Billerud AB (publ) ($BILL)

Good day, and thank you for standing by. Welcome to the Billerud's Q1 Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lena Schattauer, Head of Investor Relations. Please go ahead.

Good morning, and welcome to this presentation following the publication of our interim report for the first quarter 2026. Billerud's President and CEO, Ivar Vatne; and our CFO, Andrei Kres, will present. And after that, we will open up for questions. By that, I would like to hand over to Ivar.

Thank you, Lena, and good morning, everyone, and thank you all for listening in to our comments this Tuesday morning. It's been another quarter with twists and turns and yet again, some unexpected events to navigate through. The heading on the slide is our summary of the quarter, but as you would expect, some nuances between our regions. So let's get into it, and next slide, please. As expected, it's been a tough start of 2026, fighting a challenging market, but we continue to see different realities between our 2 regions. And there are also some clear positives to comment on. In North America, we recorded another strong quarter, and we continue to be well positioned with a local U.S. production to serve a broad customer base from our Midwest manufacturing footprint. 16% EBITDA margin is solid, but we were hit by some unusually heavy snowfalls and freezing temperatures that forced us to take a couple of days unplanned production stop and it drove our energy and logistic costs higher than expected. For Region Europe, it was a quarter of incremental price pressure, currency headwind and loss of emission rights that pushed down the profitability to a level below expectations. And having said that, we have plans in place, and we are taking further action to strengthen the situation going forward. And we are certainly more optimistic about our Q2, and we do expect a profit recovery, but more on that later. One clear positive for our Q1 was the shipment. We managed to grow volume 9% versus Q4, and that growth came from both regions and broad-based across several categories and is a number we are happy with. Our cash conversion for the quarter was solid, and we're delivering well on our cost-saving program, and we are ahead of our plan. Some additional comments on the market sentiment. So next slide, please. So if I start with North America, we continue to meet more stable and solid conditions. Consumption seems to be okay across our core categories and our order books are solid for the foreseeable future. We produce now at approximately 80% operating rate. Another highlight, I guess, is our strategic priority to grow our position within packaging materials. The start of 2026 was encouraging, and we continue to take new positions with both existing and new customers. And Q1 was, as expected, our best sales quarter in that regard. In Europe, the market continues to be difficult, but with some rays of light, we shipped better than expected, and it was a clear uplift from Q4, in particular on liquid packaging board. Now we are a bit cautious as our sense of the strong start is partly linked to 3 buckets. A, customers building up some inventory after a slow end of '25; B, supply chain uncertainty in the wake of the Middle East conflict; and C, some customers ordering a bit extra ahead of announced price adjustments from Q2 and onwards. For the Asia and the Rest of the World, we see a mixed picture. It's mostly weak, but we do see some encouraging sign on the liquid packaging board, where we are picking up some signals that, in particular, demand in China is better than expected. Also in the Industrial, in the Rest of the World has strengthened a bit during the quarter, in particular on sacks. So with that, I hand it over to Andrei.

