Billerud Ab (Sweden)

Good day, and thank you for standing by. Welcome to the Billerud Q2 Report 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a questions and answers session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lena Schattauer. Please go ahead.

Good morning, everyone, and welcome to this conference call about Biller's second quarter result. Here in Solna is our president and CEO, Christoph Michalski, and also our CFO, Iva Batne. They will hold the presentation, and after that, we will open up for questions from the audience. So with that, I hand over to Christoph for an introduction of the quarter.

Thank you, Lena. And good morning, everyone. And I hope you're all spending a good summer. And thank you for attending our call. I think the first slide of our presentation says it all, what happens or happened in quarter two, which is really about navigating a very challenging market condition. And you have seen that in our numbers. It is basically qualified by very low volumes and continued customer inventory stocking in a very soft end market. So I think this is really still the overhang from 2022. We have seen this very strongly in quarter one. It has continued in quarter two. And because of the lower end demand, In general, the destocking was much slower than what we initially anticipated. On a pricing side, we have quite stable prices in North America and some deterioration in Europe. But in Europe, we just have to mind ourselves. We had, I think, record pricing in 2022, and these levels are starting to erode slowly. Clearly, input costs came down. but did not offset the price deterioration, and this resulted in significantly lower margins. You have heard about our blastomycosis outbreak in the U.S. I think we, after resuming operation on May 8th, I think we believe that it's probably behind us, and everything since the startup in May 8th is pointing in the right direction. We had some re-evaluation of inventory, which also impacted our result to some extent. But on the positive side, we had positive cash flow for the quarter and very tight control in inventory. I want to remind you we had a little bit of too high stock coming out of 22. And over quarter one and quarter two, we were able to bring down the inventory level to a reasonable level, or I would say the normal level. Eva will later on talk a little bit more about the enhancement, the efficiency enhancement programs that we have accelerated to aim for 600 million for this year. And he will give you some example of what are these type of activities. But overall, you can see net sales have been declined by 13%. Adjusted EBITDA is 188 million, so in line with our previous profit warning in June. And unfortunately, EBIT is basically now minus five of net sales and earnings per share were negative at minus two kroners. If you look at the bridge for net sales, you can see that basically the key impact has been volume and mix, and this resulted in a 19% decline. The pricing was basically stable, no change, and currency rates had a positive effect of 5%. I think the whole story of the quarter is even better described in our EBITDA bridge. And here you can really see the difference. Volume and mix, you see a decline of 1.175 billion Swedish crowns, and this is basically a mix of soft demand, which is the majority. Then we have some mixed changes. For example, when we could not produce paper, we actually produced pulp, and clearly there are different price implications on that. And then also we have a slight mixed effect on customers, Us, with the soft demand, we are also chasing some non-core customers and non-core region, which results in slightly lower pricing. When you look at the net of raw material and logistics, minus 611, clearly a very significant impact still compared to quarter two last year. And the efficiency enhancement program shows 430 positive. And this is basically, as you know, we started this in January, February last year. Sorry, this year. And basically, you will see an acceleration of this program in the bridge as time goes by. Here, a little bit of inventory revaluation. Clearly, 400 million, nearly 400 million. And then in others, you also have the effect of Escanaba. So others actually normally a little bit lower. And then adjusted for maintenance schedule, et cetera, we arrive at 188 million crowns. Good. Probably most of you are interested in what we think the market will do and what the market is doing. So let me spend a little bit more time on this slide. We do not, I think it's important message to understand that What happened in quarter two is very likely to continue into quarter three. So we do not expect significant changes in the market condition in quarter three. Liquid packaging board, one of our largest segments, is basically probably the segment which is the most stable. Demand is relatively stable, even a bit softer than usual, but nothing really to be worried about. Liquid packaging board, We see no change in Europe, a little bit of ups and downs in the D&E world. And we do not expect that this market will have either significant down or upturns in the following quarters as time goes on. Carton board, clearly very different story. I think there's still a lot of stock in the system. Being out between our converters and brand owners We see relatively low consumption at the stage. So this situation will probably continue for a while And in this market environment, however, we do not see many dynamic price effects so relative stability Container board is actually better. I think we have now reached up approximately the level of of these stockings that would be normal. And the demand and consumption in the market is relatively good. You also understand we have some exposure to the harvesting in southern Europe, so basically demand is picking up. But there is in this segment undoubtedly more price volatility than we see in container board. Craft and speciality paper. We have weak demand, and we see this not to change significantly to the end of the year, and we see some price erosion in the segment, but coming from record height from 2022. SAC paper, I think what we see is low demand, but we see that the paper stock in our converters has been coming down to reasonable or even low levels. However, the portion of finished goods in their stock is still relatively high, so that we actually see relatively low demand for the time being. And I think another indication that this market is not normalized yet is the fact that converters are taking significant breaks during the summer holiday, which I think a normal would be one week or two weeks. It's more three to four weeks, as we can see. Graphical paper is entirely focused on the U.S., and we see low demand but very good price stability. And I think when you look now in our new segmentation of the region of how we report our numbers, you see excellent profitability from a contribution level despite low utilization. So it's very promising. So we think that in the U.S., when graphic paper will start again, which should be in end quarter three, maybe beginning quarter four, that we see a significant uptick. Good. I will not really comment on pulp. As you know, the pulp market, we are a bit long this time because we had lower production and containment from a carton board and paper side. But basically, the pulp market in terms of pricing remains weak and we see also relatively low demand. But generally speaking, as soon as our production starts again, we will be basically a wash on pulp and therefore it doesn't have a significant impact on our business. Good. I hope that gave you some color of what we see in the market. It's not a particularly positive outlook, but it's not getting worse. And having said that, I would like to hand over to Eva. Good morning, Eva.