Billerud Ab (Sweden)

Please be advised, today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lena Schatauer, Head of IR. Please go ahead.

Good morning and welcome to Billiards Q3 2025 earnings call. As usual, our President and CEO, Eva Vatne, and our CFO, André Kreet, will give you an overview of the results and the highlights in the third quarter. The presentation will be followed by a Q&A session. So with that, I hand over to Ivar to begin.

Thank you, Lena, and good morning, everyone. And thanks for listening in this early Thursday morning. Yet again, it's a tale of two stories for a quarterly report summarized quite well in the heading here on the slide. It's been a quarter that landed quite close to our expectations with another strong quarter for our region, North America, while weak market conditions are weighing down on region Europe. Let's get into the details. So next slide, please. And if we start from the top, net sales is down 8% versus a year ago, where half of that decline is currency related. and most of the remaining decline is due to lower sales volume in Europe. Our region, North America, continued this impressive trend and record another strong quarter. Currency neutral, net sales growth of 4%, and despite some maintenance costs during the quarter, the region delivered strong profitability, coming in at 16% EBITDA. And for total billage, EBITDA landed at 11%, which is down versus a year ago, fed up sequentially by two percentage points. We maintain our working capital discipline also for Q3 and record a very strong cash conversion and cash delivery. And so far in 2025, we're way ahead in terms of cash generation versus same period last year. Last but not least, we did announce mid-September a new cost-saving program targeting annual savings of 800 million SEK. And more details about the program a bit later. Some more comments on the market sentiment. So next slide, please. And as I mentioned during my introduction, we are continuing to meet very different market sentiment between our two regions. In the US, where we have our biggest exposure towards graphic paper, the favorable conditions are continuing, and we are in a great position with local supply and close proximity to a large customer base in the Midwest. Post implementation of the US import tariffs in August, we've seen accelerated customer interest in the wake of our strong value proposition. And we do expect the favorable conditions in the US to maintain also now in Q4. Now, in a bit of contrast, we are facing and continue to face weak market condition for region Europe across the board. And we expect the condition to stay weak also now in Q4. And this is an industry and sector challenge where we're doing our outmost to navigate through it. And on the billboard side, we are impacted more within our board categories while our paper grades are holding up better. Now, you'll meet some of the usual suspects when trying to identify the key drivers behind the development. So next slide, please. And although these drivers are probably not equal in weight, there are four main reasons that continue to impact our region Europe. Yes, we are still seeing high prices on Nordic Polkadot. And yes, we do face currency headwind. But a bigger challenge right now is related to weak consumption and muted consumer spending. And we see that across most of our key categories and channels at the moment. Growth is stagnant and much below the long-term growth expectation. Short term, we don't see any evidence for recovery, certainly not in Q4. But at least in our discussions now with several customers regarding their 2026 forecast and volume predictions, it indicates a more positive view. Secondly, production over capacity. First and foremost, within board products, too much supply is available right now linked to new capacity coming online in combination with reversal of some of the trade flows that historically went from Europe to the U.S. Now, on our side, we do remain focused on excelling within the areas we can control. And that has been the mantra for some time. And that is what we intend to keep doing. So next slide, please. And hence, we've taken another proactive step during Q3 to further strengthen our competitiveness and reduce our cost base. And this will be our second cost and efficiency program in two years. We target annualized savings of 800 million SEK, which we expect to reach the full run rate towards the end of 26. We estimate 500 million impact in 2026 with an exponential impact from Q1 and onwards. It will impact up to 650 positions throughout the company, first and foremost in the region Europe and corporate functions. And right now, we are in dialogue with the unions regarding scope and impact, and we'll have a clear picture of the plan elements towards the end of the year. Linked to the program, we did record a non-recurring cost item of 350 million now in Q3. Next slide, please. Now, on the other side of the Atlantic, the strategic direction remained very clear. Stay committed to a graphic and label paper while evolving our product portfolio towards packaging materials. And the progress is starting to click into gear and yield results. And we have several trials and tests ongoing to offer locally US-made container and carton board. Order flow is strengthening, and we move towards 2026 with significant momentum, both for our tribute liner product and the carton board Voyager proposition. And I'm both proud and excited to see the progress we've been doing and have made in 2025. And for 2026, we obviously have a much higher ambition of what number we aim to achieve. So with that, I'd like to hand it over to André.