Thank you, Ivar, and good morning, everyone. So our currency-neutral sales are down 5% versus a year ago, and that was primarily driven by the price decline in Region Europe. In North America, the pricing was flat versus a year ago. And clearly, the strengthening of Swedish krona since last year has had a significant impact on our sales and also profit, which I will get back to. Volume-wise, they were marginally down with 1% in both regions. Next slide, please. The profit for the group declined significantly versus last year, primarily driven by Region Europe. Foreign exchange and pricing have been the 2 big drivers for the decline. In addition, loss of emission rights and also more extensive maintenance shutdown schedule in Q1 this year were other 2 major building blocks. Since we have decline in input costs in the quarter, we are also having a negative inventory revaluation impact; while last year, that impact was positive and year-over-year, it's a significant item in our bridge. Now on the positive side, our cost saving program is delivering ahead of plan, and we have significant decline in fixed costs versus a year ago. Now let's move over to the regions. Next slide, please. Despite the strong sequential volume uplift versus the fourth quarter, the profit for Region Europe declined. Lower pricing, together with loss of emission rights and also stronger Swedish krona were the main drivers behind the profit decline compared to Q4. We did see pulpwood costs to come down, although it was slightly slower than expected due to slower inventory turnover of the pulpwood. And we do expect the decline on pulpwood costs to continue also into the second quarter, and that will, of course, be a major cost relief for the region. Now to restore the profitability, we have announced price increases on second kraft grades and also on containerboard. And we expect the positive pricing impact to start materializing in quarter 2. For other categories, we have implemented surcharges for increased logistical costs due to the situation in the Middle East. Moving over to Region North America. Next slide, please. Profitability for Region Europe declined also versus quarter 4, but that was entirely driven by higher input costs. As Ivar mentioned, we did experience some challenging weather conditions with both extreme cold and also heavy snowstorm, which impacted our energy and logistics costs. And we had to take 2 days of production downtime during the quarter. We certainly do not expect the same extreme weather conditions in quarter 2, and the region should be back to strong underlying profitability. On the back of solid demand and, to some extent, cost inflation in the region, we have announced broad-based price increases for our paper grades. The impact for quarter 2 will be quite limited, but we should see full impact materializing in quarter 3. And finally, our North American team is continuing to ramp up sales of paperboard grades, and we have also now started to provide turnover figure for cartonboard and containerboard sales in our quarterly report. Next slide, please. Now, in terms of the input costs, both regions had somewhat higher input costs versus our ingoing expectations for the first quarter. For North America, again, the weather conditions resulted in approximately SEK 40 million higher input costs compared to quarter 4. For Europe, we did see cost to come down on pulpwood, but that was partly offset by higher electricity costs. And all in all, the costs were down around SEK 60 million compared to quarter 4 for Region Europe. The earlier announced price list changes on pulpwood are materializing. And just recently, there was a wave of price list decreases, which were particular to the storm areas in mid-Sweden. Next slide, please. Now in terms of cost development for the second quarter, we do expect overall costs to come down, but there are quite a lot of moving pieces from where we stand. For Region Europe, we should see cost to continue to come down, both from declining pulpwood prices and also seasonally lower energy costs. We do, however, expect cost inflation to start materialize on chemicals and logistics due to the situation in the Middle East. At this point, all in all, we expect a sequential cost relief of around SEK 150 million for Europe compared to quarter 1. For North America, the overall input cost should remain quite flat with somewhat higher fiber and chemical costs expected to be offset by seasonally lower energy costs. And our U.S. operations are mostly exposed to natural gas prices, and they have been relatively stable in U.S. despite the situation in Middle East. Next slide, please. And continuing on the topic of the Middle East conflict. It didn't have any material impact on our Q1 results. We have managed the sales deliveries to our customers well, and we do not have any significant exposure through sales to the region. With that said, indirectly, we do see input costs to start coming up, and that is primarily on chemicals and logistics through higher oil and gas prices, and we do expect that to be a factor in 2026. Our plan is to mitigate the cost inflation through pricing. And we have already announced broad-based price increases in both of our regions and plan to do further increases to compensate for the higher costs. And with that, I hand it back to you, Ivar.

