Billerud Ab (Sweden)

Good morning and welcome to this webcasted conference call following the publication of Billerud's Intervene report for the first quarter 2024. Our president and CEO, Ivar Vatne, and our CFO, André Kress, will hold the presentation. And after their presentation, we will open up for Q&A. By that, I would like to hand over to Ivar. Please go ahead.

Thank you, Lena, and good morning, everyone. We're excited to provide you with some of the highlights from the first quarter of 24. And it's certainly been an interesting start of the year where the market has started to turn more positive. So let's get into it. And next slide, please. So for our Q1, we are down versus zero on most financial measures. And having said that, at that time, we were at a very different ending phase of a different market sentiment. Hence, Our performance now in light of the previous quarter is in many ways the more interesting dimension. And then entering into 2024, we did expect to see a somewhat improved market. And that is certainly what we have experienced and even a bit better versus our ongoing expectations. Sequentially, profitability is up more than 50%, where we are again encouraged by the result in North America. One of the biggest drivers of the improved result has been the extra demand, and we grew volume close to 50,000 ton versus Q4. We've also had some help from positive pricing and favorable mix, which is certainly welcome. Of all other events during the quarter, we divested the idle mill assets of Wisconsin Rapids. I'll come back to that a bit later in the presentation with some more perspective. So next slide, please. I mentioned a bit around this topic already, but we have seen broad-based improvement of the market conditions during the quarter. Having said that, we are coming from weak levels, and we still have quite a bit left before we would reach fully normalized levels. However, now we can safely say that the inventory destocking we struggled with during 2023 is now behind us, and that should continue to fuel our order books into the coming months. We need to keep in mind that the extra demand is also somewhat impacted by unusual events during the quarter, in particular disruption in the Red Sea and strikes in Finland, which has impacted supply. It's difficult to assess at this stage what this has meant, but no doubt we need to stay close to inventory levels going forward to assess what I would say is true strength and the underlying consumption. bit more detailed on the specific channel. So food and drink is probably the best performing channel. Liquid packaging board is now at normalized levels. And we also see some encourage recovery signs from container board and selected grades of MG paper. Within print and publishing, a graphic paper has improved, although from very weak levels. And we do expect this to continue to strengthen towards the summer, not least linked to the upcoming U.S. presidential elections. Within consumer luxury, the situation is a bit softer, particularly on carton board. And there is no doubt that consumption is impacted by lower disposable income for most households, especially within some of the prestige segments that builders operate within. Craft paper doing a bit better, particularly linked to econ and reusable carry bags. Industrial is mixed. Brown sack is improving in certain regions, while we see that white sack and interleaving paper are still at pretty weak levels. And with that, I hand it over to André.

