Billerud AB (publ)

STO:BILL

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the BillerudKorsnäs Q3 report for 2021. [Operator Instructions] I will now hand over to Lena Schattauer, Director of Investor Relations.

[Lena Schattauer, Head of Investor Relations]

Thank you, and good morning, everyone, and welcome to this webcasted call about BillerudKorsnäs Q3 2021 results. It will be presented by our CEO, Christoph Michalski; and our CFO, Ivar Vatne. And after that, we will open up for questions. So Christoph, please go ahead.

[Christoph Michalski, President & CEO]

Thank you, Lena. Good morning, everyone. So I'm very glad to present you our report. As you have seen, I think it's a very good report. We had a very good quarter 3. And I think all the indicators pointing in this direction is a mixture of the work we have done to continue our saving program to work on the stability of our production and by a very strong market environment, which we have. So if you look at our sales growth, it's 17%, 18% FX neutral, very good performance. I want to remind you that quarter 3 last year was a little bit softer than usual. So this growth is helped by that. But nevertheless, it reflects very much the performance of the company, but also a very good market environment. Until now, our price increases have more than offset some of the cost inflation in certain aspects of price increases in quarter 3, we got the full quarter impact in quarter -- the price increases of quarter 2, we got the full impact in quarter 3. And also in quarter 3, we had some segments where price increases continues to be implemented. This has all then translated to a very good improved EBITDA margin. And Ivar will talk a little bit later on the different components of this growth, and our EBITDA is now at SEK 1.117 billion. Most of this EBITDA this quarter could be transferred into operational cash flow, which is a very, very good thing. And with this performance, our net debt to equity and net debt to ratios have improved significantly. So far to the performance, let me give you a little bit of a business status and market outlook. And as you know, we are operating across different product segments and different industry. And across the board, we have seen in quarter 3, a very strong market, be it in food and drinks, medical, hygiene, consumer luxury and industrial. And we also see going forward a relatively good outlook for these segments. I think in food & drinks, what we see, it was stable in quarter 3, but at a very high level. And we see that trend to continue in quarter 4 and also probably going into the first half of next year. When it comes to the other products, they clearly accelerated in quarter 3, and this is probably due to the good economic situation we have despite still some wobbling question around COVID, the markets continue to have high demand. And as far as we can see, there is very little stock in the market. So our books are quite full in terms of order for this year, but also already continue into next year, and we expect that situation in most of these markets to continue. I think the logistics have an impact on this. So we have some artificial constraints in the markets that we able to leverage. However, even if you take these special factors away, high energy prices and some shortages in production or logistics I think even taking those where you would still have a very, very strong market situation. Then let me go to the highlights. As I mentioned, all segments improved with high demand. I think for liquid packaging board, it continued to be very good. It's not just -- it did not increase in quarter 3, but it was continuous very good already in quarter 2, quarter 3, and we have a very good outlook beyond that as well. Progress in our internal profitability-enhancing activities has been made, you realize there's 2 aspects, the stability of our production and most of our mill had very good performance. We also have continued to produce more and more added value products out of Gruvön and that is progressing well. And when it comes to the added value, coated volume increases as well. Most of U.S. still interested in West KM7. And we have said that we from now on will not report specifically on it. But I saw some of your comments this morning is absolutely correct. We are producing liquid packaging board on KM7. The machine performance is excellent. And therefore, we continue with a very strong performance. Then you're all aware of our saving programs, Mill Use, and this program has continued well in quarter 3. And I think we are more or less at the end of that program, we expect to achieve our targets by the end of the year. And then we have a little bit more into next year in quarter 1. You're all aware of the difficult situation we had in Gävle. So I've excluded this a little bit from the stability and production issue. We actually didn't had a production issue per se. We had extreme rainfalls in the Gävle region in August, which led to a lake where we take our water to turn into a level of sentiment and color changes that we could not handle with normal water treatment measures. The lake has improved since, but is still at the worst level than it has ever been since we started. And we are currently back to production, but the situation is still a little bit difficult. We lost 20,000 tons of products, which correspond about SEK 75 million of earnings, of which SEK 50 million have been taken into quarter 3, and SEK 25 million are in quarter 4. So it's not 1 quarter effect, but the effect of Gävle is spreading over these 2 quarters. I will -- just on the next slide, you can see a little bit on our cost and efficiency program. I think I made the point already. I think I'm very happy how the team has continuously over the last I think, 2.5 years worked on this program and actually achieved a very good performance by delivering probably at the end of the year around SEK 650 million, and then it's a small thing for next year and then the program is done. But as you know, cost savings is something you do every day. So we will continue to look into the areas. We will have other structured measures going forward in '22 to ensure that we have the highest efficiency and lowest production cost possible in BillerudKorsnäs. Raw material in quarter 3, when it comes to fibre, it has been quite stable. We have good availability. Sawmills are also delivering a lot of chips. Initially, I think in quarter 3, we talked a little bit about probably a strengthening or slight cost increases by the end of the year. This is clearly something we do not see. We don't expect any cost increases in the fibre going forward. We have also higher costs for chemicals. And here, clearly, like most raw material on the world market, we expect an increase to continue into Q4. And the same is also true for the energy cost of which you're very, very well aware what is happening in the market. When it comes to pulp cost, I think we have seen a stability at incredibly high level right now in Europe. In China, the pulp market is already softening a little bit. We expect this to happen also in Europe, but at a much slower speed. And as you know, we are quite balanced in pulp. So for us, the effect is relatively little, but it's important for our non-integrated mill in particular, Pietarsaari and Beetham. What we will do in the outlook, we will talk a little bit about the impact on this raw material price in particular, energy and chemicals to our forecast or our outlook for this -- for the next quarter and also for the beginning of the new year. Good. Ivar, do you want to move forward a little bit into the details of the financials. So I hand over to Ivar Vatne, our CFO.

