Billerud Ab (Sweden)

Good morning and welcome to this webcasted conference call about Bidderud's fourth quarter and year-end results. As usual, our president and CEO, Ivar Batne, and our CFO, André Creas, are here to hold the presentation. And after their presentation, there will be a Q&A session. So after this brief introduction, we will now get started. So please, Ivar, go ahead.

Thank you, Lena, and good morning, everyone. And thank you for joining. So we will go through some of the highlights and key financials for both the quarter and for 2023 in total. I think the headline says it all for how a summary of how 2023 has turned out. But I'll give a little bit more context. So let's go into the next slide, please. And there is no doubt that 2023 was an extremely difficult year. And a year that in many ways has been a bit of a hangover from 22 and characterized by unusual high inventories across the value chain. This has led to low sales volume and in combination with sales price pressure and higher input cost, it has wiped out most of the profitability compared to last year. Now, in this challenging market context, it is imperative to keep strong control of items we can influence. And there are two particular items that I'm proud of and how we managed to drive a good performance. Number one, keeping a continued close eye on working capital to secure a strong cash conversion. And number two, how we rallied around our efficiency enhancement program and over-delivered versus a target we set one year ago. Another big event for the year has been our Soda Recovery Board in Furby, which is now completed on time, on spec, and on budget, and this is something we're really proud of, given that much of that was done and completed in a COVID time period. Now, on to with some more details around the Q4. So next slide, please. And Q4 was another quarter facing severe market headwind, but it landed broadly in line with our expectations. Volumes were soft, mostly North America. while we experienced some pricing pressure in both of the regions. And that has led to challenge profitability, and 8% adjusted EBITDA is a performance we certainly are not happy with. Our cash flow is a clear highlight, with outstanding cash conversion. And this is something I'm really pleased to see as we put in considerable effort to achieve that result. We do have some items impacting comparability, minus 244 million. where the biggest one is the revaluation of the biological assets we're holding in value just, and that item is minus 164 million. The other item is the one of restructuring costs related to our FTE reduction, and that is 80 million. Now, with that, let's continue with some input on the market sentiment. So, next slide, please. Yeah, and as I mentioned already, market conditions, they remained weak throughout Q4, pretty much as expected. Second half of December treatments, they came in a bit under what we had foreseen, which was a clear sign of customers protecting their working capital before year end. And most of that has been moved into January, so no real drama on that one. Now, going forward into Q1, we do expect to see some slight improvements, but coming from weak levels. On the plus side, we see more and more signs that the customer destocking phase is coming towards an end or have normalized already, and that should yield a slightly better volume demand. Now, on the negative side, higher interest level is starting to bite in certain categories and pull consumption down. In that regard, We're well-placed with a strong relative weight towards food and drink, where consumption tends to be more stable. Hence, net-net, we remain cautiously optimistic, and all the books do point towards a better start for 24 versus how we end at 23.

And with that, I hand it over to André. Thank you, Ivar, and good morning, everyone. So to start off with the top-line development for the quarter, Both regions were sizably down compared to the last year, and the total group sales were down 20% with North American volumes and European pricing as the main drivers. We had also negative mix impact in both regions as we sold more pulp in quarter four this year. Currency rates continued to have a positive impact while the divested managed packaging business had a marginal negative impact. And on managed packaging, just as a reminder, so the business contributed with a sales of 420 million in 2023, and will obviously not contribute with any sales heading into 2024. Next slide, please. Looking into the profitability development, also here, pricing and volume are the main drivers behind the decline. For the first quarter of this year, we have year-on-year input cost relief as we start to meet higher base, but also due to the input costs coming down sequentially in quarter four, which I will get back to. The impact from our efficiency enhancement program contributed with 215 million, and as Igor mentioned, is one of the highlight for the year and also for the quarter as we saw additional good progress. The other is roughly 200 million negative, where the biggest item is from inventory revaluation at a negative impact of 200 million year over year. And as we mentioned at the previous calls, this has been a significant effect versus previous year with the cost inflation we've had, but the impact is marginally full of sequential development now. And then finally, the maintenance schedule for this year, was slightly more intense as we had the shutdown in Escanaba mill in quarter four. So we have a negative impact from higher maintenance costs. Next slide, please. Heading into region's performance and starting with the European region, sales volumes were flat versus a year ago, while net sales declined by 12%. And the decline was driven by lower pricing for all categories except liquid packaging board, but also, as I mentioned, negative category mix with higher pulp sales. The market conditions for the European segments remained weak in the quarter, with the exception for liquid packaging board, which was on a normalized level. For liquid packaging board business, we concluded pricing negotiations for significant volumes, which will have sizable and meaningful impact heading into 2024 now. Sequentially, the volumes for the region declined with 2% and we saw clear year-end effect with movement of orders into quarter one and also some logistical challenges to get out volumes. Profitability for the region was down with one-third versus a year ago, And again, the main drivers is the lower pricing and also negative mix. Year over year, the region's input costs were down, which was supported by the impact from efficiency enhancement program. And we can move on and look into input cost development for the region during the quarter. Next slide, please. In line with our expectations, We saw general decline in input costs, with the exception for energy costs, which increased on the back of higher spot prices for electricity. The fiber prices were down 140 million versus the third quarter, chemicals down 30 million, and logistics down 10 million. This positive impact was then offset by higher energy costs of 50 million. And on logistics cost side, the cost impact from the challenges that we experienced during the quarter to get out the volumes was limited, but we see that this will have some impact heading into the first quarter. And so heading into the first quarter, we do expect that the total input costs will increase by about 100 million, and that is primarily from logistics of 50 million. Energy costs expected to increase with 60 million, which will be offset by lower chemicals costs of 30 million. Fiber cost is expected to increase marginally, resulting in a negative impact of about 20 million. So, all in all, total cost increase versus quarter four of about 100 million. Next slide, please. And heading then into the North American region, the markets remained weak in terms of volumes in quarter four, and we continue to operate our assets at below 60% of capacity. Net sales in the quarter were down significantly versus previous year ago, driven by 25% lower sales volumes. Also within the North American region, we had less favorable mixed with higher pulp sales. We saw some price pressure in the quarter, in particular on specialty paper. And looking ahead into quarter one, we expect pricing on graphic and specialty paper to come down somewhat as new contracts for 2024 start to kick in. Sequentially versus the third quarter, the volumes were down marginally and we saw a clear order postponement into quarter one this year, where we see that order books are improving for quarter one. EBTA for the region was down significantly on the back of much lower volumes and unfavorable mix, while we saw cost relief compared to the last year, primarily on energy and logistics. Next slide, please. And just a quick comment. on the cost situation for North America, which remained stable, as we also expected, and really no big callouts for any particular cost buckets. Overall costs were flat versus the third quarter, and the minor changes we had within the different buckets canceled each out, canceled out each other. That's also what we expect heading into quarter one with flat cost development.