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Year-end report January–December 2021

Strong fourth quarter to end a successful 2021  

KEY HIGHLIGHTS

• 15% net sales growth
• Strong production in the quarter
• Record-high earnings for 2021
• Another strong cash flow delivery
• The Board of Directors proposes a dividend of SEK 4.30 per share

QUARTERLY DATA

• Net sales grew by 15% to SEK 6 688 million (5 803). Currency effects had a marginal impact on net sales
• Adjusted EBITDA* increased to SEK 1 075 million (568), corresponding to an adjusted EBITDA margin of 16% (10%)
• Operating profit was SEK 418 million (163), including items impacting comparability of SEK      -177 million (73)
• Net profit was SEK 320 million (242)
• Earnings per share amounted to SEK 1.55 (1.17)

OUTLOOK FOR Q1

• Strong market conditions expected to prevail
• Higher costs for logistics, energy, and chemicals
• Marginally increased pulpwood prices and good fibre availability
• Continued focus on mix, efficiencies and price management to counteract cost inflation

Comments by the CEO

The fourth quarter was another quarter of solid growth and strong performance, driven by strong market conditions. Higher prices, product mix improvements, continued cost program delivery and productivity increases offset cost inflation for logistics, chemicals and energy in the fourth quarter. Net sales excluding currency effects and adjusted for Beetham, which was divested on 31 October 2021, increased by 17%. The adjusted EBITDA margin was 16% and the cash flow generation continued to be strong.  

In the year 2021 we made important progress. Both the injury frequency rate (LTIFR) and the overall production stability improved, despite two major unplanned production stops in Gävle. Our net sales excluding currency effects grew by an impressive 12% and adjusted EBITDA were the highest in the company’s history. Operating profit strengthened and the net debt decreased. The Board of Directors proposes a dividend for the year of SEK 4.30 per share, which corresponds to 60% of the net profit.

As communicated at our capital markets day in November, we have set a strategy for profitable growth to 2030. Whilst Europe will still be our home market, we see great opportunities for growth in North America, specifically with cartonboard and containerboard. We will accelerate growth in liquid packaging board with selected opportunities. For sack and kraft paper we will continue to improve mix by focusing on the most profitable applications. All areas are supported by innovation where we are enhancing the impact and relevance to our core business. To achieve our ambitions, production needs to be highly efficient, and therefore, we will increase investments in mill maintenance and development. To secure a competitive wood supply we aim to optimize fibre consumption, build long term sourcing partnerships, secure competitive fibre availability and build a lean, green and flexible supply chain.

The merger agreement with Verso that was announced in December is fully in line with this strategy. Verso will mean a platform for expansion in North America, creating growth opportunities for the next ten years and beyond. We will continue to serve the existing customers while sequentially converting two paper machines into board machines. We will thereby create one of the most cost-effective paperboard production structures in North America. The combination of BillerudKorsnäs’ expertise in high-quality packaging products and Verso’s attractive assets in a region with abundant and competitive fibre supply will form one of the largest companies in primary fibre packaging and paper with both quality and cost advantages. We expect the transaction to be completed in the second quarter of 2022.

Going into 2022 we expect the strong market conditions to prevail in the near future. We will continue to gradually increase board volumes and improve the sales mix. We foresee good availability of fibre and marginally increased wood costs. However, we anticipate logistic costs to increase, mainly due to overheated oversea shipping markets and higher fuel prices for road transports. We also expect costs for energy and chemicals to rise. To counteract the cost inflation, we will continue to focus on price and mix management and improved efficiencies.

Our priorities for 2022 are to continue to deliver our strategy in commercial, operations and wood supply, as well as to close the deal with Verso and deliver the integration work. For the past year, I would like to thank all customers, employees and other stakeholders for your support.
 

Christoph Michalski
President and CEO

The quarter in review

SALES AND RESULTS

Net sales for the fourth quarter grew by 15% to SEK 6 688 million (5 803), driven by higher prices and an improved product mix. Net sales excluding currency effects increased by 15%. The Beetham mill, which was divested on 31 October 2021, had sales of SEK 78 million in the period November–December 2020.