Thank you, Ivar, and good morning, everyone. So starting with our top line, which declined with 8%, that was largely driven by strengthening of Swedish krona, primarily versus US dollar, but also versus euro. And that hit our both regions. The volume decline of 3% is a combination of strong volume growth we experienced in North America with 4%. while the European volumes declined with 6%. And pricing is slightly down versus a year ago. Positive development in board primarily, but pulp pricing taking it down to minus one on the total level. Next slide, please. Our profitability is down versus a year ago, driven by really three key items. The biggest impact is from raw material cost inflation, comprising of energy and pulpwood costs in Europe. Looking at other elements, the raw material situation has been stable year over year. We already talked about FX headwind. The profit impact here is both from transactional exposure in Europe and translational exposure for our North American operations. And then the third major item is pulp pricing, foremost in our US business, while Europe is neutral on pulp exposure. Now, our quarter three results were impacted heavily by planned maintenance shutdowns at our three mills. with a total cost impact of 360 million, or almost four percentage points on our margin. And as we now move into quarter four, we will be less maintenance heavy. Moving on to regions and starting with region Europe. As Ivar already mentioned, we are continuing to fight weak markets in Europe. We have sales decline across all categories except pulp and also lower sales volumes, together with maintenance shutdowns weighing on profitability in quarter three. Now, heading into quarter four, we will have, as I mentioned, lower maintenance activity, and we also expect positive impact from lower pulpwood costs to start impacting the results. This cost shift will lead to negative inventory revaluation impact of approximately 70 million in quarter four versus quarter three. Our order books for quarter four are soft for board categories. And at this point, we expect somewhat lower volumes within board segments. The paper business is holding up better. And we already went through the cost saving program That will primarily impact region Europe and start contributing in 2026. Now moving over to region North America. The North American business continues to deliver strong results. Comparison versus last year is impacted by significantly weaker US dollar and also somewhat higher raw material usage during the annual maintenance shutdown in September. Excluding the maintenance shutdown, the EBITDA margin was at solid 19% for the region. In quarter three, we saw volume growth in both graphic and label paper and see continued strong order books within both segments also moving forward. The announced price increases on graphic paper will start contributing now in quarter four. During the quarter, we maintained operating rates at 75% of capacity and are, of course, looking to increase these rates with continued ramp-up of packaging volumes, as Ivar talked about. Next slide, please. A couple of comments on cost development. And as expected, the cost situation remained stable in the third quarter in both regions. we had only minor movements across raw material categories with an overall positive sequential impact of 20 million. And in the fourth quarter, we do expect continued stable cost situation in our North American operations. For Europe, the pulpwood prices are coming down. But we also expect seasonally higher energy costs to offset that impact now in the fourth quarter. Next slide, please. Now, we've mentioned it a couple of times, and it is quite significant declines in pulpwood prices that we've seen since the peak levels over the past years. And it has been broad-based declines across both Nordics and also the Baltics. Looking at our sourcing mix, approximately two-thirds of our pulpwood is sourced based on Swedish price lists, while remaining is impacted by prices in Boltings, Finland and Norway. And moving forward, we continue to see good availability of pulpwood and better supply-demand balance, which also supports potentially even further price decreases as we move on. Next slide, please. One of the key highlights already mentioned for this quarter was our excellent cash performance, with OCF conversion once again well over 100%. And that is largely driven by our strong working capital discipline across both of our regions. The strong cash generation is supporting our strong balance sheet. with leverage of around one in relation to EVTA and well below our target. In terms of capital expenditures, we are further reducing our cap expense for 2025 now to 2.9 billion due to phasing of our strategic investments. The strategic investments in North America are proceeding according to plan. but some pieces of that CapEx will now fall into 26 instead of 25. And at this point, we expect 2026 capital expenditures to be in line with this year at 2.9 billion with the same proportion of base and strategic CapEx. And the strategic CapEx is primarily targeting our revolution journey in North America. And on that note, I hand it back to you, Ivar.