[Ivar Vatne, Executive VP & CFO]

Thank you, Christoph, and good morning, everyone. Let me just say a couple of words about the net sales performance, and you'll see the net sales bridge in front of you. It's been a very strong quarter, as Christoph already alluded to, 17% reported and when you strip that out from the FX, it's 18% versus a year ago. We have a significant positive help from pricing. Roughly 30% of this is coming from the pulp sales, meaning that the remaining pricing impact is coming broad-based from pretty much all of the segments, in particular, containerboard and sack and kraft, but also some impact from cartonboard. And as Christoph we've had several rounds of pricing announcements during the first half and added some new items now in Q3. We also have a very sizable help from volume and mix, as you can see, 10%, so it's the biggest building block. Sales volume is up by 6% and mainly coming from board, meaning that we have a very good mix help. And that's extremely encouraging to see because it's very much also what we want to do. Clearly, this is also an attention of what we are doing now with optimizing our board production and a steady increase of coated materials coming out from KM7, that can just be confirmed that the KM7 ramp-up is really gotten into care and taking a good step towards profitability levels now in Q3. If you move to the next slide and trying to dissect a little bit the EBITDA performance. We had a very strong profitability improvement, as you can see, almost double the earnings versus a year ago. Starting a bit on the left side of that slide, we have a slight negative FX impact of SEK 15 million, fully linked to SEK strengthening versus some of the core currencies of euro and dollar, clearly helped also by our favorable hedging positions for 2021. The every incident has already been mentioned. The main driver of that is 20,000 ton production volume. You will see about 2/3 of that or SEK 50 million coming in Q3 and the remaining SEK 25 million to come in Q4. In Q3, we also had a net short position on pulp, and that means there's a small negative impact of SEK 25 million from the buying and selling. On the other raw materials and logistics, we do see, I mean, high volatility and in general, inflation going on. I'd just give you a little bit of ordinates of that bucket of what really sits behind. On fibre, we have actually SEK 60 million help versus year ago. Chemicals, we have a hurt of SEK 40 million split between caustic soda and latex. Energy, we have -- electricity, we have a SEK 60 million hurt. And logistics, there's also a SEK 20 million hurt on net you land on SEK 60 million. Then if you go into pricing, biggest bucket on this chart and clearly, very significant building block for the full year. I did mention already that the main part of that is coming from containerboard sack and kraft and partly also from cartonboard. Good help from volume and mix, as was mentioned. The cost and efficiency program, keep delivering and we're adding SEK 70 million this quarter, meaning that a very small negative other and the timing component of the maintenance schedule. It brings our EBITDA to about SEK 1.4 billion or 17% of net sales. Good. So we go into a little bit more specifics around the product areas and starting with product area board. I mean, I think the number speaks for themselves. We had an excellent and delivered strong performance on pretty much all the KPIs. I mean, 20% net sales and 21% stripping out FX, I think that would be performance we would take any day of the year. It is true, as Christoph also said that there is slightly a base that we need to kind of keep in mind in particular due to maintenance schedule. And in general, the Q3 last year wasn't very strong due to some inventory adjustments. But nevertheless, the top line growth is coming broad-based and across all segments with double-digit. Again, liquid packaging is up 12% despite the challenge that we've had in