Adjusted EBITDA increased to SEK 1 075 million (568). The strengthened earnings were a result of higher prices, improved product mix and productivity, and continued delivery under the cost and efficiency program. Cost inflation for logistics, energy and chemicals had an adverse effect.

Items affecting comparability amounted to SEK -177 million (73) and included the negative result from the divestment of Beetham of SEK 123 million (–), acquisition-related costs of SEK 135 million (–), and the positive result of revaluation of biological assets in the associated company BSÖ Holding AB Group of SEK 81 million (73).

MARKET DEVELOPMENT AND OUTLOOK

During the fourth quarter of 2021, market conditions for all product segments were strong. Implemented price increases had effect across all segments in paperboard and sack and kraft paper.

The market outlook for the next quarters is positive. The strong market conditions are expected to prevail. Higher costs for logistics, energy and chemicals are anticipated and will need to be compensated by further price increases in the quarters to come.  

EVENTS IN THE QUARTER

Annual maintenance was carried out at Frövi and Skärblacka under extensive precautionary measures due to the coronavirus pandemic. The total maintenance shutdown costs in the fourth quarter amounted to SEK 284 million.

On 31 October, it was announced that BillerudKorsnäs had agreed with the British investment firm Inspirit regarding the divestment of the Beetham mill and that the transaction was completed the same day. The strategic importance of Beetham to the rest of the group had been reduced since the machine glazed (MG) paper business was focused to Skärblacka. The divestment of Beetham resulted in a negative result effect of SEK 123 million in the fourth quarter results.

On 17 November, BillerudKorsnäs presented a new strategy to 2030 at a capital markets day. It was announced that the strategy for profitable and sustainable growth in packaging materials focuses on attractive markets with good growth opportunities and product segments where the company has strong abilities to compete. New opportunities will be explored, specifically for paperboard in America, and possibilities to increase capacity at existing facilities or via mergers and acquisitions will be evaluated. Operational efficiency will be critical to maximise the growth opportunity, and therefore, investments in maintenance and development of the mills will increase to SEK 1.5-1.7 billion on an annual basis for the current mills. Transformation towards a professional sourcing organisation for wood supply is an integral part of the strategy.  

On 20 December, it was announced that BillerudKorsnäs had entered into a merger agreement with Verso Corporation (Verso), according to which BillerudKorsnäs had agreed to acquire Verso for a cash consideration of approximately USD 825 million. Verso is a leading producer of coated papers in North America. The company has paper mills in Midwestern U.S., strategically located in a region with abundant and cost-effective fibre supply. For the last twelve months ended 30 September 2021 Verso’s net sales amounted to USD 1 264 million, and the adjusted EBITDA was USD 158 million. The company has around 1 700 employees.

BillerudKorsnäs aims to convert Verso’s largest facility, the Escanaba mill, into a world-class, integrated paperboard production site and thereby build one of the most cost-efficient and sustainable paperboard platforms in North America. One machine is estimated to be converted to board production by 2025 and a second machine by 2029. The investment for the conversion is estimated to be up to SEK 9 billion. The increased net capacity of 400 ktonnes together with a more profitable product mix will create significant shareholder value over time.

Verso’s Board of Directors, acting upon the recommendation of a special committee, has unanimously approved, and resolved to recommend the transaction to Verso’s shareholders. The transaction is expected to be completed during the second quarter of 2022, subject to the approval of Verso’s shareholders as well as the receipt of applicable regulatory approvals and satisfaction of other customary closing conditions.

The merger with Verso and the business transformation are planned to be financed through a combination of additional debt, a rights issue and operating cash flow. BillerudKorsnäs has a new credit facility of SEK 6 billion, planned to be used for this purpose and to be refinanced by issuance of debt instruments and a rights issue. The Board of Directors intends to propose to a general meeting of BillerudKorsnäs’ shareholders that it is authorized to resolve upon a rights issue of up to SEK 3.5 billion, to be carried out in 2022 following completion of the acquisition of Verso.

