MM Group: Results for the 1st Half-Year 2022

Peter Oswald, MM CEO, comments: „Demand for our products is strong, as consumers prefer natural, recyclable packaging made from renewable, fiber-based raw materials. Our strategy of focused organic growth and value enhancing acquisitions combined with a strong grip on improvement of productivity is starting to pay off. In the 1st half-year organic growth of Packaging was close to 5 %, just limited by capacity restrictions, as our customers value our increased focus on innovation and sustainability as well as supply security due to our backward integration with cartonboard. The acquisition of Essentra Packaging, expected to be closed in the 4th quarter, will take MM to a global leadership position in secondary pharmaceutical packaging and position us for more organic growth and resilience throughout the business.

As already indicated, MM has delivered a good 1st half-year based on an exceptionally strong performance in the 2nd quarter. The enormous cost inflation was mitigated by price adjustments, cost control and a step-up in operational efficiencies. On top, our half-year income statement has been particularly influenced by the inclusion of the cartonboard and paper mills MM Kwidzyn and MM Kotkamills, which were acquired a year ago. At the same time, we significantly increased capex in order to reduce energy consumption, raise quality and increase output. We are convinced there is much we can improve through the enhanced focus on digitalization, sustainability and innovation.

As the continuous supply of our customers has top priority, we have undertaken several measures to mitigate a possible gas rationing, which would affect all cartonboard and paper mills except MM Kwidzyn: We have started to build up safety stocks for recycled fiber-based cartonboard, rented gas storage facilities in Austria, and are investing in alternative oil firing in Finland.

The second half-year will be impacted by planned capex-related downtime, necessary adjustment measures and supply chain disruptions, at an extent which seems quite unpredictable at this point in time.”

Income statement
The income statement as of the 1st half-year is particularly characterized by the inclusion of the cartonboard and paper mills MM Kwidzyn and MM Kotkamills, which were acquired at the beginning of August 2021.

The Group’s consolidated sales increased by EUR 928.9 million to EUR 2,218.5 million (1st half of 2021: EUR 1,289.6 million). This growth results mainly from the previous year’s acquisitions as well as the passing on of cost increases through higher prices.

At EUR 285.0 million, operating profit was EUR 192.9 million above the previous year’s value (1st half of 2021: EUR 92.1 million). The significant rise primarily results from the division MM Board & Paper. In the previous year, one-off expenses from adjustment and restructuring measures amounting to EUR 26.1 million were recognized in the Packaging division. The Group's operating margin thus reached 12.8 % (1st half of 2021: 7.1 %).

Financial income amounted to EUR 2.3 million (1st half of 2021: EUR 1.0 million). The increase of financial expenses from EUR -10.3 million to EUR -15.6 million is in particular due to the issuance of Schuldschein loans and Namensschuldverschreibungen in the previous year to finance the acquisitions and organic growth projects.

At EUR 270.2 million, profit before tax was also above the previous year’s level (1st half of 2021: EUR 82.9 million). Income tax expense amounted to EUR 64.4 million (1st half of 2021:
EUR 20.7 million), resulting in an effective Group tax rate of 23.8 % (1st half of 2021: 25.0 %).

Profit for the period rose by EUR 143.6 million to EUR 205.8 million (1st half of 2021: EUR 62.2 million).

Development in the 2nd quarter
In the course of very good demand as well as increased prices to compensate for the ongoing strong cost inflation, consolidated sales of EUR 1,158.1 million were above the value of the 1st quarter of 2022 (EUR 1,060.4 million). The increase compared to the previous year’s level (2Q 2021: EUR 648.3 million) results primarily from the inclusion of MM Kotkamills and MM Kwidzyn as well as necessary price adjustments.

The Group's operating profit rose to EUR 173.9 million after EUR 111.1 million in the 1st quarter of 2022 and EUR 30.9 million in the 2nd quarter of the previous year. The latter was mainly characterized by one-off effects in the amount of EUR 26.1 million from restructuring measures in the packaging division as well as the strong burden from the enormous increase in input costs in the cartonboard sector. The operating margin was thus at 15.0 % (1Q 2022: 10.5 %; 2Q 2021: 4.8 %). Profit for the period increased to EUR 126.3 million (1Q 2022: EUR 79.5 million; 2Q 2021: EUR 18.3 million).

Capacities of the MM Board & Paper division at 99 % were again almost fully utilized in the 2nd quarter (1Q 2022: 99 %; 2Q 2021: 99 %). The operating margin amounted to 18.1 % and was thus above the values of both the previous quarter and the previous year (1Q 2022: 10.7 %; 2Q 2021: 4.6 %).

The 2nd quarter in the packaging division was mainly characterized by implemented cost passes, volume increases and the first-time inclusion of Eson Pac. The operating margin amounted to 8.4 % (1Q 2022: 9.0 %; 2Q 2021: 4.5 %).

Outlook
We expect sustained solid demand for natural, renewable and recyclable cartonboard packaging. Any ongoing cost inflation will be mitigated by timely price adjustments in both divisions.

The 2nd half-year will be particularly impacted by planned capex-related downtime (rebuilt at Neuss board mill in Germany, and at Kotkamills in Finland for Absorbex), necessary adjustment measures and supply chain disruptions, at an extent which seems currently quite unpredictable. Ensuring business continuity and sustainable supply of our customers will stay top priority. We will follow up on this through flexible procurement and logistics management, continuous investment activity (EUR 250-300 million each in 2022 and 2023), and the safeguarding of profitability. Regarding our Russia-exposure in packaging we continue to review all options.

Our strategy to grow organically and inorganically in environmentally friendly, innovative fiber-based packaging products is paying off. The acquisition of Essentra Packaging, to be closed in the 4th quarter, as well as progress in operational efficiency, sustainability, and innovation are expected to feed both, more growth and resilience throughout the business.