Gävle. And I think in particular, you need to keep in mind, Q3 last year was some inventory adjustment that impacted that comparison. Cartonboard, I mean, I don't know what to say. I said it already many times that it's outstanding performance. And I think it's getting habit that we report double-digit growth, which is very, very good to see since it's 1 of our main areas that we would like to accelerate the growth. Containerboard also very strong, and we see excellent performance both online and on the food & drink side. In terms of what the profitability drivers to help our increase, I mean there are several items, pricing in shortly 1 of the bigger positive mix and volume and also help from our cost and efficiency program. Good, so move over to product area paper. And also very happy to see the same kind of trend as we looked at for board. And the market situation is completely different now versus what we saw in the end of 2020 and going into 2021. I mean, broad-based growth, I mean, double digit across the segments, extremely good to see. And in particular, on the sack is brown sack, which is leading that growth rate. Sales volume is actually down 4%. So it's mainly due to lower pulp sales. We have a little bit better volume development on the sack and the kraft paper. Profitability, also excellent progress and very much linked to what we said on board, help our pricing mix and benefits from our cost efficiency program. So going over to our cash flow performance. We've had EBITDA as a theme so far in 2021. It has been a very strong cash flow delivery so far and Q3 is no exception. So I mean operating cash flow is up SEK 400 million versus previous year, clearly linked to a much stronger underlying operating result. I mean our balance sheet, as Christoph also mentioned, it keeps getting stronger and stronger and quarter-on-quarter. We can say we put more funds in the bank. Net debt leverage down now to 1.3, which is obviously a very good and healthy position to be in. A couple of updates on the CapEx estimate for this year, we can start with that. So SEK 1.6 million, so we lower it slightly from what has been communicated earlier. Out of this SEK 1.2 billion related to base CapEx. And then linking that up to a bit of an update just on the timing of the through the recovery boiler investment, SEK 400 million is the estimate we have for this year. Then it looks to be pretty close to SEK 1 billion each then going into '22, '23 before the last SEK 200 million should be completed in the beginning of 2024. So with those words, I hand it back to Christoph.

[Christoph Michalski, President & CEO]

Good. And then let's talk a little bit about the outlook. So as I mentioned already before, our view is that the market condition will remain strong even if some of the specific items, logistics or energy prices are adding to this market, demand will disappear. We still think the market will be strong. We see no reason why economic development over the next 18 months would slow down. Yes, there are some inflationary pressures on the horizon. But overall, because of the current stock situation in the market and the overall economic development, we think that the demand to our specific products will remain strong. Second, we have good availability on pulpwood with a strong sawmill market, with strong availability of wood in the areas where we are sourcing. We do not see too much pressure on prices when it comes to pulpwood. We clearly see some long-term challenges in the market, be it the policies of the European Union having a long-term impact, be it the different competitor moves to increase production in certain areas where we are. But I think for quarter 4 and probably the beginning of next year, we are pretty confident to be able to continue with good prices on wood pulp. Maybe, Ivar, you can give a little bit of a review of the other input cost. And in particular, I guess, it's chemical and energy that most people are interested in.

