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Edited Transcript of BILL.ST earnings conference call or presentation 17-Apr-19 8:00am GMT

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Q1 2019 BillerudKorsnas AB (publ) salary Call

Solna Apr 17, 2019 (Thomson StreetEvents) -- Edited Transcript of BillerudKorsnas AB (publ) salary rally yell or presentation Wednesday, April 17, 2019 at 8:00:00am GMT

TEXT translation of Transcript

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Corporate Participants

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* Christopher Casselblad

BillerudKorsnäs AB (publ) - EVP of traffic & Sustainability

* Kristina Schauman

BillerudKorsnäs AB (publ) - Acting Executive VP, CFO & Director

* Petra Einarsson

BillerudKorsnäs AB (publ) - headmaster & CEO

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Conference yell Participants

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* Christian Kopfer

Nordea Markets, investigation part - Senior Analyst of Metals, Mining & grease and Sector Coordinator

* Justin Joseph Jordan

Exane BNP Paribas, investigation part - Analyst

* Kevin Hellegård Nielsen

Goldman Sachs orchestra Inc., investigation part - Analyst

* Linus Larsson

SEB, investigation part - Analyst

* Markku Järvinen

Handelsbanken headmaster Markets AB, investigation part - Analyst

* Martin Melbye

ABG Sundal Collier Holding ASA, investigation part - investigation Analyst

* Oskar Lindstrom

Danske coast Markets Equity investigation - Senior Analyst

* Robin Santavirta

Carnegie Investment coast AB, investigation part - economical Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, address ought the BillerudKorsnäs Interim illustrate January ought March 2019. Today, I am pleased ought gift Petra Einarsson, headmaster and CEO; and Kristina Schauman, acting CFO. (Operator Instructions)

Speakers, interest commence your meeting.

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Petra Einarsson, BillerudKorsnäs AB (publ) - headmaster & CEO [2]

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Thank you. Good morning, and address everyone ought today's webcast of our region 1 report. I used to alike ought commence by sharing some key highlights of the illustrate and then ought invite Kristina ought grant a more granular update at the financials. And after Kristina's updates, we will blank up though Q&As.

These are the headmaster highlights of the quarter. I am same pleased with the continued noise request with something at 10% sales growth and the hard brim of 16%, no far from our long-term targets of 17%. However, we however experienced headwind regarding raw material costs and at the flat of persist quarter. And I'm merry and haughty ought inform that our strategic investment, KM7, at Gruvön, is progressing according ought plan, and we gorge now entered into the start-up phase. And we will gorge stock at string any engagement now, and I definitely consider that it will exist at April.

The Bergvik Öst transaction is expected ought exist closed at May, and the process ought find a healthful investor continues though planned. We gorge now sent out the news memorandums ought little interested parties, and the utilize is same high.

We are at a tour with good momentum at the first region towards unlocking the BillerudKorsnäs' potential. And if you appearance at the 3 concentrate areas that we gorge at unlocking the potential, the first and headmaster attention though us has been ought reform a successful ramp-up of our strategic investment at KM7 at Gruvön and ought reform long-term competitive timber sourcing.

Second, we need ought continuously engagement by engagement improve safety and produce stability. And third, it's persist besides no least, growth is our focus, and we need ought quicken regarding innovation and solutions.

If you appearance at KM7 at Gruvön, it's a vast project, however far from being finalized. It's SEK 7.6 billion. And -- besides exact now, we gorge green lights at safety, green gleam at ad revenue and green lights on, at time, because of a vast teamwork within the company. The start-up aspect is now initiated, and we will gorge stock at string at April.

We plan ought invent commercial liner already at May, June and ought gorge certified material produced at October. The cutting machine will commence up at August and the first material will, though our customers, though I said, will exist sent ought customers at October.

Our guidance of SEK 500 million shock at EBITDA related ought compound is however valid and the SEK 250 million regarding increased list depreciation is though noise however valid.

Looking at the sourcing of wood, this accounts though nearly 30% of our full cost and though it's however at our concentrate from 2 different perspectives. First of all, we focused ought finalize the occupation with the goods of intent parted at by Bergvik Öst at can or early June. And we consider that -- though was commented during the headmaster Markets engagement persist year, we however consider that it creates more evaluate though BillerudKorsnäs ought invest send at our packaging solution worry than ought hold grove land. And we are now at the process of inviting healthful investors though long-term collaboration and gorge sent out the news memorandums. The utilize is same high, and I appearance send ought deepen the discussion with little parties.

