Interim report January–September 2020
Resilient performance with strong cash generation
- Stable sales volumes despite challenging markets
- Successfully accomplished maintenance shutdowns
- Accelerated delivery of the cost and efficiency programme
- Strong operating cash flow generation
- Recyclable Flow Wrap launched
- Net sales declined by 5% to SEK 5 561 million (5 833). Excluding currency effects sales declined by 3%
- Adjusted EBITDA* was SEK 570 million (639), negatively affected by timing of annual maintenance shutdowns
- Operating profit was SEK 86 million (149)
- Net profit from continuing operations was SEK 52 million (77)
- Earnings per share amounted to SEK 0.25 (27.83)**
- Unchanged market conditions
- Raw material costs expected to decline slightly
- Several planned maintenance stops
- Continued KM7 ramp-up built on positive customer feedback
COMMENTS BY THE CEO
The third quarter was impacted by annual maintenance shutdowns at our mills in Karlsborg, Gävle and Gruvön. These shutdowns were planned for the first half of the year but were rescheduled due to the Covid-19 outbreak. Considering the ongoing pandemic, carrying out these large shutdowns was a challenging task. I am happy to say that they were successfully accomplished as planned and this without compromising the safety of our employees and contractors.
The market continued to be challenging. Mix effects combined with further softening of the market prices, inventory adjustments and slow demand impacted sales and margins negatively. The quarterly result was also heavily affected by maintenance costs. On a positive note, lower raw material costs and further improved performance of our new board machine (KM7) at Gruvön and very strong delivery of our cost- and efficiency programme helped to defend our financial result.
Market conditions were largely unchanged compared with the second quarter. While facing a challenging market situation, we continue to focus our efforts on our three core priority areas; the ramp-up of our new board machine at Gruvön (KM7), ensuring a safe and stable production, and delivering on our cost and efficiency programme.
During the maintenance shutdown at Gruvön certain modifications were made on KM7, these will enable us to move into a new phase of the ramp-up. We have now started to deliver coated material to customers and received very positive feedback. The focus for KM7 is now on the commercial development, finding new homes for incremental volumes and stepwise improving the product mix. In addition to the ongoing required certification process for liquid board, we will expand our premium-quality cartonboard business. KM7 is expected to reach break-even EBITDA during 2021, and will in the coming years deliver a significant profit contribution.
Production in the quarter was affected by the maintenance shutdowns and some related start-up problems in Gävle and Gruvön, which caused a few days of additional unplanned production loss. We also took demand-related downtime on a few of our paper machines. Overall, our continuous efforts to achieve a safe and stable production is making progress and is expected to be further strength¬ened by the new organization with all mills operating under one leadership.
We continue to make great progress on our cost and efficiency programme, which generated structural savings of SEK 95 million in the quarter. We raise the target for the programme by SEK 50 million to a run-rate positive impact of SEK 650 million by the end of 2021. For 2020 we expect structural savings of SEK 300 million.
The corona crisis is far from over, uncertainty remains and visibility going forward continues to be limited. We don’t foresee a fast recovery for the fourth quarter and expect unchanged market conditions. Raw material costs are expected to decline slightly.
Sustainability is a key factor to consider for all businesses and climate change is probably the major issue of our time. Here BillerudKorsnäs has an important role to play. A recent study shows that the net CO2 emissions into the atmosphere as a consequence of our activities are negative, i.e. we take up more CO2 than we discharge. Our products make it possible to replace packaging products based on fossil plastics, aluminium and glass. Our recently launched recyclable product Flow-Wrap is the latest in a series of BillerudKorsnäs’ innovative solutions that make it possible to substitute plastic with paper packaging.
In a few weeks, I will be handing over the baton to Christoph Michalski, who takes over as President and CEO. Christoph is an inspiring leader who has a very relevant background for the challenges that BillerudKorsnäs faces going forward. The Board of Directors and I are convinced that he will bring valuable skills, experience and new ideas to BillerudKorsnäs, and that he is the right person to lead and continue to develop this fantastic company into the future. It has been an honour for me to serve the company as acting CEO for this last year and very inspiring to interact with all our motivated employees, valued customers and suppliers.
Acting President and CEO
The quarter in review
SALES AND RESULTS
Net sales for the third quarter declined by 5% to SEK 5 561 million (5 833). Excluding currency effects the sales decline was 3%, mainly due to lower prices.
Adjusted EBITDA declined to SEK 570 million (639), negatively impacted by lower sales prices and less favourable mix and higher maintenance costs compared with last year, and positively impacted by lower fibre costs, reduced negative KM7 ramp-up impact and cost savings.
No costs affecting comparability impacted the results for the third quarter (4).
Market development AND OUTLOOK
During the third quarter, market conditions were largely unchanged compared with the second quarter. The demand for some of our products and services continued to be affected by Covid-19, mainly within product area Paper and Managed Packaging. In general, the segments Food & Beverage, Consumer & Luxury Goods and Industry were stable, Medical & Hygiene have worsened.
For the fourth quarter, market conditions are expected to be unchanged. However, uncertainty is high and the market visibility continues to be limited.
events in the quarter
BillerudKorsnäs announced on 17 July that Christoph Michalski has been appointed President and CEO of the company and will assume this position as of 1 November 2020. Christoph Michalski has since 2015 been the CEO and Executive Director of Vinda International Holding Ltd, a leading Asian producer of high quality and innovative tissue and hygiene products, publicly listed on the Hong Kong stock exchange. Before that, he held a series of senior executive positions in the SCA Group. Christoph Michalski also has extensive experience from the fast moving consumer goods sector, as he has held executive positions at both Unilever and at the New Zeeland dairy company Fonterra. Lennart Holm, who has been acting President and CEO of BillerudKorsnäs since November 2019, will remain in the company until the end of 2020.
In August and September annual maintenance were carried out at Karlsborg, Gävle and Gruvön. The total maintenance shutdown costs amounted to SEK 399 million. The higher costs than expected were mainly due to production losses in connection to the maintenance shutdowns at Gävle and Gruvön, and more extensive work than planned on the recovery boiler at Karlsborg.
In September, BillerudKorsnäs launched Recyclable Flow Wrap – an innovative paper-based packaging solution that can be applied for many products in the fast moving consumer goods sector. This solution enables a shift from conventional plastics to paper and is suitable for medium to high barrier requirements such as chocolate bars, confectionary and bakery products. BillerudKorsnäs’ Flow Wrap can be installed on existing and new flow wrapping machines. A patent application for BillerudKorsnäs Recyclable Flow Wrap is pending.
The Board of Directors of BillerudKorsnäs decided on 10 September not to submit a proposal for an extra dividend for 2019 against the assessment that the uncertainty remains high and the visibility in the market is still limited. The Board’s dividend proposal for the current year will as customary be submitted in the year-end report.
From 1 August, BillerudKorsnäs has introduced a more efficient organization which is based on the business flow and with functional areas Wood supply, Operations and Commercial. As a consequence of the organizational changes, a new reporting structure will be implemented. See page 12 for more information.
BillerudKorsnäs announced on 3 July 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. See pages 10 and 20 for more information.
events After the quarter
There were no significant events after the 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 22 October 2020.