[Ivar Vatne, Executive VP & CFO]

Yes. No. Thank you, Christoph. I will do that. And I think we all read the same newspapers and see that there's a lot of movement on certain of our input items. And I just wanted to give you a little bit of flavor on not to speculate at all because I think we can all agree that it's very difficult to even have a good and reliable estimate next year. But I just want to give you a bit of visibility that if the rates would stay as we have now seen in Q3 '21, and they continue pretty much flat from now on for the whole of 2022. What would some of our exposure be? And I'll just quickly highlight some of our main components on the we're going to start with electricity. So the short version here is that we consume as a company, 3.2 terawatt on an annual basis where we purchased about too pretty much flat on that. So we make kind of -- or we produce ourselves 1.2. The average cost that we would have for '21, meaning that when we look at our first 3 quarters' actuals and then assuming that Q3 continues into Q4, will be in the area of EUR 37 per megawatt, okay? But you also know that the volatility has been extremely high. The good news is that we have already hedged a very sizable part of what we expect to buy going into '22. So 70% of our expected purchase for '22 is hedged at EUR 31 per megawatt. And I hope you would agree with me that, that's a pretty good position to be in with the current situation we're in. Meaning then if you overlay that with the last 30% on a high spot rate that we see right now, we would land in the area of EUR 41 per megawatt. And then the math will take you to roughly meaning that SEK 80 million is some kind of an estimated negative impact, EUR '22 versus '21. Chemicals, that number looks to be in the area of SEK 125 million due to now, we see very high pricing levels, in particular on latex and caustic soda. And if that continues, flat for the next 5 quarters, that will be a pretty sizable hertz '22 versus '21. Logistics would be looking in the area of 75 million, in that sense, you can relate that back to some of our new logistics contract that we completed during Q2 this year. So we have a full year impact of that plus some additional challenges that we have seen during the year, we've the hiccup of emergency and express shipment, et cetera. On the fibre side, I think as Christoph already mentioned, we don't really see any impact for the time being. So the flat development is what we pretty much would expect then '22 versus '21. Last point I just want to comment on is the currency. I think you also see that there is quite a bit of volatility on the Swedish kroner versus our core currencies of euro and dollar at the moment. And we've had a good year in the sense we've been helped a lot by hedging positions for '21. 54% of our net exposure is already hedged for 2022. But there is -- if we see the spot development continue going forward, we obviously would see a net effective rate being strengthened for next year, and they hurt and based on what we've just seen now, would be in the area of SEK 200 million year-over-year. So kind of adding all of that up, you would some how come between SEK 400 million and SEK 500 million, that's certainly not a pocket money, and it's a very clear indication also we need to stay very tight and on board with our price management going forward. The good news you can say is that already with the pricing position we've had in place and initiated the carryover position going into '22 should offset all of what I mentioned now and actually a little bit more. So I hand it back to Christoph with that little leverage.

[Christoph Michalski, President & CEO]

