BillerudKorsnäs AB (publ)

Good morning and welcome to this presentation of Billerud Korsnäs second quarter 2022. As usual, our president and CEO, Kristoff Michalski, and our CFO, Ivar Vatne, will hold a presentation. And thereafter, we will open up for questions from the telephone conference. And to participate in the telephone conference, please dial any of the numbers from the invitation that can be found on our website and ask the operator to be connected to Billerud Korsnäs. Now, we will get started. Please.

Thank you, Elena. Good morning, everyone. I'm very pleased. It's a beautiful day in Stockholm, and I think our results are very good as well. It's the first quarter with the results from North America being included, our acquisition Verso. Further in the presentation, I will call it Billerud, North America, which is the official name from now on. I must say we had a very good performance both in Europe and North America. So both markets really delivered very good results. And I will take you through those results together with Eva now and give you a little bit of more color to it. But if we start with net sales, net sales have now increased by 75% to 11.4 billion crowns. Strong organic growth in Europe and North America. 17% and 19% respectively, which is I think close to a record for both geographies. All-time high EBITDA and operating cash flow and EPS is up more than four times versus last year. I think you see definitely the effect that we were able to change prices, mix, cost savings, et cetera, and that very much in front of the inflation, cost inflation we're getting through raw material, energy, wood cost, et cetera. So this offset improves further our margins. We would have had a record margin if it wasn't for the maintenance stop, which were different timings. So if you normalize this quarter by maintenance stop, you would have had an absolute record margin as well. And then excellent cash delivery and strong balance sheet position to allow us to continue with the expansion and the profitable growth that we are aiming for both in Europe but also in North America. If you look at the sales growth in terms of, you can see here, clearly we had some favorable currency rates, a good amount, 15% of pricing. And then in the volume and mix, you see really that is where the whole of North America has been included. Out of these 59%, 57% comes from North America. And these numbers are hiding a little bit the very good performance that we had on mix. Actually, our volume is down by 5%, which is a mixture of having significantly much more goods in transit, 30,000 tons approximately. We had the strike in Piatasari and the maintenance stop, which is about 19,000 tons. And then you remember last year we sold BESIM, and the numbers are still in the comparative, plus the different schedule in the maintenance stop. So volume down 5%, but mix is up 7%. And as we all know, mix is what is driving the business also when market growth and pricing slows down. So we are very happy about that. When you go to EBITDA, here you can see pricing, which is basically driving the growth, plus North America, 700. million crowns out of 960 and again the net of raw materials and logistic brought us down by 505 and these cost increases we expect to continue as we go forward I also want to highlight a very good job which was done by everyone internally and we have a further 60 million savings which is part of our millions programs which expires at the end of this year. I would like to hand over to Ivar, and Ivar, if you would like to take us to some of the details of the business, please.

