Billerudkorsnäs releases interim report January-September 2020

Resilient performance with strong cash generation

Billerudkorsnäs releases interim report January-September 2020

Billerudkorsnäs has released its interim report January-September 2020. According to the report, net sales for the third quarter declined by 5% to SEK 5,561 million (approximately 4,666 crore). Excluding currency effects, the sales decline was 3%, mainly due to lower prices. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined to SEK 570 million (approximately 478 crore), negatively impacted by lower sales prices and less favorable mix and higher maintenance costs compared with last year, and positively impacted by lower fiber costs, reduced negative KM7 ramp-up impact and cost savings. No costs affecting comparability impacted the results for the third quarter, it said.

Market development and outlook

During the third quarter, market conditions were largely unchanged compared with the second quarter. The demand for some of its products and services continued to be affected by Covid-19, mainly within product area paper and managed packaging. In general, the segments food and beverage, consumer and luxury goods and industry were stable, medical and hygiene have worsened.

For the fourth quarter, Billerudkorsnäs said market conditions are expected to be unchanged. However, uncertainty is high, and market visibility continues to be limited.

Events in the quarter

Billerudkorsnäs announced on 17 July that Christoph Michalski has been appointed president and chief executive officer of the company and will assume this position as of 1 November 2020. Christoph Michalski has since 2015 been the chief executive officer and executive director of Vinda International Holding, 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 (FMCG) 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 chief executive officer of Billerudkorsnäs since November 2019, will remain in the company until the end of 2020.

In August and September annual maintenance was carried out at Karlsborg, Gävle and Gruvön. The total maintenance shutdown costs amounted to SEK 399 million (approximately 335 crore). 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 (FMCG) sector. This solution enables a shift from conventional plastics to paper and is suitable for medium to high barrier requirements such as chocolate bars, confectionery 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 that 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.

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.

Lennart Holm, acting president and chief executive officer said, “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 program 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 program.”

We continue to make great progress on our cost and efficiency program, which generated structural savings of SEK 95 million (approximately Rs 79.7 crore) in the quarter. We raise the target for the program by SEK 50 million (approximately Rs 41.95 crore) to a run-rate positive impact of SEK 650 million (approximately Rs 545 crore) by the end of 2021. For 2020 we expect structural savings of SEK 300 million (approximately Rs 252 crore).

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,” he added.

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