Okay. Thank you, Ivar. And I think on top of the pricing position we are taking forward. Clearly, we will continue to work on our cost basis. We will continue to work on particular on our mix because that's a much more sustainable type of growth. And therefore, I think we look with a relative level of confidence into 2022. So our business priorities remain the same. Clearly, health and safety. We made some progress over this year, maybe not as fast as I would have wished to but we will continue to focus on that and make sure that our employees and contractors are leaving our sites in good spirit and good health. Stable production. We had a rough year, I think, this year, both in Carlsberg and in Gävle. Gävle, you remember the explosion in June and then further the water issues in August, September. So that is clearly a priority to ensure that we are able to build back stocks in our own business, which are currently at relatively low levels and also to provide for the strong market demand. Gruvön is totally in line with what we expect even a little bit better. So I think this is now really part of our system. Gävle, Frövi, Gruvön that provides for a particular cartonboard and containerboard, competitive wood supply remains a major focus, and I think we see good progress on that side. And as we said, cost and efficiency programs are to be continued. As you know, we will have a Capital Market Day in November. We have developed or we have rethought a little bit our strategy going forward. So I hope there will be some news for you, and we want to take the opportunity a, to discuss with you the future and a bit more long-term perspective and the opportunities that we see in BillerudKorsnäs over the next 5 years. And we also would like to take the opportunity to introduce to the management team to give you a wider perspective of what we do and the people who are working in our business. So to remind you, on the 17th of November, it's around 1,300, and please sign up for our Capital Market Day, which I think you will find very enjoyable. Thank you. Having said that, I think we now go over to questions. And Jerry, can I ask you to take on that task, please?

[Operator]

[Operator Instructions] And our first question comes from the line of Cole Hathorn of Jefferies.

[Cole Hathorn, Vice President]

Just a little bit of color, firstly, on your liquid packaging board contracts because I know a lot of them are focused on volume kind of 1- to 3-year time line. I just wanted to get an understanding of how you get kind of cost inflation back on those contracts because they're long term is the first question. And then on the second question, your outlook on the industrial side is for kind of improvement there, and that particularly plays to your sack and kraft, specialty kraft paper business. Could you give a little bit more color of which end markets you're seeing that positive demand? And then the final point on the cost inflation, I thank you very much for giving that detail of where the cost inflation will be into next year. Can you give a little bit of color on the mix element of KM7, how that positive mix contributes to that earnings growth for next year?

[Christoph Michalski, President & CEO]

Okay. Thank you. Thank you for your question. So you're correct, liquid packaging board tends to be much more long-term contracts. And we have some minor price adjustment facilities within some of these contracts. Otherwise, it's really -- we promise our customers to deliver to a certain price to a certain volume, and we try to do everything to do that. I think, we as with most of these long-term contracts, we have what we call that puts them that they don't renew all at the same time. So it's a kind of a dynamic situation. And generally speaking, I think we are all very happy how they work, and they do not have a negative effect on our cost position or profitability position as time goes by. When it comes to sack and kraft, maybe, Ivar, do you want to take that one?

[Ivar Vatne, Executive VP & CFO]

Yes, I can do that. So I think for the time being all, we pretty much see a very strong demand on pretty much, all the applications. So that's everything from automotive to some other heavy industry talking about our application going into food and retail industry, also when we're talking about food service. So it's pretty much green all over. I think the 1 that has lagged a little bit and really now getting into gear is kind of the food service part. And clearly held by now restriction and bans being lifted in the wake of the COVID vaccination picking up. So I mean, it's pretty much green on all fronts. You also see a very positive development, in particular, on the brown sack when we look into our business in Asia. So the cement sack is also extremely strong, pretty much all over. So I think it's good news. The only thing maybe you can add to this because demand is underlying very strong. We will probably be helped a little bit at the moment that there are some supply constraints in the value chain in general. You can relate that to either you can say some maintenance stops schedule that has been complicated for some of the players you can relate that to energy pricing being unheard of, meaning some mills have actually decided to take down a little bit capacity. There's also logistical congestion, as you know. So it's certainly, you can say in that part a little bit helped by a supply side. But in general, what we're picking up is that the demand is strong in all of our user fronts, and there is very little inventory build up at the moment is actually to be contrary.