Thank you, André. And to round it up, going into Q4, we do expect the strong sentiment in North America to continue and deliver another solid quarter. And in region Europe, challenging and weak conditions, board products are more impacted, while we expect to hold better in our paper categories. And on the input cost side, we are starting to see the impact of lower output cost in Europe. So with that, I do hand it back to the operator for Q&A.

Thank you. If you would like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, you can press star 1 and 1 again. Thank you. We'll now take our first question. This is from Christian Kopfer from Handelsbanken. Please go ahead.

All right. Thanks, operator. Good morning, everyone. Just a few questions from my side. Firstly, on the pulpwood cost, you mentioned that you see them coming down in the region of 10% for the regions and despite or except for the Baltics. But if I do the calculation, I think you have seven million cubic meters here you're buying for the for the nordic operations uh and these prices are coming down with let's say 100 100 pounds or so so so those that should be a meaningful impact for you going into next year right yeah good morning kristen uh that's correct in terms of uh in terms of the consumption uh it is around nine to ten

million cubic meters per year in our european business um and uh the 10 percent uh decrease in in output costs would imply somewhere in the region of 900 million on year-on-year basis yes is that is is it fair to say that eight seventy eighty percent of that tailwind is coming for next year or or will it be more for q4 No, I think if we look at the price development during 2025, I mean, we peaked during 2025. So in the beginning of the year, we had somewhat lower output costs compared to mid-year. So it will have a significant impact and we'll look to benefit of that in 2026.

And André, I think you mentioned that you expect... prices to come up in North America on the product but down on pulp and in Europe slightly down as I understand it. Can you provide me some figures on it for these two regions for Q4?

If looking at the region of North America we announced as I mentioned price increases on the graphical paper which will come through in quarter four. Pulp prices are expected to come in come down in total for the region. We estimate around one percent in positive pricing impact for quarter four sequentially. For our European business, I mean, we mentioned a couple of times that the weak market environment we are experiencing and we do expect pricing pressure during the fourth quarter. Now, our position is to, of course, defend and fight for our pricing. But we need to admit that we are in the market where we need to address the weak situation and pricing pressure, primarily container board and carton board.

All right, so prices in European systems. And then finally for me, for Eva, you mentioned that you see some, like in the end of the tunnel, if that wording is correct, Just interested to hear what you see from your customers. Is it better underlying demand or is it seasonally better into Q1? What do you see here?

Good morning, Christian. It's a good question. And as I said, I think there are some indications. They're quite loose, I have to admit that. So we have to admit that there's a portion of hope and some data points that's starting to at least draw a picture. But again, some of the customer dialogue we have now around their 2026 expectations and their own, you can say, preliminary forecast, they do indicate a bit more of a normalized year. Clearly, that is some expectation also on their side coming from their customers to have a bit of a pickup. Nobody is in our dialogue talking about a sharp recovery and a quick steep increase into the beginning of the year, but some indications, given some of the macro pictures, are starting to be a bit better. I mean, we do see in the Euro area, you can see the consumer confidence starting to be a little less negative, if we can say it like this. And of course, in Germany, which is a massive market for us, we've had some GFK data that is also starting to show a little bit better. trajectory, but it's still coming from low levels. And I want to stress the point that there's nothing in Q4 that we see that support this. But again, some at least early signals that we might at least see something better when we come into 2026.

Excellent. Thank you very much.

Thank you. We'll take our next question. And this is from Johannes Grunzelius from SB1 Markets. Please go ahead.

Yes, good morning. Johannes Grönstedt, SSB1 here. I have a couple of questions, but if I start with the cost-cutting program, needless to say, it's very ambitious. It's a lot of people. I think it's like 15-16% of your all staff in Europe. Can you talk about the risks that, you know, things can be adverse impact like Do you see any risk that, for example, that operational risks are coming up and so forth? I'm sure you have thought about this, but if you can give some color on it. Thanks.