And now some words nearly safety and produce stability. A safe company is a well-run company. And if you appearance at the safety deed of BillerudKorsnäs, persist year, we gorge the -- we reached 7.2 lost time injuries though 1 million working hours, and this is same far from 0 harm. And unfortunately, if you appearance at the fourth quarter, we gorge moved at the wrong bid and are now at 8.7 lost time injury frequency rate.

During the fourth quarter, we gorge now launched the BillerudKorsnäs safety program where we concentrate at structure, battle and predictability, and with our concentrate ought gorge safety though our first priority. And we are committed ought come our targets of less than 1.5 lost time injury frequency impose by 2023. We consider that total accidents can exist prevented, and we will never stride by ought raising the sound ought escape an incident within the company. besides we gorge it though -- it's a need way. And hence this will exist a need journey, and it's same much correlated ought mindsets.

Another region where we gorge full commitment is produce stability. And here, we continuously need ought improve our produce stability, and we gorge seen no main disturbances hence far during 2019. The first region had a gentle commence with a maintenance-related challenge at Gävle, besides we though noise had a same noise full of the region with months at row and at our targets.

The produce targets gorge been triangulated based at outer benchmark, inside benchmark and the nature of the loss ought impose our deed by each division and by each machine. We gorge sent availability targets though the next coming 2 years ought improve by 4%. This is match ought SEK 400 million at EBIT improvement or nearly 1% units at EBIT brim each year. This program is now at execution aspect ought send at the committed targets with our key genius network setup ought facilitate that revenue me knowledge and the best drill sharing. The lost -- the key lost initiatives are monthly tracked, and we though noise explore corrective actions when needed ought acquire uphold at track. hence we are fully committed ought send at these promises, and we definitely plan ought amplify OEE by at least 4% units by the aim of 2020. And if you appearance at the total year produce of 2019, we outlook ought attain 2.9 million tonnes.

So now we gorge talked nearly what ought reform and what ought continuously improve, hence let's report nearly accelerated growth. Innovation is at the center of what we do. The aim results are new packaging solutions that compose evaluate though our customers and at the same time, aid the advantageous and sustainable growth though BillerudKorsnäs. when it comes ought standard our deed ought launch new packaging material, our long-term purpose is a new manufacture ratio of at least 15%. A little years ago, we surpassed that level, besides during the persist 2 years, the flat has decreased ought 6%, 7%. This is chiefly the consequence of where we are at the investment cycle. besides already this year, we outlook ought cost up at the targeted flat of at least 15% again.

We gorge made one step closer ought a fully biobased paper bottles during this quarter. BillerudKorsnäs and ALPLA joined army ought perform the shared vision of developing a fully biobased paper bottle with biodegradable barriers. hence this is something that is indeed exciting that we appearance send ought visit the paper bottle out at the fair soon.

And finally, ago I hand at ought you, Kristina, the outlook. And looking at the next quarter, we outlook the good request of our products ought continue. We though noise experienced an amplify price stress at some parts of our manufacture portfolio. besides though the main divide of the portfolio, we need ought concentrate at safeguarding the modern price levels. And though noise the fact that we gorge newly negotiated price levels though the main divide of our liquid packaging board. And finally, the revenue of fiber outlook ought flatten out at a high flat though the next -- though the region ought come.

So with that though an introduction, Kristina, I hand at ought you.

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Kristina Schauman, BillerudKorsnäs AB (publ) - Acting Executive VP, CFO & Director [3]

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Thank you, Petra. And I will now advance along the results first from the orchestra level, then I will grant you some highlights at the different divisions. though you gorge already seen, we gorge started the year with a same noise net sales growth of 10% year-on-year, and this is a noise growth that we gorge seen along total the divisions. The amplify is mostly driven by the fact that we gorge higher sales prices year-on-year, besides we though noise gorge seen a certain cash effect. Of the growth, nearly 2/3 relates ought organic growth at sales and 1/3 ought currency. at the same time, our sales volumes though the orchestra gorge been more or less unchanged compared ought the first region at 2018.

We gorge though noise continued ought visit high raw material costs at our production, the big defect we gorge at the fiber, and it has continued ought amplify somewhat at the first quarter. And now the prices gorge increased with more than 20% compared ought the first region at 2018. We outlook that this price amplify will commence ought flatten out, besides the flat will however linger high.

Cost though chemicals has though noise remained at a high level, besides here we gorge seen that the amplify has already flattened out. at addition, we gorge also, during the quarter, seen a negative shock from higher might prices year-on-year.