[Christoph Michalski, President & CEO]

Good. Let me talk about your third question. As I said before, I think we had a long journey on KM7, and we are not anymore in a situation that when we run our business that we take KM7 in the center. You have to understand that Gruvön, Frövi, Gävle, they have overlying capabilities, and we start increasingly to use them as a system. And therefore, any particular comment on KM7 is, I think, not really appropriate anymore. The only thing I can say, and I think we said that quarter-over-quarter now that we are starting to produce top grades on KM7. We are incredibly satisfied with the reliability and the quality that this machine can produce. And we are also very happy that some of our customers have qualified for their needs the machine much faster than we initially expected. And therefore, we are now able to really optimize the system between Gävle, and Frövi and Gruvön and that's what we are focused on.

[Operator]

Our next question comes from the line of Robin Santavirta Of Carnegie.

[Robin Santavirta, Head of Materials Research & Financial Analyst]

Three questions. First of all, you have spoken about long order books in both of your operating segments. Could you describe roughly what time period you are selling now in the board segment and in the paper segment and what is the normal length of order book. So we understand sort of what kind of order book length you have? The second question related to pricing. Now clearly increasing prices and higher prices during Q3 implemented, there will be some carryover for sure. But now we're to at the end of October going into November. Are you looking to increase prices in any of your segments now, so the last of November or December and in what segments would we then be looking at? And thirdly, there's obviously very strong markets. And is this sort of more cyclical strength recovery in economy? Is it market share gains? Or is it sort of plastic substitution type of things. So any comments there, I would appreciate. So those 3.

[Christoph Michalski, President & CEO]

Okay. Let me take your first and last and then Ivar, maybe you want to talk a bit more about the pricing that we foresee. So in terms of order book, it's actually very simple. We have -- I mean we are fully booked in boards into quarter 1. And basically, this I think it's a little bit longer than we would normally think. It's kind of 2 months where you would think as normal. We are very low on stock. There's enormous amount of demand. And even if some of the converters are saying they see some normalization of demand, the stock levels in the whole industry is incredibly low. So we haven't seen anything of that. And actually, people are even adding to the order books and are sometimes quite desperate to get hold of product, especially on board and containerboard. On paper, the situation is a little bit different. As you know, there are many different ways of getting this type of papers. Our order books are full for 3 months. It's also something which we don't see too often. I think here, 6 weeks is the norm. So very, very strong demand. Look, the last question, that is a subject which clearly we discussed a lot. We know that we are in a cyclicality which has to do with economic development, which has to do with what our competitors are doing. But the underlying positive trends for our products continues and I think it's even accelerated. So when we talk to brand owners, in particular, we see a very, very, very strong demand to move out of plastic. They look at our products as a substitution. There are now products in the market like Flow Wrap, which can really replace a normal plastic application, with relatively little change to the packaging, machinery and et cetera. So yes, I think the underlying trend is good. And I think therefore, the cyclicality that we have seen in the past is probably a little bit softened. On the other hand, even if cyclicality were to come back, we are clearly at the level of low stocks in our own company as well as very, very long order books and a little bit of the softening of the market will actually be positive and would allow us to go into less exceptional demand for products, et cetera. I think today, I would argue, customers are less satisfied than they were maybe a year ago because we cannot respond to their demands in a time frame, which is normal, which as I said before, it's kind of 6 weeks or, say, 2 months for board. And it's clearly always very dissatisfying if you have someone waiting for products for 6 months. And then you have a little hiccup in your production and then it's 6.5 months, and this is not a very good way. So we hope that our production stability in '22 will improve. And on top of that, that the market will normalize a little bit so that we go back to normal customer service levels that we are used to. Ivar, do you want to talk a bit about price increases?

[Ivar Vatne, Executive VP & CFO]

Yes, I can do that. So Robin, I can try to give you some flavor on what's being planned. I'm keeping pulp outside of this equation, partly because pulp is just literally following. You can say the pick indices on our side, and it's almost just a straight line from there. But on the material side, we are planning some further price movements in Q4. Cartonboard brown sack and kraft paper in particular. So we are aiming to add, you can say, another percentage point of pricing in Q4 versus Q3, meaning that in the area of SEK 65 million is the estimate we have now of new pricing coming in Q4, then versus Q3.

