Improved profit and cash delivery in continued weak market conditions
Key highlights Q3
• Higher sales volumes in both regions compared to last quarter, offset by price and mix deterioration
• Sequentially lower input costs and lower fixed cost than normalized level
• Efficiency enhancement program on track – delivered SEK 175 million in the quarter
• Earnings per share positively impacted by recognition of tax credits in the US
• Strong operating cash flow with tight control on working capital
• Frövi recovery boiler project completed on time, spec and budget
Quarterly data Q3
• Net sales decreased by 14% to SEK 10,210 million (11,814)
• Adjusted EBITDA* SEK 1,167 million (2,196)
• Adjusted EBITDA margin 11% (19)
• Operating profit SEK 415 million (1,536)
• Net profit SEK 656 million (1,347)
• Earnings per share SEK 2.64 (5.42)
Outlook for Q4
• Customer destocking largely completed, however continued weak demand driven by subdued macroeconomic environment
• Negative mix for most categories and lower sales prices for sack and kraft paper, partly offset by lower input costs
• Further steps are taken to drive efficiency and long-term competitiveness through reducing up to 350 positions
Comments by the CEO
We delivered a meaningfully improved result in the third quarter compared with the previous quarter. Profitability and cash generation were significantly up, and encouragingly, we see progress in both our European and North American regions. The adjusted EBITDA margin for the quarter was 11% with excellent cash conversion. The improved performance was mainly due to volume pick-up in both regions, lower than normalized fixed cost level, accelerated delivery of our efficiency enhancement program and strong focus to keep our working capital low. In particular, we are happy to see the mobilization we have gained throughout the organization related to our efficiency enhancement program, and we are on track to deliver our SEK 600 million target for 2023.
However, the market conditions remain weak for most product categories. We continue to navigate through challenging demand and customer destocking by adjusting our production output. We do not foresee strong recovery near-term, and will continue to adjust to the new conditions, aiming to improve our long-term competitiveness. As part of our efficiency enhancement program, we have decided to reduce the number of positions by up to 350. It will mean redundancies and affect all parts of the company. Union negotiations begin today. These measures will provide annual structural savings of SEK 300 million, with majority of the run-rate savings in 2024. Restructuring costs related to this of MSEK 100 will be recorded in the fourth quarter.
Since mid-August we have a new operating model in place, with a clear regional organization for both Europe and North America. As well, our global management team is now a bit smaller. We see already positive signs of how our new structure is working, as it provides good conditions for agile, clearer and faster decision-making. I am confident that a holistic view of the value chain in each region will enable further synergies and value creation.
18 months post the acquisition of Verso, we are very pleased with the results and developments, which has exceeded our expectations, driven by solid margins and cash generation. The business fundamentals and strategic fit for paperboard production in North America continue to be strong and remains Billerud’s most important growth opportunity. However, given the changed economic conditions, we are taking our time to evaluate alternatives for the US transformation. We will therefore not decide on the transformation investment program by the end of this year as previously announced, and we will revert when ready. Meanwhile, we are building the paperboard sales in the US through export.
The new recovery boiler in the Frövi mill has been put into production and will be handed over from the supplier to the line organization during November. We are proud that this project has been delivered on time and budget despite plenty of external challenges since investment decision was made in early 2021. The successful project management creates confidence in our ability to carry out large and complex capital investments in the future.
We are continuing to execute on Billerud’s strategy on packaging materials and focusing on the core and have divested the business unit Managed Packaging and most positions within venture holdings. The most recent decision was the divestiture of our ownership in the joint venture Paper Bottle Company AS (Paboco) to our JV partner Alpla.
For the fourth quarter, we expect continued weak market conditions for most product categories. Customers’ destocking is expected to be largely completed, but we foresee lower consumer spending to suppress demand for the majority of our products. We expect continued negative mix for most categories and sales prices within sack and kraft paper to decline. These effects should partly be offset with lower input costs, primarily within chemicals and pulpwood.
Looking into 2024 we are cautiously optimistic as volume recovery will kick in post a largely completed customer destocking phase. However, the geopolitical and macroeconomic uncertainty will continue to negatively impact consumption and thereby the demand for paper and packaging materials. We do not expect strong recovery, but rather step-by-step improvements throughout the year driven by volume growth.
The strategic direction for Billerud remains intact, but our priorities are being updated to reflect the regional organisation and changed conditions on several fronts. Our near-term focus will continue to be on items that we control and where we already have built up good momentum during 2023. By accomplishing efficiencies, cost reductions and solid business cases, Billerud will be well positioned to capture future opportunities.
Ivar Vatne
Acting President and CEO
Source: Billerud
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