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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome, ladies and gentleman, to this audio webcast interview on Mayr-Melnhof Group interim results for the first quarter of '22 with the company's CEO, Peter Oswald.
Peter, having just reported the first quarter, what is your summary on the MM Group's start into the current year?
Yes. First and foremost, we could partially restore our margins in the first quarter this year. I mean, you remember all well, we had a real margin squeeze in previous quarters due to the overall severe and rapid cost inflation, and we could only gradually pass through these costs and we could finally compensate the accumulated cost price by the broad price increase at the beginning of this year, not fully, but to a large extent and sustained strong demand in both divisions provided strong support for this effort.
Second, the Q1 development clearly reflects the transformative acquisitions of Kwidzyn and Kotkamills. And I'm pleased to report that the integration plan is according to plan and that our cost synergies are well above plan. So overall, MM is well on track to get its margins back into the double-digit range, which I see as a fundamental prerequisite for our path towards more sustainability and innovation and to be a high reliable partner of our customers.
Do you think that this favorable trading will also continue in the second quarter?
Yes. Visibly all input costs keep on climbing, even accelerated by war in Ukraine. And I think every industry and every individual is exposed to that. And for these reasons, we implemented a new price adjustment at the beginning of the second quarter for cartonboard and paper and also for our packaging products. And we've seen that this was accepted by our customers because the demand is very strong, and I'm confident that we can defend our margins going forward.
In view of your full order book, how can you manage to run at full capacity in an environment with broadly declining availability of several resources.
Yes. I think this touches the main point. It's a matter of fact that many markets have tightened, and we almost every day from a supplier of claims force majeure. It has become a daily struggle to get all supplies and transport capabilities, which we need. And there are many cases where we have to incur extraordinary costs to get some specific material at spot prices from far away in order to supply our customers. And the most important measure we take is to diversify our material resources as much as possible. However, the overall risk of supply chain related downtime is definitely now very high. It cannot be ruled out that we will suffer also longer standstill at one or several mills or plants due to lack of whatever it is chemical starch, wood, pulp, printing plates, ink, whatsoever. And definitely, the biggest risk would be if we do not get gas.
Our philosophy in all this is to satisfy the commitment to our customers almost at any cost. And our big advantage is our integrated position, which gives our packaging a high level of supply security in these times.
As you are within a historically high CapEx program, how does cost inflation, availability of technical parts and raw material effects you're planning?
Yes, MM's long-term CapEx projects for increased competitiveness and further growth are on track. That's the good news. However, we faced in some cases, delays in our schedule and also some cost overruns. But overall, we stick to the indicated CapEx range of EUR 250 million to EUR 300 million per annum, both for '22 and '23.
Two weeks ago, you completed the acquisition of the leading pharma packaging group in the Nordics, Eson Pac, advancing MM's growth strategy for packaging. What was your reasoning behind and can we expect more to come?
MM has definitely intensified the growth focus also in packaging, both organically and via acquisitions. While the organic part is already well underway through the rebuilds, expansion and even a new plant in Poland, we are screening acquisition opportunities on an ongoing basis. And broadening our presence in complementary market segments with attractive growth prospects is a clear part of our strategy. However, we will also be very disciplined with regards to the prices we are willing to pay as we expect an overall more difficult economic environment over the next years.
The energy supply and move to alternative more sustainable sources is a much discussed subject. How are you planning for MM'S future energy supply?
A few days ago, we released MM's ambitious science-based targets to mitigate climate change, and we are firmly behind this. And this includes the reduction of both direct and indirect emissions from operations, so Scope 1 and 2 as well as emissions from the value chain by more than 50% as of 31 with 2019 as a base year. And we have several ways to achieve it, and we are working on that. The big part is saving energy and the best part actually is always saving energy through a number of improvement projects which will run, but also based on our current CapEx, which are doing where some have a definitive focus on energy saving. The other is that we will increase the use of biomass. We are looking also at installing solar plants, but that's still in a conceptual or planning phase.
Recently, you quantified MM's combined exposure. Russia and Ukraine is about 9% of last year's EBITDA. How does this topic affect MM currently?
Yes, I mean to start with we have stopped cartonboard deliveries to Russia well ahead when it is now compulsory to do so. And we have successfully placed the volumes in Western Europe or other markets.
With regards to our small plant in the Ukraine, we are very proud that we could restart production, even though it's on a limited scale. What we have to do is to support our employees and provide overall substantial humanitarian aid to Ukraine overall. And with regards to our 2 Russian plants, we closely monitored the developments as well as the international sanctions. And of course, we stick to it, and we will know more in a couple of months' time.
And finally, could you share your current thoughts about the outlook for this year?
Yes. It's very difficult. The positive element is that we expect demand and the order situation to continue in a very good shape for both divisions. And with the visibility until midyear, and that looks very encouraging. On the other hand, it is currently not possible to make any further predictions for this year due to the overall economic uncertainties. And however, what we know is that we are in a very resilient market because our products are really needed. So from a volume perspective, I think we can also be fairly optimistic until the end of the year.
The big topic are potential supply chain disruptions, which could mean that we lose production cannot serve with our customers. So as I have outlined, we are preparing -- we are doing a lot. We think we are in a good position compared to other participants in the industry due to our integrated position, but this is a risk which is beyond our control...
Peter, thank you very much for this interview.
Thank you.