'll have a leading board and paper business with sales of close to EUR 2 billion.
We are the number one in folding cartonboard, so if you take FPP and W&C together, we have a good potential on the one hand side from strategic opportunities, but on the other hand, also from operational improvements. Then we will have a 30% minority stake in a standalone packaging business, and in brackets, which could be diluted to 20% if the targets of 2027 are not met. In order to have that, we will reinvest close to EUR 400 million. Again, KPS is a great partner. They are leading private equity, focused really on manufacturing and industrial companies, so they know what they are doing. They are not at the beginning of a learning curve, but very advanced, and I think the business, our joint efforts will really be a great match.
We want to participate, we want to deliberately participate in the future value creation, which we believe in. We will have a very strong balance sheet with a net cash after completion position of EUR 800 -EUR 900 million, and a special distribution plan of EUR 0.5 -EUR 0.6 billion. Sorry, that was too much. That, I think, is a nice upside for the shareholders, but the group which persists after returning to profitability again should also be a nice company going forward. With this, I thank you very much for your attention, and I am looking forward to the question you have to answer this. Thank you.
Thank you, Peter. Just some explanatory message to the Q&A session. For your questions, please press the blue Q&A button in the webcast and follow the instructions. You will receive the confirmation once you have entered the queue. If you wish to withdraw your question, please press cancel. Participants joining by telephone may register for a question by pressing zero followed by one on their telephone keypad. By pressing zero and one again, you can withdraw your request. You may ask your question once your name is announced and you are live. We are expecting your questions. There they are. The first question comes from Michael Marschallinger from Erste Bank, Erste Group. Michael, please go ahead.
Yes, good morning. Thank you for taking my questions. I have three. Firstly, on the earn-out you mentioned, could you elaborate on the conditions and the specific 2027 EBITDA conditions? If you could comment on this firstly, please.
Do you want to ask all three, or should I respond immediately?
I will do it one by one.
Okay, that is fine. I think that can be shared. If we beat our business plan 2027 results, we retain 30%. If we have a 10% lower EBITDA than planned, because that is a very stable business, so it would be a big deviation, we would fall back to 20%. If it is somewhere in between, it is pro rata. If we are 3% lower in our EBITDA, then we would retain 27%.
Would it be possible to also give us an EBITDA number also to understand more the future earnings profile of the company?
It is forward-looking. Unfortunately, we cannot share it.
Okay, understood. Then the second question, could you elaborate on the special distribution, how this will be structured? You mentioned already dividends, so will it be paid out as a special dividend?
We deliberately used the wording special distribution.
Distribution.
Distribution, yeah. Sorry, not contribution, distribution. Because this is not finally decided. It may be a dividend, it may be another way of returning the money. But this has to be worked out in detail.
Okay. Understood. Lastly, does the transaction include any sort of call option, meaning that they have in the future the possibility to repurchase the stake from KPS?
No. We have no right to repurchase it. Obviously, I mean, we can negotiate anything. Let's say if the exit in a number of years was a listing, which would be one solution we would like, of course, depending on our financial means we have, we might be able to increase our stake again. There is no option to buy back. To be honest-
Understood. Thank you.
I mean, we would struggle to raise EUR 2.4 billion to Or, I mean, it would be EUR 2.4 billion, but only 70% of it to get it back again.
Yeah. Understood. Thank you.
Thank you. The next question comes from Markus Remis from ODDO BHF. Markus, please go ahead.
Yeah. Good morning, gents. A couple of questions. I would also take them one by one. Firstly, can you help us understand what KPS Capital can do better than MM from an operational point of view? I get they have the war chest also to grow the business inorganically, but operationally, why would they be a more beneficial owner than you, especially considering all the measures around Fit-For-Future that you have implemented?
Yeah, I mean, it's a very tricky question now to compare our operational competencies directly to KPS, and we don't know them enough. I would believe and say I'm sure they will do it in a great way. Obviously, you always learn something by comparing it, so that, for instance, they bring together their functional leaders, like let's say their IT leaders or production leaders throughout the group, and exchange ideas. I do not want to judge it. I just know they will do it very well.
