Mayr-Melnhof Karton AG (OTCPK:MNHFF ) Q4 2021 Earnings Conference Call March 15, 2022 5:00 AM ET
Peter Oswald - Chairman and Chief Executive Officer
Franz Hiesinger - Chief Financial Officer
Stephan Sweerts-Sporck - Head of Investor Relations and Corporate Communications
Matthias Pfeifenberger - Deutsche Bank
Michael Marschallinger - Erste Bank
Dear ladies and gentlemen, welcome to the conference call of Mayr-Melnhof Karton AG. At our customer's request, this conference will be recorded [Operator Instructions].
May I now hand you over to Stephan Sweerts-Sporck who will lead you through this conference. Please go ahead.
Hello, good morning and welcome on the path of MM Group. My name is Stephan Sweerts-Sporck, heading Investor Relations and Corporate Communications. It's a great pleasure to have you joining this Q&A Conference Call on our '21 Annual Results, which we released this morning. Besides our press release, a video statement by the Management Board has been published on our website, mm.group. Please have a look at it, if you couldn't do so far.
In this call, we want to provide you now with the possibility to direct questions on today's communication to Peter Oswald, our CEO, and Franz Hiesinger, our CFO. Since this call addresses an international audience, we would very much appreciate your questions to be asked in English.
Before we go for that, Peter Oswald will give you a brief summary of our key messages. Peter, may I ask you to start with your summary.
Thank you, Stephan, a warm welcome to everyone to this conference call about our results '21. We've seen a significant increase in sales and profit, thanks to our acquisition of Kwidzyn and Kotkamills. And as a consequence of that, we will propose to increase the dividend to €3.5 per share after €3.2 per share last year. We see a very strong demand across the board, so both for Board & Paper and virtually in all Packaging segments. We are continuously fighting strong cost inflation, which we can pass on but sometimes with a delay.
Strategically, we are very pleased with our acquisitions of Kwidzyn and Kotkamills. The integration is on track and on - in terms of synergies, I think we are sure by now that we will exceed our original plans. So the orientation of our Group towards a sustainable long term growth strategy has proven successful and we want to pursue it further. Very important also, ESG and Sustainability which is in our DNA, we've made good progress on a number of topics. Our reporting will be much better, as you will see in our Annual Report and we've really a strong focus on it, especially with regards to plastic waste avoidance.
Last words on, before I hand over for questions, few remarks on Ukraine. So our overall exposure to Russia, Belarus and Ukraine in terms of EBITDA is 7%, so, it is rather important. We have stopped cartonboard deliveries last week to Russia. In terms of the operations, our two plants in Russia are producing. We cannot foresee really over the next weeks and months how this will develop because it's a question, do we get the input material, cartonboard, inks etc. So this is unclear.
We've one plant in Ukraine, which we have stopped, because that was the order in Ukraine when the war broke out on the 24th of February. We have started up the infrastructure and plan to have production by today or tomorrow. However, it's very unclear if we - if logistics will work out, obviously some of our local customers are in war zones, and we cannot deliver any more to them. And we will reorientate most of the production to be delivered to Western Europe. It's a real tragedy. And it's quite unclear at the moment, what will happen.
I think with this introduction, we are, Franz Hiesinger, our CFO and myself, are looking forward to your questions. Thank you.
Ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] And first question is from Matthias Pfeifenberger, Deutsche Bank. Your line is now open, please go ahead.
Yes, good morning, gents. Three questions from my said, please. Firstly, I think in terms of what we've seen from others, like Mondi and statements from the Russian administration, what if you have to stop operating because you're lacking, I don't know, spare parts or energy is becoming too high you have to mothball or suspend production? And basically, is this the risk of nationalization? So can you also remind us of the asset values in - at risk in Russia? And then also, maybe just to update us on absolute energy costs for the Group, the energy mix, and then also some hedging or forward purchasing that you have engaged in? And then lastly, the contract structures in Packaging, but maybe also in cartonboard, how will you disrupt those? Will they go from semi-annual and annual to quarterly, is that the plan? Thanks a lot.
