Interim Report January–September 2019

Key highlights

• Underlying sales and profitability growth excluding the KM7 impact
• Strong balance sheet after sale of a majority stake in Bergvik Skog Öst
• Increased focus on efficiency and profitability

Quarterly data

• Net sales declined by 4% to SEK 5 833 million (6 054), driven mainly by volume and mix impact of KM7 start-up.
• Adjusted EBITDA* was SEK 639 million (893), negatively impacted by KM7 start-up effects of around SEK 280 million.
• Operating profit was SEK 149 million (513).
• Net profit was SEK 5 754 million (363), including profit from discontinued operations of SEK 5 677 million.
• Earnings per share amounted to SEK 27.83 (1.76). Adjusted earnings per share were SEK 0.48 (1.85).

Q4 Outlook

• The market for Division Board is expected to be stable.
• Weaker market conditions in some segments, particularly brown sack paper and kraft paper for industrial use, with an increased pricing pressure.
• Slightly lower total cost of fibre due to lower pulpwood prices.

  
COMMENTS BY CEO

“The start-up effects for KM7 have been significant and the underlying sales and earnings grew”

Demand for sustainable packaging remains high and BillerudKorsnäs’ market position and know-how are creating good opportunities for long-term growth. However, in the third quarter uncertainty in the global board and paper market increased and the fibre costs remained at historic high levels.

In the short term, revenues and earnings are being impacted by start-up effects of the new board machine at Gruvön, with a negative impact on sales growth compared with the equivalent period last year of 5 percentage points, and on EBITDA of approximately SEK 280 million in the third quarter. When adjusting for the KM7 start-up effects underlying adjusted EBITDA grew in the quarter. The ramp-up of KM7 is continuing and the machine is producing good quality materials that are receiving positive customer feedback and the production availability is improving. For the remainder of the year we will be focusing on increasing availability of the machine and the certification process is planned to start in the first half of next year. For years ahead the KM7 investment at Gruvön will provide BillerudKorsnäs with a platform for growth in attractive and steadily growing segments. When fully ramped up in 2023, this machine is expected to produce 550 000 tonnes annually.

The completion of the Bergvik Skog Öst transaction took place on 30 August and implied a positive cash flow of SEK 7.6 billion and a capital gain of SEK 5.6 billion, reported in the third quarter result. The cash was used to repay loans and our debt ratio is now 1.8 which is significantly better than the long-term target of below 2.5.

A review of our long-term strategy was completed during the third quarter and resulted in four strategic priorities for the next five years; Drive performance, Drive profitable growth by creating customer value, Accelerate speed in innovation and Expand our solutions business. As part of the strategic priority on performance and to ensure long-term profitability we have introduced a cost reduction programme. Measures include purchasing savings, personnel reductions and efficiency improvements. The programme is expected to generate structural savings of around SEK 600 million in 2021. In order to improve safety and production stability we are setting new standards and implementing group-wide working practises.

Sustainability is integrated into all parts of our strategy and we are proud to continue being named the most sustainable packaging company and one of the most sustainable companies in the world as being included in the Dow Jones Sustainability Index World.

For the fourth quarter, the market for Division Board is expected to be stable, but we foresee a weaker market in some segments for Division Paper with increased pricing pressure.

BillerudKorsnäs has a strong position in relatively resilient product segments. Combined with our strong financial position and our strategic initiatives, this gives me confidence that we are well equipped to meet an economic slowdown. At the same time, the potential for replacing plastic and capturing the increasing demand for fibre-based packaging has never been greater.

Petra Einarsson, President and CEO

The quarter in review

SALES AND RESULTS
Net sales for the third quarter declined by 4% to SEK 5 833 million (6 054), mainly driven by the start-up of KM7, which accounted for 5 percentage points (volume and mix), but also due to a weaker demand for sack and kraft paper. Net sales for the quarter were positively impacted by currency effects of 2%.

Adjusted EBITDA decreased to SEK 639 million (893), negatively affected by KM7 start-up effects of approximately SEK 280 million, lower sales volumes and reduced sales prices. Currency effects and cost savings had a positive impact.

The implementation of IFRS 16 affected adjusted EBITDA positively by SEK 28 million in the third quarter, see note 1.

Costs affecting comparability, reported in Other, amounted to a net amount of SEK 4 million (27) and included a provision for restructuring costs in connection with the cost reduction programme initiated in the third quarter of 2019 and the release of a provision made in 2016 related to the new board machine at Gruvön.

Market development AND OUTLOOK
The market for liquid packaging board and cartonboard continued to grow in the third quarter, while uncertainty in the global container market increased. The market for sack and kraft paper weakened. The market pulp price index (PIX) declined from USD 1 000 at the end of June to USD 850 at the end of September.

For the next quarter, the market conditions for BillerudKorsnäs’ board segments are expected to be stable. For sack and kraft paper the demand is expected to weaken. Pricing pressure is expected to increase in some segments.

events in the quarter
BillerudKorsnäs’ sale of 89.9% of Bergvik Skog Öst to the pension company AMF was completed on 30 August 2019 following approval from the Swedish Competition Authority on 4 July 2019. The sale resulted in a positive cash effect of approximately SEK 7.6 billion (after selling cost and sold cash and cash equivalents in BSÖ Holding AB Group) and a capital gain of approximately SEK 5.6 billion which has been recognised under Discontinued operations in the third quarter result. For more information, see notes 3 and 4 on pages 19-20.   

As part of forming a joint venture with ALPLA to commercialise the paper bottle, BillerudKorsnäs sold 44.6% of the shares in ecoXpac to ALPLA on 9 July 2019. See notes 3 and 5 on pages 19 and 21 for more information. 

In July, BillerudKorsnäs filed a patent of the first functional 180 degree U-bend paper straw in cooperation with The Paper Straw Company, which will produce the straw.

In July, BillerudKorsnäs announced that it had completed the world’s first production of a paper battery on a paper machine. This confirms the possibility of industrial production of the electrode material.

In September, BillerudKorsnäs introduced a cost reduction programme to ensure long-term efficiency and profitability. The programme is expected to have structural positive effects on earnings of approximately SEK 600 million in 2021, of which approximately SEK 250 million will affect the result in 2020. The measures include personnel reductions, purchasing savings and efficiency improvements throughout the business. The number of employees will be reduced by up to 300 and negotiations with the trade unions have started.

EVENTS AFTER THE QUARTER
On 1 October 2019, Malin Ljung Eiborn took up the position of EVP Sustainability and joined the Executive Leadership Team. Malin Ljung Eiborn was previously Director of Sustainability and Public Affairs at BillerudKorsnäs.

In October, Paboco® (former ecoXpac), the joint venture between BillerudKorsnäs and ALPLA, presented the paper bottle community including the brands Coca-Cola, Absolut, Carlsberg and L’Oréal.
 

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 24 October 2019.