Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Billerud AB (BLRDF, Financial) reported an 8% increase in net sales compared to last year, driven by volume and mix improvements.
- The company successfully improved its underlying profit both year-over-year and quarter-over-quarter, offsetting input cost inflation through proactive price management.
- Region North America delivered an 18% EBITDA margin despite operating below 70% capacity, showcasing strong profitability.
- Cash conversion was close to 80%, demonstrating effective working capital discipline.
- The efficiency enhancement program contributed SEK190 million in the quarter, with a target of SEK700 million for 2024 on track.
Negative Points
- There is uncertainty about the strength of underlying demand, with market conditions varying by category.
- Input cost inflation, particularly in Europe, remains a significant challenge, with expected additional cost headwinds of SEK180 million in Q3.
- The pulpwood costs in the Nordics reached all-time high levels, significantly impacting profitability.
- The company faces a tight market situation for pulpwood, with continued cost increases expected in Q3.
- Despite improvements, the company is still operating below full capacity in North America, indicating potential inefficiencies.
Q & A Highlights
Q: How do you see the guidance into Q2 into Q3 for volumes and costs in Europe and the US?
A: For Europe, we expect flat volumes heading into Q3, while in the US, we anticipate a slight increase. Costs in Europe are expected to rise by SEK180 million, and in the US, we foresee a SEK10 million increase. We expect European prices to rise by 2-3%, while North American prices should remain flat.
Q: Can you give us a sense of utilization rates and operating leverage in North America for the second half?
A: We expect to slightly exceed the 70% utilization rate threshold in the second half, primarily in graphics. However, we do not anticipate reaching 80-90% utilization. Our strategy involves gradually adding more volume into other paperboard grades starting in 2025.
Q: What explains the difference in performance between containerboard and consumer boards?
A: Containerboard remains strong due to good market pull and several pricing waves. Consumer boards face more supply and consumption pressure, particularly in electronics and luxury categories. We expect cautious optimism for consumer boards later in the year and into 2025.
Q: How did North America achieve an 18% EBITDA margin with less than 70% operating rate?
A: The improvement was driven by a mix effect with lower pulp sales, significant fixed cost reductions, and a conscious focus on maintaining a strong value mentality.
Q: What are the building blocks to reach the 17% EBITDA margin target?
A: Achieving this target will require a combination of price and mix management, efficiency improvements, and a strong focus on value over volume. We will discuss this in more detail at our Capital Market Day.
Q: Can you explain the price and mix switch that surprised in Q2?
A: The 6% increase in net sales was split into 2% pricing, 2% mix, and 2% FX. We expect the mix effect to be lower in Q3, with pricing being the primary driver.
Q: What is the outlook for pulpwood prices and sales margins?
A: We expect pulpwood prices to continue rising in Q3 due to recent price increases. The outlook for sales margins will depend on our ability to manage pricing and mix proactively.
Q: How do you plan to address high wood costs and maintain profitability?
A: We will focus on pricing, mix improvements, and efficiency enhancements. We are willing to leave volume on the table if it does not meet our value expectations.
Q: What can we expect from the Capital Market Day in Q4?
A: We will discuss our capital allocation plans, including CapEx expectations for North America and our overall business strategy. We will also address our balance sheet and future financial targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