Yeah, thank you very much. So with regards to logistics, Russia is a big importer of cartonboard, so they only produce a limited amount themselves. The question will be here, whether cardboard can be obtained from - can be delivered from China, that's the big question. So I - my gut feeling is that and who knows, if this prediction is right, that in two to three weeks, we have to reduce our production substantially because we will not have enough cartonboard and problems with some other materials. But I would expect that we can continue to produce just with the reduced capacity. But obviously, it's so complex in terms of logistics, and also some other material. Let's say if the machine breaks down, we'll probably not get the spare parts. So that's, that's a risk.
You see on nationalization, we - I mean, your guess is as good as my guess. We simply don't know what we've done. There could be, because we have stopped to deliver cartonboard to the country, this was - we've clearly shown that we - on which side of the fence we are. But equally we continue producing because we have - our products go to food to pharma and we would immediately, even if we are ordered to be stopped, I think it would be continued. So we've no insight if there will be a nationalization, whether or not. In terms of our assets, it's - all our assets in Russia and Ukraine are below €100 million.
And a second question in terms of hedging, there we are somewhat hedged. Obviously with energy, we do not want for competition reasons to give you an exact number because otherwise others could exactly determine what prices could help us or could work for us. On contract structures, if we differentiate here between Board & Paper on the one hand side and Packaging on the other hand side, so in - with regards to coated recycled board or call it WLC, we continue with quarterly contracts. Our customers need some visibility on it and I think that works with FBB. Some players in the market have a lot of one-year contracts which basically cuts them down to a single digit percentage of our overall sales. So typically we have here quarterly or half yearly contract, but also with clauses to add energy surcharges if necessary, also, in this period.
In Packaging, we do have a number of three-year contracts. And they are partly already negotiated or they will anyhow run out. And the improvements we have to make is that first of all, all costs are included and not just cartonboard costs because also energy, ink, chemicals, etc., are important in the converting process. And secondly, the adjustments have to be maximum every quarter and not any longer periods. So in this way we get more flexibility.
The next question is from Markus Remis, RBI. Your line is now open, please go ahead.
Good morning, thanks for taking my question. Can I maybe start first with the pricing side in cartonboard, is that as of Q1? Price increases have been implemented in flex and other ones for the second quarter already, so I'd be interested to get a sense about the magnitude? And related to that, maybe you can also remind us of the price hikes you've implemented in the last year and kind of how much growth will purely come from the pricing side. Kind of the spillover of 2021 plus the new price increases of 2022?
Yeah, so we've increased prices last year, anywhere between €200 and €300 based on a price basis of between €550 and €800. So it was fairly significant. On the other hand, this is not improving our profits because the cost increases have been very substantial, more or less everywhere, whether it's pulp, wood, energy, paper for recycling, you name it. And now we have had an increase in the first quarter of around, order of magnitude also €100 to €150 and in the next quarter, it will be more. But it's a bit difficult to generalize because it depends on the product structure and in some cases price increases and then we've energy surcharges. Energy surcharges are sometimes very transparent towards our customers with a clear link, especially to the gas price, where we say if the gas price is so high, then we have so much surcharge. So it's a bit difficult to say exactly how high the price increase also will be because we would like, say for the second quarter, that's your price increase for various stuff from transport to chemicals, etc. And there is another energy surcharge, which is monthly adapted to where the gas price is. So that's - that makes it a bit complex but you're absolutely right that there is a strong price inflation, which in the average I'm looking to our CFO, is currently about 40% something in that range.
Okay, thank you, that's very helpful. And then on the energy costs, following on Matthias' question, if you could help us maybe give us an idea of the total value of your energy purchases in the last year so that we have some sort of base to start from?
Yeah, so last year on a restated basis, so if we assume because that's more useful, I think for you, if we assume that Kotkamills and Kwidzyn has been in the Group for the total year, so on the like-for-like basis, it's about quarter of a billion.
Quarter of a billion? Okay.
Yeah. Okay, in round terms, €250 million.
Yeah. Okay, thank you very much. Can you break that down into natural gas and electricity as well?
Yeah, I mean, I don't want to break it down in details, but the biggest chunk is gas and but also electricity and also coal for our Kwidzyn mill are the important factors.
And we shouldn't forget that we produce our own energy with our recovery boilers and that's obviously not included also in the energy costs, so they would be even higher. So we have - biomass is also a substantial part but it's not included because we use it from our own forest residues.