[Operator]

Our next question comes from the line of Martin Melbye of ABG.

[Martin Melbye, Research Analyst]

My question was regarding the price increases, which you have just answered. But is that taking out all of the price increases on sack, kraft paper and cartonboard that newsletters are talking about? And my other question is regarding another twist that's KM7. So how much spare capacity do you have compared to what you delivered in this quarter to sell?

[Christoph Michalski, President & CEO]

Okay. Let me take the second one. The first one, I think you need to repeat. I'm not sure if I fully understand your question. So spare capacity, we have 0 spare capacity. So when you have these machines and KM7 to some extent, is still in ramp-up. We are basically planning production cycles. They need a little bit more planning and more care than if you have a well run in machines. We are now -- basically, the machine is qualified for the grades, and it's now over time that you would accelerate the machines and further optimize the grades that you run on that machine compared to any other machine. So I think this quarter, except for the Gävle incidents, we have and the maintenance stop we had, we run most of the time at full capacity. And it's now, over time, only that you can increase the capacity across the network by optimizing and putting the product with the best runability on the different machines we have. Can you repeat your first question on price increases? I didn't entirely get it.

[Martin Melbye, Research Analyst]

Yes. It was regarding price increases. Now Ivar just gave the number for Q4. But there are, of course, say, list prices quoted on RISI for all of your products. And are you, say, up to speed on the last price increases that have been quoted there. Is that -- has that come through in your books? Or is it yet to come in, say, Q1?

[Ivar Vatne, Executive VP & CFO]

Yes, I think let's just say that these are the ones we have on the table for now. We tend to monitor the development very closely. I think also, RISI, I think you all need to take that with a very big pinch of salt because some of those are announced price increases and there is seldom actually that's going through to the full extent, and that actually can quite big difference between announced versus what you see impacted. But I hear your point. And clearly, the sentiment is still strong. And it definitely could be that we will add more in Q4 or going into the beginning of 2022. But for the time being, this is what we have on the table.

[Operator]

Our next question comes from the line of Johannes Grunselius of Kepler Chevreaux.

[Johannes Grunselius, Head of Forestry, Paper & Packaging]

Johannes here. A few questions from my side. But the first 1 is actually, if you have any -- if you see any impacts from the spike in recovered paper, I know you're 100% virgin-based company. But prices for recovered fibre are extremely elevated. And is this having any kind of impact on your business in terms of dynamic effects, indirect effects, et cetera? That's my first question.

[Christoph Michalski, President & CEO]

Actually here, I think you're well aware that virgin fibre have different -- very different performances than recovered fibre. And we have -- not have any specific impact from recovered paper prices. I think our customer, generally speaking, by our products because of their performance and their runability and their application that they're doing, which are quite far from recycled paper. And therefore, we don't see that. What we see, however, as I said before, we see an incredibly high demand because of the economic development of the opportunity to change from plastic to paper and basically a strong general market demand.

[Johannes Grunselius, Head of Forestry, Paper & Packaging]

Okay. Understood. I was thinking that perhaps some of the converters don't get the recovered base material and had to shift into virgin-based materials that okay, you don't see that.

[Christoph Michalski, President & CEO]

No, no, no.

[Johannes Grunselius, Head of Forestry, Paper & Packaging]

No, no. And my second question is on your wood fibre that you mentioned a few times in the presentation. And you also mentioned that it's good for you when some goods are running at high capacity. Could you perhaps give us some color on how more favorable this fibre sourcing is for you, the wood chips compared to the traditional wood and if you could perhaps share some numbers or something like that. Do you foresee this good availability of wood chips to continue also into next year? That's my question.

[Christoph Michalski, President & CEO]

Okay. Do you want to take that?