Thank you, Andrei. As I already mentioned, we are doing good progress on our cost-saving program, and we are ahead of our plan, enabling us to raise the ambition for 2026 impact. All of the planned staff reductions are now completed, and we record SEK 100 million saving in the first quarter, and I'm pleased to see how we come together as a company to execute the program. We will see sequential impact of SEK 50 million in Q2, and it takes the plan for 2026 up to SEK 550 million. The remaining SEK 250 million to reach the full program ambition of SEK 800 million can be expected in 2027. Next slide, please. So in terms of cash flow and cash conversion, we managed a cash conversion of 55% for the quarter, which has improved versus what we did last year. And with our continued focus on working capital, we remain focused and committed to deliver 80% plus cash conversion for the year. Our net debt is pretty stable around SEK 6 billion, and leverage remains well below target. And lastly, our CapEx for 2026 remain unchanged. Base CapEx for both regions at SEK 2 billion, while SEK 600 million is for the strategic CapEx, which is, first and foremost, earmarked to the Evolution program in North America. Next slide, please. So to round it up, for Q2, we would expect an improved performance and profit recovery, especially through benefits from pulpwood prices in Nordic and more help from our cost-saving program. Market sentiment is still challenging in Europe, while solid in North America. The situation is highly volatile and changes almost by the week, but we will likely see additional cost inflation for chemicals and logistics coming out of the Middle East crisis, but our plan is to more than mitigate through both announced and new price announcements. And lastly, in line with our annual shut schedule, somewhat higher sequential maintenance cost. So with that, I hand it back to operator for Q&A.

[Operator Instructions] And your first question today comes from the line of Robin Santavirta from DNB Carnegie.

First question I have is related to the demand outlook going into Q2. You mentioned there's a lot of uncertainty going on related to the Middle East crisis and other things as well. So in Europe and in North America, how does your order book look like right now? And what is the rate of order intake over the past few weeks?

So, in terms of volume and the demand outlook, I think it's better to, of course, break it up into the regions. And for North America, we have solid order books and we should, at this point, expect pretty much stable volumes heading into the second quarter, maybe slightly up. For Europe, the situation is a bit different, and it is a bit more uncertain with everything going on. I think if we look at the sequential volume uplift we had from Q4, as Ivar mentioned, we had a couple of factors playing in there. And I think there was some preordering ahead of the announced price increases. Of course, this puts a bigger question mark around Q2 volumes. At this point, we would probably look to slightly lower volumes for the second quarter.

All right. The second question I have is related to pricing. Can you shed some light about the earnings impact from price increases going into Q2? And if you have any more on Q3 as well?

Yes. I'll start with Q2, Robin. And we look -- actually looking at both regions, we expect prices to increase with around 1% to 2%. Now that's a combination of announced price increases, but also our ability to improve mix based on slightly better order books that we have seen. So, at this point, we would expect for both of our region, price and mix effect to be positive between 1% and 2%. I think Q3, of course, the price announcements that we have made during the quarter, they will be impacting also the third quarter. But I think it's quite a lot of uncertainty at this point. So we will need to wait a bit and see traction on the price announcements before we can provide some more color on quarter 3.

I understand. The final question I have is maybe for you, Ivar. You mentioned in the report persistent overcapacity in a lot of your segments, and you speak about potential consolidation, the need for consolidation. When it comes to mill operating rates and potential closures, potential consolidation, is this something you are involved in as well? Could you comment a little bit about the industry and also your perspective -- your own actions with regards to this?

Robin, let me just start by saying a couple of more things before specifically trying to answer on the Billerud side. It has been quite a long period of time now that we see for our European sector that margins are underwhelming. If you look at some of the return on capital employed, they are almost consistently low single digit and in the lower end of that. And quite frankly, that is unsustainable in the long future and specifically given the capital intensity of our sector. So we do see this reality starting to take place and regionalization is a word I use from time to time where, yes, each region now and the local production in the region is going to start to have a more prominent pace. It means just straight to the point that we in Europe, there is too much installed capacity versus what the defined market now seems to be. I mean we're still operating at a pretty decent operating rate now in Q1, and that number is close to 90%, but very, very squeezed pricing situation and margins being certainly compressed. And yes, in many ways, something has to be done. So we would expect that is just the law or the nature of law here now that something has to yield and something has to come out to restore a more healthy long-term supply and demand balance. I expect most players now in the sector to take at least very deep conversation about this topic that includes ourselves. And there are plenty of items, of course, you can do in this field. There's nothing else I can share at this moment and nothing that is, you can say, advanced enough that we would share. But clearly, this is a topic I expect the whole sector now to wrestle with in a more intense manner than some quarters and years ago.

Your next question today comes from the line of Martin Melbye from ABG Sundal Collier.