EVENTS AFTER THE QUARTER

BillerudKorsnäs’ production in Pietarsaari is from 1 January 2022 affected by the strike at UPM’s nearby pulp mill, which supplies the operation with pulp, purified water, steam and compressed air. Although production in Pietarsaari is ongoing, there are still production interruptions due to the strike. The strike is estimated to negatively affect BillerudKorsnäs’ first quarter result by around SEK 10 million.

Dear Valued Customer,

We are very excited to announce that we are changing our divisional name from Little Rapids Print Division to Nexxa.

As we continue to invest and grow, we felt it was time to update both our branding as well as our digital presence.  We have not been sold and we have not changed our ownership, or our business operating as a Division of Little Rapids Corporation.  As Little Rapids Print Division, we have created a solid service driven business, built around key partnerships with customers and suppliers like you.  This will not change!  We want to build on this brand promise and deliver without compromise, services that exceed your expectations.  In this turbulent time, knowing you have a dependable and resilient partner for you printing needs is critical.

We will be rolling the new brand out in phases over the next few months

Our Phase 1 website launched in September ( www.Nexxaprint.com ).  Phase 2 will be complete by the end of Q4 this year. We plan to have all current branded items, including pricing quotes, labelling, quality assurance documents etc. transition by the end of December 2021.

GBIG NEWS ST. Paper, LLC. Interview and Tour of the facility in Duluth, MN. on January 19, 2022

I met with Ron Thiry the Sr. VP and COO and Gary Wargin, Mill Manager at ST. Paper 1, LLC in Duluth MN.  St Paper 1, LLC. purchased the paper mill from Verso in May 2021.  The initial conversion phase, Project Bluewater, will involve the installation of a new tissue machine to transition the mill from production of SC grades to bathroom tissue, napkin and towel grades. Initially, ST. Paper LLC. was founded by Sharad Tak and his son Sahil Tak when they purchased the Oconto Falls mill in 2007. The new owners and management team invested in the mill and soon returned it to financial viability.  ST. Paper, LLC. manufactures tissue, napkin and paper towels for the away from home market using 100% recycled wastepaper producing jumbo rolls.  In 2012, the Tak’s expanded by creating ST Tissue LLC when they purchased a portion of a shuttered paper mill in Isle of Wight, VA from International Paper Company.  It was a feat of innovation that never has been accomplished by converting an over 300” fine printing paper machine to a light tissue mill! The project was completed in 2013.  In 2017 ST. Tissue LLC announced the conversion of a second fine paper machine to make tissue grades at the – Isle of Wight, VA mill.  The Virginia mill also produces parent rolls primarily for the away home tissue market.  

I traveled up to visit their newest acquisition in January 2022 to Duluth, MN, the former Verso Paper Mill.  I had the opportunity of spending an afternoon and dinner with Ron Thiry and Gary Wargin talking about the paper mill and the plans for it.  The Mill had one paper machine 300” wide and producing lightweight SC ground wood papers for the printing markets.  In addition, the mill has one ground wood pulping facility and one recycled pulping facility to support their paper production.  ST. Paper 1, LLC. will be installing a brand new 210” Andritz tissue machine at this facility with a scheduled completion date in the 4^th quarter of 2022. The new machine will have the capability to produce parent roll products of tissue with 100% recycled fiber, virgin fiber or blends! They will be able to use their current pulping facilities to support their production by getting scrap paper from a three state region – Twin Cities, Chicago and Milwaukee of Sorted Office Waste and OCC.  At this point in time, they do not have plans for the ground wood pulping facilities since the pulp too coarse for tissue products. They have a variety of options for revitalizing the original paper machine.  If they decide on converting the machine to tissue production, they have the experience and talent to do so!  However, their primary focus at this time is to put all their efforts to install and get the brand new tissue machine up and running.  ST Paper, Duluth has the people in place, the talent and they are bringing back skilled and experience technicians to achieve a successful project.    

Suite Spots: Pinpoint Top Performers Without Bias

When it comes time to right size, reorganize, or expand operations, companies want their best talent where it will have the most impact. Thus, they need a reliable, objective, straightforward way to evaluate employee performance. The process for creating an organization-wide performance snapshot is known as 15dots’ Suite Spots™ – Pinpointing Top Performers Without Bias. For nearly 40 years, corporations have used Suite Spots to assess the job performance for groups of 20-1,000 employees.  

