BillerudKorsnäs: Interim Report January – June 2019

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“We deliver a solid result despite continued high fibre costs and start-up effects for KM7”

Solid underlying result

KEY HIGHLIGHTS

  • Strong sales performance
  • Continued high fibre costs
  • Ramp-up of KM7 proceeding according to plan
  • Divestment of a majority share of Bergvik Skog Öst, to be completed in the third quarter

QUARTERLY DATA

  • Net sales were up by 7% to SEK 6 293 million (5 898) as a result of positive currency effects, higher sales volumes and increased sales prices.
  • Adjusted EBITDA* was SEK 539 million (671), impacted by higher costs for raw materials and start-up effects for KM7.
  • Operating profit was SEK 194 million (-174).
  • Net profit was SEK 182 million (-133).
  • Earnings per share amounted to SEK 0.88 (-0.64).

Q3 OUTLOOK

  • Market conditions expected to remain good for liquid packaging board and cartonboard.
  • Weaker market conditions for some segments.
  • Increased price pressure expected.
  • Total cost for fibre is expected to flatten out at the current high level.
        

COMMENTS BY CEO

“We deliver a solid result despite continued high fibre costs and start-up effects for KM7”

High demand for sustainable packaging solutions continued to drive growth. Net sales in the second quarter improved by 7%, positively affected by currency, higher sales volumes and price increases. We deliver a solid result despite continued high fibre costs as well as start-up effects for KM7 of approximately SEK 190 million.

Production availability has been satisfactory during the quarter and sales volumes were up compared to same period last year. Operational efficiency is improving, supported by our production excellence programme and group-wide safety initiative, but lost production volumes have affected us during the first half of the year.

The ramp-up of the new board machine KM7 at Gruvön is proceeding as planned. During the second quarter we delivered on important milestones and since the end of June the machine is producing liner for customers. The next step will be to introduce coated material, and in October we aim to have certification material sent to customers. For the full year we estimate the negative start-up effects for KM7 on EBITDA to total SEK 500 million.

As communicated, we will divest a majority share of Bergvik Skog Öst to the pension company AMF and have agreed on a 15-year long agreement regarding the supply of wood corresponding to approximately one tenth of our total wood supply. We have thereby secured a long-term, competitive and stable wood supply from this forestland. The transaction is planned to be completed on 30 August and will result in a positive cash effect of around SEK 7.9 billion. The balance sheet will thereby be substantially strengthened, enabling investments and acquisitions for a continued profitable growth.

BillerudKorsnäs’ market position and know-how offers fantastic opportunities to grow within packaging solutions. We are investing in innovation of new products and believe that the fastest way to market is through collaboration. An example of our way of working is the joint venture that we have formed with ALPLA, where we share the joint vision to develop a fully bio-based and recyclable paper bottle in the near future. Carlsberg and Absolut have already signed up to take part in the commercialisation of the paper bottle.

Long-term demand for fibre-based packaging is being driven by the mega trends of urbanisation, digitalisation, globalisation and sustainability. Country by country, decisions are being taken to reduce the use and litter of plastic. In Europe, our largest market, the EU has adopted a directive on single-use plastics which constitutes a great opportunity for us to replace plastic packaging in many applications and contribute to a more sustainable consumer behaviour.

For the third quarter we expect the market conditions for our liquid packaging board segment, constituting around one third of our sales, to remain good and within this segment we have secured a number of long-term contracts. However, uncertainty in the containerboard market has increased somewhat and we expect weaker market conditions and increased price pressure for some of our smaller segments. To mitigate the effects and safeguard our results we will continue to focus on growth in areas where we are strong and to continue our programmes for operational efficiency and cost savings. The total cost of fibre is expected to flatten out at the current high level in the second half of the year.

BillerudKorsnäs is well positioned to capture customer demand for innovative and sustainable packaging. Our strategy is based on profitable growth by challenging conventional packaging. We will continue to focus on a successful ramp-up of KM7, safety, production stability, efficiency improvements and innovation.

Petra Einarsson, President and CEO
     

SALES AND RESULTS

Net sales for the second quarter increased by 7% to SEK 6 293 million (5 898) as a result of positive currency effects, higher sales volumes and increased sales prices. The currency effect on net sales amounted to SEK 148 million.

Adjusted EBITDA decreased to SEK 539 million (671), negatively affected by higher raw material costs and start-up effects for KM7 of approximately SEK 190 million, partly offset by increased sales and lower scheduled maintenance shutdown costs compared with the second quarter last year.

The implementation of IFRS16 affected adjusted EBITDA positively by SEK 27 million in the second quarter, see note 1.

Costs affecting comparability amounted to SEK -40 million (483) and reported in Other, were related to released provisions for staff changes, demolition of old buildings and decontamination as well as costs for the new board machine in Gruvön. Costs affecting comparability for the second quarter of 2018 included provisions totalling SEK 452 million and were related to strengthened workplace efficiency and environment and unified accounting principles related to spare parts and consumables.

MARKET DEVELOPMENT AND OUTLOOK

Market conditions for liquid packaging board and cartonboard remained good during the second quarter, while the uncertainty in the global container market increased. The market for sack and kraft paper has weakened.

For the coming quarter, market conditions are expected to remain good for liquid packaging board and cartonboard, stable for semi-chemical fluting and white kraftliner and challenging for sack and kraft paper. The market pulp price index (PIX) has declined from USD 1 105 at the end of March to USD 1 000 at the end of June.  


Source: BillerudKorsnäs