MM Group: Results for the first three quarters of 2023

Peter Oswald, MM CEO, comments: “After the record year 2022, the MM Group has been operating for several quarters in a market environment with significantly reduced demand in the paper and board industry and increasing price pressure. Although destocking in the supply chain seems to be coming to an end in many places, restraint in consumer spending continues due to inflation and as a result of the overall economic slowdown in our main European markets.”

As expected, the difficult general conditions are also reflected in the 3rd quarter, in particular in the weak volume and result development of the division MM Board & Paper, which was again characterized by planned capex-related downtime in addition to significant market-related downtime. In contrast, the division MM Packaging recorded an overall solid performance despite a heterogeneous packaging market as well as the successful integration of last year's acquisitions in the resilient area of pharmaceutical packaging.

In view of the current market and result situation and the prospect of no improvement in the short term, our focus is on safeguarding and gaining volumes with reasonable margins. Our profit and cash protection program, which in addition to cost reductions in all areas targets on a significant reduction in working capital and capex cash outs, starts to take effect and will be supplemented by selected structural adjustment measures.

“Due to our continuous efforts to expand our competitiveness and quality leadership as well as the recent strategic investments in our plants and sustainable, innovative packaging products, MM is very well positioned to manage the current difficult market situation and to create long-term added value for our customers and shareholders.”, underlines Oswald.

Income statement
At EUR 3,196.5 million, the Group's consolidated sales were below the previous year’s figure (1-3Q 2022: EUR 3,450.4 million). A primarily volume-related decline in the division MM Board & Paper contrasted with an acquisition- and price-related increase in the division MM Packaging.

Operating profit decreased by EUR 292.4 million from EUR 452.2 million to EUR 159.8 million. This decline mainly results from extensive market- and capex-related downtime at MM Board & Paper. The Group’s operating margin was therefore at 5.0 % (1-3Q 2022: 13.1 %).

Financial income amounted to EUR 5.4 million (1-3Q 2022: EUR 3.1 million). The increase in financial expenses from EUR -23.3 million to EUR -40.0 million is primarily due to higher interest expenses for Schuldscheindarlehen and financing of the accomplished acquisitions and organic growth projects. “Other financial result - net” changed from EUR -15.2 million to EUR -6.3 million, in particular owing to currency translation.

Profit before tax was EUR 118.9 million after EUR 416.8 million in the previous year. Income tax expense amounted to EUR 27.7 million (1-3Q 2022: EUR 101.6 million), resulting in an effective Group tax rate of 23.3 % (1-3Q 2022: 24.4 %).

Thus, profit for the period decreased from EUR 315.2 million to EUR 91.2 million.

Development in the 3rd quarter
As expected, business development in the 3rd quarter continued at a similar level as in the previous quarter. Due to further market and capex-related downtime in the division MM Board & Paper as well as heterogeneous demand in the sales markets of MM Packaging and increasing price pressure, consolidated sales amounted to EUR 1,015.1 million after EUR 1,059.3 million in the 2nd quarter of 2023 and EUR 1,231.9 million in the 3rd quarter of the previous year.

The Group's operating profit of EUR 55.8 million was above the previous quarter (2Q 2023: EUR 42.4 million) due to a strong profit contribution from MM Packaging, but well below the previous year's level (3Q 2022: EUR 167.2 million). The operating margin came in at 5.5 % (2Q 2023: 4.0 %; 3Q 2022: 13.6 %). Profit for the period amounted to EUR 27.9 million (2Q 2023: EUR 28.4 million; 3Q 2022: EUR 109.4 million).

The operating margin of the division MM Board & Paper was -3.0 % (2Q 2023: -2.0 %; 3Q 2022: 15.6 %) mainly due to market-related reduced capacity utilization as well as capex downtime at the Slovenian Kolicevo board mill.

MM Packaging's operating margin reached 11.4 % particularly as a result of declining cartonboard prices (2Q 2023: 8.6 %; 3Q 2022: 9.2 %).

Outlook
Weak demand in the cartonboard and paper sector continues in almost all areas, as higher costs of living reduce general demand for consumer goods and the overall economic market environment remains uncertain. There is currently no sign of a market recovery, but the bottom seems to have been reached and destocking in the supply chain largely completed. Against this background and in view of sufficient capacities in the industry, significant machine downtime will continue to be necessary – at least also in the 4th quarter – in order to adjust production to market demand. This will primarily impact the division MM Board & Paper.

Under these tightened general conditions, MM is focusing on safeguarding and gaining volume with reasonable margins. Our profit and cash protection program, which in addition to cost reductions in all areas aims at a significant reduction of working capital and capex cash-outs, will be consistently pursued and implemented as well as supplemented by targeted structural adjustment measures. Overall, the pressure to enhance competitiveness is steadily increasing.

Our primary focus remains on recovering margins as quickly as possible and reducing net debt. With sustainable and innovative packaging solutions, MM is very well positioned to successfully manage the current difficult market situation.