Billerud, navigating challenging market conditions
“The second quarter was challenging with all-time low sales volumes and with currency-neutral net sales declining by 18% compared to the same period last year. The largest sales decline was in North America due to the continued inventory destocking resulting in production curtailments. This, in combination with historically high fiber costs in Europe led to a weak result.
By all indications, the blastomycosis outbreak at the Escanaba mill is behind us. Following a three-week idling and deep cleaning of the facilities, operations were successfully resumed on the 8th of May. We continue to work closely with local, state and federal health experts as they complete their analysis of the testing and sample collection at the mill. Results will be made publicly available in due course. The negative financial impact of the outage and the deep clean was SEK 85 million in the quarter.
From the 1st of April, our financial results are reported according to a regional structure. Business conditions differ vastly between Europe and North America, even if the current situation of high inventories and destocking applies to both regions. Region Europe’s profitability deterioration in the second quarter was primarily due to all-time-high fiber cost and soft volumes. Region North America on the other hand delivered a comparatively healthy margin, despite an operating rate of 50-60%, thanks to our cost-leadership and tight cost control.
For the third quarter, we expect continued low demand for all products except for liquid packaging board where demand is stable. We will continue to adapt our production to demand. Our prices are expected to be more stable, while mix will have a negative impact. Input costs are expected to decline, although fiber cost in Europe remains high.
Our efficiency improvement program remains a top priority. We have raised our 2023 ambition to SEK 600 million with accelerated delivery in the second half year. Examples of initiatives are increased share of field wood purchases and engagement with suppliers to jointly identify efforts to reduce variable costs and optimize consumption rates of high-cost chemicals. Our focus on cash flow conversion is having an effect. We have reduced inventory levels and are keeping a tight control on our working capital and continue to limit investments.
In line with our focus on sustainable profitable growth in packaging materials, we have agreed to divest Managed Packaging and sold our ownership in the packaging traceability company Kezzler. For the same purpose, we investigate possibilities to sell other non-core assets.
The construction and installation of the new recovery boiler in Frövi is in its final stages. The new recovery boiler is to be put into production in September ahead of schedule and at a marginally lower than planned CAPEX. This investment ensures continued long-term and competitive production of high-quality carton board in Frövi. The new, fossil-free recovery boiler will enable increased energy efficiency and improved environmental performance. Its capacity will allow for higher pulp production in the future.
During the quarter Billerud made good progress on the large and very important program to convert one of our US mills to carton board production. This program covers the installation of one carton board machine, a new extended wood yard and a BCTMP plant. It also includes significant upgrades to the existing infrastructure to ensure cost effective operation, significant improved sustainability performance and opportunity to expand in the future. The significance of the project requires more time to reach the necessary project planning quality before ordering of equipment can take place. We expect to reach that level by the end of the year together with an optimized CAPEX phasing, including our BCTMP project in Norway together with Viken Skog.
We have made good progress with our strategy that focuses on premium primary fiber packaging materials. While this quarter has been particularly difficult, I remain confident that our long-term strategy will deliver significant future upside for Billerud. I also would like to recognize the hard work by our employees, customers and suppliers and thank them for their excellent collaboration.” commented Christoph Michalski, President and CEO.
Key highlights Q2
- Low volumes due to continued customer inventory destocking and soft end market demand
- Stable sales prices in North America, price deterioration in Europe in some categories from record 2022 levels
- Lower input costs did not offset price deterioration
- Escanaba mill resumed operations on May 8th after three weeks idling for deep cleaning due to blastomycosis outbreak
- Revaluation of inventory impacted EBITDA
- Positive cash flow for the quarter with tight control on inventories
- Raised ambition of efficiency enhancement program to SEK 600 million
Quarterly data Q2
- Net sales decreased by 13% to SEK 9,953 million (11,408)
- Adjusted EBITDA* was SEK 188 million (2,267)
- The adjusted EBITDA margin was 2% (20)
- Operating loss was SEK 496 million (profit: 1,609)
- Net loss was SEK 481 million (profit: 1,419)
- Earnings per share amounted to SEK -1.94 (6.83)
Outlook for Q3
- Weak demand expected to continue
- Continued production curtailments
- Negative mix impact and some price reductions, only partly offset by lower input costs
- Accelerated delivery of the efficiency enhancement program