Very clear. Then coming to Kotkamills [indiscernible] you stated that basically you're happy with the synergies and that it will exceed the original plans. I mean, is that to a significant extent to recall, if I'm not mistake because about 3% of the cost base you intended to take out with these synergies or the more upbeat or only mostly related to cost synergies or is it also top line synergies?
No, we're only talking about cost synergies. So we have taken out basically the distribution network of Kotkamills and Kwidzyn, in terms of Kotkamills, worked a lot with agents and we've replaced them with our own salesforce. And obviously given our size, so to say, we don't need proportional increase of our salesforce, then a lot is in procurement which is obviously these days very tainted because you have no real basis to calculate it from. But it's also internal deliveries, fixed costs, taking out fixed costs, etc. So we will achieve, I mean, we never gave a precise figure, we only said it's for Kwidzyn it's double digit, medium teen numbers or let's call it €15 million and Kotkamills was planned around €10 million. So €25 million, and we will, in year three run rate, obviously linked also to one-off costs and some CapEx. And we are confident to achieve this year between €15 and €20 million run rate however, offset to certain extent with one-off costs and also some CapEx. So for instance, going back again to our agents, you have to pay several years fee to terminate an agent, which we're all - which we've mostly done last year. But also this year, we have some one-off costs, redundancy costs or changing costs for computer systems etc.
Right. Okay. And that's quite prelude to my next question, any further restructuring of your industrial footprint and anything of significance?
It difficult to say I mean, at the moment markets are very strong but equally we do have some underperforming plants. And it's not foreseen for the first half years but then we want to make any commitment for the second half.
I mean, we're constantly looking at our footprint and want to get more size - bigger sized, more competitive plants and in some cases, this might be need - may require restructuring, but not in the first half year.
Alright, okay. Last question from us, that would be on the sourcing from the war region, so, Ukraine or Russia, so any dependence on certain supplier, any sourcing apart from the whole energy topic?
Now, we have stocks from Ukraine. And we have to replace it and we will replace it, but it will come at a certain cost.
The next question is from Michael Marschallinger, Erste Group. Your line is now open, please go ahead.
Yes, good morning. Thanks for taking my question. I would do them a one by one. First, going back again to this Russian and Ukrainian situation, could you give us a top line number in sales exposure you have in these countries? And you said in two to three weeks, you have to reduce production substantially if it's going on situation. So you're also see them, in this moment there are already some situation where you have to adjust the goodwill or the asset base, there how long can the situation if you go on until you have to adjust here?
Yeah, I think that's a bit too early, we are obviously in close contact with our auditors on the subject. For the time being, we have running plants. Your wording was a bit too strong, I didn't say we've substantially reduce in two, three weeks. I think the downside risk is that we have to adjust it substantially at this point in time, it could well be that the material is organized. So we simply don't know it. And as you know, any write off also, first of all, we will be always on the conservative side. So in question, if there is doubt, we will write it down. But it's simply too soon to assume that it's - whether it's, so to say, permanently unprofitable, or even nationalized or something. So we will give, obviously for the first quarter but especially after, I think we won't be so much smarter in the - after in the first quarter. But in, I think for the half year results, we will look very seriously into how the war and the sanctions and everything has developed. We will have learned by then was our reduction reduced by 50%, by 100%, or by 20%. And we're very conservative. Well we said we - all the assets there including Ukraine are below €100 million, and we will take them into our books as required.
In terms of sales, our sales, it's a bit difficult, one has to differentiate between the sales which we are generating in the country. There we are in an order of magnitude of €150 million. So I'm always talking about Russia, and Ukraine. But the big - by far biggest part is Russia, then we have or we had sales, I have to say from today's point of view of cartonboard and that was very substantial. And this is reduced to zero for the time being but we could place it in other markets already. So for the time being that's not the problem and then we also sell some Packaging products to Russia, which we think we will lose but again, we will look for other markets. So there will be a negative effect but if it's more substantial or less is very difficult to predict.
Okay, understood. Second question, do have any integration costs from Kotkamills and Kwidzyn in the fourth quarter? And can you remind us what was the amount of integration for the financial year '21?
Yeah, I hand over to Franz Hiesinger.
Integration costs depends what you comprise under that but was about €25 million including inventory valuation at the acquired plants.
