Interim report January–March 2023

Challenging quarter with soft demand and all-time high input costs

Key highlights Q1

• Organic* and currency-neutral sales growth of 6%

• Market-related downtime in several mills due to customers’ destocking and expectations of weaker market conditions

• Prices increased for liquid board and speciality paper, were stable for graphic paper and cartonboard, and decreased for other product categories 

• All-time high input costs

Quarterly data Q1

• Net sales increased by 55% to SEK 11,495 million (7,397), whereof Billerud North America accounted for SEK 3,311 million (–)

• Adjusted EBITDA** was SEK 1,484 million (1,664), whereof Billerud North America accounted for SEK 628 million (–)

• The adjusted EBITDA margin was 13% (22)

• Operating profit was SEK 806 million (1,189)

• Net profit was SEK 639 million (884)

• Earnings per share amounted to SEK 2.57 (4.27)

Outlook for Q2

• Continued weak market conditions due to destocking at customers and slower demand​​​​​​

• Lower volumes on the back of production adjustments and mill stoppages

• Most input cost inflation expected to ease

• Expectations of increased price pressure

• The impact of temporarily idling the Escanaba mill is estimated to SEK 100-150 million (EBITDA)

Comments by the CEO

Since the beginning of March, there has been a blastomycosis infection outbreak that has impacted the Escanaba mill and we are all deeply saddened that a person who worked as a contractor at the mill has died from the disease. Since first notified by the local public health department, we are cooperating with all available health resources and have taken their recommended actions. On 13 April we proactively decided to temporarily idle the Escanaba mill for up to three weeks as a precaution and to perform additional cleaning of the facilities. Our top priority is the health and safety of our employees and contractors.

The first quarter organic and currency-neutral net sales grew by 6% compared to the corresponding period last year, mainly because of higher sales prices. Our sales volumes were negatively impacted by customers’ destocking due to an inventory-build in the downstream value chain, as well as lower demand for some product categories.

The Group’s first quarter result and EBITDA margin was dampened by temporary elevated costs for raw materials in combination with the challenging market conditions with slower demand. The regions Europe and North America continued to show different margin profiles mainly due to historically high wood prices in Europe.

From the start of 2023 we have implemented price increases in our liquid packaging board, which in the first quarter could not offset the increasing wood costs. The market conditions for our other product categories have been challenging during the first months of 2023. We have adjusted by taking market-related production downtime in several mills. In the first quarter, prices increased for speciality paper and were resilient for graphic paper, while market prices for kraft liner, sack paper and pulp have decreased in recent months. 

For the second quarter, we expect the challenging market conditions to continue. The destocking will continue in the second quarter, but we expect the destocking cycle to end in the second half of the year. There is a downside risk to prices and sales mix. On the cost side, we anticipate that the inflation will start to ease in the second quarter. Chemical prices are on the way down, following the drop in energy prices, and from May we have new logistics contracts with better price terms. 

To protect our profitability, we are working with price and mix management and are adjusting our production accordingly. We have imposed a strict cost control throughout the organisation. We have also started to execute on our three-year efficiency enhancement programme, that was launched in January and which encompasses a number of initiatives across Commercial, Operations and Procurement & Wood Supply functions in our European operations. The results from this programme are promising, and in the first quarter it delivered a positive effect of SEK 95 million.

In parallel with overcoming short-term challenges, we continue to execute on our strategic growth agenda. The pre-feasibility study about the conversion of at least one paper machine in Escanaba to a board machine is in its final stage, and the size, phasing and expected returns of the investment will be announced in due course.

As part of the project in Escanaba, we plan to drastically reduce the mill’s fossil CO2 emissions. We have set ourselves the ambition to deliver clean energy and make the Escanaba mill sustainable for the future. The State of Michigan has approved a sizable investment support for the mill transformation, to be paid pro rata subsequently to our investments provided that certain project milestones and conditions are fulfilled. On top of this, we are in the process of applying for federal investment support, within the framework of President Biden’s Clean Energy Plan, for this business transformation.

The current challenging market situation is temporary. We have a brighter view of market conditions and our financial performance for the second half of the year.

