 | Billerud will provide its customers with efficient packaging paper and customer-adapted solutions. The business shall provide good and stable profit-ability, based on cost-effective and environmentally appropriate processes.
Strategy
Billerud aims to be the customer’s first choice when selecting packaging paper. By focusing on the entire chain of value, Billerud will to a further extent adapt products and services that meet the requirements of customers and end-users.
Billerud’s main aim is to create added value for customers and shareholders. This will be achieved through continuous improvements in efficiency and an extended business offer while meeting responsibilities towards staff, suppliers and the environment. The strategy is based on a focus on niche segments, continual increases in margins and fulfilment of financial targets.
At the start of 2006, Billerud’s Board decided to review the company’s financial targets against the background of the current financial position and the ongoing discussions on future strategy.
Focusing on attractive niche segments
Billerud intends to strengthen its positions in the most attractive segments, where the company is a leader and for which market forecasts are favourable.
The aim is to maximise cash flow from other segments in order to finance growth in key segments. Billerud will therefore invest in growth, customer-adapted product development and increased market shares in target segments. Investment in growth will be made in low grammage white liner, fluting based on primary fibre, liquid packaging board, white sack paper and technical kraft paper. Strong niche positions and leading customer applications in these segments will lead together with cost-efficient production to long-term profitability above the average for the industry.
From 1 March 2006 Billerud will change its organisation in order to efficiently implement its segment strategy. The new organisation will be based on the following business areas:
- Packaging & Speciality Paper: technical kraftpaper, sack paper
- Packaging Boards: liner, fluting and liquid packaging
- Market Pulp
The business areas will implement the segment strategy and have direct responsibility for developing products and services, technical service, sales planning and price setting.
Continuous margin improvements
Billerud has continually increased production volumes by better utilisation of existing capacity.
Marginal costs for raising volumes even further, however, limit ambitions for a significant rise in overall production capacity. Earnings will instead be boosted by improving market positions and cutting costs.
Improved market positions
The top priority in terms of strengthening market positions is focusing on segments and customers that can generate the greatest value. This will be achieved by switching volumes from lower value segments to segments with higher added value. The aim of increasing volumes in attractive segments also involves making carefully selected acquisitions.
The next priority is to improve the general product range and meet the requirements of customers and end-users by developing competence throughout the packaging value chain. This will require better product development and an extended range of customer-adapted products and services. The long-term aim is also to increase possibilities for supplying customers with more comprehensive packaging solutions.
The third priority is participating in the development of attractive segments outside Europe. Analysis of different ways of entering attractive markets outside Europe continues. As part of this process, Billerud is investigating different forms of co-operation with customers, suppliers and competitors, as well as monitoring possible acquisitions.
The fourth point on the priority list, and a consequence of the above, is making external deliveries of market pulp a smaller proportion of overall sales.
Cost reductions
Continuous cost reductions are one of the cornerstones of Billerud’s strategy. At present there are several major cost-reduction projects in place.
In 2005 it was decided to cut the cost of Billerud’s organisation by MSEK 250 per year in line with the Billerud 2007 project. The aim is to achieve maximum efficiency in all production processes and give the organisation greater opportunities to achieve continuous production improvements. This project involves reducing the number of employees by 450 full-time positions and improving several processes. In order to meet these objectives investments are being made in IT infrastructure, automation and plant. The project will be completed in 2006 and produce full effect from 2007.
In order to reduce Billerud’s reliance on external energy, an investment of MSEK 1,050 has been made to reduce energy costs. This investment includes new turbines for back pressure power and the rebuild of bark boilers at all three Swedish mills. The bark boilers were installed in 2005 and the turbines will come into operation in 2006. The full impact on results, a cost reduction of MSEK 250 (excluding depreciation), will be felt in 2006 with full effect from 2007. The payback time is less than five years and the investment will reduce Billerud’s reliance on external energy to about one half of its current requirement.
On top of these major measures Billerud has also initiated a program aimed at reducing purchasing costs. Significant synergies can be achieved among the mills, which will lead to major savings in the future. The aim is to reduce costs in 2006 and achieve the full impact in 2007/2008. In parallel with this work the objective is to maintain costs at the lowest level in order to achieve the most cost-efficient operation possible.
Financial objectives
In early 2006 the Billerud Board decided to review the company’s financial objectives against the background of the company’s current financial situation and ongoing discussions on future strategy.
Return on capital employed
The pulp and paper industry’s development has historically followed a cyclical pattern, with fluctuations in the industry’s earnings potential as a result. In formulating Billerud’s return objective, the Board of Directors of Billerud took into consideration the three mills’ historical profitability, average exchange rates, pulp and paper prices during the latter years. They also took into consideration the competitive benefits that merging the three mills were expected to generate. The objective is that the return on capital employed shall average at least 15 % over a business cycle.
Net debt/equity ratio
Billerud’s operations are affected to a significant extent by the prevailing economic conditions and therefore involve a significant operating risk. As a result, it is important that the Group’s financial strength is improved during good years, to help it persevere during weak years. Against this background, Billerud aims to maintain a net debt/equity ratio of between 0.6 and 0.9 over a business cycle. Furthermore, Billerud’s objective is that investments shall be in line with depreciation. However, the announced investments within the energy field lie outside the established framework.
Dividend policy
The aim over a business cycle is to pay out a dividend on average equal to 50 % of the net profit. Dividends to shareholders will be dependent on the level of Billerud’s profits, the financial situation and future development potential.
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