Systematic & Objective Assessments

Suite Spots was first used at a Kentucky corrugated medium mill. A new owner was closing the facility but wanted its top employees to work at a sister mill. Using Suite Spots, the mill’s management team ranked 120 employees from top performer to marginal performer. Using a systematic and objective assessment, the company identified 57 top performers to employ at sister mills. 

Initial Suite Spots’ work led to other applications that strengthened organizational results, including: 

• A Minnesota facility reduced its workforce by 30%, resulting in $1M savings 
• A Wisconsin facility selected the top 50% of its employees for a new biomass project
• A Texas facility used Suite Spots to identify performers for lines of progression in a new organization and chose accordingly, resulting in a legal challenge. However, the Suite Spots data led to a decision in favor of the company
• A Washington State facility reduced its workforce by 20%, resulting in $1M savings and an arbitration decided in favor of the company

What kind of performer is this employee?

Instead of “gut instinct” or random selection, Suite Spots’ personnel decisions are based on performance data. The process begins when primary and secondary evaluators use a 9-point scale to rate each employee on seven factors. Performance indicators can be customized to the job and the organization. 15dots has analyzed 30,000 jobs, primarily in the Wood Products Industry, and has a comprehensive list of behavioral and performance indicators.  

Suite Spots’ commonly used behaviorally-anchored and performance indicators include:

• Observing/interpreting what is sensed 
• Machine and equipment operating
• Problem solving
• Communication
• Coordinating tasks with others
• Physically handling the demands of the job 
• “Stick-to-it -ness” when doing repetitive activity

Several techniques are used during the rating process to ensure data reliability. These include the use of two independent raters, a statistically-based data sorting mechanism, and the use of behaviorally-anchored rating scales reviewed in-depth with each rater.

Employee Selection Breakthrough

Suite Spots was developed by Joe “Doc” Nowlin, an industrial psychologist and business professor. Suite Spots is an offshoot of the Nowlin™ Selection Process, known today as the 15dots^® Selection Process. 15dots refers to five ability tests and 10 behavior-based interview dimensions critical to employee selection. Nowlin and his team determined that 15dots test scores and interview scores were predictive of success in job performance. As a result, job performance and Suite Spots were validated as an effective assessment to use when restructuring, organizing, and rightsizing.

Above-Average Performers Become the Norm

Is your company putting its best talent where it will make the most impact? Contact Joe Nowlin, Joe@15dots.com or (812)-332-1102 to take a laser-like assessment of how employees are performing. Learn how to pinpoint top job performers without bias with Suite Spots. 

Kono Kogs: Experts in Metal Fab, Machine Assembly

Wisconsin 5P industries now have another extremely capable, high-quality source for metal fabrication and machine assembly services. Kono Kogs Inc., thermal oxidizer specialists in Green Bay, has 25 years of experience in industrial ovens and thermal oxidizers. Now, Kono Kogs is rolling out their metal fabrication services and machine assembly services to companies in Northeast Wisconsin and statewide. With experience serving small to multi-national, Fortune 500 customers, they can meet your simple to very demanding fabrication and assembly needs. 

Kono Kogs specializes in machine assembly, including piping, pre-wring, instrumentation tubing, burners and gas trains, plus industrial painting. Clients look to Kono Kogs for expert work, coupled with fast turn-around time, and as part of this roll out, aggressive pricing. Whatever project KKI undertakes, the quality is consistent every time. 

Kono Kogs’ fabrication team is led by a trio of fabricators with experience meeting military contracting demands, as well as pressure vessel specs. They have a can-do attitude and a problem-solving mindset.  Paired with their engineers and mechanical design team, they can design projects from the ground up. The fabricators deliver innovative and creative solutions to clients’ challenges and stand behind their work.

Clients have access to quick and convenient drop-off and pick-up at Kono Kogs’ East Green Bay facility, 1367 Reber St. The 76,000 sq ft shop is equipped with overhead cranes (5-20 T) and drive-through loading bays.