This is what we've identified also in our report, so to say, extraordinary. Of course, we also had operational extraordinary costs like terminating our agency agreement, which we do not show, so this is under normal operating items. So it is only about the number of the taxes, transaction taxes which were very substantial, especially in Poland. The lawyers etc., so, investment banker, lawyers, etc., plus the purchasing, acquisition - now -
Purchase price allocation effects but not the long term one, so, that we have to write off our customer base, for instance, is not included under extraordinary because it will be there for the next 10 years. But the cost of the order book and the inventory which is really a short term, one-off or for a couple of months that's included in the number which Franz Hiesinger mentioned of €25 million and the other costs that we have under normal expenses.
Okay, so and one last question after that, within acquisition you gave EBITDA number of €550 for the Group. Then how should we think in the current environment of cost inflation on the one hand side, on the other hand said synergies are exceeding expectations? What should we think about that number in the current environment?
Yeah, it's a difficult question. The issue is that at the moment, everything we do with regards to fixed cost reduction, so to say is, peanuts in the overall scheme of things, because if gas prices go up by €50 or €100 in a day, it's like a multiple of our cost savings over years. And we do not exactly know in this, I would say, race between cost increases in our path, all of the costs, what will be bigger. So to say, because we increase like, what are the costs, and then we are either surprised because - so if you could tell me where the gas prices in the third quarter and the electricity costs, etc., then we could say our cost - our price increases were higher, lower or exactly at the same amount. So you're right, the pro forma EBITDA would be around close to €550, so to say, on a pre-acquisition basis. We always highlighted that in Poland, we have, so to say, there were some energy subsidies, so which we're running out. So it was always clear that we have a headwind, a strong headwind which we have to overcome with, amongst others, also CapEx which will take some time, whereas the improvements, so say, or the run rate in Finland is, so to say, something to be more - to be quicker improved.
Okay. And thanks for answering my questions.
And the next question is from Claudia Haase from [indiscernible]. Your line is now open, please go ahead.
Yeah, hello. Good morning, everybody. And so we see production stopping after [indiscernible] paper mill broke right now. And do you have any scenarios like this for any of your plants instead of Russia and Ukraine? So are there any scenarios you could stop the production?
So first of all, I'm very disappointed, you're not asking about Sustainability and ECG, but I hope you have another question on this, but I understand this is very topical, now. If you say any scenario, of course, any scenario could happen, like there is no gas anymore. But under normal circumstances, so to say with a 90% probability, we will not stop any of our cartonboard mills simply because we are partially hedged and we can pass on the price and we are - with overall competitive mills. So I think what we will see in this crisis is that those mills, which are very marginal, making hardly any profit in normal times, and which are - which have a less developed energy system, let's call it this way, and maybe also are not hedged, they might have to close for a certain period of time. Whereas stronger mills, which are generally profitable, will have a good energy system, like for instance, our milling from [Kwidzyn]. I think a lot of other industry players had to shuts before we have to shut, let's put it this way. So I think it from today's point of view, it's highly unlikely.
Okay. And so perhaps, at the moment, not really a nice question, but is it a good time for looking for other competitors you can buy perhaps in one or two years?
I mean, first of all, we've said it's very clearly in Board & Paper, the absolute focus has to be on the integration of the plants and the realization and hopefully over achievement on our synergies. So generally, we would not consider any acquisition on Board & Paper also given the fluctuating volatile markets. But one should never exclude something. If a good asset became available at a very reasonable price. However, we will look maybe more on the converting side but also for packaging. That's a more attractive area, there acquisitions are also typically much smaller and if there are opportunities in this crisis, I think we will look very thoroughly at it.
And your plants at the moment, they are all going under full capacity?
All our plants are under full capacity. Our biggest fears at the moment that we have due to COVID that too many people are in one or the other, there is constantly one plant every week, which is at the border line to be temporarily shut down because of too many people in quarantine, it hasn't happened. But that's a constant risk we are facing. And we are fighting with all sorts of supply chain so we don't get enough transport, we do not get whatever enough wood, we do not get chemicals. So we have constant issues to keep up production so far and knocking on wood, it has worked well. But it cannot be excluded over the next weeks that that we had to short term to stop something simply because I don't know, the repair team doesn't come on time or a special material we ran out of it or even an auxiliary chemical product or whatever.