Hi, good morning, Johannes. I can start with that one. Yeah, I think, as you say, it's a significant program. The numbers are big. It's going to challenge us as a company in many areas that we haven't seen before. I think there's a couple of things I just wanted to convey. We earmark, or you can say that we focus this program first and foremost in Europe, and and overhead or staff functions. Operation US is to very large extent exempt for this as we are doing top speed at the moment in North America and have a very strong momentum and that's what I want to continue with. But we are going after a quite significant cut on, as I said, overhead. We are also going for a pretty aggressive cut on some white-collar share of our European males, trying to protect at least to a higher extent the blue-collar population, which is the biggest. Yeah, I think that there will be a couple of things we need to work even harder with simplification, automation. We will accept that we will reduce some of our own, you can call it, capacity to carry out a lot of projects. We need to stay more focused and say no to more things. I mean, that starts from the top and needs to flow downwards. I think we have the whole management team behind us that this is important to drive our competitiveness. to make us stronger when also the recovery in the market will come and it will come, we will have a stronger billiard on the other side of that tunnel.

Okay, that's helpful. I was also wondering if you sort of can indicate where you believe operating rates are in the industry for Europe at the moment and your operating rates and also I'm very surprised to see how much your volumes are down and not just you, all the whole industry, given that you are sort of exposed to relatively stable consumer end segments. I'm sure like, you know, groceries are not down 10, 12% in Europe. It has to be some kind of inventory adjustment in the system or reverse trade flows. If you can share some thoughts on that, that would be helpful. Thanks.

Yeah, I can start with that and then maybe Andre jump into the back half of the question. Again, it's a good question. It's a complicated question. I'm not disagreeing with you that if you go through some of the retail figures, it's not down as much. But I think we see right now a couple of traits, especially when consumer spending is more strained, that there's a bit of a downgrade on the consumer side to cheaper products and private labels, et cetera, that tend to have a more dominant share of their packaging in cheap as possible and fossil-based packaging. I mean, that's certainly one. I think also on other channels outside of retail, if you think about non-food and more electronics and more consumer durables, consumption is certainly down, and they are down in the areas. I mean, it's difficult to answer for the whole industry in terms of what the rates, but I think it's fair to say that right now we are seeing lower operating rates in Europe than we've seen for many, many decades. And maybe, André, if you jump in, can maybe give some light in terms of what we're seeing on our side.

Yeah, I think looking at the operating rates, I mean, they have decreased during the year. So obviously, you know, quarter three is not comparable to where we started the year. Looking at, you know, quarter three, we were operating at low 80% in our European business. As I mentioned, 75% in our North American business. On the back of everything we went through with the demand situation at year end, we expect to operate at lower rates in quarter four as well.

Okay, I understand. Thank you very much for elaborating on that kind of a complicated question. Thanks.

Thank you. We'll now take the next question. This is from Linus Larsen from SEB. Please go ahead.

Thank you very much and a good morning to everyone. First a question on your evolution program in North America. Could you please give us the guidance as to what kind of shipments you're expecting for this year and maybe for 2026? Maybe for 2027 as well, I don't know.

Good morning, Linus. I can start. I think the chart we showed was, in some sense, also a forecast or an estimate for Q4. So I think we would be expecting to run 12,000, 13,000 tons for 2025 on our packaging materials journey and obviously picking up momentum as we go. Ambition, or you can say a target that we would have at that stage for 2026 is in the area of 50,000 tons. Not sure, 27 per se, but I think I can say that when we go into 2030, and that's also a bit back to what we presented on the Capital Market Day almost a year ago, we are targeting an area of 200,000 tons. with a pretty meaningful share within both the liner and to the carton. And I have to say everything that we've seen so far and getting some tailwind now with, again, locally US production, I feel comfortable about where we're going. But we will certainly provide updates on how that journey is progressing also when we go into 26.

Great. And just to be clear, to reach the 200,000 tons by 2030, will that require any additional CAPEX?

I think what we have said for the time being is this $125 million that also André mentioned, we are obviously underway on that. That is the only CAPEX component that we have pinpointed to enable this 200,000 target in 2030. Okay.

And then just on the cost guidance for the fourth quarter, just to be perfectly clear, are you guiding for flat costs on the variable side altogether, and then the additional 70 million inventory impact? Is that right?

