Bong : Annual Report 2021 - PDF

Table of contents

• 1 Letter to the shareholders

• 2 Markets and Bong's Offering

• 3 Overview of Bong's sustainability work

• 4 Sustainability Report

• 7 Five-year summary

• 8 The share

• 9 Board of Directors' Report

• 14 Consolidated income statements

• 15 Consolidated balance sheet

• 16 Statement of changes in consolidated equity

• 17 Consolidated statement of cash flow

• 18 Income statements for parent company

• 19 Balance sheet for parent company

• 20 Changes in equity for parent company

• 21 Cash flow statement for parent company

• 22 Accounting policies

• 26 Notes

• 37 Signatures of the Board of Directors

• 38 Auditor's Report

• 40 Board of Directors and Management Team Definitions

  Annual General Meeting 2022

d

2021 in brief

l

Net sales amounted to SEK 1,804 million (1,843).

• l Operating profit was SEK 46 million (-19). Impacted by a capital

  gain of SEK 10 million (10), restructuring cost of SEK -1 million (-15)

  and write-down of goodwill of SEK -18 million (-35).

• l Earnings after tax was SEK 3 million (-66).

• l Earnings per share was SEK 0.02 (-0.31).

• l Net debt at year-end was SEK 439 million (471).

• l The equity ratio at the end of the year was 31 per cent (30).

Bong in one minute

Bong is one of the leading envelope manufacturers in Europe, offering a wide and flexible range of solutions for distribution and packaging of information, advertisement and lightweight goods.

Important growth areas in the Group are packaging within retail and e-commerce and the envelope market within Eastern Europe. The Group has annual sales of approximately SEK 1.8 billion and about 1,100 employees in 13 countries.

Bong has strong market positions in most of the important markets in Europe and the Group sees interesting possibilities for continued development. Bong is a public limited company and its shares are listed on Nasdaq Stockholm (Small Cap).

KEY FIGURES	2021	Q4	Q3	Q2	Q1	2020	2019	2018	2017
Net sales, MSEK	1,804	507	430	407	460	1,843	2,166	2,220	2,095
Operating profit/loss, MSEK	46	13	9	2	22	-19	32	-52	45
Profit/loss after tax, MSEK	3	5	-3	-8	9	-66	-24	-148	-9
Cash flow after investíng activities, MSEK	60	58	-20	-11	33	31	78	-65	43
Operating margin, %1	2.5	2.5	2.6	2.8	4.8	-1.0	1.5	-2.3	2.2
Average number of employees1	1,141	1,141	1,145	1,148	1,149	1,195	1,334	1,446	1,459
1 Year to date

Letter to the shareholders

In a difficult business environment, Bong continued its transformation into a larger Light Packaging company and delivered a solid financial result. New investments in light packaging products payed off and accelerated our growth in this segment.

MARKET AND INDUSTRY

Even though the Covid-19 pandemic has still been ongoing in 2021, the world has gradually opened up as an increasing number of people has been vaccinated and restrictions in most countries have been eased.

uted positively to the sales development and were off-setting the negative development of our Retail business.

IMPROVED CASH FLOW AND REDUCED ADJUSTED NET DEBT / ADJUSTED EBITDA

which are made from renewable resources or recycled material, and which are recyclable or reusable.

Since we hope for a relieve of the Covid-19 crisis with an overall economic recovery and higher consumption in Europe we are targeting for even higher growth in 2022.

Cash flow from operating activities amounted to SEK 67 million (34). Adjusted net debt / adjusted EBITDA accord-ing to Bong's Bond loan amounts to 1.27.

At all our production sites we will continue our efforts to reduce emissions, water and waste, which goes hand in hand with our factory efficiency program.

However, the overall economic environment is still fragile, especially since supply chains of raw material re-main very tense with long lead times.

ENVELOPE

FOCUS AND STRATEGY

In particular exploding gas and electricity prices on top of machine shutdowns and strikes, which reduce available paper capacity and put massive pressure on paper prices. In addition, there are drastic price increases for glue, window films, freight, packaging, and difficulties in hiring qualified workforce. An end of the development is currently not predictable.

Bong's development in the envelope segment is in line with the negative long-term market trend. In 2021 enve-lope sales decreased currency adjusted by -3% compared to 2020, which is mainly negatively related to Q1 2021 as Q1 2020 was not affected heavily by Covid-19. On the other hand, price increases towards our customers were having a positive impact.

