Billerud's business is affected by and sensitive to changes in:
- The general state of the business cycle
- Exchange rate changes
- Events in the outside world
- Company-specific factors
Billerud tries to minimise the risks through preventive measures. If this is not possible, risk is hedged or insured.
Sensitivity analysis
| Variable |
Change |
Approximate effect
on operating profit
in MSEK |
| Sales volume |
+/- 10 % |
+/- 300 |
| Pulp price |
+/- 10 % |
+/- 140 |
| Exchange rate, SEK* |
+/- 10 % |
+/- 450 |
| Wood price |
+/- 10 % |
-/+ 290 |
| Electricity price |
+/- 10 % |
-/+ 15 |
| Interest rates on loans |
+/- 1 percentage unit |
-/+ 7 |
*Excluding effects of currency hedging.
Sales volumes
In general, Billerud's products are affected by the business cycle, both in terms of pricing and delivery volumes. Nearly all sales are based on framework agreements that specify general delivery conditions and planned volumes. Pricing is mainly on the basis of a fixed price for 12 months or a floating price. Billerud has around 1 100 customers where the five largest account for around 22.5 per cent of the Group's sales. Around 75 to 80 per cent of sales are in Europe.
Pulp price
Market pulp, which acocounts for around 20 per cent of Billerud's sales, is much more sensitive to the business cycle than packaging paper, both regarding prices and delivered volumes.
Currencies/exchange rates
Billerud is structurally exposed to currency changes because most of the company's income is invoiced in foreign currency. The most important invoicing currencies are EUR, USD and GBP. However, the majority of operating costs are in SEK. The main exceptions are freight costs and the costs for imported wood and chemicals, which are affected above all by fluctuations in EUR and USD exchange rates.
To reduce the effetcs of currency exposure, Billerud continuously hedges forecast net flows in foreign currencies. Around 50 per cent of net flows over the coming 12-month period must always be hedged. This figure may rise to 100 per cent of net flows over the coming 15 months if ít is deemed appropriate with regard to profitability and the currency situation.
| Breakdown of operating costs in 2009 (%) |
| Wood raw materials |
35 |
| Personnel |
19 |
| Freight to customers |
12 |
| Chemicals |
8 |
| Services purchased |
4 |
| Other input goods |
4 |
| Depreciation |
7 |
| Energy |
3 |
| Other |
8 |
| Total |
100 |
Wood price
Wood raw material is 35 per cent of Billerud's operating costs. Billerud does not own any forest; it buys all its wood raw materials on the timber market. Billerud Skog AB is reposible for the Group's wood purchases. Purchases are made from a few, major suppliers, Stora Enso, Holmen, Sveaskog etc, and from a large number of private forest owners in northern Sweden. Most wood is purchased locally, close to the mills. About 25 per cent of the company's timber requirements are imported, mainly from the Baltic states.
Prices for wood raw materials have periodically risen sharply but fell during 2009. These prices are affected by demand from the pulp industry, indicating that changes in the overall output of the pulp industry in the Nordic region may subsequently affect the level of costs of wood raw materials. Demand in other sectors – such as in sawn timber and wood used for combustion may also indirectly affect the price of pulp wood. Changes in customs duties may also impact on the price of imported timber.
Electricity price
Billerud purchases around 0.8 TWh of electricity from external suppliers. Billerud's self-sufficiency in electritiy is around 60 per cent. In May 2007 Billerud signed a 10-year supply agreement for electricity at fixed prices with Vattenfall. Through the agreement and its own power generation capacity, Billerud has secured approximately 80 per cent of its electricty energy requirements. Hence, only around 20 per cent is bought on the spot market. Consequently only a very minor part of electricity consumption is hedged via derivatives.
Financing/interest rates
Rules have been established within Billerud to manage financial risks. The repayment structure of loans shall be adapted so that loan maturity in an individual year does not exceed 25 per cent of total borrowings. Financial instruments may only be made in certain types of low-risk instuments and fixed interest terms cannot exceed six months. According to Billerud's financial targets, the net debt/equity ratio shall be between 0.60 and 0.90. The net debt/equity ratio at the end of 2009 was 0.29.