But what they do bring, and this is the core of everything, is that they have means in an industry where there are good acquisition opportunities that they can execute on them, whereas we were frustrated over the last two years that given where our share price was, we could not raise any capital, and therefore, we didn't want to increase our leverage, and therefore, we could not take advantage of some very nice opportunities in the market. And if they come in, they can do that. And obviously, being specialists in carve-outs and being specialists also in integration, they have probably better opportunities than we have on our own also to digest acquisitions of various sizes.
Okay. Have you, or I'm sure you have, but maybe you can help us understand why you didn't just sell a 49% stake, which would have also alleviated the financial distress and would still give you the control over the company and on the management of the future Packaging business. To which extent will you or Mayr-Melnhof just be involved in the decision-making process?
I mean, to start with the last part of your questions, I can't share here details, but there are certain decisions where we need and where we have veto rights or the right to agree to it, but they run the business. That's still the basic principle. On your question, why didn't we take 49%? It was a compromise between 49% would be more interesting from a value creation perspective, but equally, we would be criticized also to say you have a minority position. You have a much bigger chunk of your equity and your capital in a minority position where you are not in the driver's seat, how to exit it, et cetera, et cetera. 30% was, so to say, the compromise on the one hand side. We believe in the future and want to have as big share as possible. About 50% was not possible.
On the other hand side, because it's a business where we are not fully in control, we don't want to see also by the investors of having a too big chunk in a minority position where we can't predict any dividends, where we can't predict the timing of the exit, et cetera, et cetera.
Okay. Turning again to the financials. If I take the 30% equity stake at EUR 400 million, I would arrive at EUR 1.3 billion for 100% equity. Can you give us the bridge to the EUR 2.4 billion enterprise value?
Yeah. KPS will grow as a private equity, leverage the business stronger, and therefore, assuming, let's say, very rough terms. That's really just now indicative. If you say it's a EUR 1.2 billion check, you take 30%, then you roughly come to this number.
Okay. How is the factoring going to be involved or impacted by this transaction? You've got quite a big position on the balance, or not on the balance sheet, but how is factoring going to play out here?
No, factoring was on a balance sheet terms not considered, but it was considered as the factoring costs reducing our EBITDA.
Okay. Then on the kind of, I wouldn't call it residual, but the MM Group as a cartonboard company, I mean, I get the point that in the sum of the parts valuation, Board & Paper was not assigned a value or high value, depending on how you treat it. I mean, the group will then be a company with a very volatile earnings profile, which for the last couple of years was negative, with, I would argue, a rather uncertain outlook regarding the turnaround. What would be then the appeal for investors from your point of view? It arguably will remain value destructive probably for the next two, three years, unless market conditions change materially. How would you sell it to investors?
Look, I mean, there are comparable companies now without throwing around any names, but you have in the Nordics, you have a direct competitor faced, so to say, with the same. Actually, one of them is almost identical to our Board & Paper business in terms of sales and EBITDA, and has a very significant stock market value or enterprise value. I do not know why we are considered to be different. At the moment, it is difficult for everyone, but as the saying goes, things always take longer to change, and then they do change, and the supply-demand dynamics go into the right direction, but they are not there where we want them to be. I think to have a stake in the leading folding cartonboard business in Europe with a risk spread also between virgin and recycled cartonboard is a very interesting product offering.
We are also now all under the impression because of the last years that this is not an attractive business. If you go back a bit longer, it was an attractive business, and things change. I am now in this industry for 35 years, and I can remember discussions in a different context with a different company where we said, "Should one get out of converting and instead be more and more in paper?" Then a few years later, the discussions again, the opposite. These overcapacities which have been created, and also managerial weaknesses, will be worked out over time and normalize again. I think it is a EUR 2 billion turnover business where one should assume at least a 10% EBITDA margin long term. When will it come? I do not know. Nobody knows, but it will come again.