Over the last two years, we have successfully managed to safeguard our business from Covid-19 related impacts, various supply chain challenges and we increased our light packaging production capacities and product port-folio. We are also on track to mitigate current headwinds related to costs in 2022.

In order to compensate for the increased raw ma-terial costs, Bong has successfully implemented sales price increases to customers but needs to increase prices further in Q1 and Q2 2022. This is to fully recover our additional raw material burden.

The total European market size in 2021 was amount-ing to approximately 47 Billion envelopes according to the latest FEPE statistics.

OPERATING PROFIT

In this tight business environment of a severe raw material market with unseen price increases and supply shortages Bong demonstrated strong resilience, sup-plying its customers without larger delivery disruptions, maintaining tight control over its cost and delivering a solid financial performance.

This annual report contains our sustainability report, which is also a communication on progress according to Global Compact as regards protecting the environment, human rights, social relations and fighting corruption. We are pleased to confirm our continued support for the UN initiative and to belong to the growing circle of com-panies and individuals who see sustainability work as a natural part of business. This is our fifth report that we do in the context of Global Compact.

THANKS TO EMPLOYEES AND SHAREHOLDERS

Last but not least I am particularly thanking all our hard working and dedicated employees as well as our stake-holders and shareholders for their support.

LIGHT PACKAGING

The development of Bong's Light packaging sales in 2021 was positive with an overall currency adjusted increase of +8% compared to 2020. This positive development was mainly driven by increased sales of our e-Green product range and the continuous growth of our Bubble Mailers. Also other products of our own production such as Board Backs, Corrugated Board and All Board Mailers contrib-

The Group's currency-adjusted sales is on the same level compared with 2020. Bong's gross margin has decreased compared to 2020 mainly because to drastically higher raw material prices and times lack in increasing prices to-wards our customers due to fixed price contracts. Operat-ing profit increased to SEK 46 million (-19) and the efforts to lower the breakeven point of the company are becom-ing increasingly visible. The operating profit in 2021 was affected negatively by restructuring cost of SEK 1 million (15) and by impairment of Goodwill of SEK 18 million (35).

But we will remain in a tough business environment. Therefore we continue to focus on sales price increase, improvement of efficiency and reduction of cost.

Kristianstad, April 2022

We will further increase our light packaging produc-tion capacities and product portfolio despite a difficult labor market in Europe.

Kai Steigleder

Chief Executive Officer

SUSTAINABILITY

Sustainability remains one of our top priorities. At Bong, we will do our utmost to develop packaging products

The market and Bong's offer

Light packaging offers high protection while at the same time reducing packaging material, weight, volume, size and packaging waste. The market for light packaging is quite fragmented with many different competitors in each sub-segment.

Bong is one of the leading providers of Light Packaging and Envelopes in Europe that offers solutions for distribution and protection of light weight goods, information and advertising materials.

THE LIGHT PACKAGING MARKET

E-commerce

Europe-wide growth in e-commerce has continued in 2021, fuelled by a high level of online purchases during the COVID-19 pandemic. Overall, the value of e-commerce retail grew by nearly 10% compared to 2020 and by 30% compared to 2019 - the year before the pandemic. The largest segment was "Clothes and footwear" with a share of 31%1.

Flexible and lightweight packaging solutions are ideal for ship-ping this type of goods, as the content is not fragile or highly sen-sitive. By using a flexible packaging, online shops can reduce the volume and weight of the packages as the material adapts to the content. Senders can also save on packaging material and freight costs compared to traditional packaging products such as corru-gated boxes.

There are different kinds of flexible packaging solutions on the market, such as plastic bags, air bubble mailers, padded bags or kraft paper mailers. Based on a growing demand for sustainable solutions, the packaging industry has increased its focus on renew-able and recyclable materials.

BONG'S LIGHT PACKAGING OFFER

Bong offers a wide range of light packaging products for different dis-tribution channels and applications such as e-commerce and retail. This includes expanders and pockets in various materials such as kraft paper, Tyvek®, air bubble mailers, paper padded bags, all board mailers and corrugated packaging.

1 Statista: E-Commerce in the European Union

Well adapted packaging for e-commerce

Bong sets a special focus on e-commerce packaging, which offers pro-tection and helps to reduce the environmental impact. Under the EU trademark e-Green, Bong produces and markets kraft paper mailers for e-commerce. This environmentally friendly solution is made from 100% strong kraft paper and helps reducing volume, weight, packag-ing material and waste. e-Green mailers are very robust, lightweight, flexible and can easily be reused for return shipments thanks to two adhesive strips. To meet the strong demand for this product range, Bong invested in new machinery in 2021.