Many of the puzzles or many of the pieces of the puzzle for Q2 have been answered now. But on pulpwood costs and the inventory revaluation, is that something to keep an eye for Q2? Or is that flattish? And you mentioned further price reductions being made. What is remaining of EBIT effect for, say, Q3, Q4 on wood costs?

Martin, so I can start with the pulpwood and inventory revaluation. So I would like to separate them just because it's easier to talk around them. I mean the inventory revaluation impact we had on a group level was negative SEK 50 million in the first quarter, and we do expect that to be roughly the same, negative SEK 50 million also for the second quarter just on the back of continued input cost decline on the pulpwood. In terms of the pulpwood costs for the second quarter, we do expect a reduction of roughly SEK 110 million for our region, Europe. And as I mentioned, the SEK 150 million in total for Europe that also includes some reduction in the energy prices. Looking now for the third and fourth quarter, again, there's quite a lot going on. But at this point, we would still look at, on average, price per cubic meter to be roughly SEK 100 lower in 2026 compared to 2025. That's still our ingoing assumption and outlook.

Okay. But what does that mean in SEK per cubic meter for Q3, Q4 versus Q2?

Well, it's difficult to point out the exact impact in quarter 3 and quarter 4. But after the second quarter now, we should have the majority of the declines behind us and probably some marginal effect in quarter 3 and quarter 4.

Your next question today comes from the line of Linus Larsson from SEB.

Just on the topic of costs, if you could maybe come back to how you look at freight costs in the second compared to the first quarter and if that's part of the guidance that you've been giving here, quantifying or if that comes on top? And if so, what that impact might be?

No, the logistics cost is included in our guidance. So, when we talk again SEK 150 million input cost relief for Region Europe. That also includes a slight increase on the logistics cost that we expect due to the situation in the Middle East.

Excellent. That's great. And then, just coming back to your low profitability in Europe. Now you've been EBIT negative for the past couple of quarters. You're still EBITDA positive in the first quarter, but only slightly. So, I wonder if you could share maybe some view on how it differs across your various assets and if there are huge differences in terms of profitability when you compare the various production units within Europe?

Linus, I can take that. I'm not going to comment on any profit situation or specific cost competitive per mill. Clearly, there are, in some sense, a variation depending on everything from size of machines, energy situation, pulp integration, et cetera. But I can say the following that, you pointed out that the margin is squeezed and profitability is certainly under pressure in Europe. I think that is obvious for everyone. It's a sector, I think, that is seeing the same pattern. And for us now, I mean, we are keeping a very tight control on the items we can influence and cost program is still going to be an important piece as a building block for us, '26 versus '25. Andrei mentioned already that we certainly expect more help going forward also on this pulpwood price decreases. That should help us, and that should also enable us to have a certain profit recovery going into Q2 and onwards. But the situation is, as I said, is strained and it's a reflection of the unhealthy balance we currently have. So you can say that these steps we're taking now, they are intermediate or there are needed items, but the bigger picture still hangs over the sector as a supply-demand imbalance.

And as you may understand, the reason that I'm curious is because I wonder whether there are opportunities to address certain paper machines or certain mills to make a significant improvement on overall profitability. And when you talk about restructuring, do you see that you have very much in your own hands? Or do you see the bigger opportunities in combination with other potential partners?

I think it's all of the above, if I'm honest, I think everybody should be on the menu. And -- I mean, in general, I have to say our commercial portfolio is one of the stronger points of Billerud, and we do have exposure into mostly categories that are growing and have had a high degree of resilience in the past. But yes, right now, I mean, there's just too much board capacity in particular that just makes it challenging in pricing in general. But I think we will look at everything we can internally in terms of mix optimization and yes, you can call it mill optimization, either alone or in combination. I think everything now is on the table.

We will now take the next question. And the question comes from the line of Oskar Lindstrom from Danske Bank.

Three sets of questions from me. The first one is, do you expect any further quarter-on-quarter impact from loss of emission rights in Q2? That's my first question.

