StepChange Consulting Publishes B3NCH H1-24 Financial report

StepChange Consulting has just published the latest B3NCH H1-24 financial report, offering insights into the financial performance of nearly 100 companies operating in the pulp, paper, packaging and tissue sectors. The analysis reveals a mix of positive and negative trends, with each sector displaying unique challenges and opportunities. Key highlights include a strong 12 percent increase in EBIT within the packaging sector, a sharp 81.4 percent reduction in net profits for the pulp sector, and a significant 63 percent rise in net profits within the tissue group.

Sector-by-Sector Insights

Tissue:
The tissue sector emerged as a star performer in the first half of 2024, continuing its recovery from the previous year largely driven by lower input costs and stable demand. Net profits surged by an impressive 63 percent, making it one of the most profitable segments within the broader industry. Segment-only EBIT also saw a robust improvement, rising by 19.2 percent, driven by strong performance from P&G Hygiene. The peer group benefitted from increased demand for hygiene-related products, driving growth across consumer and professional markets. Working capital, which was negative in 2023, turned positive again, increasing by 1.7 percentage points to 1.1 percent which is a significant negative change in liquidity in absolute terms.

Packaging:
The packaging industry is performing cautiously optimistic so far for 2024, with a notable recovery in profitability. Company-wide EBIT across the sector increased by 12 percent, from 7.2 percent in 2023 to 8.0 percent in 2024, reflecting better overall operational performance. Klabin, APP: Indah Kiat and SCA with strong profitability. Net profits also climbed by 26.5 percent, a positive sign for investors, while Return on Capital Employed (ROCE) rose to 6.0 percent. However, despite these improvements, segment-only EBIT within packaging has continued to decline by 6.2 percent, signaling that the core packaging business still faces profitability pressures. Working capital in the sector has also increased by 13.3 percent posing additional challenges in times of increasing cost of capital and slow demand.

Pulp:
The pulp sector, historically a high performer, faced a sharp downturn in 2024. Net profits plummeted by 81.4 percent, making it the worst-performing peer group. Although demand for pulp remains stable, and revenue stabilized with a 1.1 percent increase, these gains were overshadowed by profitability challenges. EBIT improved by 36.5 percent, largely driven by costs rather than increased demand. Furthermore, operating cash flow (OCF) declined by 11.2 percent, while working capital grew by 12.3 percent, impacting liquidity of companies in this sector. The pulp market’s drop from being the highest to the lowest in terms of net profit underscores the volatility the sector faces in the current market environment.

Flexibles:
The plastic flexibles peer group continues to be the most stable segment within the industry. Despite a minor decline in key performance indicators, Flexibles remains a solid performer. While segment-only EBIT decreased by 1.3 percent, the group maintains positive long-term financial indicators, with all companies reporting a positive five-year segment-only EBIT average. Sealed Air continues to be a leader in terms of profitability. However, the net profit for the group fell by 14.5 percent, and NiROCE declined by 17.5 percent. Working capital remained virtually unchanged, slightly increasing from 4.2 percent to 4.3 percent. Although the peer group performance has slipped marginally, it remains one of the most stable peer groups driven by consistent and growing demand for flexible packaging solutions.

Wood Products:
After a tough 2023, the wood products sector saw a modest recovery in 2024, driven by an increase in both demand and prices. Company-wide EBITDA jumped by 21.8 percent, reaching 13.5 percent, while EBIT soared by 101.9 percent. Segment-only EBIT also saw a notable improvement, rising by 41.8 percent. Net profits tripled from a low level of 1.4 percent in 2023 to 3.7 percent in 2024, demonstrating an improvement, but not a full recovery to pre-2023 levels.

Graphic Paper:
The graphic paper peer group, facing a decline in demand, saw mixed results. Although some profitability indicators improved due to special items, overall revenue decreased by 1.9 percent. Company-wide EBIT, excluding special items, fell by 6.7 percent, while working capital slightly increased by 1.2 percent. However, operating cash flow (OCF) saw a significant 61 percent increase, indicating improved cash management and more positive results for companies focusing on this area.

Specialty Paper:
Revenue in this peer group grew by 2.5 percent, while EBITDA jumped by 65.5 percent, a strong indicator of improved operating rates. However, net profits remained negative and declined by 8.2 percent, moving from -5.6 percent to -6.0 percent, attributed to rising costs and supply chain disruptions affecting niche markets.

Overall
The B3NCH H1-24 report shows that while the pulp, paper, and packaging industries face challenges, there are moderate signs of recovery and stabilization, particularly in the tissue, wood, and packaging sectors. The industry overall has seen improvements in profitability while working capital management and cash flows are partially an increasing challenge. Flexibility, operational efficiency and supply discipline will be key to navigating the continuously challenging markets in the second half of 2024.

About B3NCH and StepChange Consulting
The B3NCH report, published biannually by StepChange Consulting, offers a comprehensive financial analysis of 96 companies within the pulp, paper, and packaging industries, providing a detailed benchmarking tool for industry leaders. StepChange Consulting, founded in 2006 and headquartered in Vienna, Austria, is an independent management consultancy specializing in wood, pulp, paper, packaging, and tissue sectors. With a proven track record, StepChange supports clients from strategy development to the implementation of operational improvements, delivering innovative yet pragmatic solutions to achieve measurable business results.

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