Interim report January–June 2020
Resilient performance in uncertain times
- Continued sales volume increase
- Relatively limited impact from Covid-19
- KM7 ramp-up progress as planned
- Earnings continued to be affected by lower market prices
- On track to deliver our cost- and efficiency program
- Net sales declined by 2% to SEK 6 156 million (6 293)
- Sales volumes grew by 4% compared to second quarter last year
- Adjusted EBITDA* was SEK 774 million (539)
- Operating profit was SEK 245 million (194)
- Net profit was SEK 202 million (182)
- Earnings per share amounted to SEK 0.98 (0.88)
- Uncertainty related to Covid-19 remains
- Somewhat more challenging market conditions for most segments. Exceptions being products designated to Food & Beverages and Medical & Hygiene, where we expect a more stable situation
- Several planned maintenance stops
- Raw material costs expected to decline marginally
COMMENTS BY CEO
The year 2020 is for sure a year we never will forget. It started off in a rather normal fashion but that soon changed as we started to learn the meaning of Covid-19. In BillerudKorsnäs measures were taken early to safeguard our employees and operations. Now, half a year later, I am proud that BillerudKorsnäs’ operations and business overall has continued to function without interruptions and still does. The decisive measures we took early on have enabled us to keep our business running as close to normal as possible, supporting our customers through a difficult period.
The financial effects on our company of Covid-19 have been, so far, relatively limited. Additional costs have incurred, but are partly offset by incremental cost cutting actions. The main effects are indirect and related to a weaker market for a number of our packaging paper grades. Overall, we have managed to keep the negative financial impact under control, but the pandemic is far from over so we must maintain full alert. Our focus areas for 2020 remain; ramping up our new board machine at Gruvön (KM7), ensuring a safe and stable production and delivering on our cost and efficiency program – all to be dealt with in a Covid-19 impacted environment doing our outmost to protect employees and customers.
In the second quarter the demand for our products was relatively stable. We managed to deliver a sales volume growth, but Covid-19 impacted negatively certain segments with lower demand, mainly within Division Paper. Division Board continued to deliver higher sales in all segments while Division Solutions struggled with significantly lower demand from North American based brand owners. Positive contributions came from a good progress on KM7 and efficiency measures taken throughout the company. All in all, I can conclude that we – despite a challenging environment – delivered a solid result with improved margins.
The ramp-up of KM7 is progressing as planned with a recent milestone being successful production of our most technical advanced product CrownBoard Prestige®. KM7 is gradually increasing its output of prime material. The process to certify materials for liquid packaging board continues, but at a slower pace than planned due to testing limitations at our customers as a consequence of Covid-19.
Production has been acceptable in the quarter, despite some challenges. We had a breakdown of the continuous digester in Skärblacka in April and we have had to take downtime on a few of our paper machines due to a weaker demand. This situation can be expected to continue into the third quarter as we are taking steps to adjust production to a slower demand. The third quarter will also be negatively affected by planned maintenance stops at Gävle, Karlsborg and Gruvön in August and September.
Our cost and efficiency program delivered structural savings of SEK 90 million in the quarter and we are progressing well to deliver a positive impact of SEK 250 million in 2020. Additional and more temporary cost cutting measures to mitigate the Covid-19 impact have been taken. Furthermore, a renegotiated pulp, steam and electricity supply agreement for our mill in Pietarsaari is expected to reduce our raw material sourcing costs going forward.
In line with our focus on performance and efficiency we have announced our intention to implement a new organization structure as from 1 August. The new organization is built along the business flow and it will enable us to drive a process of streamlining our way of working, enhancing efficiency and our ability to adapt to changes.
For the coming quarter, the overall uncertainty related to Covid-19 is expected to remain. Market conditions are not expected to improve due to some ongoing downstream destocking, combined with a continued relatively slow demand for several of our products segments.
It is impossible to predict for how long the Covid-19 will last, but I do feel that BillerudKorsnäs, together with its devoted and able employees and solid customers, will get through and come out as an even stronger company. We have been through tough periods before and the long-term demand for fibre-based materials and sustainable packaging solutions is growing. We are well positioned for the future!