Once you think about a 10% or more EBITDA margin, it is an attractive business. You are fully right, it is a less stable business. It is a more fluctuating business. If you buy a number of other businesses, you face the same problem. You can see with a number of our Nordic colleagues, so to say, that a pure Board & Paper business is per se not bad. Then I would add, you have a significant stake of about or close to EUR 400 million in the Packaging business. I personally found it, and I may be biased, but it is highly attractive because this is a good business. At the moment, it is not a good business. That is also why the entry point is now very attractive. Once a day again, it will be a good business.
Then you have completely unleveraged business, which is good for the stability, at least for the time being. Once it will make money, of course, we will leverage it back, but that would mean that, again, special distributions to the shareholders in a second round, which will be at the later stage. We have to wait and see what it is. I think to have a stake in a leading business is very good. With this, I want to use this also, this argument to say where we are coming from. Mayr-Melnhof Karton is, as the name implies, a cartonboard company founded before World War I, and they only started then after World War II slowly buying some minority stakes and partnerships in packaging. Historically, it was a pure-board company where we thought also through certain developments, it is good to branch out into packaging.
At the end, this packaging story has worked out in a very good way, and we've created especially over the last years a lot of value. Now the situation changes again, and we really become a focus group on board, being the leader in Europe, the undisputed leader, and improving our position, yes, with some volatility, but with a strong balance sheet, which gives me a lot of confidence, apart from all the cash we've got, that even afterward, it's a great company. Sorry for the long answer.
No, that's all right. Thank you. One last question before I get back into the line. If I then look at the Board & Paper company, if I may say so, with a cash of EUR 300 million after the special dividend. If I understand correctly or interpret the lines correctly, M&A would be a growth driver for this company. I mean, how should we think about the balance between cash generation? I mean, we've seen a lot of M&A in the past on your side, which ultimately then also led to the situation where we're now in. But how should we think about the balance sheet of this company and the capital allocation of MM Board & Paper later on? The dividend capacity, [inaudible] , yes.
Which opportunities arise, and we will see how the profitability improves and at what pace it improves. Generally speaking, it is not necessary to have a net cash position. As said, until things are very unclear, it is good to have it. Once, so to say, we can leverage it again, we will leverage, but we will leverage it in a very cautious way, so without throwing now any numbers, but like one time EBITDA or so.
Sorry, that was one time EBITDA?
Yes.
Okay. Okay, thank you very much. I will get back into the line.
Welcome.
We have the next question from Cole Hathorn from Jefferies. Cole, please go ahead.
Morning. Thanks for taking my question. Peter, I would just like to ask on any potential dis-synergies with getting rid of the packaging business. You mentioned that you have a long-term agreement to sell board volumes, but I am just wondering, are there any dis-synergies, not being able to keep your mill operating rates? Well, I do not imagine so, but I just wanted to ask if there is anything on the board volume or kind of overheads that you would need to think about reallocating to the packaging business.
Yeah. As we have this long-term contract, we feel very secure that we do not lose anything, and actually we see, as I already mentioned, as an upside, because we can observe that some other packaging companies who are competitors of MM Packaging at least cap the amount of board they buy from us, because they say in a difficult situation, who knows, they will for sure always be in favor of MM Packaging. We see new opportunities, and it will work well. Our sales are at the end to MM Packaging Limited, so they are the biggest customer. But especially if you exclude direct deals, we are at less than 10% of our output. It is manageable, but there is certainly dependent on both sides, a certain dependency. Overall, we believe it is rather a synergy than a dis-synergy.
Thanks for the color there. Then maybe if I focus on what will remain, which is the traditional Board & Paper business. I mean, I am a firm believer that the industry needs consolidation and asset rationalization to be successful. Post this, you will have a very strong balance sheet, and there will probably be opportunities that come your way. How do you ensure that you only pull the trigger for kind of value-creating activities in the future? How do you make sure that if people offer you kind of assets for sale or consolidation, how do you think about that into the future? I know it is a decision for second half of 2027, but I just like your thought process on kind of industry rationalization and consolidation.