Yes. Oskar, no, we do not expect any effect into the second quarter.

Excellent. The second question, I mean you talked a little bit about signs of improving demand. You mentioned the liquid packaging board in Asia. I think you mentioned also sack kraft paper. Do you believe this is sort of inventory building or underlying demand or something else? And how -- can you be certain about any of that?

Oskar, I think it's a good question. And I don't think I need to remind everyone that what happened 12 months ago, where Q1 was pretty strong for the sector, and then we ran into a very different situation from Q2 and onwards. And honestly, now everything happening almost at the same time and Middle East coming in as another black swan. It is difficult to really pinpoint. And clearly, we're having the discussion with a broad range of customers to get a feel for this. We are pretty certain that a piece of the volume uplift we saw in Q1 is around inventory adjustments, either preordering ahead of announced pricing partly also nervousness around supply chain uncertainty given the Middle East crisis. Our view is that, that is not a significant part, but there are some volume, call it, a minor or a somewhat of a volume uplift. I think we don't see broad-based good sign or credible sign that the market is strength. But there are pockets of it. I mentioned already one that you referenced, liquid packaging in Asia, in particular China has started better, which is encouraging after we had quite a few years with some negative market growth in China. We shouldn't also forget this, and that tends to be overlooked as a topic that given now that everything from oil price and some resin-based derivatives have increased, it also makes fiber-based packaging more competitive versus some of the substrate of plastic. And we have signs of that as well, especially for instance on the sack that our products are more competitive and customers are adjusting their behavior quite fast. Will that last? Is that now more of a longer trend? Who knows, depending a bit on also what's going to happen, how long down in Middle East. But certainly, some signs are a little bit more encouraging in few of our segments than 3 months ago.

All right. My third and final question is also, I guess, a little bit more of a general one. I mean we're seeing increasing use of hardwood pulp in several paper segments and -- do you see this sort of impacting liquid packaging board and your other segments? Is it a step change? Or is it more of a continuation of a gradual trend that's been going on for a long time?

Yes, that's another good question. I think if you go through our portfolio and look at what we can offer to our customers, I mean, softwood will be, I can tell you, for the foreseeable future, the dominant component, and that is partly everything from stiffness, from flexibility to strength to some of the items of bulk that characterizes a heavy softwood content. So in that sense, we are not super worried about it. I think we have these niches where we talk about high-performance packaging material, which has always been the core and the DNA of Billerud. I think cartonboard is maybe one area that stands out. There is more carton coming our way. And I think we see some signs of higher hardwood content on that, in particular in Asia. You could probably even put in some liner in that as well, with the Eukaliner being a product that is getting a bit of traction. So you can say that it's starting to eat its way into some of the segments. For us, given where we stand in our portfolio today, nothing dramatic that I would expect to change anytime soon.

All right. So, it's more of a gradual development than something that's new that's happening in 2026.

Yes, at least for our side, the answer is yes.

[Operator Instructions] And our next question today comes from the line of Cole Hathorn from Jefferies.

I'd just like to follow up on the wood cost. You mentioned kind of SEK 100 [ cube ] lower '26 versus '25. So, sticking with the kind of SEK 1 billion cost relief. Now into the third and fourth quarter, I was still expecting a little bit more kind of pulpwood cost relief. Are you guiding that because there's kind of diesel costs increasing that the cost of the mill gate, you're kind of sticking to that SEK 1 billion? Or are there some moving parts in that kind of wood cost relief is what I'm asking? Is kind of stumpage still coming down, but cost of the mill gate is going up a little bit just considering diesel?

Yes, I think -- I mean, obviously, we have some parts of the price increases for the energy and diesel in particular, that's specific to the harvesting, which is carried by the forest owners. When it comes for the logistics to bringing the wood from the forest or roadside to our mills, we do expect some increase on the cost side. We have activities in place to mitigate those effects. I think also the additional price reduction for the storm area now, that's obviously something that is partly offsetting that increased cost -- and that's why we also, at this point, at least stick to the same outlook for '26, i.e., SEK 100 per cubic meter lower output costs. That's our best guess at this point.

