Arctic Paper S.A.

hello and welcome to today's webcast where arctic paper will present the report for the second quarter of 2024. after the presentation there will be a q a so if you have any questions you can send them in via the form to the right and with that said i hand over the word to you guys hello good afternoon we would like to present together with katarzyna boykova who is the cfo of the whole group and me michael archinski the result of the q2 2024.

We'll start with a short summary of Q2 results and the revenue sales revenues in Q2 24 were similar as in Q2 23 but the mix is a little bit different so we have a bigger paper sales volume with a little bit lower price denominated in denominated in Polish zlotys, whereas we have a similar volume of pop sales with a slightly higher price. We could see in Q2 some slowdown in the economy, which was of course generated by the general macroeconomic situation in Europe, especially on the German market, which is one of the biggest market for our sales. In terms of EBITDA, it was on a similar level as in Q2 23, a little bit higher if we consider the one of events. And also the split of EBITDA between our pulp and paper segments was similar with a little bit higher EBITDA of the pulp segment. Lower operating cash flow in Q2 had two major causes. First of them was the lower gross profit and also there were negative influence of the changes in foreign exchange differences. The net debt to EBITDA level is safe on a very low level. If we jump to the summary of half year, 2024, the net sales was a little bit lower if we compare it to the half year of 2024, whereas the volume was higher both in the paper and pulp segments, but we noticed the lower paper prices and a little bit higher pulp prices, which, as I mentioned before, was influenced by the general macroeconomic situation in Europe. Lower EBITDA for the group is mainly caused by the lower pulp segment. And here there were two also main causes. One was high wood prices and the second one, there were some bigger spendings on renovation or modernization of machinery in the pulp segment. As I mentioned before, the net debt to EBITDA also in the whole first half year was very strong.

I would like to present some comments regarding the business performance, mainly in paper in Europe and some comments regarding pulp as well. This after a very interesting and rise regarding the demand in across Europe during the Q1. Since end of April, we noticed some kind of slowdown of the economy performance, and especially in Germany. Germany is our biggest market. Normally it's between 20 to 25 percent, sometimes even 27 percent of our business. But this year it was only 21, 22 percent due to a recession in the German economy. Unfortunately, Germany has the biggest European economy and also the biggest printing sector in Europe. It may come hit us regarding the demand from our perspective. We were able to increase our prices during between the period of January till April. And then due to this lower demand, we have to focus how to maximize our capacity utilization during the Q2. Q2 was a little bit lower regarding the volume for the entire six months of this year. The capacity duration was on the level 76%, around 85% in Q1 and around 70% in Q2. it seems that also the volume is quite same level was significant improvement regarding q1 when we were over 140 000 ton of paper and drop math minus 30 000 tons in q2 The prices are quite stable, even though we notice significant increase of the raw materials, mainly the pulp prices, because it was raised quarter by quarter, month by month, then we are partly will be able to offset this increase by increase of prices. Please point out that we have a cost in Swedish krona and dollars. We have revenues in Swedish krona, euros, pounds, Polish currency. And finally, we all have to convert all numbers into the Polish currency as a reporting currency. No big changes regarding the portfolio. We are still leading producer of the high quality graphic paper in Europe. Our top brands are Amber regarding the uncoated offset paper, the G and Arctic for the premium coated grades and Munker as a premium uncoated book paper. Only around 10% of all businesses outside of Europe that we are so dependent of the European economies. From one side, it gave us some benefits regarding lower logistic costs, but from other side, we are less hit by cheap import from Asia. So far, Asians are focusing to export on dumping prices to Middle East. And to Africa, due to logistic problem, especially on the Suez Channel, the flow of the paper to Europe from China is quite limited. No big changes regarding the current structure. We already noticed that the drop is across the same percentage across all segments. It means that marketing expenses, books publications, this business is quite the same percentage affected by this lower economy. The pulp business was well described by Rotner's publication a few days ago, but I would like to mention that we had another quarter of rising pulp prices. Since mid of last year, week by week, month by month, we noticed significant increase of the prices for the long fibre and as well for the short fibre. During the last few weeks we noticed some kind of stabilization and currently due to this unbalance between supply and demand we should expect some kind of drop of the pulp prices. It's also partly connected to new capacity. A few weeks ago the biggest giant pulp mill has been started in Brazil with this annual production of 2.5 million tons and I think that due to this low recovery of the European economy, this additional volume will hit especially the short fibre pulp prices. We are in a full swing regarding our top project, which means the moulded pulp trace plant, which will be located in Kostrzyn in Poland. and end of q3 beginning of q4 we have a plan to start a production already most of the equipment have been delivered and there's a time for assembling training of our employees and beginning of next year the full production will be dedicated for our clients mainly clients in german-speaking countries partly to netherlands and partly to sweden we have several interesting projects in the power segment I would like to describe the key elements. We have several photovoltaic projects in Sweden and in Poland. There is also an ongoing big project to modernize biomass boiler in Grixpo in Sweden. Ongoing project to install a wood pellet production line in Grixpo with annual capacity between 50,000 to 100,000 tons of pellets. We also have some projects in Sweden regarding energy storage system and as well we are more active to provide grid services to national grid provider. In Sweden means Svenska Kraftnet and in Poland Polskie Sieci Elektroenergetyczne. The experience which we already collected in Sweden is a good asset for us to be more aggressive and to be a more important player on the Polish tenders organized by Polish TSO in 2025 and 2026. Recently, we've finished by the end of June the biggest photovoltaic project at all premises in Kostrzyn. We use already our property to install up to 17 megawatts PV installation, and it's already connected to our system. We are able to produce up to 18 gigawatts hours per year of green energy, mostly dedicated for our paper machine. But as well, the surplus will be sold to the grid. We also discovered and already started next phase of this energy transformation caustion. On the right side of the picture you can see empty area which is salt of the caustion plant and this area also belongs to the plant and we already got the building permit and by end of Q1 the additional 9 megawatts of photovoltaic will be connected to our system. We are also opening for another project to maybe to acquire some interesting and also looking for the other project. Now is a good time for opportunity to invest in opportunity projects in Poland and in Sweden, because we have already lowest photovoltaic panels prices during the last 10 years. if you just compare the capex per megawatt today versus it was one or two years ago the drop due to a drop of the panel and and civil works prices is around one third

