I am pleased, happy and impressed with the progress that we
made in 2010. Demand for our products rose very strongly over
the year, resulting in an operating margin of 12%. I interpret that
as proof of how strong our customer offering is.
strong position for billerud
The global economy picked up again. The
Nordic region and Germany made good
progress while the economies of Asia, large
parts of the Middle East and North Africa
continued to make even better progress.
We supply all these markets and are naturally
benefitting from the economic recovery.
However, when I look at what happened
within Billerud in 2010, I see even more reason
to be pleased.
Operating margin where it should be
With a figure of 12% in 2010, we have now
achieved our target, set in 2006, of a 10%
operating margin. It is pleasing that we met
the target by a good margin, off the back of
strong growth over the year in both of our
paper segments. We managed to increase
average prices in local currency for our
papers by 15% compared to 2009 averages,
which more than compensated for the higher
cost of inputs, particularly wood. During the
third and fourth quarters, the operating
margin averaged 12% and 15% respectively
in our business areas of Packaging &
Speciality Paper and Packaging Boards.
Strong growth in packaging paper
These positive results are due to a number of
key factors.
Over the past ten years, sack paper has
gone from an area where many players were
cutting capacity to an area with an emerging
global shortage. Demand for sack paper is
being driven by growth in cement capacity
and an ever-increasing focus on sustainability
and the environment. The main demand is for high-quality paper such as that provided
by Billerud. With our focus on product
development and sustainability, we are
extremely well positioned in this area.
Fluting is another area that has been
somewhat underrated in the packaging
industry. Once again, we have shown that,
through product development, we can make
a major difference to the performance and
environmental impact of packaging.
Taken as a whole, our products for consumer
packaging and for industrial use are
looking increasingly well positioned, as the
drivers of cost reduction and environmental
performance begin to bite. As a consequence,
we are shifting more and more of our industrial
product sales to Asia and focusing on
the development of sustainable solutions for
consumer packaging in Europe.
New strategic position
Our goal is to be a global leader in developing
the packaging solutions and materials of the
future. In recent years, we have therefore
worked intensively to reposition ourselves
from a production-oriented company to a
customer- and solution-driven company in
order to achieve a higher and more sustainable
profit margin. I believe that in all value
chains some positions are better than others.
This will mean a closer long-term partnership
with customers, more intensive product
and business development and greater
flexibility.
I have no doubt that Billerud’s position
is strengthened by its ability to offer products
that have environmental sustainability at their core. We need to continue developing
our range of alternatives to traditional plastic
in packaging. I have seen clear signs that our
customers and the wider world appreciate
the direction that Billerud is taking.
Over the year, we received awards for
our new product Billerud FibreForm® in
China (Technology Innovation Award) and
at Salon Emballage in Paris (Coup de Coeur).
Billerud FibreForm® has generated huge
interest both from existing and potential customers,
and is just one example of the
opportunities that lie ahead.
We are also working on new packaging
materials based on bioplastics, on packaging
design and on packaging logistics. Our
offering will continue to expand as customers
demand new components.
Successful niching strategy
When sights are set on new territory, nobody
can know how things will turn out. Sometimes
it is only with hindsight that we can
see how far we have come. Looking back on
2010, it is clear that we successfully broke
new ground. This is particularly gratifying
as our approach contradicts a widespread
belief in the industry that upscaling is the
key to success. I believe that success relies
on a strong focus on one area – in our case,
selected packaging segments – and on being
the first to develop materials and solutions.
Scale and capacity come in as stage two,
once the positioning and focus are established,
not as the first stage. In my opinion,
this is where many in the industry have gone
wrong.
Focusing on developing niche products also
means that we can view our production
facilities in a slightly different light. The
structure that we have in place, with numerous
small machines, gives us a platform for
developing exciting new products. We have
high productivity and a good cost situation
compared with our competitors, teamed with
great environmental performance. As European
energy systems are restructured and demand
for renewable and sustainable materials
increases, we see promising opportunities to
develop our mills. I am pleased to announce
that we have managed to cut emissions of
fossil carbon dioxide in the manufacturing
process by 21% compared with 2008, which
takes us beyond our 15% target for cutting
emissions by 2013. We will now have to
revise our target.
Strong balance sheet
Our balance sheet is strong, with a net debt/
equity ratio of 0.03 at the end of the year.
We thus have capacity to grow organically
and through acquisitions, and work on both
options is intense. But once again, an ambition
to become larger must not pressure us
into making investments and acquisitions
that do not fit in with our strategy. Our areas
of focus are Fresh Foods, Food & Consumer
Packaging, and Sack Solutions.
I know that some players questioned the
size of our rights issue in 2009, particularly
considering the strength of our balance sheet
now, but I still stand by that decision wholeheartedly.
In 2009 we had no idea which
way the world economy would go or how long the recovery would take. Financing
ourselves using more shareholders’ equity
made good sense under the circumstances.
We now have a very strong position and
I am convinced that we can generate a good
yield on the capital that we manage
Focus on skills
In order to meet future challenges, we have
to be attractive to future employees. Saying
that our people are our most important
resource can sound like empty words, but it
is absolutely true. And as such, we have
spent the year bringing new talent on board
at Billerud. We have new mill managers at
all three Swedish mills, bringing considerable
youth to some of our leading positions,
as well as useful experience and new ways
of thinking. We have also had our first
trainee programme for 10 young graduates,
which has proven very popular. It is both
interesting and flattering to note that we had
around 500 applicants for these 10 places,
which shows just how attractive we are to
students. In 2011 we will continue to
strengthen our organisation with key appointments
in the mills and business areas.
Skills development, leadership and work
environment are areas that we are tackling
on a broad front as an investment in the
future.
Business development creates value
for the future
Here at Billerud we have a clear commitment
to sustainability. We already have a solid
foundation with regard to the environmental credentials of our products and we know that
we are contributing to sustainable development.
However, we are not going to leave it
at that. We will be focusing even more on
developing renewable materials as alternatives
to traditional plastics and we will continue
to invest in making our production
more efficient in terms of energy and the
environment.
I am confident that product development
will successfully drive growth and profitability,
but once again in 2011 we will avoid giving
detailed profit forecasts, since history has
shown how problematic such predictions can
be with sharp shifts in costs and economic
conditions. It is, however, my view that we
will continue to create value in the future.
Solna, March 2011
Per Lindberg
President and CEO