Interim report January–September 2024
Solid performance with growth and increased profitability in both regions
Key highlights
• Organic and currency adjusted sales growth of 9%
• Strong profit recovery in Region Europe
• Another excellent quarter for Region North America
• Price and mix improvements fully offset cost inflation
• Continued good momentum for the efficiency enhancement program
Quarterly data
• Net sales increased by 6% to SEK 10,798 million (10,210)
• Adjusted EBITDA* SEK 1,555 million (1,167)
• Adjusted EBITDA margin 14% (11)
• Operating profit SEK 851 million (415)
• Net profit SEK 565 million (656)
• Earnings per share SEK 2.27 (2.64)
Outlook for Q4
• Softer demand and price pressure in Europe
• Stable market conditions in North America
• Increased input costs
Comments by the CEO
The third quarter was another solid quarter for Billerud. As we had planned, our net sales grew, and profitability improved in both regions. The positive profitability trend we have seen from the beginning of the year continued. The Group’s EBITDA margin ended at 14%, our strongest result since Q4 2022. Production stability was solid in the quarter and our scheduled maintenance stops in three mills went according to plan.
Yet again, region North America delivered an excellent financial performance with double digit sales growth and 18% EBITDA margin. All our categories in the US contributed to the strong result. In Region Europe, our fiber cost continued to increase, while most other input costs declined. Also for this quarter, we were successfully able to offset the cost inflation by proactive pricing and portfolio management for Europe. This is key and it will continue to be one of our top priorities going forward. Region Europe reached an EBITDA margin of 16%, the highest profitability in two years.
Our efficiency enhancement program continues to deliver structural savings. Disciplined work to eliminate price point outliers in the customer base as well as to increase our field-purchased pulpwood in the vicinity of our Swedish mills produces positive effects. The reduction of 350 positions throughout the entire company, that was announced a year ago, has progressed well and is now close to completion. We are well on track to outperform this year’s target for the efficiency enhancement program of SEK 700 million EBITDA uplift compared to 2023.
The market sentiment improved slightly in the third quarter as we had anticipated. However, we see now that the demand in several of our board and packaging paper categories is weakening. The underlying consumption of goods and packaging is at the moment below the long-term growth expectation. This is in particular true for Region Europe. We therefore expect to have a period of slower volume demand and pressure on pricing for most of our product categories. However, as input costs are not coming down, we will do our outmost to protect margins by continuing our relentless focus on price and mix management. We will drive value over volume across the company and apply an agile mindset for our production schedule.
The current market sentiment in the US is in comparison more stable, with the underlying consumption in a somewhat better shape. For the fourth quarter, we foresee stable market conditions in North America, with maintained prices for graphic and specialty paper and largely unchanged input costs. Our graphic paper has had a strong start of the quarter in the wake of the presidential election and Billerud is well placed as the natural choice of domestically produced material. For our maple hardwood pulp, we have seen significant pricing pressure during the third quarter and that is expected to continue towards the year-end.
We continue to focus on a few and selected priorities for the remainder of 2024:
• Execute our revised European strategy to mitigate the structurally higher wood costs
• Deliver our efficiency enhancement program
• Prepare for strategic investment projects
We and our JV partner Viken Skog AS were surprised and disappointed that our application for an environmental permit in Follum was rejected. We are confident in our consequence analysis of the project and will appeal this decision. Our plan to start bleached chemi-thermomechanical pulp (BCTMP) production at this existing production facility is supported by the local community and we have good hopes that the permit will be granted.
A lot of things have changed since we arranged our last Capital Markets Day (CMD) in November 2021. We have acquired Verso and the premise for the Nordic pulp and paper industry has changed dramatically since Russia’s war on Ukraine. We have developed a solid and exciting plan for both of our regions, and we look forward to hosting you at our CMD the 2nd of December, to convey our “Way Forward” and the next chapter for Billerud.
Ivar Vatne
President and CEO
Third quarter
Sales and results
Net sales for the third quarter increased by 6% to SEK 10,798 million (10,210). Currency changes had a negative impact of 2%. The organic* and currency-neutral net sales increased by 9%, mainly due to improved sales prices in Europe and higher sales volumes in North America compared to last year. The Group’s sales volumes totaled 898 ktons (890), negatively impacted by curtailments of production in Region North America.
Adjusted EBITDA amounted to SEK 1,555 million (1,167), corresponding to a margin of 14% (11). The Group’s result increased mainly because of higher net sales, favorable mix changes and efficiency gains, which were only partly offset by higher input costs. Annual maintenance shutdowns were in the third quarter carried out in the mills in Gävle, Karlsborg and Escanaba, with a total cost impact of SEK 348 million.
No items classified as affecting comparability were recorded in the third quarter of 2024 (-55). Items that affected the comparability in the result in the third quarter 2023 totaled SEK -55 million and included a capital gain from the divestment of Managed Packaging of SEK 23 million, a cost item related to an impairment of shares in Paper Bottle Company AS of SEK 52 million and restructuring costs for management severance pay of SEK 26 million.
Market development and outlook
In the third quarter, there was a slight improvement in market conditions for all of Billerud’s paper and board categories except for liquid packaging board, where market conditions were stable on a normal level. Price increases were implemented for sack and kraft paper, containerboard and cartonboard. Prices were unchanged for liquid packaging board, graphic and specialty paper, while prices for market pulp declined during the quarter.
For the fourth quarter 2024, Billerud expects softer demand and price pressure for most categories in Region Europe, meaning sack and kraft paper, containerboard and cartonboard. Market conditions for liquid packaging board, graphic paper and specialty paper are expected to be stable. Input costs are expected to increase, mainly due to higher wood prices in the Nordics and increased energy costs. The price of market pulp is expected to have a negative impact.
Events in the quarter
On 1 July, Gert Larsson assumed the position of SVP Operations, Billerud Europe and joined the Group Management Team. Gert Larsson has previously been SVP and Head of Operations for the Packaging Materials division in Stora Enso and EVP, Hiab Products at Cargotec.
On 9 September, Billerud Viken AS, the joint venture formed by Billerud and the Norwegian forest association Viken Skog AS, received a rejection on its application for an environmental permit to produce bleached chemi-thermomechanical pulp (BCTMP) in Follum, Norway from the Norwegian Environment Agency. Billerud Viken AS has subsequently decided to appeal this decision. An environmental permit is a necessary condition for the plans to start BCTMP production in Follum to become a reality.
On 18 September, Doug Schwartz was appointed President, Billerud North America and a member of the company’s Group Management Team. Doug Schwartz has extensive experience in the US forest and paper industry, including from leadership roles at International Paper and Champion International Corporation. He most recently held the position of Vice President and General Manager, Rigid Paper Containers at Sonoco.
Events after the quarter
On 1 October, Billerud agreed on a transfer of a pension obligations and related assets in the US, which is expected to result in a positive result effect of approximately USD 25 million. The pension obligation transfer has no cash flow impact. The result effect will be reported as an item affecting comparability in the operating segment Other in the fourth quarter of 2024.
Matthew Hirst, President Billerud Europe, has decided to leave Billerud for personal reasons. He will remain in his role until 31 January 2025. The recruitment of a new President Billerud Europe will begin immediately.
* 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 24 October 2024.