Billerud Ab (Sweden)

Good morning and very welcome to this presentation in connection to the Q2 report that we have published this morning. With me is our president and CEO, Ivar Vattne, along with our CFO, André Kress. They will hold the presentation and afterwards take questions from the telephone conference. So with that, we will get started. Please go ahead, Ivar.

Thank you Lena and good morning everyone and thanks for listening in this sunny Friday at least here in Stockholm. It's a tale of two stories for a quarterly report and I think it summarized quite well in the heading here on the slide. Another excellent quarter for region North America while we are navigating through more challenging conditions for region Europe. But let's get into the details. So next slide, please. And if we start from the top, we record flat net sales growth when adjusting for currency. Growth in North America and decline in Europe. Our region, North America, continues to impress and record yet another excellent quarter. And 22% EBITDA margin is a level we are clearly happy with. In fact, 22% is the highest profitability level we've had in North America since end of 2022. The situation for region Europe has been more challenging and market conditions have gradually turned more and more unfavorable during the quarter. And in essence, we are navigating in a market where we face weak demand and supply over capacity. Now, despite this, and with our continuous strong focus on working capital discipline, we have been able to produce an excellent cash generation, coming in with cash growth from our productivity of 75% versus a year ago. The progress on our evolution journey in the US continues, and we take new important steps during the quarter. And I want to share some more details on that part. So let's get into the next slide, please. Now, evolving our product portfolio in North America towards packaging material is one of the top priorities for the company. And I'm both proud and excited to see the progress we're doing. We reached another important milestone during the quarter with 1,000 tons sold of our Bleach Liner Tribute and Low Ramage Carton Board Voyager. And overall, we see strong interest amongst both the new and existing customers to carry out trials for the new products. And overall, the feedback on the product quality and performance has been highly encouraging. It confirms again that local US production within our industry is a good place to be where we can offer quality, speed, reliability, and predictability. Also in terms of the capital project to enable even further acceleration in our evolution journey, we are progressing as per plan. And I'm looking forward to providing you with more updates on this exciting journey. as we move along in 2025. Next slide, please. And over to some market comments. And it is challenging to give a proper market read these days. And uncertainty, in particular in the wake of geopolitical decisions, seems to be the new normal and can change industry parameters literally overnight. But there is no doubt that some of the ongoing optimism for demand recovery in region Europe for 2025 is a memory far away. The trading conditions for most of our categories in Europe weakened during the quarter, and there are three main reasons for that. So number one, consumer demand is still muted and is yet to recover. The growth rates we are expecting long term for this industry and most of the categories we have exposure to. Number two, we are seeing the impact of more production capacity coming online in the region, first and foremost within board. And three, the tariff impact is real. And we see now evidence of how the trade flows have started to change. Not only with volume historically being exported into US, but now due to import tariffs, have lost on competitiveness and is partly relocated back into Europe. We also see some Asian volume struggling to find its way into US and puts more pressure into markets in the Middle East. And overall, we do not expect the situation to improve going into Q3. Now, the notable exceptions where we operate under more normalized conditions are liquid packaging border here in Europe and our graphic and speciality paper in North America. For both these cases, we are expecting them to continue their solid performance they've continuously seen over the past quarters. So with that, I'd like to hand it over to André.

Thank you, Ivar, and good morning, everyone. Let's start by looking at our sales, which declined by 5%, and that was entirely driven by the FX headwind, meaning our currency neutral sales were flat versus a year ago. Now, the strengthening of Swedish krona we've experienced first and foremost by the end of the first quarter is now fully impacting both our sales and also results. The positive pricing of 2% is mainly coming from our Europe region, while North America was quite flat versus a year ago. Volume-wise, the negative impact is entirely from region Europe, while North American region had a solid volume growth of 8%. Next slide, please. EBTA margin in the second quarter was in line with the last year at 9%, and also here, a tale of two stories. North America improving margin with four percentage points, while Europe seeing corresponding decline. And despite significant change in FX rates versus last year, the impact on our results was relatively limited due to our hedging program in place. The year-over-year cost inflation, mainly from Nordic pulpwood costs, was more than compensated with improved pricing. However, the volume growth in North America was also offset with decline in Europe. and volume was weighing negatively year over year. Despite significant inflationary pressure on our fixed costs, not least through the salary increases, we are maintaining strong cost discipline and we were able to limit the cost inflation year over year. The negative amount in other is almost entirely related to negative year over year effect from inventory revaluation. We had no major impact now in quarter two, but we had sizable positive impact last year. Now, our quarter two was maintenance heavy with three mills in Europe having a maintenance shutdown, and those were executed as planned and also on budget. Excluding the heavy maintenance costs, our performance for the group in terms of EBTA margin was in line with quarter one despite lower volumes. And now let's move over to the regions. Next slide, please. Performance in region Europe weakened during the quarter, and we did end up with sequentially lower sales volumes for the region across most categories. The earlier announced price increases for container board and second craft paper were partly implemented, with clearly better implementation rate within second craft, while container board has been more challenging. Into the third quarter, we will have somewhat lighter maintenance schedule with cost impact of around 280 million. And now let's move over to region North America. Next slide, please. The reported sales for the region declined by 5%, but clearly heavily impacted by weakening of US dollar. Currency neutral sales were actually up by 5%. The EBITDA margin, as I said, improved with four percentage points versus a year ago and was also up percentage points sequentially versus the first quarter. And it's now been a sixth consecutive quarter with positive margin trend, which has been driven by volume recovery and continued stable cost and pricing situation in the region. The sequential improvement from the first quarter was primarily driven by price increases for graphic paper. Operating rates for the region continue to increase to 76% in the second quarter, And we are now actually coming to the levels we haven't seen since beginning of 23, which is very encouraging. Now, heading into the third quarter, we will carry out maintenance shutdown at Escanaba mill. And we will have additional maintenance, partly in preparation for the evolution program. So we expect sequentially higher maintenance costs of 160 million for the region. Next slide, please. And I would like to spend a couple of minutes on the input costs. Now, in terms of the input costs for the regions, we are now in a much more stable situation also in Europe. The cost development during the second quarter was fully in line with our expectations, and we had a net cost relief of approximately 40 million, primarily from electricity prices in Europe. Heading into the third quarter, we expect continued stable cost situation for both of our regions. And on the Nordic pulpwood, we now see a trend shift. The pulpwood prices are coming down. We decreased our price list during the quarter and have seen further downward adjustments by other wood purchases. We see good availability that will continue into the third quarter. and expect also that the downward pressure on the pulpwood prices will intensify. With that said, the cost impact for billy root in the third quarter will be limited, and that is due to our sourcing mix during the summer, where many of the sawmills are closed. But we certainly expect the cost to come down further into the year. Next slide, please. Now, with the newly introduced financial targets, we are emphasizing cash generation as one of our key priorities. And I'm particularly pleased with the cash conversion of 131% for the second quarter. Our cash flow from operating activities more than doubled compared to the first half of last year. And we are making a good progress on reaching the cash conversion of about 80% for the full year. The strong cash generation is certainly supporting our strong balance sheet. And even after dividend payout during the quarter, we maintain our leverage in line with the first quarter at around 1 times EBITDA. In terms of the capex for the rest of the year, we now estimate the total capex of 3.1 billion for 2025, which is 400 million lower versus our previous outlook. And that is primarily driven by slow investment pace for our evolution program in North America. And we now expect that that amount will be pushed into 2026. With that, I would like to hand it back to you, Ivar.