Yes, Linus, that's correct.

And then I guess on the fixed cost side, you have some tailwind. Sorry, some headwind in the fourth compared to the third quarter.

Yes, that's from the vacation accruals that will come back. And that's roughly impact of 130 million, the positive we had in quarter three. That will now come back in quarter four.

Perfect. Thanks.

Thank you. Star 1 and 1 on your keypad. We'll now take our next question. This is from Cole Hawthorne from Jefferies. Please go ahead.

Good morning. Thanks for taking my questions. I'd just like to ask on the SAC craft market and your MG and FF. Is there any color you can give on demand? You're talking about them holding up relatively better. I'd just like some comment around what you're seeing in stack in particular and the pricing dynamics there as well as your speciality. And then you talked about consumer board and container board being a bit weaker. You've taken a lot of headcount, but when is it better to start thinking about some capacity rationalization to improve operating rates? that or weighing up the pros and cons of high operating rates versus medium-term demand.

Thank you. Yeah, good morning, Carl. We hear you a bit poorly, but I think I got the question, so I'll start at least. Yeah, on the second craft, if you go through that, it is, as we mentioned earlier, a bit better, you can say, balance between supply and demand. At least we're not as That's the overall capacity on board. But the underlying demand, you can say, or the market sentiment is still very muted. But if you go a bit into some of the details, I think we see that our brown sac is doing pretty well. And to a large extent, we are fully booked. We have a good customer base in Africa and Latin America. Asia clearly more soft. It's a bit of a contrast. White SAC is certainly more troublesome and doing worse, you can say. We pick up also that there are quite some inventory levels that are on the higher side that need to be flushed out, especially on our southern Europe side of our business. Then if you move more into the MG side, we have so many different applications and channels, so you need to give a bit more color on different kinds. The interleaving medical and some of our grease resistant papers, they are performing better and actually quite well, while we have a more challenging situation on some of our MF products. And it's certainly more softer than MG. We have historically pretty good positions within dry food, but there is just a lot of supply out there and quite muted demand. So in that sense, you can say we go into Q4 on kind of total paper frost. Our order books are quite solid. White SAC is an exception. And again, also MF is a bit more muted, but that's somehow a smaller segment for us. I think on the other question, it's a good question, and I understand why it's coming. In terms of rationalization, in terms of capacity closures, I think I would expect most companies to take that decision also on what they're thinking long term. How are they looking at, again, a bit more than what we see right now. It is a fact that we've had this situation for some time. And it's also still that we're waiting for consumption to start picking up. I think we are in a situation where I would expect most companies to seriously reconsider their supply footprint in terms of what can be feasible. I think also cost curves in this aspect is extremely important on where literally you have the more competitive assets. I guess from our side, we are still running full speed forward and doing everything we can to be more competitive still stay a very relevant partner to our large customer base and come out more competitive when we would see and expect to see better market tailwind at some point in time.

And then just following up on Folding Boxport, it's less of a part of your business, but I'm just wondering, you mentioned competition prices in C2026.

I'd just like your view on that.

Yeah, no doubt that the carton board is in the top spot. It really is certainly one of the weaker categories that we see in the packaging universe. And as you rightly point out, it's not our biggest category, but it's a category that we have quite interest in and certainly also some growth aspiration. It is a significant oversupply at the moment, especially on the wide carton side. It is a bit better on the broad carton. And that's also where we launched two new innovations during the quarter that is getting actually a lot of customer interest. So that's our light and carry proposition. And on those, we expect more momentum into 26. But we will find out. Customer feedback has been outstanding. But I do confirm that carton board is under a lot of pressure. there will be price pressure expected also in that area. But we are doing everything we can in our niches, in our proposition to find pockets where we can have a relevant customer offer.

Thank you.

As a reminder, if you would like to ask a question, please press star 1 and 1 on your keypad. That's star 1 and 1 for any further questions. There are no further questions coming through, so I would hand the conference back to Lena Schattauer. Thank you.

Okay, as there are no further questions, we will conclude this conference. Thanks for participating and welcome back when we report our Q4 results on the 30th of January. Thank you and goodbye.

Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers, please stand by.