And of course, the sustainability topic, do you get pushes from the market at the moment? So do you see really, perhaps from - in the food industry, that they change their way of packaging and they move to [indiscernible]?
Yes, we see the strength, however, it's at the moment not very strong, simply because we are sold out. So some customers would - with a big multinational for whom we do for ice cream, we have a bio-coating for ice cream, they want to change. We do supply them, but we simply don't have the volume to - for them to make a bigger change. So we simply have to wait until things calm down. And we're also been working on some capacity increases both on the Packaging side as well as on the Board & Paper side with our investments. And up and until these capacities come up, we simply can't supply them enough. But yes, there is continuous interest.
Are you happy with the higher oil prices and the plastic will become more expensive?
Now, the issue is, in theory, I would be happy about high oil prices because of plastics becoming more but then also gas prices are higher and this means that we have to pay more. So it's a double edged sword. Overall, I like continuity. So the best would be, if we had whatever an oil price of €70, €80 being fairly constant instead of going up and down every day.
[Operator Instructions]. And we do have a follow up from Markus Remis, RBI. Your line is now open, please go ahead.
Yeah, thanks two short follow-ups, please. Firstly, regarding the expansion plans for your capacities, give us an indication how much you will spend in the next two years? I'd be interested specifically in the Packaging division by how much you will expand your production footprint, so in kind of financial terms, and how that also kind of develops over the course of the next two years?
Yes, I mean, it's a bit difficult to generally answer it. But let's say it's a rough figure. We will expand our capacity by around, let's call it 10%, really as a ballpark number out over the next two and a half years, so until the end of '24.
Then we have also some alternate interest to say our growth could be a bit higher, because we do of course, also some smaller de-bottlenecking in various plants, which are not included in our overall but the bigger projects will add about 10 - in very rough terms 10%. The reason it's a bit difficult because you have like in pharma it's very low tonnage but high value, and then you have other products in food, which are higher in tonnage but - so is it is it tonnage, is it euros, is it square meter print? So it's all a bit different, but 10% is a good number, I think.
Right, okay. And we haven't talked about recovered paper. It's - I mean, there has been a bit of an upward trend in recent months from already elevated levels, I mean, any - or if you could share your thoughts on the general supply situation, and then of course, I mean, transportation costs are shooting up, to which extent that is going to add further to the current price levels we're going to see.
Yeah, I mean, what we've seen in recovered paper is that every quarter expert says this is now will not be the peak and now it will go down and that hasn't happened. So they are on a - they have marginally increased even now in the first quarter. But let's say they are constantly flat on a historically high level or let's call it €200, it depends on the grade. And you're absolutely right, one of the input factors, so, we always calculate the costs delivered to our mill. One of the effects is that as transport costs go up, even if paper - recovered paper costs go stumble down it, where they originate delivered to the mill gate, they might go up because of transport costs. So we expect them to stay at an elevated level for some time, and the reason is simply that there is less and less graphic paper which can be - which is from virgin fiber and can be recycled then several times and therefore, I think supply will be stretched tough.
Okay, very clear. A final question please, on coming back to energy again, if you could kind of just outline the general kind of forward buying strategy, how that is kind of shaping up? What are your kind of key parameters here, is it on a on a rolling forward basis? Or is there also any opportunistic element to it?
Yeah, I think we generally try to hedge and not to be too smart to speculate whether things stay there. But in regular intervals, we hedge, obviously we would play the market to get days where they are cheaper. But equally we believe in longer term elevated prices, generally speaking, even though there will be some pull back also at a certain point in time. So it's, at the moment very, very difficult to make forward contracts because prices are very high and one is unsure, whether one should look in and we will just hedge our bets. So we will not be - we stay completely out of the market. But we also don't see prices where we say now is a great time to fully hedge '23 or something like that. So we also have to be careful on, you never can exactly predict the output of a mill, so you cannot get 100% hedged.
Yeah, can you kind of indicate how much of your volumes are secured already for this year and next year? Just a rough indication.
I - as I said, we don't want for competition reasons because if prices sharply go up. So I would be extremely interested in what our competitors are doing because then I could calculate back what prices we offer and exactly for this reason, it's a competitive - it's from a competition law perspective, we cannot share it. And it wouldn't help you because it makes a huge difference have we hedged six months ago or have we hedged yesterday.
All right. Okay. Thank you, very much.