Yeah, I think we share 100% the view that further rationalization is needed in this industry to make it again really profitable in terms of thinking about 15% EBITDA. Having, so to say, we will not now invest in a big stake, so we will not take over a big competitor or anything like this. Otherwise, we would not distribute any money to the shareholder. We are open to any opportunities. As I said in my statement, it can be acquisitions, can be partnerships. It is always good, so to say, to have a strong balance sheet in such combinations. I t is difficult to abstractly answer your questions, but at the end, as I always said, we will do whatever it takes to make this industry more profitable, because otherwise there is no fund long term to be in the situation where we are now.
I'm sure there will be opportunities, and we will take them, and that will lead to a healthy industry.
Could you just remind me of, let's say that there isn't any future M&A in the Board & Paper business, just on what you can control in the Fit-For-Future. Maybe this is a question for Franz. How much more Fit-For-Future benefits do you have into 2027 that's just applicable to the Board & Paper business, just so that we can think about self-help for the Board & Paper without any M&A?
Yeah, I think we have communicated with our last call what we have achieved. We have also further initiatives going on, especially in the Board & Paper business for next year. Hopefully with this, we can compensate the current margin pressure, which we are seeing in the second half of 2026 due to the increased energy costs. We feel quite well that a number of this will come true in 2026, but then also in 2027.
What we've done in the first half was basically that you can always take what is like 50%, 55% of the total numbers, that we had a benefit of EUR 100 million in the first half year, and it was a bit less, 93 or so, that we expect EUR 100 million in the second half year. Take Board & Paper half of that. If you look at the total number, what we pronounced there is, it's still a meaningful figure left for 2027, but we would prefer rather to announce this then with our annual results for 2027.
Thank you. I understand. Peter, maybe if I just draw you onto the future M&A. I know you can't comment too much, but I'd just like your thought process. Do you believe that the folding cartonboard industry, in a way, is similar to the graphic paper industry in the sense that it's better to have a bigger asset footprint so that you can reallocate your volumes more efficiently, and you can kind of get synergies by reallocating volumes across a bigger network and hopefully closing one of the smaller mills? I'm just wondering how you think about scale and rationalization. Would it be helpful for the industry?
Yes. I mean, first of all, I don't like any comparison to the graphic industry because the graphic industry is I mean, both is a supply-demand issue, but the one is a supply-demand issue because there's a continuous slide in demand, whereas in our industry, I think WLC is up 4% or 3% this year. We fortunately don't face the same problem, but it's really, in our case, more a supply problem. Look, we know there would be synergies in combining it also between different groups. It's just to find the right arrangements.
On the recycled side, I think we are pretty close to a healthy supply-demand balance, but due to some things, especially now the Iran war and the exploding energy costs, there is a hiccup, so to say, short term, but I'm fairly confident that we are where we are and that we ourselves can do enough to solve the problem on FBB. Obviously, it takes more effort to find the right solution.
Thank you.
Welcome.
We have another question from Michael Marschallinger from Erste Group. Please go ahead.
Yes. Yeah, thanks again. Just a quick accounting question. The future earnings from your packaging business, the remaining business, 30%, will this be booked in your group earnings, so in EBITDA, or as at equity in the net income?
No, it won't. It will be accounted at equity and will not be part of the EBITDA.
This means the earn-out is dependent on the EBITDA from board and paper only?
Sorry, this I have not got. The earn-out depends only on the packaging business.
Yeah.
And we have a target earn-out which we plan to achieve, and out of that, there will be an adaption of the percentage which we hold in the packaging business, in MM Packaging.
Okay. Now I got it. Thank you.
The next question comes from Fabian Keller from Independent Credit View.
Thank you for taking my question. Just for clarification, the current debt you have on the balance sheet, did I understand it correctly that you will fully pay down the whole debt, or is there at least obligation to pay down some debt?
I think the situation is, we are not saying we will fully pay the debt down. We just said we have a net cash position of EUR 800 -EUR 900 million, which could be, for instance, EUR 200 million debt and then EUR 1 -EUR 1.1 billion net cash. But per se, of course, it does not make sense for us to We might have, in some cases, we have the obligation to pay it back.
Okay
Given the change structure of the group to a large extent. Whether we keep some debt still in the books to have the flexibility, this is still open.
Okay.