Christoph Michalski
President and CEO

First quarter

Sales and results

Net sales for the first quarter grew by 55% to SEK 11,495 million (7,397). Net sales excluding currency effects increased by 51%, mainly due to the acquisition of Verso, which was completed on 31 March 2022. Billerud North America (former Verso) had net sales of SEK 3,311 million and sales volumes of 235 ktonnes. The total sales volume for the Group in the first quarter was 943 ktonnes (714), negatively impacted by a softer demand and inventory adjustments by customers. The organic* and currency-neutral net sales growth for the Group was 6%.

Adjusted EBITDA amounted to SEK 1,484 million (1,664), whereof Billerud North America contributed an EBITDA of SEK 628 million. The EBITDA margin declined to 13% (22) due to elevated costs for raw materials, mainly in Europe, and a more challenging market situation with reduced demand, only partially offset by higher sales prices.

No items classified as affecting comparability impacted the result in the first quarter (–).

Market development and outlook

In the first quarter of 2023, the market conditions were more challenging for all product categories except for liquid packaging board. Slower demand due to customers’ inventory adjustments and expectations of economic uncertainty led to lower sales volumes. Prices increased for liquid packaging board and speciality paper and were maintained for graphic paper and cartonboard. Prices for all other products decreased.

For the second quarter 2023, market conditions are expected to remain weak due to continued destocking among customers and a softer demand. Lower sales volumes are expected on the back of production adjustments to current market demand, maintenance stops at Gruvön and Skärblacka and a temporary idling of the Escanaba mill. Price pressure is expected on all product categories except for liquid packaging board, where we expect unchanged prices. In terms of input prices, we see inflation starting to come down in some categories.

Events in the quarter

In the beginning of the year, Billerud started a three-year efficiency enhancement programme focusing on profitability improvements and with activities that span across functions predominantly in the European operations. See more information on page 8.

Market-related production downtime was taken at several mills during the first quarter to meet the weaker market demand. We continuously evaluate the timing of investments to protect cash flow and will reduce the capital expenditures in 2023 by SEK 200 million. Restrictions for recruitments, internal business trips, conferences and training have also been introduced.

On 27 January, Billerud announced that the Michigan State legislatures had passed legislation to grant Billerud investment support of up to USD 200 million in funding to support the company’s investment plans to transform the Escanaba mill to paperboard production. Shortly thereafter, Michigan’s Governor signed the legislation, approving the Michigan Economic Development Corporation’s appropriation of the funds. The investment support will be relative to the company’s actual investments and subject to execution of the necessary agreements between the Michigan Strategic Fund and Billerud U.S. Production Holdings LLC.

In March, Robert A. Kreizenbeck left his employment as President North America and Kevin Kuznicki was appointed new President North America & General Counsel North America. Kevin Kuznicki was previously, since 2022, Deputy President & General Counsel North America and a member of the Group Management Team. 

Events after the end of the quarter

On 13 April, Billerud proactively decided to temporarily idle the Escanaba mill for up to three weeks as a precautionary measure to perform additional cleaning of the facilities and further protect the health and safety of its employees and contractors due to a blastomycosis infection outbreak that has impacted the mill since the beginning of March. On 21 April, 104 cases (confirmed and probable) of blastomycosis had been identified. Unfortunately, there has been one death associated with blastomycosis infection. During the temporary shutdown of the Escanaba mill, additional cleaning will be performed. The financial impact is estimated to SEK 100-150 million.

In the convening notice to the 2023 Annual General Meeting, published on 19 April, the nomination committee’s proposal that Regi Aalstad be elected as a new Board member was stated. Bengt Hammar and Andrea Gisle Joosen are not available for re-election. The current Board members Florian Heiserer, Magnus Nicolin, Victoria Van Camp, Jan Svensson and Jan Åström are proposed for re-election. Jan Svensson is proposed to be re-elected as Board Chairman.

* Excluding the acquisition of Verso in 2022.

** 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 13-15.

For further information:
Ivar Vatne, CFO, +46 8 553 335 07
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 CET on 26 April 2023.

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