The next question is from Cole Hathorn, Jefferies. Your line is now open. Please go ahead.
Good morning, Peter. Thanks very much for taking my question. I'd just like to understand how folding boxboard market dynamics are going to look in 2022. I mean, you've done very well, consolidating in the market, and I think you improved the mix of Mayr-Melnhof becoming more virgin. But can you talk about the imports that go into Russia? Will the exports that go into Russia, and how the European market can kind of balance that folding boxboard? And maybe a little bit of color, why folding boxboard has been so strong in 2021 and how you see that in 2022? Because I don't believe that the imports from Asia are going to be coming back anytime. That's the first question.
Yeah, yeah, thank you Cole. First of all, I - folding boxboard has increased less and also a CRP less than, for instance, liner. So we are in a more stable market and the reason is simply that our products are qualified with individual customers, so they cannot change so quickly. So it's difficult to say where we're going and if there will be a recession or anything. But overall, history has shown that our product is very resilient, because it's really food, pharma, tobacco, beauty actually is the most volatile of all segments, but it's a fairly small segment. So also, people spent a certain amount if there's a recession, more time at home, which is positive for cartonboard demand, instead of dining out. So we believe that demand will stay very strong.
You're absolutely right, all big players in FBB, in CRB, we were more or less the only exporter, I think to Russia or the only major exporter to Russia with no problems to repatriate it. In FBB, we are taking out of Russia and selling into Europe now a much higher volume. And the same happens with our two big competitors in the Nordics. And so far, we haven't seen any negative effect but, let's say, I'm very worried especially with regards to some capacity expansions, which far exceed any growth, which is possible we are in FBB. It's a market of 2.4 million tons in the European Economic Area. So first, now, we have to bring in for 400 million tons also delivered to Russia. 400 million tons, 500 million tons will go into this region, which is - which would mean that there needs to be a growth of 15% to absorb that. And exports to the US are strong.
And on the one hand, you have the favorable exchange rate situation right now, but equally, the US has now a big leg up in energy costs, especially. So will these exports be as easy and if I then hear that both of them plan, a big expansion of their capacity, that is something to worry about. And one can only hope that at least one decision which is not yet taken will not be taken because then we have much - too much volume in Europe. On top of that, now without elaborating that too much, we've seen huge capacities in China coming on stream and will come on stream, so we talked about 5 million tons, more than 5 million tons new that's twice the total capacity of Europe and they will export and as the European industries exporting into Africa, Asia, etc., there will be a lot of competition. So short term, I don't see any problem, demand will be strong. I think if someone destroys the industry then it's ourselves.
Good. And then I suppose following up on that on your expansion plans, would you mind just giving a little bit more color of what's entailed there? I know, expansion is probably the really good deployment of capital because it's higher return. But if we think about your Poland facility, the recovery boiler coal potentially going to biomass, how you're thinking about that to improve the environmental footprint of that mill and the expansion? And would you mind giving us some detail of when you expect to have the greater boxboard capacity out of your either Kotkamills and your Poland plant just to understand the timeline of when that phases out? Thank you.
Yes, so in Kotkamills we are gradually de-bottleneck to increase our volume from the 300,000 tons to close to 400,000 tons. And that will happen over a period of two years. But there still say, existing capacity which would just by de-bottlenecking need to fill because we lack at the moment secondary line and things like that. In Kwidzyn, we currently have no expansion plans with the boxboard, exactly for the reasons that I fear overcapacity in this industry. And there, it's more about we've successfully now transformed the [indiscernible], the PM 3 is now fully an up running, producing kraft paper for medical segment, generally flexible Packaging segment. That was very successful. And then we have to think about two other mills over time. But given the current circumstances or/and uncertainties, we are, so to say, for the time being delaying any peak expansion projects. What we will do, however, is biofuel boiler. So investments in order to get to green energy, that we will do without any delay. But a bigger expansion is at the moment, so to say, we first have to wait and see how the situation works out. In the gain on FBB, I'm worried about overcapacity, and therefore, we will not put in new capacity. We'll just fill our existing ones.