We shortly summarized EBITDA evolution during past years. We can see that if we consider 12 months rolling EBITDA, it is still on a positive and higher than historical level. We are striving to be as cost-effective as possible. And this is why we invest so much, especially in the energy sector, but also the packaging, the molded tray factory, which is being built will contribute to our future EBITDA. Then if we have a look at net debt to EBITDA during past five years, we also can see a historically much better situation. It's still negative. We have stable financial situation. We cooperate very well with our financing bank and we pay our financial liabilities on time. We are also safe with our future investments, which we plan to finance partly from our own cash and also partly to refinance them by our financing banks, which this situation is allowed due to our good and safe level of cash and stable balance sheet.

I would like to also emphasize that our strongest balances and the net debt to equity ratio is one of the best in our sector. And also it gives us a frame and a solid fundament to think about the future. Already half year of this year is the year when we decided to invest much faster and much more. Normally the turbulent time is a good time for investment for the companies with well-defined strategies, with solid balance sheet and with clear message what to do and why to invest. And already during the six months of this year, we spent more than 470 million Swedish kronor, mainly to the new areas. Please point out that close to 50% of the capex during the last six months have been dedicated for the new segment, means energy and packaging. It gives us a chance to see revenues and profitability better compared to the pulp and paper already in 2025. We also spent some money for modernization of our pulp mills and one third of our capex is dedicated just for maintenance activities. that's all regarding our presentation for q2 looking for a question from your site thank you so much for the presentation here i think we're gonna jump right into the q a here the first question is

The net income of the tax decreased significantly by 48.4% year over year. Can you provide more insight into the factors that led to this decline, particularly in the context of increased operating profit?

Could you repeat the question, Kasia?

Sorry, I didn't hear the beginning of the question.

Of course. The net income of the tax decreased significantly by 48.4% year over year. Can you provide more insight into the factors that led to this decline, particularly in the context of increased operation profit?

I'm not sure that I understand the question. Sorry, the decrease in?

The net income.

Net income, yes. The big effect of this was where the financial items and most of it, it was the currency exchange differences. There were a big fluctuation, especially in the Swedish crown in relation to Euro, in relation to US dollars and also to British pound. And therefore the net financial was negative and that influenced the net income. Thank you.

The joint venture for the new production facility in Kosteren is progressing as planned. Can you provide more details on the expected impact of this project on Arctic Paper's financial and its strategic importance?

Our plan, the molded pulp trays plant will be ready by the end of this year. And we expect it to bring approximately, I think it was approximately 20 million zlotys of BDA per year. And this is in line with our strategy. This is a very important segment of our operations. And as you notice on the previous slides, this is where we plan to invest.

I would like to make a comment additional. This is the first phase of our packaging strategy. It was mentioned by Katarzyna, we expect to have additional EBITDA by 60 million Swedish kronor per year, and it will be close to 100 million pieces per year. Please point out that we have significant benefits regarding the location. The plant is located exactly on the Polish-German border. and close to 70% of our production will be dedicated for the German-speaking countries. It means that we have benefits regarding lower logistic costs. The packaging products, like moulded part trays, are very light. The full truck is roughly 6-7 tons compared to the normal full load of 24 tons. It means that companies which are able to well organise and to well manage regarding logistic costs, they have benefits. Already by the end of next year, when we'll be able to make some kind of evaluation of the results, we are open to discuss and to invest in the next steps. I think that the location is perfect. We have a good product. The experience of the Rottner's packaging, which was collected during the last 10 years, gives us a great value that we'll be a significant and strong player in Europe.

Thank you so much. You mentioned in the report that the recovery in key European markets has been slow. What are your expectations for market recovery in the coming quarters and what indicators are you monitoring to adjust your strategy accordingly?

I think that Q3 could be similar to Q2. We are still in the holiday season. Now it is the last days of the holiday period in Sweden. South of Europe has already started the holiday month. It means that probably end of this month we should expect significant improvement regarding offer, regarding the business activities. And as I mentioned, we are so dependent on Germany and I'm not so expecting any big changes regarding German economy within the next three months. Let's see what will happen after the new regional election in October. But my expectation is that since Q4 should be significantly better compared to the summer period.

Thank you so much. And you mentioned here that you think this will go on in Q3. And how do you anticipate these conditions will affect Arctic Papers performance?

From one side, we will have some benefits regarding stabilization of the pulp cost. For the paper segment, the pulp cost is the most important factor. And we already noticed in end of Q2, beginning of Q3 stabilization. And then during the last two weeks, we already see drop of the pulp prices. Of course, it is some time difference because normally the drop of the market prices will affect our segment in roughly one month or one half month perspective. This impact regarding lower of part prices for the paper production will give us some benefits in September and October.

thank you that was all the questions that was sent to us today so thank you all for presenting and thank you all for tuning in i wish you a good week here thank you very much all the best bye