Billerud is a packaging paper company. The company´s business concept is to offer packaging material and solutions that promote and protect your products - packaging that is attractive, strong and made of renewable material.Billerud is today a leading supplier of materials to specific segments of the packaging market. The strategy is from an effective base to focus on customer requirements and further develop packaging material solutions.
Packaging solutions made of paper have considerable market potential
The packaging market is growing globally at around 4% per year and is expected to amount to around USD 600 billion in 2009. Growth for packaging paper is following a similar course. Billerud considers that several of the company’s products and positions are well suited to achieving profitable growth in future, despite significant competition. The current trends in packaging development, distribution and consumption offer new opportunities for creating profitable business offers.
Billerud has a high market share and is one of the leading suppliers in focused product areas: Scandinavian fluting, brown and white sack paper, MG paper and MF paper. By investing in product and process development Billerud can strengthen quality and its business offer in prioritised customer segments. Billerud also aims to exploit the strength of the company’s knowledge of materials and product offers to create completely new comprehensive solutions for new and existing customers. This work is being implemented in stages and will produce results from 2008 and onward.
The company’s strategy is based on three components:
World class process efficiency
Billerud works systematically with internal process efficiency in order to ensure long term competitiveness and a stable cash flow. Equipment and product quality will be improved, product development safeguarded and production volumes increased. Focus on quality at every level and on the development of suppliers of additives and logistics will contribute to cost-efficiency.
Through better use of machine capacity, the goal is to increase paper volumes up to 2010, provided that this can be achieved with satisfactory profitability and with consideration to marginal costs. The portion of market pulp will be gradually reduced. Selective investments will be made to reach the set goals.
The company has been implementing the Billerud 2007 project which aims to make savings of around MSEK 250 per year by achieving maximum efficiency in all processes and through continuous productivity improvements. This project was largely concluded in 2007. To ensure that production volume targets are achieved while safeguarding cost-efficiency, a major productivity programme will involve all employees during 2008.
Billerud also aims to reduce consumption of external energy. An investment of MSEK 1,090 in cost-reduction measures in the energy field was carried out in 2005 and 2006. The payback on this investment is less than five years and the measures reduce Billerud’s dependence on external energy. A 10-year agreement concerning electricity supplies was signed with Vattenfall in 2007, which secures around 20% of electricity requirements at a fixed price. Continuous assessments are made of new energy investments in parallel with an evaluation of new business opportunities in the energy field. Billerud also has a programme for reducing costs for purchased material and to increase the efficiency of external logistics. Increased co-ordination should provide considerable synergy effects between the mills. The aim is to consistently cut costs.
By developing products, the product mix and the customer structure, Billerud can improve its margins. By identifying and analysing customer demands for profitable packaging solutions, Billerud can provide better service to markets that demand the high quality offered by paper. A sharper focus on customers will help to identify strategic customers and create lasting and profitable partnerships.
Billerud’s business areas are divided into customer segments with direct responsibility for developing products and services, technical service, sales planning and price setting. The business areas are responsible for developing a sales culture within Billerud and thus creating a sharp focus on customers and profitability. The segment team is responsible for developing know-how about the requirements of customers and end-users throughout the chain of value in order to supply them over time with the most comprehensive packaging solutions.
Billerud continually assesses different ways of entering attractive markets outside Western Europe. The company is examining different forms of co-operation with customers, suppliers and competitors, and is considering possible acquisitions. As a consequence, a new sales office was opened in Shanghai in 2007.
Several of the markets and value chains where Billerud is active offer opportunities for new approaches and comprehensive solutions. By using a strong position in some segments, Billerud can develop business and provide customers with more comprehensive packaging solutions. This requires a broader definition of the market. The aim is to expand contacts with customers, designers, printers and machine manufacturers. Consequently, Billerud launched completely new business concepts in 2007 and the company expects to present additional profitable initiatives in coming years.
Billerud controls and monitors its operations from a business area perspective. This applies for sales, operating profit/loss, product development and market investments. Production efficiency, results and operating capital are also monitored on a mill basis.
Historically, the development of the pulp and paper industry has followed a cycle with corresponding swings in the earnings capabilities of the actors in the industry. When setting a profit target for Billerud, the Board of Directors considered the company’s profit history, average exchange rates and price trends for pulp and paper in recent years. The target is that the operating margin shall be at least 10% over an economic cycle.
Return on investments
Completed investments shall provide a return that is significantly above the weighted average cost of capital (WACC). This will ensure that Billerud has a return on investment that meets the demands of shareholders while covering the company’s costs for liabilities.
In practice the company will apply different return requirements depending on the risk level of the investment, with a basic requirement that return on investment is significantly above WACC.
The target is to establish long-term organic growth of 3% from 2008 onward. Growth will be generated from increasing the proportion of paper in relation to market pulp, improving the product mix and customer structure and from new growth projects in the chain of value.
Billerud’s business is influenced to a large extent by general economic conditions, which means that the operating risk is extensive. Strengthening the financial position in good years is essential in order to sustain the company in bad years. Billerud therefore has a target that its debt/equity ratio over a business cycle shall be between 0.6 and 0.9.
The target is that the dividend over a business cycle shall on average be equal to 50% of net profits. The dividend paid to shareholders will be dependent on, among other factors, Billerud’s profit level, financial position and future development opportunities.