Thank you, Ivar, and good morning, everyone. Next. Thank you. Let's start with net sales development. Versus a year ago, the sales declined by 9%. The deteriorating pricing was the main factor behind the decline. And prices were down for all segments except for liquid packaging board, where prices increased in quarter one this year, as we already mentioned, and our previous quarterly call. The deteriorating pricing was mainly related to negative sentiment and also destocking that we saw in 2023. We are confident now that we have bottomed out and are entering a new environment with stronger pricing momentum across most segments. Volume was marginally down versus previous year, and we have only minor mix effect. had a positive impact on top line and more or less offset the negative impact from volume. Sequentially versus quarter four, the sales were up by 9% on the back of stronger sales volumes. Next slide, please. Moving over to EBTA development, the profitability declined by approximately 20% versus a year ago. with pricing also here being the main driver. But as I mentioned, we certainly see that we have bottomed out on pricing. Input cost relief together with solid positive impact from efficiency enhancement program, we're able to offset more than 50% of the negative pricing impact. All input costs except for pulpwoods in region Europe were down versus a year ago. Now negative impact of almost 50 million within other is mainly related to unfavorable effect from stock revaluation between quarter one this year and quarter one last year. But that was offset by lower fixed costs we had in quarter one this year. Now heading forward, just a reminder, as we head into quarter two, we have our annual salary adjustments, which will be slightly above three percent and that will have a negative impact in quarter two versus quarter one of 60 to 70 million looking further into development for the regions and starting with europe next slide please region europe had a solid sequential improvement in sales driven by price increases within liquid packaging board also six percent higher sales volumes the result was also positively impacted by less maintenance in quarter one this year compared to the previous quarter the pricing help from liquid packaging board and also to some extent increased market pulp prices more than offset the input cost increase in quarter one that i will get back to profitability declined versus previous year to 11 percent in EBITDA margin terms. And although we saw significant cost relief and efficiency improvements, the broadband-based pricing deterioration was a clear driver for lower profit. All in all, we're pleased with volume improvement for the region and a more positive sentiment within all segments. We are also particularly happy about strong demand within liquid packaging board. and all-time high quarterly deliveries we had during quarter one this year. Now, looking into the cost development for the region. Next slide, please. As we expected, we saw broad-based input cost increase for the region during the quarter. Total input costs increased with approximately 200 million sequentially versus quarter four. which was about 100 million higher than we expected. Pulpwood prices, which I will talk more about when in short, had a negative quarter-on-quarter impact of 70 million, energy also 70 million, and logistics 60 million. Logistics costs were impacted by surcharges for overseas shipments and rerouting of transport that we needed to undertake during the first quarter. Now, during the quarter, we also finalized a new overseas contract, which will be valid from May this year. And this is quite large contract that is expected to decrease our costs by 160 million on annual basis. And we expect full impact of that contract in quarter three this year. Heading into the second quarter, we expect further input cost increases of approximately 180 million, and that is primarily from pulpwood costs. And looking at the pulpwood cost development in the Nordics. Next slide, please. We start to see clear evidence that pulpwood supply within the region is not sufficient to mean the plant production. and that is unprecedented for Nordic pulp and paper sector. With increasing operating rates in Nordics, we also expect continued pressure on pulpwood prices, and we expect to reach all-time high levels in the coming quarter. Now tackling this challenge is at the core of Europe's strategy, but the only credible mitigating action to this development is pricing. We have announced price increases during the first quarter, which will start to have a positive impact in quarter two. But on the back of further cost surges, we will need to do more. And now let's move to region North America. Next slide, please. In the region, we continue to be impressed by performance of the region. with EBITDA margin of 16% despite significantly lower volumes versus a year ago. And we saw clear evidence of destocking being completed and similar positive shift in market sentiment. Sequentially, we saw 4% volume increase with improved volumes, both within graphic and specialty paper. Now on the back of stronger demand, our operating rates improved throughout the quarter to approximately 70 percent and we expect further improvements as we head further into 2024. as we expected the pricing within graphic and specialty segments was slightly down sequentially versus quarter four as we saw our new contracts to roll in but that effect was entirely offset by lower input costs Heading into the second quarter. We expect pricing to remain stable and Looking into the cost region for the Europe next slide, please We have another reminder of stark contrast between the regions sequentially versus quarter for Input costs in North America had a positive impact of 40 million with marginal decline called in costs across all segments and And heading into quarter two, we expect the situation to remain unchanged with only minor changes. And in total, we expect a cost base for the region to be up approximately 20 million. So all in all, very expected movements, both in input costs and also pricing in North America, and another proof of solid business environment for this region. Now moving over to financial position and cash flow for the quarter. We had a sizeable working capital build up in the quarter and the increase in working capital was primarily driven by higher sales resulting in higher accounts receivables position, but also inventory build ahead of our maintenance shutdowns that we will carry out in quarter two. Leverage increased to 1.9 times EBITDA. And that's driven by lower rolling 12-month profitability. And finally, for a reminder of 2024, we have unchanged CapEx guidance of 2.3 billion. And with that, I would like to hand it back to Ivar.