[Ivar Vatne, Executive VP & CFO]

Yes. I mean I can try. I mean I think you can say -- I don't know if I have many coordinates for you Johannes, but wood chips helps. It's a component that add on the need that we have I think on the line, though, that will never move the needle fully. It's just a supplement. The availability of fibre is very good at the moment in general for many reasons, and that's what we see going into '22. I think you also probably picked up that some of the sawmill activities slowing a little bit down from the peak now we had at the beginning of the year in the summer. That means, obviously, that there will be a little bit less chips available for us. But in general, aggregating all of the sources that we use, we still see a very healthy balance and a good position going into '22.

[Johannes Grunselius, Head of Forestry, Paper & Packaging]

Okay. That's helpful. And the final question is on -- you have now finalized ambitious cost cutting in the company -- cost-cutting programs. But you indicated that something more could be announced. Would that be more of a structural -- a bigger program? Or will it be more take down cost being more focused, being more disciplined? Or will it be a kind of a formal program? That's my final question.

[Christoph Michalski, President & CEO]

So my first answer is that we will talk about that during the Capital Market Day. And my second answer is to give you a little bit of a cliffhanger. I think Mill Use basically, the program was really about taking out cost. Some of it was unnecessary cost, some of it was low-hanging fruits, which have been created over some time. And I think our next approach is actually to look at structure -- at real structural cost of how do we run the entirety of BillerudKorsnäs, more from a business model and an operation model perspective. And I stop here, and I'm looking forward to meet you at our Capital Markets Day.

[Johannes Grunselius, Head of Forestry, Paper & Packaging]

Yes, looking forward for that information. Thanks.

[Christoph Michalski, President & CEO]

Thank you.

[Operator]

Our next question comes from the line of Cole Hathorn of Jefferies.

[Cole Hathorn, Vice President]

Just a question on pricing at the moment. I mean we've seen price indices go up through the whole of 2021, and they continues to move higher for containerboard and sack prices. But also cost inflation has gone up quite materially. So looking at the nominal price increases is probably not the right thing to do. But if I think about your customers, you're wanting your customers to shift from plastic to paper grades. Are you seeing any impact from higher pricing potentially impacting demand from these customers? Or is it just very much a demand pull situation where they're really trying to come to you to replace their plastic solutions. I'm just trying to understand when do you start thinking about moderating your pricing so that you don't destroy some future demand opportunities?

[Christoph Michalski, President & CEO]

I think that's a very good question. I think when you look at the market and you compare for similar application plastic against paper, paper is any way significantly more expensive than plastic. And that is why plastic was basically the material of choice for so many years. What brand owners now seeing is that the market is ready and consumers are ready to pay a premium for products which are not just perceived, but in reality, much more sustainable in terms of packaging solution. And here, it's really the demand from the brand owners who then translate into the demand from converters, et cetera, to change their solution. I think the price increases that we are doing today is, there's only -- as you put it down, there's 2 aspects to that. The first 1 is actually our cost base is going significantly up and maybe not at the same reason us in the market because of hedging and all these good things that Ivar and team has put in place. But nevertheless, we need to protect our cost base as well. And therefore, we need to make sure that we get paid for the products we are selling. Then you have an element of very strong market demand. But as we said before and as Ivar said, I think the price increases you see nominally in the market are not that what has actually happened in reality. We -- people announced cost increase -- price increases and then half of that is transferred or 1/3 of that is transferred and that is because you have long-term contracts or because there's a customer negotiation or like you do, you increase the price and then you give a margin discount at the end, depending on the volume board, et cetera, et cetera. So I think the real price increase in the market, and you see that in our margin is covering our cost plus a little bit more and the rest of our profitability increases, better runability, more cost saving and better operating performance. So I think that's probably the only way how we can describe to answer your question.

[Operator]

[Operator Instructions]

[Lena Schattauer, Head of Investor Relations]

I think that was the last question. So I think we will conclude this call. Thank you all for participating. And once again, welcome to our Capital Markets Day the 17th of November. And after that, we will present our year-end results, the 28th of January. Thank you, and goodbye.