Acting President and CEO
The quarter in review
SALES AND RESULTS
Net sales for the second quarter declined by 2% to SEK 6 156 million (6 293). Higher sales volumes were primarily offset by significantly lower sales prices compared to last year in Division Paper. Net sales for the quarter were positively impacted by currency effects by 1%.
Adjusted EBITDA increased to SEK 774 million (539), mainly as a result of lower maintenance costs compared with last year, lower fibre costs, reduced KM7 start-up impact and cost savings.
Costs affecting comparability, reported under Other, amounted to SEK 39 million (-40) and included a provision related to a new supply agreement of SEK 160 million, a value change of biological assets of SEK -132 million and restructuring costs related to severance pay of SEK 11 million.
Market development AND OUTLOOK
During the second quarter, market conditions were stable for most of our board and some paper products. However, the demand for some products and services were affected by Covid-19, mainly within Division Paper and Managed Packaging. In general, the market segments Food & Beverage and Medical & Hygiene had stable market conditions (liquid packaging board and relevant niches of containerboard, kraft and sack paper), Consumer & Luxury Goods had more challenging conditions (cartonboard and relevant niches of containerboard, sack and kraft paper) and the Industry segment had weak conditions (relevant niches of sack and kraft paper and containerboard).
For the third quarter, somewhat more challenging market conditions due to Covid-19 are expected. The demand for our products designated to Food & Beverages and Medical & Hygiene are however estimated to remain stable. Products designated for Consumer & Luxury Goods and the Industrial segment conditions are expected to meet more challenging market conditions.
EVENTS IN THE QUARTER
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 circumstances with Covid-19. The financial effects of the postponed maintenance stops are estimated to SEK 35 million in the third quarter. See page 24 for more information about the maintenance stops.
A mechanical failure in a digester at Skärblacka caused lost production in the first half of April with a negative financial impact of around SEK 30 million.
On 29 May, BillerudKorsnäs announced that it had entered into an agreement with UPM that will extend UPM’s supply of pulp, steam and electricity for the production at BillerudKorsnäs’ mill in Pietarsaari. The new agreement is based on market conditions and effective as of June 2020. As part of the agreement, BillerudKorsnäs will pay a compensation of EUR 15 million to UPM in three instalments. A provision of SEK 160 million was made in the second quarter results.
On 17 June, BillerudKorsnäs announced that it will implement a new organizational structure in order to create conditions for improved efficiency. The new organization, effective from 1 August 2020, will have three functional areas: Wood Supply, Operations and Commercial. The resources in sustainability and innovation will be grouped into a new function. Following the introduction of the new organization, the Executive Management Team will comprise of: Lennart Holm, acting CEO, Ivar Vatne, CFO, Helene Biström, EVP Commercial, Tor Lundqvist, EVP Operations, Uno Brinnen, acting EVP Wood Supply, Ulf Eliasson, EVP Sustainability & Strategic Development and Paulina Ekvall, EVP HR. As a consequence of the reorganization, Mikael Andersson, EVP Division Board, and Magnus Wikström, EVP Innovation, will leave the company.
In June, BillerudKorsnäs launched Pure Performance, a white top kraftliner that combines high strength, excellent printability and purity in one material. It offers packaging material reduction thanks to it 3-ply construction, is produced on the new board machine KM7 at Gruvön and received great appraisal from customers.
EVENTS AFTER THE QUARTER
On 3 July, BillerudKorsnäs announced that it had changed the accounting method for valuing forest land assets and had made a valuation of around 36 000 hectares of forest assets, of which around 18 000 hectares are productive forests, in which the biological assets are valued according to IAS 41. The value change related to biological assets of SEK 132 million has been recognized in the income statement in the second quarter and as an item affecting comparability in the second quarter results. The value change related to the forest land of SEK 148 million has been recognized in Other Comprehensive Income. See pages 10 and 19 for more information.
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 08.00 CET on 17 July 2020