Billerud is today a leading supplier of materials to specific segments of the packaging market. The company’s strategy is to strengthen this position by focusing on customer requirements and to further develop packaging material solutions based on cost-efficient production and supply.
Packaging solutions made of paper have considerable market potential
The global packaging market is growing at around 4% per year and is expected to amount to around USD 600 billion even in 2009. Growth for
packaging paper is following a similar course. Despite the current economic downturn, Billerud expects to see some growth on the global packaging market in 2009. Several of the company’s products are well suited to achieving profitable growth in future, despite significant
competition. The current trends in packaging development, distribution and consumption offer new opportunities for creating profitable business offers.
Billerud’s market and strategic positioning
Billerud aims to have a high market share and be one of the leading suppliers in selected product areas: Scandinavian semi-chemical fluting, brown and white sack paper, MG and MF paper. By investing in product
and process development Billerud can strengthen quality and its business offer in prioritised customer segments.
Customers are based primarily in Europe, but also in the Middle East and Asia. Billerud aims to exploit the strength of the company’s knowledge of materials and product offers to create completely new comprehensive
solutions for new customers in existing product areas. The purpose of this business development is also to strengthen the company’s know how and brands. Three primary customer segments have therefore been prioritized for business development: Food and Consumer packaging, Fresh Foods (fruit and vegetables) and Sack Solutions. Development will take place over coming years.
Business concept
Billerud offers demanding customers packaging material and solutions that promote and protect their products- packaging that is attractive, strong and made of renewable material.
Strategy
The company’s strategy is based on three components:
World class process efficiency
Billerud works systematically on process efficiency and cost efficiency to ensure long term competitiveness and the ability to generate stable cash flow. Equipment and product quality will be improved, product development safeguarded and production volumes increased. Focus on quality at every level and on the development of suppliers of additives and logistics will contribute to cost-efficiency.
Through better use of machine capacity, the goal is to increase paper volumes, provided that this can be achieved with satisfactory profitability, and with consideration to marginal costs and to the balance between supply and demand in each market segment.
Selective investments will be made to reach the set goals. To increase cost efficiency, the company has been implementing the Billerud 2007 project in the period 2006-2008 which has generated savings of around
MSEK 250 per year. To further cut fixed costs Billerud decided to implement an additional programme of MSEK 100 during 2008 and 2009. This programme will include staff redundancies at all workplaces in Sweden. An investment of MSEK 1,090 in cost-reduction measures in the energy field was carried out in 2005 and 2006, resulting in cost reductions of around MSEK 250 on an annual basis. In the spring of 2008 it was decided to launch an additional savings programme in a scheme
entitled “One Billerud” which aimed to cut consumption of chemicals, wood and energy by an annual sum of MSEK 150. This programme will be completed by the end of 2009. A 10-year agreement concerning
electricity supplies was signed with Vattenfall in 2007,which secures around 20% of electricity requirements at a fixed price. Continuous assessments are made of new energy investments in parallel with an evaluation of new business opportunities in the energy field. Billerud also
has a programme for reducing costs for purchased material and to increase the efficiency of external logistics. Increased co-ordination should provide considerable synergy effects between the mills.
Customer-focused development
Billerud is continuously working on developing products, product mix and customer structure to improve margins. By identifying and analysing customer demands for profitable packaging solutions, Billerud can provide better service to markets that demand the high quality paper. A sharper focus on customers will help to identify more strategic customers and create lasting and profitable partnerships.
Billerud’s business areas are divided into customer segments with direct responsibility for developing products and services, technical service, sales planning and price setting. The business areas are responsible for developing a sales culture within Billerud and thus creating a sharp focus on customers and profitability. The segment teams are responsible for developing know-how about the requirements of customers and
end-users throughout the value chain in order to supply them over time with the most comprehensive packaging solutions.
Billerud continually assesses different ways of entering attractive markets outside Western Europe. The company is examining different forms of co-operation with customers, suppliers and competitors, as well as possible acquisitions. As a consequence, a new sales office was opened in Shanghai in 2007.
Growth
Several of the markets and value chains where Billerud is active are fragmented, which offers opportunities for new approaches and comprehensive solutions. By using its strong positions in some segments, Billerud can develop business and provide customers with more
comprehensive packaging solutions. This requires, however, a broader definition of the market. The aim is to expand contacts with customers, designers, printers and machine manufacturers. Consequently, three
primary customer segments have been prioritised for business development:
Food and Consumer packaging. End-users are primarily retailers and brand owners.
Fresh Foods. These customers are mainly importers, distributors and major supermarkets dealing in fruit and vegetables.
Sack Solutions. Customers include sack converters and major cement companies. As a result, Billerud has launched completely new business concepts and the company expects to present additional profitable initiatives in coming years.
Control
Billerud controls and monitors its operations from a business area perspective. This applies for sales, operating profit/loss, product development and market investments. Production efficiency, results and operating capital are also monitored on a mill basis.
Financial targets
Operating margin
Historically, the development of the pulp and paper industry has followed a cycle with corresponding swings in the earnings capabilities of the actors in the industry. When setting a profit target for Billerud, the Board of Directors considered the company’s profit history, average exchange rates and price trends for pulp and paper in recent years. The target is that the operating margin shall be at least 10% over an economic cycle.
Return on investments
Completed investments shall provide a return that is significantly above the weighted average cost of capital (WACC). This will ensure that Billerud has a return on investment that meets the demands of shareholders while covering the company’s costs for liabilities.
In practice the company will apply different return requirements depending on the risk level of the investment, with a basic requirement that return on investment is significantly above WACC.
Organic growth
The target is to establish long-term organic growth of 3% from 2008 onward. Growth will be generated from increasing the proportion of paper in relation to market pulp, improving the product mix and customer structure and from new growth projects in the chain of value.
Debt/equity ratio
Billerud’s business is influenced to a large extent by general economic conditions, which means that the operating risk is extensive. Strengthening the financial position in good years is essential in order to sustain the company in bad years. Billerud therefore has a target that its debt/equity ratio over a business cycle shall be between 0.6 and 0.9.
Dividend policy
The target is that the dividend over a business cycle shall on average be equal to 50% of net profits. The dividend paid to shareholders will be dependent on, among other factors, Billerud’s profit level, financial position and future development opportunities. For 2008, the Board proposes that the year's profits be used to strenghten the company's equity and no dividend be paid.