Yes, thank you, Christoph, and good morning, everyone. So we will start with paper. That is, for the time being, the biggest product area in the company. Net sales is tripled versus a year ago, but clearly the inclusion of Billion North America is the biggest event. And we report now the full billion North America business on the product area paper. For Q2, we added $3.7 billion of what was previously referred to as Verso. And the good news also for the North America business, as Christophe alluded to, both segments, graphical and speciality paper, performed really, really strong with high double-digit growth for the quarter versus year ago. Profitability was strong for the North American business as well, coming in at $704 million, or that's 90% EBITDA margin. Keep in mind that includes $170 million SEC, what we refer to as the inventory step-up impact now in Q2. And that is something we will not see going forward, so you should consider that as a one-off. The margin in North America would have been 23% in Q2 when you exclude the step-up impact. Now it's not only the paper North America business that's performing well. We also had outstanding results for paper in Europe and Asia business. Organically, meaning when we exclude BTEM and North America, we recorded 18% top line growth. And that is, again, strong growth across all segments. But in particular, I want to highlight the strong growth that we had for SAC paper. Europe-Asia had also a great quarter in terms of profitability. We also got hit by some of the effects this quarter, as Christoph was alluded to. We had the Peter Cyrus strike and also a bit of a different facing of annual shots. The main positive effect, though, to improve the region profitability, linked to price management, a continuation to drive positive mix and benefits from a cost and efficiency program. The Europe EBITDA margin for the quarter was 27%, and obviously a number we are extremely pleased with. And if you continue into product area board, they also had an outstanding quarter, sales up more than 20% versus a year ago. Growth is coming pretty much as we explained also on paper, broad-based from all categories. Carton board is leading the growth in presently 70% increase versus a year ago. We've seen that double-digit growth in carton board now for several quarters. We also see strong growth for container board. where floating has been the front runner. The liquid packaging business also delivered well. Keep in mind that this number here you see on the chart also includes cop stock that we deliberately have taken down versus a year ago in our journey to drive profitable mix. Hence, excluding cop stock, our liquid packaging growth is actually up 8% versus a year ago. Profitability close to double versus a year ago, and we find very similar drivers to explain the profit increase, as we talked about in paper, as price management driving deliberately the profitable segment, and our continuation to focus on a cost and efficiency program. Moving forward, a bit about the cost inflation. I mean, this is certainly a very hot topic still for 2022. As you already communicated in a Q1 report, we expected cost inflation to accelerate for Q2. And this is also what we've seen. In total, we've seen roughly 350 million set cost inflation versus a year ago. That obviously includes for both of the regions. And you can use a rough split of 65-35 to get that number split between Europe versus North America. The 350 million is split roughly as follows. Fiber, 210. Chemicals, 105. Energy 20, logistics 15. The good news, as also Kristoff alluded to in the beginning, is that we've been able to offset all of this in Q3 price management and driving profitable mix. Looking forward and some comments on what we expect for Q3, starting with fiber cost. In Europe, we've seen several list price increases during Q2, and we expect to get the full quarter impact of this going into Q3. Tough to say further list price increases will be announced, but it's certainly not out of the question. Most of the price pressure is in hardwood. We also talked about that in Q1, given the shortage we now face in Nordic due to the imports from Russia. In the US, the situation is more stable. We expect some increases, but that is solely related to the diesel prices. And we expect in total 140 million Q3 over Q2. For chemicals, prices went up sharply during Q2 on most items. Latex and caustic soda remain in high inflation. We will see another cost hurt in Q3, mostly related to the time lag of our contracts. And we estimate around 90 million quarter over quarter. Having said that, we do start to see that the prices on chemicals are now starting to flatten out on a high level. which could indicate that we would start to see a more flat cost development towards the end of the year, in particular when you start to think about Q3 versus Q3. Keep in mind, though, that there's a very strong correlation between chemicals and energy prices, so the situation remains pretty volatile. Energy has been relatively flat with hedging, helping us positively for Europe, while we've seen some inflation in the US due to natural gas price movements. And going into Q3, We would expect to see a cost hurt for Europe, mainly related to our hedging probably being a little bit less favorable in Q3, while we would expect to see a small help coming from the U.S. as we've seen some natural gas prices coming down over the last couple of weeks. In total for energy, we estimate 60 million quarter-over-quarter. The logistic situation remains with the global challenges in terms of availability and reliability. We had new contracts negotiated in Europe now during Q2. And both for road and overseas, prices are up. And US, the main challenge is linked to diesel inflation. And we would expect for both regions a combined number of 70 million Q2 over Q2. So in total, we would expect to see something around 360 million cost inflation Q2 versus Q2. But the aim is certainly, as we also talked for Q2, we aim to offset all of this. through very strong focus on price management and driving profitable mix. And we expect to land somewhere between 3.5% to 4% of incremental pricing quarter over quarter and going into Q3. That is obviously a measure of our material net sales. So next slide, please. Some comments about our cash flow and balance sheet. We obviously have very good news to show this quarter. We had an excellent cash flow conversion. Corrected part of some of the challenges reported around in Q1 in working capital. 2.5 billion operating cash flow compared to an EBITDA of 2.3 is a number we will take any day of the week. Our help in working capital is mainly coming now from payables. Receivable is growing in line with what we see in the net sales growth while inventory is relatively stable. So the strong cash flow delivery combined with the rights issue that was successfully completed during Q2 takes our net debt leverage down to 1.1. That even includes the dividend payment we had as part of Q2. So our balance sheet is very strong, and this is obviously months only after the acquisition of Warsaw was executed. The capex guidance for 2022 remains, and that is unchanged in 3.3 billion, where 1.1 of that is related to the three-way recovery boiler. And 2.2 billion is split between what we call Europe and North America-based CAPEX. So with that, I hand it back to Christoph. Christoph Gräber Yes.