Regulatory
Press release
19 Jul 2024, 7:00 CET

Interim report January–June 2024

Back to growth, improved profitability and solid cash generation

Key highlights

•    Underlying EBITDA improvement both sequentially and versus a year ago

•    Positive pricing and mix effects more than offset sequentially higher input costs

•    Excellent financial performance in Region North America

•    Annual maintenance stops in four mills according to plan, cost impact SEK 515 million

•     Strong cash conversion through continued working capital focus

Quarterly data

•    Net sales increased by 8% to SEK 10,764 million (9,953)

•    Adjusted EBITDA* SEK 1,003 million (188)

•    Adjusted EBITDA margin 9% (2)

•    Operating profit SEK 171 million (-496), including items affecting comparability of SEK -119 million (–)

•    Net profit SEK 63 million (-481)

•    Earnings per share SEK 0.25 (-1.94)

Outlook for Q3

•    Market conditions to improve slightly

•    Positive price and mix impact to offset higher input costs

 

Comments by the CEO

I am pleased with the result we were able to produce for the second quarter of 2024. We are back to net sales growth, our underlying profitability improved, both sequentially and versus the same period a year ago, and we delivered yet again a solid cash conversion for the quarter. I’m encouraged to see the progress we are doing to improve our margins as it’s such an important priority for the company. The underlying profitability, when excluding the impact of the maintenance shutdowns, improved substantially. Hard focus on pricing and portfolio management and continued delivery of our efficiency program helped us offset higher input costs.

Demand for our products improved during the quarter, partly due to supply and logistics disturbances within our industry that worked in our favor. This helps us in the short to medium term, but end consumer demand has not strengthened significantly over the past months. We remain cautiously optimistic going forward about gradually improved market conditions. We have adopted an agile mentality to adjust to fast-changing market conditions, which we consider to be the new normal.

Our financial performance in North America was excellent in the second quarter, with an EBITDA margin of 18%. Paper volumes increased and the quarter was again a clear testimony to our highly competitive asset base in Upper Michigan. With better-than-expected flexibility on most of the assets and cost-leading position situated in an attractive region, we remain true to our strategy to successfully shift the product mix towards high-performance packaging materials with lower investment level than originally planned. The optionality of our paper machines in the US has been once again confirmed by performing successful trials for uncoated liner with encouraging results and positive customer feedback.

In Europe, deliveries in the second quarter came in slightly lower than anticipated but our order books remain strong. We implemented price increases for containerboard, sack and kraft paper, and could thereby more than offset cost increases and improve our margins compared with the previous quarter.

Our profitability in Europe is however under pressure by all-time-high costs for pulpwood. It’s the dawn of a new era for the Nordic pulp and paper industry with both regulatory forces and an unbalanced supply and demand situation driving prices towards unprecedented levels. We will continue to work hard to establish new partnerships and optimize recipes to reduce the fiber consumption, which is core of the European strategy. However, being successful in such difficult operational environment will ultimately be about the attractiveness and the relative strength of the product portfolio. I am confident that Billerud has developed, through our excellent production know-how, a highly attractive offering platform with long-term demand growth, but we will need to continuously perform at our best to navigate in the challenging conditions.

To strengthen profitability and cash conversion we continue to focus on items that we control, such as our production efficiency and reducing our cost base. Our three-year efficiency enhancement program, that now has run halfway, continues to deliver and we are ahead of the ambition we set 18 months ago. For the first six months of this year, the efficiency enhancement program has provided a positive contribution of SEK 390 million compared with last year. We are on track to deliver the program target of SEK 700 million incrementally in 2024.

Our priorities for this year remain. The health and safety of our employees is always our most important focus area. We continue to work systematically to institutionalize a stronger safety mentality across all areas of our company. We also focus on progressing with our strategic projects, executing our revised European strategy to mitigate higher wood costs, and delivering our efficiency enhancement program. 

With the new path for transforming of our US operations and a new premise for the Nordic pulp and paper industry, we will continue to adapt to the changes in our industry. I look forward to providing more insights about our strategic priorities and execution at a Capital Markets Day, which we plan to hold in Stockholm in the fourth quarter 2024.


