Specialist
Former external consultant at KP Holding GmbH & Co KG (Klöckner Pentaplast)
Agenda
- Packaging demand trends across KP’s (Klöckner Pentaplast’s) pharmaceutical and food end markets
- Supply chain challenges and cost pressures across products, focusing on sustainability trends and rPET (recycled polyethylene terephthalate) usage
- Cost pass-through dynamics and margin implications
- KP’s expansion CAPEX, EBITDA expectations for new production lines and capacity outlook
Questions
1.
What is your view on the demand level across some of KP’s [Klöckner Pentaplast’s] key end markets? We’ve seen high single-digit decline for Q1 2022 volumes overall in food and pharma packaging.
2.
We’re seeing quite high inflation in food products, but do you think this changes consumers’ buying patterns in a way that would impact or benefit KP’s portfolio? Is the company more exposed to higher-cost food items where we might see demand lessen, or is it somewhat broadly exposed here?
3.
Do you think there would be an impact if red meat consumption drops, potentially benefiting chicken or pork? Is KP equally positioned across different types of protein?
4.
You mentioned the risk from a broad move away from plastic and trying to substitute it with more sustainable or recyclable materials. How significant is this substitution risk to KP across its various products and markets?
5.
How has KP approached adding the rPET [recycled polyethylene terephthalate] capacity? The company highlighted bringing on additional capacity in Virginia recently. What’s the outlook for rPET availability and how much usage across its portfolio can be expanded?
6.
What are the typical margins from rPET vs products from PET? You indicated high pricing on rPET, but are the margins comparable or do you think KP or others struggle more to pass costs through when using rPET vs PET? Is there any differentiation in profit?
7.
KP is trying to move towards rPET in its portfolio, but you mentioned the drip of volumes. How much volume could be replaced by alternative materials, paper, fibre and so on, across pharma and food separately? What’s your outlook on that volume drip and how might it develop over the next five or 10 years?
8.
How much runway do you think there is for KP’s volume growth in the US market? Do you have any sense where the company stands with US market share or competition?
9.
Natural gas prices in Europe have been high and jumped again, alongside some supply disruption from Russia and risks of additional supply. How do you think gas prices and supply curtailment could impact KP?
10.
How does KP approach cost pass-through, especially given its higher price vs competitors? How much ability is there to continue passing cost through, given the high material costs and broader inflation in 2022?
11.
How are competitors to KP navigating the market? Who might be more willing to take a margin hit and try to gain volume or share?
12.
KP highlighted reducing the time lag in passing costs through to around 60 days vs around 100 days originally, and down to 15 net exposure when you incorporate inventory. What’s your view on how the company has approached reducing that time lag in pricing? How has it changed its approach with customers? Is there more runway to decrease or would that be the best to expect in the current market?
13.
How is KP sourcing and keeping raw material in inventory? Would you expect any shift in the company’s inventory management and strategy?
14.
KP indicated that its reduction in the pricing lag – having a shorter review of pricing arrangements – could be permanent, lasting beyond the extraordinary circumstances we see today. What is your view on how permanent that change is? Do you think there’s any customer side to that discussion? Is there any downside or upside?
15.
Are there any significant differences between pharma and food customers’ willingness or ability to take higher pricing from KP? Are those two end markets differentiated?
16.
What is your view on KP’s approach towards expansion CAPEX and how the company thinks about payback periods or EBITDA expectations for new production lines? You cited that it was somewhat constrained in expansion CAPEX in the past. How should we think about that overall for new production and expansion?
17.
The maintenance requirements are quite high, but do they differ across plants that are running PVC vs PET vs rPET? Is maintenance fairly similar across plants and raw material usage?
18.
Do you think moving away from PVC or KP’s sustainability trends or efforts will have any impact on capacity utilisation, planning or outlook?
19.
Do you have any insights into the PE owner’s intentions for KP? What could be the outlook considering some of the money taken out vs invested in?
20.
What key trends or questions should be asked of KP’s management in the coming months?
21.
Are there any additional points or anything to reiterate about KP?