And then you talked about the -- Ivar, you talked about pricing announced as well as potential need for further ones, further costs. Can I just understand how you're thinking about that? Because liquid packaging board, I imagine just for the logistics, you're going to need to try and push through some surcharges there. But the rest of the portfolio would -- is this kind of surcharging for logistics? Or is it -- do you think you need to go out to the market for underlying price increases where possible?

Cole, I think it is both or the latter that you pointed to. So, I think it will be a combination category by category. I think it also depends quite a bit on what we see on the recycle side. And there has been movements, I guess, broad-based in that field, as you know. And I'm pretty certain that we would see more just on the basis of some of the cost situation and how it will be hitting harder the nonintegrated and the more energy depending players, specifically in Continental Europe. And clearly, that's something that we also take with us. So we've seen, can many ways say round 1 and certainly there will be around 2, and we are certainly also gearing up for that. It will be a combination then on what position we have on that to what we also see on the recycled side. But it's a pretty fast-moving situation, and I would certainly expect more movements to happen now during the second quarter.

And then the last one, it's a difficult one, and it might be a bit of an unfair question, but you've been very open on the need for capacity closures and industry consolidation to improve the supply/demand balance and everyone is looking at it. But we still haven't seen as much action as we probably should. The industry has been talking about this for the last year, and we just haven't seen the closures that the industry needs. How do you think about it going forward from here? Do you think that price increases are ultimately delaying the inevitable here? And are we going to be in a position where we actually need the closures rather than the price hikes? Just like your thoughts on the general industry. I know you ...

Yes, it's a good question. I don't think it's unfair at all. Yes, it could very well be so that what we see right now might be short-term, I don't know, give a little bit more optimism back or push the margin in the right direction. I still think that the underlying challenge that we are wrestling with, and we've seen this in Europe for years now, it's not only a quarter or 2. It's how we compress margin and returns are just unsatisfactory. And we see a completely different ball game in the U.S., where I think also it has been a much tighter race in terms of managing capacity. And yes, I do expect, everything else equal, unless that we see something now that there is some input tariffs have been reversed or you would see something -- other X factor of hopeful from Russia coming back in and all of this seems now unlikely, I think we are facing, as a sector, the inevitability that some capacity has to come out.

And then just because we don't get much visibility on the sack and specialty kraft side, would you just mind providing a little bit more color on what are you seeing in those end markets by customers, would just be very helpful.

Yes. No, I can do that. I think if I start with our sack and maybe going to brown first, situation is stable on a quite low level. There are some demand increases in some niche areas. I mean Africa and Asia are an important sector for us. We do think that lot of that so far of the more order intake is linked to uncertainty around the Middle East. And as I mentioned earlier here in the call, price on resin derivatives have gone through the roof, and it is enabling us to be more competitive on some of our products. I mean, particularly this woven poly bag is a product we now have a much better value proposition on our sack to compete with. White, quite similar, quite decent order books going into Q2, but I think we are, at this stage, careful to say anything about the underlying strength. But probably we can confirm that some customers are now trying to secure positions. I think on kraft paper, starting with MG, quite stable on, again, low level, not as good order books as we see on sack. Now uncertainty on the supply chain is also making some customers, especially overseas, booking a bit more than they normally do. But yes, maybe 1 notch down then in terms of where we are in the market versus the sack. And lastly, I think on MF, we do have a good product on the E-commerce, and that part is performing quite well. It fits well to our portfolio and also talking back to my point about how we can have a product that has high performance. Strength of market is okay for the time being, nothing more, but very decent order books also on the MF going into second quarter.

[Operator Instructions] There are currently no further questions. I will hand the call back to Lena.

Thank you, and that concludes this conference. So thank you for participating, and welcome back to the 17th of July when we report the second quarter results.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.