Ivar Vatne
President and CEO


Second quarter

Sales and results

Net sales for the second quarter increased by 8% to SEK 10,764 million (9,953). Currency changes had a positive impact of 1%. The organic and currency-neutral net sales increased by 9% mainly due to higher sales volumes, while sales prices had a negative impact. The Group’s sales volumes totaled 895 ktons (831), negatively impacted by curtailments of production in North America.

Adjusted EBITDA amounted to SEK 1,003 million (188), corresponding to a margin of 9% (2). Earnings improved mainly because of higher sales volumes and a more favorable product mix in both regions, but also due to lower costs for revaluation of finished goods inventory. The result was negatively affected by the cost impact of annual maintenance shutdowns in four mills of SEK 515 million. 

Items classified as affecting comparability totaled SEK -119 million (–) in the second quarter included recognized costs for the US transformation program of SEK 189 million and a positive result from the divestment of assets related to the Wisconsin Water Quality Center (WQC) of SEK 70 million.
 

Market development and outlook

In the second quarter, market conditions improved for all paper and board product categories except for liquid packaging board where conditions were stable on a normal level. Price increases were implemented for sack and kraft paper, containerboard and market pulp, while price levels were unchanged for liquid packaging board, graphic and specialty paper and cartonboard.

For the third quarter 2024, market conditions are expected to improve slightly. In Region Europe, positive price and mix effects are expected to compensate for higher input costs, mainly related to pulpwood. Price increases will be implemented for sack and kraft paper, containerboard and cartonboard. In Region North America, prices for graphic and specialty paper as well as input costs are expected to be stable. The price of market pulp is expected to have a positive impact.

 

Events in the quarter

Billerud’s sale of the idled Wisconsin Rapids mill assets to the global private equity company Capital Recovery Group LLC, was completed in the second quarter with a positive cash flow effect of SEK 56 million.

On 30 April, Billerud divested the Wisconsin Water Quality Center (WQC) and related landfill assets. This divestment was a natural consequence of the sale of the idled Wisconsin Rapids mill assets. The positive result effect of the divestment of the Wisconsin WQC amounted to SEK 70 million and is reported as an item affecting comparability in the second quarter result. The cash flow effect was SEK -55 million.

On 21 May, Billerud’s Board of Directors decided not to proceed with the plans to convert the Escanaba mill to cartonboard production as the projected return on investment was not sufficiently attractive. Billerud will instead target to shift its product mix in North America gradually towards packaging materials with a moderate investment level. Costs for the US transformation program related to feasibility studies and project preparations since April 2022 of SEK 189 million were recognized in the second quarter as an item affecting comparability.

Billerud’s 2024 Annual General Meeting on 21 May elected Andreas Blaschke as a new Board member and re-elected Jan Svensson, Victoria Van Camp, Florian Heiserer, Magnus Nicolin and Regi Aalstad as board members. Jan Svensson was elected chairman of the board. The AGM further resolved in accordance with the board’s dividend proposal. Meeting minutes can be found on Billerud’s webpage. 

In June, there was a fire in the chip conveyor belt at the Karlsborg mill. No one was injured in the incident. While damages were being repaired, production was at standstill for just over two weeks. The EBITDA impact of the incident was SEK -50 million in the second quarter.

On June 14, Kevin Kuznicki, President, Billerud North America, left the company. Tor Lundqvist, Deputy President and Senior Vice President of Operations for Billerud North America assumed the role of Acting President, Billerud North America. Recruitment for a new President of Billerud North America is ongoing.

Billerud launched Performance Brown Barrier, a new brown coated sack paper that replaces the plastic barrier in sacks. With the addition of brown paper, this product line offering can now replace plastic in both white and brown sacks.  
 

Events after the quarter

Gert Larsson assumed the position of SVP Operations, Europe and joined the Group Management Team on 1 July. He has previously been SVP and Head of Operations for the Packaging Materials division in Stora Enso and EVP, Hiab Products at Cargotec.  

 

* For key figures and a reconciliation of alternative performance measures including adjusted EBITDA, adjusted operating profit, adjusted EBITDA margin, adjusted operating profit margin, adjusted ROCE and interest-bearing net debt/adjusted EBITDA, see pages 15-17.

 

For further information:

Andrei Krés, CFO, +46 8 553 335 72
Lena Schattauer, Director Investor Relations, +46 8 553 335 10
ir@billerud.com

 

This information constituted inside information prior to publication. This is information that Billerud AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 07.00 CEST on 19 July 2024.