Mayr-Melnhof: Results for the first three quarters of 2021

The MM Group has structurally strengthened its competitiveness and created an attractive platform for further growth in sustainable and innovative fiber-based packaging solutions with the closing of the acquisitions of the cartonboard and paper mills Kwidzyn in Poland and Kotkamills in Finland in the 3rd quarter of 2021. With the acquisitions in the virgin fiber sector, MM has not only consolidated its position as the leading cartonboard and folding carton producer in Europe, but also acquired two new core products, kraft papers and uncoated fine papers. As part of the transformation, the two smaller cartonboard mills, Baiersbronn and Eerbeek, were sold. Furthermore, production at a packaging site in Germany was discontinued at the end of September for restructuring measures. As expected, the income statement for the 3rd quarter therefore includes various one-off effects.

In the current business of the first three quarters of 2021, sustained strong demand for cartonboard packaging and papers and thus high capacity utilization in both divisions was offset by an increase in raw material and energy costs, unprecedented in its sharpness. The price increases implemented in the first nine months have not yet been able to compensate the continuing rise in costs. Therefore, where possible, a new cartonboard price increase was fixed for the 4th quarter and a further price step for all cartonboard grades was announced as of the beginning of 2022.

Income statement
The Group's consolidated sales increased basically acquisition-related by 10.7 % or EUR 203.6 million to EUR 2,107.1 million (1-3Q 2020: EUR 1,903.5 million).

At EUR 177.2 million, the operating profit was 4.7 % above the previous year’s value (1-3Q 2020: EUR 169.3 million). The first three quarters include one-off expenses in the amount of EUR 58.0 million: From the initial consolidation of the mills Kwidzyn and Kotkamills EUR 31.9 million, which are mainly attributable to ancillary acquisition costs including transaction taxes as well as capitalization of order backlogs and the inventory valuation; and in the division MM Packaging EUR 26.1 million restructuring costs. This is offset by preliminary one-off income from the sale of the Eerbeek and Baiersbronn mills in the amount of EUR 50.1 million. The Group's operating margin was therefore at 8.4 % (1-3Q 2020: 8.9 %).

Financial income totaled EUR 1.9 million (1-3Q 2020: EUR 1.0 million). The increase in financial expenses from EUR -5.4 million to EUR -16.8 million resulted primarily from the issuance of Schuldschein loans and Namensschuldverschreibungen to finance the acquisitions and organic growth projects. "Other financial result – net" changed from EUR -4.2 million to EUR 0.1 million, in particular owing to currency translation.

At EUR 162.4 million, profit before tax was slightly above the previous year (1-3Q 2020: EUR 160.6 million). Income tax expense totaled EUR 34.0 million (1-3Q 2020: EUR 44.3 million), resulting in an effective Group tax rate of 20.9 % (1-3Q 2020: 27.6 %). The reduction compared to the previous year is primarily due to tax-free income from company disposals.

Accordingly, profit for the period increased from EUR 116.3 million to EUR 128.4 million.

It should be noted that the purchase price allocation from the acquisitions had not yet been complet-ed as of the publication date of this report and that the figures are therefore preliminary. Further consolidation details are planned for subsequent reporting at year-end.

Development in the 3rd quarter
In addition to the structural changes at MM Board & Paper, the development in the 3rd quarter of 2021 was characterized by strongly increasing input costs, which could only be partially compensated by higher sales prices. At EUR 817.5 million, consolidated sales were acquisition-related above the figure of the previous quarter (EUR 648.3 million) and the previous year's level (3Q 2020: EUR 637.0 million).

The Group's operating profit reached EUR 85.1 million after EUR 30.9 million in the 2nd quarter of 2021 and EUR 46.8 million in the 3rd quarter of the previous year. The preliminary income from the sale of the Eerbeek and Baiersbronn mills in the amount of EUR 50.1 million was offset by one-off expenses from the acquisition of the mills Kwidzyn and Kotkamills in the amount of EUR 31.9 million. The Group's operating margin was thus 10.4 % (2Q 2021: 4.8 %; 3Q 2020: 7.3 %). Profit for the period totaled EUR 66.2 million (2Q 2021: EUR 18.3 million; 3Q 2020: EUR 31.4 million).

Capacity utilization of the division MM Board & Paper at 95 % in the 3rd quarter was lower than in the previous quarter (2Q 2021: 99 %; 3Q 2020: 95 %), mainly owing to the planned annual maintenance shutdowns at Kwidzyn and Kotkamills. Due to one-off income, the division's operating margin increased to 9.5 % (2Q 2021: 4.6 %; 3Q 2020: 3.5 %).

MM Packaging's operating margin of 10.4 % was in line with the figure for the 1st quarter of 2021 and thus also above the figure for the 2nd quarter of 2021 of 4.5 %, which was impacted by restructuring expenses, as well as the previous year's level (3Q 2020: 9.3 %).

Outlook
Demand and order situation continue to be in good shape for both divisions. Nevertheless, in view of existing capacity limitations, sales volume can currently only increase slightly. However, the expansions recently initiated in several plants of MM Packaging will stepwise enable more business from the beginning of next year. At MM Board & Paper, where the focus of investments is on efficiency improvements and optimization of the product portfolio, the expansive effects will only gradually take effect from 2023 onwards.

In view of the continuing cost inflation for raw materials and energy, the focus remains on compensating this weight by increasing sales prices as soon as possible and by structural cost reductions in order to catch up again in terms of margins. After MM Board & Paper has fixed a new cartonboard price increase for the 4th quarter, where possible, a further price increase for cartonboard and paper has been announced for the beginning of 2022. In contrast, rising cartonboard and paper prices mean new cost challenges for MM Packaging, which can only be passed on with a time lag.

The operating performance of the newly acquired mills Kwidzyn and Kotkamills is in line with expectations. Similar to the MM Board & Paper division as a whole, profitability in the 4th quarter is primarily impacted by the extraordinary energy price increases and delayed passing on through sales prices.