Interim report January–March 2020
Record sales volumes and continued price pressure
- Stable production and a solid demand enabled all-time high sales volumes
- Net sales and earnings impacted by continued lower market prices and ramp-up effects of KM7
- Limited effects of Covid-19
- Net sales declined by 2% to SEK 6 364 million (6 504)
- Sales volume increased by 9% compared to first quarter last year
- Adjusted EBITDA* of SEK 791 million (1 035), negatively affected by KM7 start-up effects of SEK 200 million
- Operating profit of SEK 280 million (640)
- Net profit of SEK 164 million (451)
- Earnings per share amounted to SEK 0.79 (2.18)
- High uncertainty of Covid-19 impact
- Stable market conditions expected for products designated for Food & Beverages and Medical & Hygiene
- Market conditions for Consumer & Luxury Goods could become more challenging
- Weaker market conditions expected for the Industrial segment
- Logistical challenges expected
- Fibre cost expected to remain flat from Q1
COMMENTS BY CEO
The financial effects of the Covid-19 pandemic on our company have so far been limited, but looking forward the degree of uncertainty is significant. We continue to run our operations without any major disruptions and the demand for our products has remained solid. Most important, precautions have been implemented to mitigate health risks for our employees, and so far – to the best of my knowledge – none of us have been seriously ill in Covid-19 and the sickness absence is on normal levels.
The fight against the Corona virus has only started. To mitigate the effects and protect our employees, customers and business partners, we have established a group-wide Corona crisis organization that operates under my direct lead. Measures are taken to safeguard the health of our employees, secure deliveries and support our customers, develop contingency plans with regard to critical resources, imple-ment strict cost control and protect liquidity. Additionally, the Board of Directors, as a precautionary measure, has withdrawn their proposal for an extra dividend.
Due to the circumstances with Covid-19 and to ensure the safety of our employees and suppliers, we have postponed or minimized the maintenance stops scheduled at our mills for the first half of the year.
The demand for our products has overall been strong throughout the first quarter. However, prices for several of our grades continued to deteriorate, which is a continuation of the trend in the previous quarter. The impact of this on our net sales and profitability has been significant. Our biggest challenge continues to be Division Paper where lower prices resulted in declining sales and margins. Division Board performed well and Division Solutions had a decent first quarter considering the fact that a significant part of the business is depending on China.
Our focus areas for 2020 continue to be ramping up KM7, ensuring a safe and stable production, delivering on our cost and efficiency programme and now also dealing with the consequences of Covid-19.
The ramp-up of KM7 is progressing much according to plan. Production and quality are now on fully acceptable levels for uncoated grades. During the quarter, we successfully started up the coater, produced sellable volumes of coated material and initiated the process of certifying material for liquid packaging board. We are still in a phase performing test runs, but volumes and the share of higher-value products are gradually increasing.
Production during the quarter was excellent in all mills and we managed to deliver the highest quarterly sales volume ever recorded, up by 9% compared to last year. Actions taken to increase production stability are starting to kick in, although we recognize more work is needed. It is also satisfying to see that our safety program is starting to show positive results. The number of work-related accidents (LTIFR) is clearly decreasing compared to last year in several of our mills.
Our cost and efficiency programme is delivering according to plan. As we expect negative effects related to Covid-19, additional cost reductions are under implementation.
For the next quarter, the market conditions for our products in Food & Beverages and Medical & Hygiene are estimated to remain stable, while conditions for our segments in Consumer & Luxury Goods could become more challenging. For materials designated for the Industrial segment we expect weaker market conditions.
Despite all current uncertainties, I firmly believe that BillerudKorsnäs’ development over the next few years at large is in our own hands. The strategy and direction are firm. We have a solid financial and cash position. Furthermore, our products are sustainable and relatively resilient also in times of economic downturn. A large share of our revenues comes from products that, regardless of business cycle, are vital for individuals and entire communities. Packaging materials for food, medical and hygiene provide a high degree of stability to our business.
Acting President and CEO
The quarter in review
SALES AND RESULTS
Net sales for the first quarter declined by 2% to SEK 6 364 million (6 504). Higher sales volumes were offset by lower sales prices compared to last year, primarily in Division Paper. Net sales for the quarter were positively impacted by currency effects by 2%.
Adjusted EBITDA decreased to SEK 791 million (1 035), mainly due to reduced sales prices as well as KM7 start-up effects of SEK 200 million. Lower fibre costs, currency effects and cost savings had all a positive impact on the result. Logistics challenges due to Covid-19 were mitigated without any significant effects.
Costs affecting comparability, reported under Other, amounted to SEK 25 million (13) and included an additional provision for restructuring costs related to the cost and efficiency programme launched in 2019.
Market development AND OUTLOOK
Market conditions for liquid packaging board continued to be strong throughout the first quarter. For cartonboard and containerboard conditions were stable. The market for sack and kraft paper stabilized at comparatively low price levels. Price reductions compared to the previous quarter were mainly a consequence of contracts entered into in fourth quarter 2019 now being fully reflected in the first quarter.
For the next quarter, market conditions for products designated to Food & Beverages and Medical & Hygiene applications are estimated to remain stable (liquid packaging board and relevant niches of containerboard, kraft and sack paper). Market conditions for Consumer & Luxury Goods could become more challenging (cartonboard and relevant niches of containerboard, sack and kraft paper). Market conditions are expected to weaken for the Industrial segment (relevant niches of sack and kraft paper and containerboard).
events in the quarter
BillerudKorsnäs announced on March 17 that the maintenance stop at Gruvön which was scheduled for the second quarter would be postponed to the third quarter due to the prevailing circumstances with Covid-19. The short notice of the rescheduling caused a negative financial effect of around SEK 40 million in the first quarter. The deferred maintenance stop will have implications for our KM7 ramp-up in 2020, in particular what product mix the machine will generate. The additional negative financial impact for the KM7 ramp-up, caused by the delayed maintenance shutdown is estimated to SEK 100 million..
On March 25, the Board of Directors decided to withdraw the proposal for an extra dividend. The Board’s proposal for a dividend of SEK 4.30 per share remains and so does the proposal that a mandate be granted for the buy-back of the company’s own shares. Provided that the uncertainty has decreased and the visibility in the market has improved, the Board of Directors has the ambition to summon the shareholders to an extraordinary general meeting later this year, to resolve on an extra dividend.
For the sixth consecutive year, BillerudKorsnäs received in January the highest rating level in EcoVadis assessment of how well a company has integrated the principles of CSR into their business and management system. BillerudKorsnäs’ environmental and supply chain work scores high, not least as a result of the commitment to reduce carbon emissions in line with the Paris Agreement.
EVENTS AFTER THE QUARTER
A mechanical failure in a digester at Skärblacka caused lost production in the first half of April with an estimated negative financial impact of SEK 30 million. Measures were taken and production has resumed.
In April, the maintenance stops that were scheduled for the second quarter at Gävle, Skärblacka and Pietarsaari were postponed to the second half of the year due to the prevailing circumstances with Covid-19. The financial effects of these measures are estimated to SEK 35 million, affecting the second and the third quarter.
For further information, please contact:
Ivar Vatne, CFO, +46 8 553 335 07
Lena Schattauer, Head of Investor Relations, +46 8 553 335 10
This information constituted inside information prior to publication. This is information that BillerudKorsnäs 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 24 April 2020.