Bong is also developing other innovative packaging solutions such as a 100% paper based ecological mailer as an alternative to conventional air bubble mailers. This new solution will be available in 2022.

Other light packaging solutions include DuPont™ Tyvek®, a unique material, which is extremely strong, resistant and lightweight. Bong has a contract with DuPont granting the exclusive rights to manu-facture and market packaging and envelopes made from Tyvek® in Europe.

Attractive packaging for the retail trade

Bong offers a wide range of gift and carrier bag solutions, which help brands to strengthen their image, increase their visibility and enhance their customers' shopping experience. Brands within fashion, beauty, fine foods and department stores partner with Bong to benefit from sustainable and efficient solutions - all tailored to communicate the customers' brands and values. With Bong products, the customers can master "the art of giving".

THE EUROPEAN ENVELOPE MARKET

According to FEPE (Federation for envelopes and for light and ecom-merce packaging in Europe) European volumes increased by around 1% in 2021 compared to 2020, but remain 14% below the pre-crisis level of 2019. The envelope volumes have continued to recover,

but slower than expected. In 2021, the total European envelope market is estimated at around 47 billion units.

Bong is the clear market leader in the Nordic countries and takes one of two top positions in almost all of West and Central Europe.

In Western Europe business mail accounts for the majority of envelope use, with more than 90 per cent of total envelope con-sumption. Business mail can be divided into transactional mail and addressed direct mail (ADM).

Transactional mail is used for the distribution of documents such as contracts, wages, pension statements and invoices. The largest users of envelopes for transactional mail are utility com-panies e.g. telecoms, banking and insurance, finance, energy and water sectors. Due to digitalization, the envelope volumes for this kind of usage have decreased significantly in recent years.

Direct mail, on the other hand, has been affected to a much lesser extent by digitalization. This specific advertising channel offers a much better target group accuracy than advertising in tele-vision, radio and magazines, and therefore remains of high interest for marketers. Direct mail campaigns achieve high response rates at comparatively low cost, making printed envelopes an important and indispensable marketing tool.

BONG'S ENVELOPE OFFER

Bong manufactures and sells envelopes in all shapes and sizes. From standardised envelopes to customised solutions with unique characteristics; with or without customised prints and embossing; with different kind of seals; made from various materials and with many options in shape and colour.

Bong's sustainability work1

OVERVIEW OF RISKS, POLICIES, MEASURES AND ACTIVITIES TAKEN ACROSS THE LIFE CYCLE OF PRODUCTS

Supply of raw materials and other input

RisksPoliciesManagement of risks that encompass the entire product life-cycle

Management of risks in each specific phase of the product life-cycle

• • Negative environmental impact

• • Unsatisfactory working conditions

• • Violations of human rights

• • Corruption and fraud

Production

• • Increased emissions

• • High consumption and contamination

• • Work accidents and experienced occupational insecurity

• • Corruption and fraud

• • Dissatisfied customers

Marketing/Sales

Distribution

• • Emissions from vehicles

• • Unsatisfactory working conditions at transport firms

Recycling and other measures

• • Difficulties in recyclingRisks regarding social conditions and employees are those related to the workplace and to the relationship between the company and employees as well as between employees among themselves. Such risks include occupational health risks, risk of unequal treatment and risk of discrimination with regard to, for example, gender, ethnicity, age, religion and political opinion. Risks of corruption and fraud may concern both internal transactions and relationships between Bong and business partners.

A comprehensive Code of Conduct which includes rules and recommendations concerning the environment, compliance, ethics and anti-corruption, quality, working conditions, equal treat-ment and prevention of conflicts of interest. The Code of Conduct is complemented by a Supplier Code of Conduct and an Equality and Diversity Policy.

Code of Conduct and grievance mechanism ("a whistle") accessible to all employees.

Appointment of managers in respective business units with joint responsibility of exchanging experiences and "best practice" across the Group.

Continued adoption of environ-mentally sound production methods such as improved efficiency of machines, leading to reduced energy consumption, increased use of water based methods replacing glue and colors containing volatile organic compounds. Further certification of facilities.

Supplier Code of Conduct accepted and signed by major suppliers centrally and at business unit level.

Product labelling in accordance with national and EU standards. Enlargement of product offering with climate compensation. Customer satisfaction surveys.

Increased use of well reputed transport firms that aim for lower emissions.

Increased offer of fully recyclable products. Promotion of paper carrier bags to replace plastic bags.