 | Even though demand for our products strengthened gradually throughout the year in Europe, prices remained low and only at the end of the year did they start to rise. We were also hit by an unusual number of production problems, which also affected our earnings.
We have now implemented strong measures to transform our results and begin the renewal of the company. We changed CEO when I took over the post in August. We have announced that a new CFO will start work in early 2006 and we have made major changes to our market organisation. We have also increased the pace of our Billerud 2007 project and made significant investments to counter higher energy costs. All of these efforts make me optimistic about our future. Our development lies in our own hands, and we are determined to take this opportunity to achieve renewal and change. I am convinced that we are on the right track and that we will succeed.
Earnings trend
In terms of financial results, 2005 did not meet the expectations. After one-off costs associated with job lay-offs, we made a loss of MSEK 200, or SEK –3.56 per share. Even when we remove the one-off costs and the negative effects of currency hedging, our operating profit was down by around 20 % because we were unable to compensate for the higher cost of wood materials, energy and chemicals.
Major ownership changes
The year also brought major changes among our owners. Frapag Vermögensverwaltung GmbH of Austria increased its shareholding in Billerud gradually and by the end of the year held around 15 % of outstanding shares. At an Extraordinary General Meeting in September a representative of Frapag was voted onto the Board. This change will also help to renew the company and achieve long-term change and development.
World-leading fluting
One of the prerequisites for future positive development is the renewal of our products and business offers to customers. Historically, Billerud has looked to build strong positions in selected niches, and during the year initiatives were taken to strengthen our position. During the autumn, for example, we launched a new fluting quality – Billerud Flute® – which has unique properties. This new paper is much stronger and lighter than previous papers, and it means that our customers can reduce consumption of raw materials while improving print quality thanks to the lighter material. This is just one of many examples of how we will continue to meet the requirements of our customers.
New, customer-oriented organisation
We have a lot of work to do to sharpen our focus on our customers’ needs and expectations. We have therefore decided to change the way we view ourselves and our co-operation with our customers. To start with, we have changed our organisation from a traditional model based on our mills to a new organisation based on business areas. This new organisation will focus more sharply on business and customers, which will be essential in our continued positive progress. This new business area organisation will be implemented during the first quarter, but work aimed at making Billerud more customer-oriented will continue throughout 2006. This is an exciting and challenging undertaking that has the highest priority. We will create better conditions for meeting our customers on a broad front and working together to develop new products and solutions.
Billerud 2007
For most of Billerud’s employees the past year meant an increased understanding of the plans of how to improve the efficiency of the company. We have decided to reduce our headcount by 450 people, around 18 % of our total number of employees. The pace of change has speeded up, and measures originally planned to be implemented up to 2009 will now be fully carried out during 2006. I consider it important to achieve improvements in efficiency as quickly as possible for two reasons. Firstly, we will gain the benefits of cost reductions earlier, and secondly, painful changes are always best carried out quickly since it reduces uncertainty for those who have to leave the company and for those who remain to build a new Billerud.
To ensure that redundancies are implemented responsibly we have performed careful analyses of how our working methods must change if we are to operate smoothly with fewer staff. We have set aside a financial reserve of MSEK 400 to help people enter early retirement or find alternative employment. Our new methods will include improved performance management and decentralisation, and this will help us build a more modern, more efficient business.
Reduced dependence on the electricity market
The rise in energy costs was among the largest negative factors in 2005. During the year there was a general uncertainty about the national energy policies and a matching uncertainty about supplies of cost-efficient electricity, which is a key area for the Swedish forest industry. We have made a decision to reduce our dependence on the electricity market and we are investing around SEK 1 billion in energy improvements and electricity generation at our three Swedish mills. During the year we successfully installed larger bark boilers and during 2006 larger turbines for electricity generation will be started up. These projects are very important and I believe they will be successful. We will increase our self-sufficiency in electricity from 30 % to 60 % from 2007 onwards, and these projects will result in lower energy purchases starting in 2006.
Outlook
Ahead of 2006 there was some uncertainty about how the European market would perform. Even though we witnessed gradual improvements in the latter part of 2005, there are still various factors contributing to the uncertainty, such as currency developments, the business cycle and general growth. Although I expect the cost of energy and raw materials to carry on rising in 2006, I believe the measures we have taken will have a positive impact. We have seen our prices starting to rise and we saw strong demand at the start of the year, but above all we will continue to reduce our costs according to plan during 2006.
Value for shareholders is our goal
Billerud’s share price was volatile throughout 2005 and ended the year 10 % below the price at the start of the year. This does not fully reflect the dramatic changes seen in the middle of the year, when the share price was at most 35 % beneath its January start. The second half of the year brought a gradual recovery.
The development of Billerud’s value is at the centre of our work. Our aim is to create long-term value for our owners, to create stable profitability and to be transparent in our development. We found it hard to live up to these goals in 2005, but they will remain our priorities for 2006 and beyond. Value for shareholders is our goal.
Moving forward
It’s always an advantage to have your own future development in your own hands. We cannot change the world around us to any significant extent. But we can, and will, change our costs and we can, and will, improve our co-operation with our customers. These are the important areas for 2006, and they are where we will be focusing our resources. This is how we will create value. |
| |
.jpg)
.jpg)
Print