To request a quote for custom equipment design, fabrication, and machine assembly, visit konokogs.com/metal-fabrication-assembly or call 920-432-2699.

We want to thank a number of you for your responses regarding the articles on our current employment issues and our labor shortage.  We will continue to have a section on employment and the Green Bay Innovation Group understands the issues with labor and employment in Wisconsin especially with such a low unemployment rate.  Currently, Wisconsin has one of the lowest unemployment rates in the United States.  We will have some very interesting articles on robotics, automation, etc.  Simply, we will see a BIG move to create fully integrated production lines going from roll to finished products at ALL levels for paper and film products!

We will continue to highlight the sizable investments in Wisconsin with some very good news coming. Unfortunately, the Fine Printing Paper Markets are in horrible shape and the Wisconsin Printing Industry has a lot of issues just getting paper.  We will be covering this area in the upcoming issues of www.gbignews.com and welcome your thoughts and feedback. The Wisconsin printing industry estimated employment is over 30,000.  In addition, we have a large Converter Industry that is scrambling for ALL kinds of paper too.  We will be doing a series of updates focused on Converters in upcoming issues of www.gbignews.com.  

Finally, Steve Van Dyke the President of the Board Directors of the Green Bay Innovation Group and I had a sit down discussion with David Brooker the District Director for Congressman Mike Gallagher on the current state of the Wisconsin Paper Industry!  David had read our articles on the issues with China and he was quite taken back.  David read the article’s in GBIG’s prior newsletters and was glad to hear of GBIG’s interest and concerns with China as this is an area the Congressman is passionate about. He believed it would be beneficial to share some of the work the Congressman has already done with CCP.

1. UW Madison investing trust funds associated with the government of China
2. Mike Gallagher – How To Defund The Chinese Communist Party
3. Gallagher Introduces Bill that Bans Harmful Chinese Companies from Exploiting U.S. Capital Markets
4. Gallagher Outlines Steps to Protect Itself from CCP Threats – UW Madison 5 Steps

Appleton, Wisconsin, January 18, 2021 – For nearly 115 years, Appvion has created value for customers by developing  and applying proprietary coating technologies. The Company has a long history of prioritizing the sustainability of both  the products made and how they make them. In 2021, Appvion released its first sustainability report, highlighting many  outstanding achievements, and now the Company is proud to launch its 2030 sustainability strategy and goals. 

“Going into 2022, we set sail for our new 2030 sustainability ambitions to Create a Better Tomorrow and our team  worked diligently last year to start implementing them across our businesses,” said Michelle Miller, Chief Sustainability  Officer, Appvion. “We play an important role in our customers’ sustainability efforts, and the choices we make directly  impact our role as a trusted partner. Sustainability is at the forefront of our operations, value chain, and products.” 

In alignment with several United Nations Sustainable Development Goals, Create a Better Tomorrow requires a  strong focus on science and technology, a culture of innovation, and critical thinking in Appvion’s areas of expertise.  Appvion identified key areas where they can have the most significant impact, and the approach rests on three clear  objectives, supported by challenging yet credible and achievable targets: 

1. Work Smarter: We are responsible for using as few resources as possible, as efficiently as possible. That’s why  we are focused on using less energy, cutting carbon emissions, and diverting waste from landfills.

2. Act Responsibly: Acting responsibly is a cornerstone of our culture. We will drive continuous improvement in  working safely, focus on engagement, and become a more diverse company. 

3. Optimize Design: We will reduce waste and do more with less. We are committed to using more renewable  materials, closing the loop, and taking every opportunity to make our solutions recyclable. 

“As we reflect on our journey and our impact, there are many things to be proud of and even more ahead to challenge  and excite us. What began with a focus on resource efficiency quickly expanded to designing and manufacturing  products with differentiated sustainability attributes,” continues Miller. “Since then, we have collaborated with  customers and suppliers for an even more significant impact and broadened our scope to include safety, wellness,  community engagement, inclusion and diversity, and most recently, a circular economy with our packaging solutions.” 

