Billerud’s annual and sustainability report 2024
“2024 was an intensive and important year for Billerud. On top of navigating our business through volatile market conditions, a major milestone was reached when we launched our new strategy – Our Way Forward. We will continue to make choices that play on Billerud’s unique strengths, enabling us to be well positioned for the coming years. Our updated strategy focuses on value creation and prioritizes profitability over growth.
Major changes have taken place in and around Billerud during the last couple of years. Our newest board machine in Gruvön has ramped up with a greater output of high performance material, we have installed a new recovery boiler in Frövi, and we have delivered significant efficiency gains throughout the com – pany. But most importantly, the acqui – sition of Verso in 2022 fundamentally changed Billerud for the better. Today, we have a more diversified geographic and product portfolio, which guarantees greater stability.
The expansion to the US has also been a success in terms of earnings. During the first 2.5 years as part of Billerud, the North American operations generated a net cash flow equivalent to more than 60% of the purchase price. In our business environment, Nordic wood prices have risen to unprece – dented levels since the sanctions on imports from Russia in 2022, putting pressure on the margins for pulp, paper and board producers such as Billerud. Additionally, new regulations are being introduced that impose tough demands on forestry and the paper and packag – ing industry in the EU.
Nonetheless, the long-term demand for fiber-based pack – aging materials is expected to be signifi – cant and to grow by around 4% per year. Megatrends, such as consumers turning away from fossil-based packaging towards more sustainable solutions, is a major factor driving the growth of fiberbased packaging.
Our Way Forward
In 2024, we developed an updated strategy for Billerud adapted to this new reality and with specific initiatives for both of our regions, Europe and North America. The strategy was presented in its entirety at a Capital Markets Day in December. But already in May, we had decided not to proceed with the original plan of a full-scale transforma – tion to cartonboard production in the US, but rather to shift the production mix gradually. This decision was made after in-depth feasibility studies, eval – uations and supplier discussions. We concluded that a higher returning and more modest investment strategy for our North American mills is the best way forward.
We are now placing a stronger focus on value creation and are prioritizing profit – ability over growth. We are prepared to make tough decisions should it be nec – essary to create value. Our new financial targets emphasize the importance of capital efficiency, profitability and cash flow, and targeted levels reflect the structurally changed operating environ – ment in Europe. We are also promoting a stronger performance culture in the company.
Evolve and strengthen
The strategic themes for our two regions can be summarized as Evolve and Strengthen. In North America we remain commited to speciality and graphic paper. However, as the graphic paper market is in secular decline we need to improve our capacity utilization. Hence, we will evolve towards packaging materials. We will invest in our two mills in Michigan to enable production of paperboard products where we see substantial market opportunities. Our US production is cost-leading and located within close proximity to major customers and abundant wood supply. We are thus well-placed to pursue a strategy that retains our position as a market leader in graphic paper, and at the same time build the paperboard business to around 300 ktons over the next five years.
Our evolution investment program totals SEK 1.4 billion and our projects will be carefully phased to minimize disruptions to our operations and shipments. We are going to market with our US-produced containerboard and cartonboard under the product lines Tribute® and Voyager®. We have numerous successful customer trials ongoing and have already received the first sales order for our locally produced liner. In Region Europe, we aim to strengthen our performance through our existing manufacturing assets.
Although conditions for our industry in this part of the world have become more difficult, I am confident that Billerud stands strong among the competition and has the right initiatives in place to improve profitability margins. We will continue to execute on our actions to mitigate the higher wood costs, streamline our already flexible production, and leverage on our products with sweet spots in high-value applications. We will maintain our strong position in liquid packaging board, accelerate the growth in cartonboard and coated liner, drive value in fluting and MG paper, and optimize sack paper by targeting specific applications. We will continue to be diligent in our portfolio management and drive efficiency in all areas.
Our goal is to reach an annual EBITDA of above SEK 6 billion over a business cycle. Successful delivery of this, coupled with strong cash conversion and modest investments over at least the next three years, will enable a continued strong and competitive Billerud.
Safety and sustainability
The safety of our employees and contractors remains Billerud’s number one priority. Our safety performance in 2024 was unsatisfactory, and we need to improve in this area. We are convinced that all workplace accidents are preventable, and that we can make the work environment safe through discipline and safety leadership. Sustainability is at the core of Billerud, and we are constantly raising our ambitions. This year’s sustainability statement has been prepared in accordance with the EU Directive on Corporate Sustainability Reporting (CSRD) and we remain a supporter of the UN Global Compact.
We have committed to science-based targets and have a clear transition plan for CO2e emission reductions. In Europe, Billerud is already the top industry performer in terms of carbon footprint derived from production, so in the coming years, the greatest positive impact of our climate improvement measures will be in North America.
2024 financial performance
In 2024, our financial results strengthened under challenging and rapidly changing conditions. After a period of low sales due to an overstocking situation among customers, the year started off with a more positive market sentiment. During the spring and summer there were supply and logistics disturbances in our industry that worked in our favor. However, in the autumn, the market recovery for our industry stalled on the back of weak underlying consumption of packaged goods.
The market conditions towards the end of the year were at a stable low level. Our proactive actions, discipline and flexible approach served us well. We adjusted swiftly to the changed market conditions and increased our sales volumes, raised prices and improved our sales mix. We maintained a strong focus on items that are within our control. We successfully limited the fixed cost increase below inflation and delivered another sizable contribution to the efficiency enhancement program. This means that we reached the program target of SEK 1.5 billion well ahead of schedule. The EBITDA margin increased to 12%. The stronger profitability enabled an increased cash flow and a continued strong financial position. The Board of Directors proposes a dividend for 2024 of SEK 3.50 per share, which is an increase of 75% versus last year and in line with our dividend policy.
Future outlook
At the beginning of 2025, there is high geopolitical uncertainty and a regionalization trend seems to be sweeping the world. In Region Europe, we seem to have passed the bottom of the curve and are starting to see early signs of improved market sentiment in many of our product categories. Market conditions in North America are solid and in line with a well-performing US economy. With the import tariffs that the new presidential administration in the US has introduced, Billerud is well positioned and will likely increase its local capacity utilization and sales volumes within North America. Although the pulp and paper markets have been challenging over the past years, Billerud is in a strong position to evolve and strengthen. I look forward to continuing to execute our strategy and create value for all our stakeholders – shareholders, employees and customers.”
Ivar Vatne, Billerud President and CEO
