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 % |
+/- 400 |
| Pulp price |
+/- 10 % |
+/- 150 |
| Exchange rate, SEK* |
+/- 10 % |
+/- 600 |
| Wood price |
+/- 10 % |
-/+ 330 |
| Electricity price |
+/- 10 % |
-/+ 17 |
| Interest rates on loans |
+/- 1 percentage unit |
-/+ 3 |
*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. There are various pricing models for packaging paper, the most common being interim pricing. Billerud has around 1 000 customers where the five largest account for around 21 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 2010 (%) |
| Wood raw materials |
32 |
| Personnel |
18 |
| Freight to customers |
11 |
| Chemicals |
7 |
| Services purchased |
5 |
| Other input goods |
4 |
| Depreciation |
8 |
| Energy |
5 |
| Other |
10 |
| Total |
100 |
Wood price
Wood raw material accounted in 2010 for 32 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 responsible 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.
Market prices for wood vary over time, which can affect Billerud’s earnings. The wood 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 at full output. In May 2007, Billerud signed a 10-year supply agreement for electricity at fixed prices with Vattenfall. The agreement covers basic power requirements of around 0.4 TWh per year for the period 2008–2017. Through this agreement and its own power generation capacity, Billerud has secured, since the beginning of 2008, approximately 80 per cent of its electricity energy requirement in a satisfactory manner, with a balanced combination of in-house generated electricity and long-term supply agreements. The remainder of the external energy requirement will be bought on the spot market or reduced by further energy savings.
Financing/interest rates
To ensure cost-efficient financing for the Group and avoid excessive impacts on earnings of large negative changes in interest rates, the norm for Billerud is that the average refixing period for the borrowing portfolio shall be 18 months, with a permitted deviation of +/-12 months. The interest refixing period for an individual loan or interest swap shall not exceed 10 years. To achieve this norm, interest rate derivatives, mainly interest rate swaps, are used. 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 2010 was 0.03.
More information regarding Billerud's risk management is found in the 2010 Annual Report on pages 71-75