Peter, thanks for the color. Just one last question on, in your office paper and your kraft paper business, how does the Russia dynamics impact that? Because I see you've got, Sylvamo, for example, they've stopped one of their mills on kind of the border to Finland. Office papers is a really tight market at the moment, so just wondering how you benefiting from that near term and as well as in kraft paper. Segezha is, mostly sack craft, so probably not competing with you but they're probably going to be out of the market for Europe for a little bit. So just wondering if that business that you've acquired, actually, your end products are better placed than what you thought six months ago? Thank you.
Yes, thank you, you gave the answer. So we have surprisingly, a tight market in office paper, what the longer term solution is, is a different issue. But short term, it's so tight. And as you said Sylvamo and all the others out there, I don't want to name them because they can't afford the energy costs. So it's an extremely tight market. And that must be used to restore the market, which is very difficult in this industry because everyone has become so used to low margins, that it's like a pandemic to fight. But we will increase our prices to get a normal - to a normal margin.
And the next question is from [indiscernible] at [Cramer] Capital. Your line is now open. Please go ahead.
Thanks. Thanks for the call. I think most of my questions have already been answered. I was wondering if you could elaborate a bit more on the potential drivers of the recycled paper price in the next month to understand supply and demand dynamics?
Now, I'm not sure it's about the next month, so I see more structurally long term. Factor number one is a decrease, so the fact that there is more and more tissue and less and less paper, and writing paper, leads per se to show towards recycled fiber because tissue is not recycled and writing paper is recycled. The second trend is there is a move from B2B to B2C. So more and more boxes are not delivered to the [test courses] throughout this world where they are properly, more or less 100% recovered, but more to in B2C where the recovery rate is just lower because some of it ends in the general waste bin. And then we see a somewhat higher demand, I think from Asia, where more and more of these recycled part mills are built outside of China in order to supply China. And they will lead maybe to an increase in exports, again. So after this, shock in terms of or demand shock from China, we might see now returning exit to a more normal world, where there's more exports. And for all these reasons, I would be very cautious to predict any reduction of paper for recycling. Short term, there can always be all of a sudden some ad hoc moves, but it will be I think, a limited supply for years to come and actually getting worse.
All, right, thanks. And in terms of kind of cartonboard mills, could I ask you hypothetically, if you were not hedged, what gas price, what energy - rising energy prices could have made you stop production in some of your mills? Considering the price increases we've already applied, if it were not a matter of hedging, could you say, okay, at this level, it could have become uneconomical or assertive?
I can't really answer it because we would do it in agreement with our customers. You see, so at the end of the day, if let's say the gas price moves to, what should I say now as an example, €400 or €500, we've seen some forward rates at this level, then, most likely, it becomes unprofitable and then we would simply speak to our customers because it isn't then a problem of MM versus other competitors but it would be more or less as bad for everyone in the industry. And then either our customer says, I accept to certain price surcharge for a limited period of time in a completely transparent way or they say, no, it's too expensive, our customers won't pay for it. But you shouldn't forget, some of it is pharma, etc., so basically, you can pass on any price, to a certain degree. That sounds stupid, it's - but that's what it is. The question is, then just what is the difference between various mills and if you have a mill which has a worse mix, then you might be in trouble. That's actually the reason to stop it. It's not because of a high price but because of the high price plus your stronger exposure to it.
And we haven't received any further questions at this point. I hand back to the speakers.
So yeah, then thank you very much. Thank you for taking the time to stay with us. I think we are in extremely challenging times where basically when it's used every morning to wake up and has to review what the plan of yesterday was because of all the situation. Equally, I think that the advantage of MM is that we are in food, pharma, tobacco, which are extremely stable markets that we've overall very competitive mills. That was exactly our strategic transformation which we had last year.
There are short term, all sorts of problems of getting something not getting something, so one never knows even what next week's results will be. But the structural forces, I think, we are in a very strong position. It's very helpful that we are forward integrated to Packaging. Packaging is extremely stable, that we're also more flexible to react to different circumstances. So our strong balance sheets are very conservative in long term financing and our business model, I think we are - we've we feel comfortable that whatever this crisis may bring, we are in a strong position to survive and to thrive.
And with this, I - Stephan, do you add anything?
I just wanted to add that we will release our Q1 results on the 26th of April. So we will be back with more, I would say, update, well the next update in this year. And for the rest of this day, we wish you the best and thank you for your interest. Thank you for participating in our call.
Thank you, have a good day. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded, you may disconnect.