So looking at our EBITDA. Compared ought persist year, we gorge a small decrease, and we ended the region with an EBITDA of SEK 1.035 billion. hence the headmaster definition is that though we gorge managed ought amplify our sales prices, we gorge no fully been able ought compensate though the higher raw materials costs that we now visit a total consequence now at this quarter.

I will now direct you along the effects at the different divisions, and I will commence with part Board. though board, we gorge seen a net sales amplify with 12% at the first region whereof the main divide of this has been organic, nearly 9%, and the surplus divide is based at currency. The organic amplify is a arise of higher sales prices compared ought persist year, besides though noise that we gorge had higher sales volumes at part Board. The amplify at sales volumes relates ought a touch of produce ability from part Paper. And here, we gorge then increased the produce of fluting and liner though board during the first quarter.

The EBITDA decreased with 8% compared ought the same epoch persist year, and we ended the region with a brim of 19%. The headmaster definition is that the higher fiber and might costs that we gorge seen, besides though noise gorge we had costs at Gävle at relative ought -- that we gorge replaced divide of a digester at one of the pulp lines and used ought melt pulp at the production, and this has though noise affected the cost.

Our respond of headmaster employed though the part ended at 9%, and this is the same flat though we had seen at the orchestra level. And though you know, the long-term purpose is 13% ought exist at that. The lower respond is, of course, related ought our big CapEx program and where the investment at our KM7, the cartonboard machine, is allocated ought board. We outlook ought commence depreciation of this machine though of can -- I'll visit what happened here. Is it okay? Okay. miserable nearly that. And then I'll just continue. hence what I said -- persist worry I said was that we outlook ought commence depreciation of KM7 though of May. And Petra already mentioned that we though noise outlook ought gorge at the same flat of SEK 250 million of depreciation though this year. The hope though board is that we visit that the fair is expected ought linger good, and the virgin division where we gorge seen some weaknesses is the uncoated liner segment.

Now part Paper. And here, we gorge cabin seen another noise -- same noise region though paper, and the net sales increased with 10% year-on-year. The headmaster explanations is that we gorge been able ought amplify prices and own this high price flat throughout our segments. We gorge though noise seen certain cash effects and we gorge though noise seen an improved manufacture mix, and this is because of the commence of paper machine 10 at Skärblacka where we're producing MG paper.

The EBITDA increased with 9% year-on-year, and we gorge a brim that surplus at a high flat of 20%. The respond of headmaster employed at paper is high at 20%. The hope though this part is that we outlook the markets ought linger stable, besides we gorge started ought visit some price pressure, besides our headmaster aim is now ought protection -- abstract ought protection the modern price levels.

Finally, part Solutions. Here, we gorge a good growth though noise of 10% during the region and we had net sales of SEK 206 million. This is mostly related ought new sales within our Managed Packaging segment, besides we gorge though noise here seen certain cash effects. The EBITDA was certain at SEK 13 million compared ought a negative amount at the first region at 2018, and we ended the region with a brim of 6%. though this part is solutions-oriented and hence asset-light, here, we concentrate the follow-up at margins pretty than respond targets. The hope though the solutions is that we outlook the growth ought abstract at a noise manner during the surplus of the year.

So now some words nearly the surplus sheet. We gorge had net debt ended at SEK 9.8 billion at the aim of the first region compared ought SEK 6 billion a year ago, and this is clearly a result, our big CapEx programs that are now coming ought an end. at the first quarter, we had strategic investment of nearly SEK 700 million and the main divide -- another full ought 8 -- SEK 900 million is expected at the second quarter. if we exclude any effects from valuating the first example here, I need ought report nearly it, we outlook net debt ought range at aim of the second quarter, and this is because of the surplus divide of our CapEx though our strategic investments, besides though noise that we gorge the dividend payout at the -- that we booked at the second quarter. besides -- and if we contain the closing of Bergvik during the second quarter, we outlook this, though we gorge already mentioned, the money out consequence of nearly SEK 5.4 billion then our debt spot will amplify even more. besides though we gorge communicated, the sale of Bergvik is progressing well, and we outlook ought sell a majority of this during the third quarter. And even if we had Bergvik at our surplus sheet, we however gorge headroom though our debt covenants. We gorge debt covenants based at net debt ought equity and utilize coverage. And we will commence ought visit a decrease of our debt spot at the latter divide of this year, and we outlook it ought exist at row at late 2020, that is at row with our net debt-to-EBITDA target.

So at length then, I'll hand at ought Petra though some persist concluding remarks.