By working smarter, acting responsibly, and optimizing the design of its products, Appvion believes they are doing their  part to make a positive impact long-term. Click to read Appvion’s 2030 commitments and watch a video highlighting  the kick-off of its new ambitions. 

About Appvion  

Appvion was founded in 1907 as a specialty and high-performance coatings business pioneer. Appvion, headquartered  in Appleton, Wisconsin, develops innovative, water-based, and environmentally responsible coating solutions for  consumers’ everyday life. A leading manufacturer in North America, Appvion applies functional coating solutions to  various flexible substrates, including products from an FDA-compliant facility. Appvion’s primary offerings include direct thermal paper and film products and renewable, fiber-based solutions for consumer and industrial packaging.  Connect with us on Twitter and LinkedIn to learn more. 

It was over 40-years ago when these three guys started their careers in the paper industry.  Phil Milazzo as General Manager, Craig Pamperin as Sales Manager for Steen Macek Paper  and I started our careers at Butler Paper, Avery, and Consolidated Papers respectively.  Today we all continue to share the same passion and understanding of the business. 

Recently I sat down with Phil and Craig to get their perspective on the paper situation as a  paper merchant. With the hope of helping others, they shared the following insights: 

“The printing and paper industry is now feeling the full effects of the global supply chain  crisis. We have seen paper shortages in past years but never anything like this. Also, everyone knows many mills have been moving production from printing papers to liner  board while also closing their least productive mill operations.  

Then along comes the pandemic! Workers become in short supply. Major supply chain  issues erupt around the world. Orders for paper begin to come in at an unprecedented rate  and the domestic mills start to fall behind. Before long, the mills were oversold, and their  systems were not designed to deal with the oversold condition. Industry chaos follows as a  result. 

In the meantime, there is an actual uptick in the demand for print and the domestic mills  simply cannot keep up with the demand without the help from imports. Unfortunately, the  European and Asian mills are in the same boat and perhaps worse. They have the added  exorbitantly inflated costs for containers and overall shipping charges. All these factors  continue to play a key role in what has already become an enormous pricing nightmare. 

In summary, as we begin the New Year, we will experience all the ramifications of a perfect  storm, the likes of which we have never seen in the paper industry. Current manufacturing conditions at both coated and uncoated mills include reductions in allocations and limited access to what used be in-stock inventory. Price increases are not over. In addition, we are still experiencing the temporary suspension on entering new orders at many mills. All  this as the mills try to get caught up and replenish inventories of all types of paper including  envelopes. 

While we cannot speak for others, we can tell you that our current inventory is at exceptionally low levels, and we can only assume we are not alone. Replenishment dates are  all over the map and range from 30-days to 120-days and some even further. Our advice is  to plan for the worst and hope for the best. As salespeople in a service-driven business, it is not easy to paint this picture or tell this story. Nonetheless, we want our customers to be  informed and prepared for the challenging times ahead. Paper will continue to be in very  short supply in the months ahead!” 

Phil and Craig at Steen Macek are available for discussions with anyone. pmilazzo@smacek.com and cpamperin@smacek.com 

From the desk of Marty Ochs. 

Marty

APPLETON, WI – (January 6, 2022) In the last five years, there has been an ongoing need for – and historically-low availability of – industrial space in Northeast Wisconsin. Companies  looking to grow, expand, or move their operation have struggled to find available real estate  options to make those investments work locally. This hard-to-find property includes  warehouse & distribution, assembly, and other types of “light manufacturing” space. NAI  Pfefferle, in partnership with Scannell Properties, is excited to announce a new development  project in the Fox Cities that looks to address this market need: 

“Airport Business Center” – available late 2022 

• Up to 314,500 sq ft available for lease
• New, Class A industrial construction
• 32’ clear height
• Up to 106 docks
• ESFR sprinkler system 
• Located in Greenville’s TIF District #1
• More information available HERE

Please contact our team regarding this project or any other commercial real estate questions. Happy 2022!

Manny Vasquez / mannyv@naipfefferle.com / 920.858.1075 

Tom Fisk / tomf@naipfefferle.com / 920.560.5090 

Greg Landwehr / gregl@naipfefferle.com / 920.560.5037