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Kloeckner Pentaplast grilled on cost pass throughs; says 2022 profitability will match 2020
Chris Haffenden
•2 min read
Analysts and investors grilled Kloeckner Pentaplast management on cost pass throughs on its Q3 earnings call, earlier this afternoon. For the second quarter running the Germany-based industrial plastic packaging firm has cut FY 21 EBITDA guidance, down to €235m compared to €305m at the launch of its bond in Q1, and €275m on the Q2 call. Accelerated price rises should catch-up and will match cost inflation by December, said management, who said the time lag for pass-throughs for non-indexed contracts is now reduced to 70-days. Next year should show improvement, with high confidence that profitability should return to 2020 levels (€285m adjusted EBITDA, €305m Pro Forma).
As well as sharp increases in raw material costs, Kloeckner has also suffered from supply chain disruptions, and more recently increases in energy costs. Cost inflation was €104m during the quarter and €300m for the year. Sales prices increased by 16% on a consolidated basis in Q3, with revenues up 12%. Management said that the resultant 4% drop in volumes was around 50:50 for customer demand and supply chain issues.
As reported, cost of materials is the largest component of COGS, and according to KP accounted for 53% of net sales for the nine-months to end September 2021. COGS rose to €422.2m in Q3 21 from €344.3m a year earlier.
Naturally, with several price rises during the year, there has been some pushback, admitted management. But the whole packaging sector is affected, and the costs will be eventually borne by consumers. Kloeckner Pentaplast’s market share has remained stable, they added.
But analysts were keen to push management harder, especially on the prospect for further cost increases, noting a spike in PVC prices in late September, and sharp rises in energy prices in October and November. Around 35-40% of contracts are subject to quarterly escalator clauses. What is passed through varies, noted management who said “many are somewhat silent [on what is included]” adding that all costs will be passed through next year.
EBITDA margins have now troughed and will improve next year as prices catch-up, said management, declining to give margin forecasts.
On a sector basis, health, and protein (meat packaging) were the worst affected. The latter is suffering from labour and supply chain issues, most notably in the UK and Europe. Supply chain issues have improved slightly from the summer and should ease in the first part of 2022, said management. Over the past two months, health order flow has improved and should show improvement in Q4 numbers.
Kloeckner Pentaplast’s 2026 SUNs fell by over two points on the third quarter release. The bonds have recovered slightly after the conference call but are now yielding 9.9% at their mid-point. The SSNs are more resilient but are now approaching 6%.