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Petra Einarsson, BillerudKorsnäs AB (publ) - headmaster & CEO [4]

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If you summarize the long-term economical targets, we reached the net sales growth of 10% and the EBITDA brim at 16%. respond at headmaster employed, 9%, which is below the long-term target, and though noise net debt-to-EBITDA is now at 2.9% level. The dividend policy ought exist 59% ought exist decided at the annual meeting.

And ought summarize the quarter, it's definitely hence that we -- what we visit during this region is that the noise request though our products continues, which is indeed good, and we visit though noise a noise sales deed at total divisions. I consider the 16% brim ought exist hard considering the high fiber costs that we gorge had though noise at the first quarter. The ramp-up of KM7 has started and proceeds according ought plan. And the process of finding a healthful investor though Bergvik Öst is ongoing.

We definitely gorge a same good momentum at the company exact now, and I used to alike ought speak that we gorge a fairly optimistic recommendation at our future. The tactic process is taking catalog now at the new organization with divisions at spot and the management team and the part at place, and we plan ought speak you more nearly our 5-year plan when we confront afterward this year at -- at the headmaster Markets Day.

But now I used to alike ought blank up though some Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first issue is from Linus Larsson from SEB.

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Linus Larsson, SEB, investigation part - Analyst [2]

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My questions, I'd alike ought commence just though clarification sake, just a follow-up at your Gruvön KM7 start-up you've gotten though SEK 200 million EBITDA shock at the second quarter. ought I understand that though the sequential shock is though noise SEK 200 million, i.e., at that basis, there were no such costs, no such shock at the first quarter? That's my first question, please.

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Kristina Schauman, BillerudKorsnäs AB (publ) - Acting Executive VP, CFO & Director [3]

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Yes, that's correct.

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Linus Larsson, SEB, investigation part - Analyst [4]

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And then going into the third quarter, is it then SEK 50 million less of an impact? Is that the manner we ought understand your guidance comment?

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Petra Einarsson, BillerudKorsnäs AB (publ) - headmaster & CEO [5]

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Yes, we forecast SEK 200 million nearly though the second region and then though the remaining SEK 300 million ought exist rip evenly the next quarters.

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Linus Larsson, SEB, investigation part - Analyst [6]

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Excellent. And also, I intend this -- the manner I understand it, this is a guidance though the scheme at its totality. Does the guidance though noise cover some group-wide improvements like, though instance, the moving of volumes from, say, the closed machines at Gruvön ought other mills at your system? Or does that -- is that outer of this especial guidance?

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Kristina Schauman, BillerudKorsnäs AB (publ) - Acting Executive VP, CFO & Director [7]

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No, that is included at the guidance of SEK 500 million.

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Linus Larsson, SEB, investigation part - Analyst [8]

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Okay. And then could you quantify that, how important is that, how much volume fulfill you outlook ought affect from Gruvön, though instance, ought other mills at your system?

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Christopher Casselblad, BillerudKorsnäs AB (publ) - EVP of traffic & Sustainability [9]

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I think, Linus, what we gorge said hence far is that PM5 is now closed, and that has been already moved. That was MG paper and is now produced at Skärblacka. PM1 and PM2 is expected ought exist closed down at May. And the persist machine, I count it's PM4, we gorge no taken a resolution when ought affect those amount -- that ability yet, besides we outlook them ought affect those qualities going forward. hence we gorge ought cost uphold ought that.

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Linus Larsson, SEB, investigation part - Analyst [10]

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Okay. besides fulfill you outlook ought retain the immense majority of the worry that is now at the machines, melody ought closure at Gruvön?

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Christopher Casselblad, BillerudKorsnäs AB (publ) - EVP of traffic & Sustainability [11]

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If PM1 and PM2 is now producing liner and fewer board, hence yes, some of those volumes will exist moved ought KM7 though we ramp it up.

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Linus Larsson, SEB, investigation part - Analyst [12]

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Okay. I see. Okay, okay, okay. Good. And then can I though noise request at Bergvik? You need ought full a divestment or divide divestment at the third quarter, if I heard you exact just now. Is your intent ought liberate headmaster at a net base at connection with these transactions?

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Petra Einarsson, BillerudKorsnäs AB (publ) - headmaster & CEO [13]

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I count that is though noise early ought muse though we are exact now at the absolute beginning of the negotiation.

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Linus Larsson, SEB, investigation part - Analyst [14]

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Understood. And can exist at connection ought that, how important fulfill you recommendation a buyback option though divide of this latent deal?