Improved sequential performance in the wake of positive market sentiment
Key highlights
• Adjusted EBITDA sequentially up more than 50%
• Strengthened order books in both regions and improved capacity utilization in North America
• Sequentially 6% higher sales volumes (approx.+50 ktons)
• Positive pricing and favorable mix changes compared to the fourth quarter
• Divestment of idled mill assets in the US
Quarterly data
• Net sales decreased by 9% to SEK 10,423 million (11,495)
• Adjusted EBITDA* SEK 1,166 million (1,484)
• Adjusted EBITDA margin 11% (13)
• Operating profit SEK 448 million (806)
• Net profit SEK 313 million (639)
• Earnings per share SEK 1.26 (2.57)
Outlook for Q2
• Improved market conditions for both regions
• Increased sales prices expected to offset higher input costs mainly driven by higher pulpwood prices
• Maintenance shutdowns estimated to have a cost impact of SEK 525 million
Comments by the CEO
The first quarter result was a clear sequential improvement. As we expected, the improvement was mainly derived from stronger sales volumes and stronger price positions within liquid packaging board. We also experienced favorable product mix changes in both regions. Despite headwinds of higher costs for energy, logistics and fiber in Europe, the Group’s EBITDA margin strengthened to 11% in the quarter.
The market sentiment clearly improved during the quarter in both regions. Order books have strengthened, and we see broad-based price increase announcements. Over the past quarter, we adjusted quickly and produced at full speed on all machines in Europe and significantly decreased our production curtailments in the US. I am in particular proud of how we successfully managed to solve the challenging logistical issues, enabling us to capture the market opportunity. We are also pleased with the clearly improved profitability in North America to 16% EBITDA margin. With overall cost stability, we are excited about the future cost-leading production opportunities in this region.
However, we need to be careful to draw the conclusion that the underlying consumption has picked up significantly. The combination of longer delivery times due to Red Sea difficulties and strikes in Finland both have an impact on the supply situation. As we learned from 2021/2022, such effects are temporary and will likely lead to stock build-up. Keeping a close eye on inventory levels throughout the supply chain will thus be critical.
With the industry returning to normalized production levels and a tight supply situation, prices for fiber in the Nordics continue to increase. We expect to reach all time high prices in the second quarter on Swedish-sourced pulpwood. We do not foresee a reversal of this tight fiber supply situation unless we see structural changes in the industry. In this continuous difficult market context, it is imperative that we focus on items that we have in our control. Several price increases have already been implemented, and we will need to do more. On top of this, we will continue to pursue efficiencies in all corners of our operations as well as keeping strict cost discipline for 2024.
Wisconsin Rapids mill assets, which have been idled since 2020, will be divested to focus on core business objectives, optimize resources, and align with our long-term strategy to drive sustainable growth. We are convinced that this is the best solution for all stakeholders. At the same time, we are fully committed to the ownership and operation of the Wisconsin Rapids converting facility, as it plays a key role in the sheeting of graphic paper and cartonboard. Our US facilities are well located to ensure that we can deliver our products quickly, efficiently and cost-effectively to the customers.
Our updated greenhouse gas emission reduction targets are ambitious and have been submitted to the Science Based Target initiative for verification. The long-term goal is to achieve a carbon footprint at our US mills that is best in class in North America and as close as possible to the excellent performance we have in Europe. We will also continue to eliminate the remaining fossil emissions in Europe. Billerud has always been a leading sustainability player in our industry, and we continue to be committed to lead the change.
For 2024 our top three priorities remain intact:
- Proceed with the preparations for our strategic investment projects. We continue to explore options for the US transformation and BCTMP (bleached chemi-thermo-mechanical pulp) project together with Viken Skog.
- Execute on our updated European strategy to adapt to a persisting high-cost situation and to improve profitability. This means execution of concrete actions to strengthen operational mill performance and secure cost competitive wood supply in the Nordics through partnerships and expanding our field wood purchases. We will also increase fiber efficiency by using more CTMP (chemi-thermo-mechanical pulp) and optimize the use and mix of fiber.
- Deliver on our efficiency enhancement program. We have good momentum and are on track to deliver SEK 700 million incrementally in 2024. Workforce reductions are progressing as planned and we expect to reach most of the estimated SEK 300 million impact this year, all included in the efficiency enhancement program target.
The first quarter was in summary a promising start to 2024. Although market sentiment has turned more favorable, we are facing an unprecedented situation in the Nordic wood market. We need to continuously perform at our best to navigate successfully through the difficult conditions.
Ivar Vatne
President and CEO
Source: Billerud