The position will be good with a net cash position.
Yeah
which you, of course, have different gross numbers.
Sure. Probably the second question about, do you also have, I think, during the transactional, transaction, you do transformation transaction, you have to renegotiate your RCF, I suppose, or is this already done and dusted?
Yeah, so far we have no RCF in place, but committed lines.
Yeah.
That will be changed to an RCF facility, which we are, aside of this deal, already negotiating.
Okay, perfect. Thank you so much.
Thank you.
We have another question from Markus Remis from ODDO BHF. Markus, please.
Yeah, thank you. One clarification on the supply of cartonboard to the new holding company. The 15% roughly of the volumes, that is unchanged. Did I understand that correctly? And it covers a five-year period?
It is marginally sliding down, but you can almost say it is unchanged, yeah. It will become a bit less over time.
Okay, but for a five-year period?
I mean, the total reduction is overall less than 10%.
Okay. What is the rationale of retaining Iran and Tunisia as packaging sites?
No, Iran was simply an American private equity company cannot buy for legal reasons, or I am not sure whether it is legal reasons or their commitments to investors could buy it. Tunisia, which is, first of all, absolutely small and with a minority, was just from a number of legal points of view too complicated. They said, "Okay, let's leave that out." Had no implication for the value.
Okay. Lastly, coming back to the M&A thought process in cartonboard. I mean, you are arguably having very efficient capacities. I mean, what is the case of buying, well, smaller mills, less efficient capacities, and then you have to invest into their modernization and so on? We all know the business is extremely capital intensive. How are you going to extract value from the M&A?
Yeah. I think that might be a misunderstanding. We do not have an explicit acquisition strategy to buy up small independent mills. I mean, the one where we are in, which is between signing and closing right now, there were very specific reasons. Overall, what we will not do is buy throughout Europe any inefficient mill as an overall strategy. If there was a solution, I think it would be something else. If we buy something, it would be a very good mill, or it would be a sort of partnership.
Okay.
You can be assured we will not buy up the junk, if I may say it in these loose words, of the industry. That is not what we do as a general strategy.
Last question on the dividend policy of the new company, the cartonboard company. Will that be the same as it is currently? And in that connection, have you thought about other options than a special dividend, which is typically just a one-time effect? At least that is my experience on various company fronts. This one-time effect evaporates rather quickly. Anything you can add, Peter?
Yeah. I mean, going forward, so again, we will still think about all the options for this, let us call it, one-time special distribution to shareholders. There might be then another special distribution to shareholders once we see that the cash needed in the company is not necessary. The overall policy will follow the policy we had up until now to pay some part of the profit depending on some other parameters.
Okay. All right. Thank you. I will get back into the line.
Great.
We have another question from Cole Hathorn from Jefferies. Cole, please.
Thanks for taking the follow-up. On the acquisition by KPS, there is a lot of converting M&A opportunity that they can pursue, but there is also potentially some disposals. I am just wondering, if they were to dispose any non-European business, would that cash effectively be retained in the packaging business and deployed on M&A, or could you actually get a distribution from the business in future if they were to sell? Could they return 30% of whatever they sell to you? I imagine no, but I wanted to ask.
Yeah. This is highly speculative, so I am not aware. I wouldn't exclude anything, but I am not aware that any disposals are planned per se. Yeah, you can never fully exclude them. The strategy is more about; it's really growing the business.
Completely understand.
If they dispose something, I think like what private equity typically would do, if there is money to be distributed, they will distribute it. It's just something we cannot plan for.
Sure. Then maybe just following up on what is going to be the core of the business, which is paper and board, just to make sure my understanding to get the profitability higher in the future is correct. You have got your self-help or things that you can control, which is the Fit-For-Future, and you are going to update the contribution for 2027 with the full-year results. You have now done the acquisition from Reno De Medici, which, let us be honest, will hopefully make the market a little bit more rational in the German market for pricing, which is helpful. You also talked about supply and demand, it is not great, but it is better than the other grades in recycled for supply and demand with some closures recently.
On the other things that you can control, how are you thinking about managing energy costs in the current environment as we go into 2027, considering where gas prices are? I am just thinking about other items that you are thinking about into 2027 that is more within your control. How are you thinking about managing the day-to-day of the business?
Yeah. I mean, what we have done over the last three years in a very consequential way is to reduce our energy costs, so with all sorts of heat recovery, et cetera. Just our newest investment in Kwidzyn was actually the new digester. The main rationale for the digester is significantly lower energy costs, which really makes a big difference. Our strategy is to, so to say, to make ongoing projects and measures to reduce our energy consumption. For instance, in Kotka, the outstanding issue is this E-boiler, where we can use then, instead of gas, electricity, which is fairly favorable in Finland due to its nuclear power energy supply. The strategy is really to bring energy costs down by bringing energy consumption down. That is the main strategy.
Peter, then I always ask, what are companies doing to help? No one brings up kind of the lobbying for the European Commission, which maybe it is because I am South African, but I often think the European Commission is a little bit weak on defending the European industries. Is there any lobbying that Mayr-Melnhof is doing that could benefit yourself? For example, things like reducing OCC exports to make sure that you have a better wastepaper cost base, reducing imports of folding boxboard and other things from China to kind of put up the trade barriers to protect the domestic industry, because we have got a lot of employment, we have got an energy cost advantage. I think it is something that the European industry needs, and it would be very positive for yourself.
Is this something that you are pursuing in parallel with the likes of Cepi or the cartonboard industry?
Yes, we do it via the associations. There are ongoing processes or, how do you say, projects to defend our interests and have a fair play field.
Thank you.
Welcome.
Currently, we do not have any more questions. As a short reminder, to ask a question, please press the blue Q&A button in the webcast or dial zero followed by one on your telephone keypad. We see no more questions coming in. Next question comes from Oliver Wojahn from mwb research.
Yes, thank you for taking my question. Just to follow up on the EBITDA targets for 2027. I mean, there could be an incentive for KPS to not make the full effort to optimize EBITDA in the sense that basically if they lower EBITDA by EUR 25 million, that would roughly bring you from 30% - 2 0%. Do you have any operational levers or governance rights that kind of protects your position there?
Yes. When I talked about the very short nights in the negotiations, we spent significant time on the issue to have the right governance in place. We should also highlight that obviously it's the next year. Some of the year will be managed by us, depending when the closing will take place. Some of them will be managed by them. We have extensive wording and contractual corporate governance issues in place to make sure that this will be a day-of-the-day fair assessment, and we also have great confidence in our partner.
Okay, fair enough. Thank you.
We see no more questions coming in. We've covered almost an hour with this call, and I think that there'll be time for a summary or, let's say, final statement by Peter Oswald.
Yeah, I will make it very short. We think this is a fantastic deal for our employees, but it is also a fantastic deal for our shareholders. We got a premium valuation, which was higher than the value of the whole group. For our Packaging business, we will participate in the future value creation in our packaging via our 30% stake. There, things can be done which we could not do on our own, and the opportunities are really, there are, I can tell you, on some acquisitions, there is a synergy potential which is mouthwatering, if that is a good English term. Secondly, we will have a very solid balance sheet. The issues we have on the profitability Board & Paper have to be sorted out in either scenario.
There is not one scenario where I could say, "Okay, it does not matter if board does not develop so well because we have a very profitable packaging to support it." That was never the strategy. Neither would it be now a strategy to say, "Now we have anyhow some cash, so we do not need to worry so much to make it more profitable." That is a work which has to be done. Because of this long crisis over the last years, we have lost a bit sight of what is possible in this industry. Believe me, it has not the structural issue of the graphic industry of sinking demand, but it is a growing business.
Finally, the capacity side of the business will be fixed, so we think being the European market leader for folding cartonboard with well-invested assets and a strong balance sheet is in itself a very worthy investment case. With these words, yeah, I want to thank you very much, [Franz] and Stephan, for your participation. It was a bit an unconventional solution, but once one sleeps over it, that was the experience we had internally and with many board members, one sleeps over it, one realizes it was a very smart solution which created a lot of value for our shareholders. Thank you very much.