Arctic Paper S.A.

Hello and welcome to today's presentation with Arctic Paper. If you have any questions, please feel free to use the form that's located to the right and we'll take that up during the Q&A section. And with that said, please go ahead with your presentation.

Good afternoon. Katarzyna Wojtkowak and Michał Jarczynski would like to present the preliminary result of ENTIRE2024.

Let's start with a short summary of numbers. These are the preliminary Q4 results for the Arctic Paper Group. In Q4, as in the rest of previous year, we have experienced the difficult overall macroeconomic situation in Europe. Therefore, the results are a little bit lower in comparison to the previous year. In terms of net sales, it was 810 million Polish zlotys in comparison to 825 in the same quarter of the previous year. One of the impacts of that was the low volume of salt pulp in our pulp segment. On the other hand, even though we sold a little bit more of tons in paper, the prices were slightly lower in comparison to the same quarter of previous year. In terms of EBITDA, in Q4 we reached close to 39 million slots of EBITDA, which is significantly lower than Q4 of 2023. And apart from the reasons that I mentioned before in lower net sales, we have also experienced high prices of our raw materials. It was both high prices of pulp for the paper segment, which was almost for the whole year. It started dropping in the last quarter only. Whereas in the pulp segment, we experienced very high prices of wood. In terms of net debt to EBITDA, we are still on a low, very safe level. If we go to the summary of results for the entire year 2024, the net sales was also slightly lower in comparison to the year 2023, and we reached the EBITDA of close to 300 million zlotys. The reasons for this lower EBITDA in comparison to previous period was more or less the same that I mentioned when describing Q4. If we compare the split of EBITDA between our main segments, which is pulp and paper, the ratio in percentage was more or less the same, but the numbers were lower. As I mentioned before, we still have very good stable financial situation with low net debt to EBITDA level. Michał will now present the segments.

It was quite challenging year for pulp and paper sector, especially from the paper's perspective, We noticed that we were able to implement more aggressive price policy to grab more volume and we were able to produce up to 17% more paper compared to last year, but still was a little bit below 500,000 tons. We have, at the beginning of the year, quite stable paper prices, and on the second part of the year, especially in Germany, we noticed a drop, which was a result of the more competitive and price-aggressive policy implemented by us and also by our competitors. For the entire 2024, the capitalization rate for the paper mills was around 75%, which was 17% higher compared to 2023. Total production and total sale of the paper segment was 485,000 tons. Still, we have the same product portfolio. Still, we have the same structure of the clients and graphic expectations. We are still the biggest producer of the high-quality premium book paper, which represents close to 70% of the European market share. We are the biggest, and the main production is located in Sweden, in Munchausen. Then even there was a small decrease regarding consumption of the coated grates, We have quite stable volume, and year by year, our market share is growing in Europe about 0.5% per year. Today, we are close to 8% compared to the rest of the markets. No big changes regarding the markets. Still, Europe is by far the biggest market for us, and the biggest market for us is also Germany, which represents for the last year 21%. In the past, it was even higher, but due to the fact that for the last two years, German economy is under significant pressure, we noticed a drop of the demand from German market, especially German printing industry. The second biggest market in Poland, then UK, Central Europe and the Nordics. No big changes regarding the product portfolio, no changes regarding the brands. Still, our customer portfolio consists of big players like printing houses in Europe, merchants and publishers. Also, the premium grades are dedicated for the brand owners. And also, we have a lot of contracts by agencies and all paper is used for the printing materials. Pulp segment was under the significant pressure regarding the pulp prices. Today, wood prices in Scandinavia, especially in Sweden, are the most expensive across Europe. And today prices are even double or even more than double compared with the prices which was four or five years ago. Still, the demand is very high, and it's a big challenge to maintain profitability on the pulp segment, not only for us, but for all pulp mills in the north part of Europe. It seems that for the last year, we noticed quite stable situation regarding long fibre, and it was mainly due to the fact that Scandinavian pulp producers were under pressure regarding the high wood costs. It was a little bit different situation regarding the short fiber. Mainly the producers from Latin America, they were able to implement more aggressive strategy and to sell more part to Europe. Still, China was under the pressure regarding the challenges for the volume, but new capacities, which was already open last year in Latin America, give us a chance to be much more efficient regarding the costs. Then it's quite important to emphasize regarding structure of clients regarding the pulp segment. Unfortunately, the new growing segment like filters for automotive, for ventilation business, and as well for the electrical technical application like transformers are growing. And it's altogether close to 50% dropping demand for the printing industry and a very stable for tissue business. We have several projects regarding packaging business. For the packaging paper produced on our paper mills, we have quite stable volume, which is roughly 12,000 to 15,000 tons per year. And our main project, this joint venture with Rotner's Packaging to establish and to open the new molded fiber trace plant in Poland is on the final phase. We are already making a test. And the full speed is expected by the end of Q1, beginning of Q2. A lot of happens in our power segments. All business is connected with high energy consumption of the electrical energy and the steam. And we are trying to be also the part of this energy transformation. Already 2024 was the year that we are growing regarding energy percentage, green energy. More than 70% of the total energy consumed by our five mills came from the non-fossil sources. 20% is related to the natural gas and 10% as a thermal incineration of the waste material. Today, the structure of the power plants consists of the CHP power plant in Poland, based on the local gas, Then we have already PV installation in Poland and in Sweden. We have a thermal waste insulation installation in Sweden in Monkedals, hydro turbines and biomass boilers in the pulp and paper mills in Sweden. Still, we are growing regarding the energy generation. This year, the ongoing projects are focused mainly on the penalization of this 10 megawatts PV installation in Poland. Then also we are quite active looking for the new PV project for acquisition. Already in December last year, we did a first acquisition to buy four megawatts installation in the middle of Poland. Then by October this year, this big project which is connected with the energy setup for the Grigspo mill will be completed and it consists of two elements. First of all, modernization of the biomass boiler and as well to start wood pellet production line. The expected output in 2026 from the line will be up to 50,000 tons of pellets and this pellet will be mainly dedicated to for the customers in Germany and France. We are also active regarding energy storage system. Already one project in Sweden has been completed. Now we are on the preparation phase to two projects in another location in Sweden. And also one energy storage system will be installed close to one of the existing PV installation in Poland. It means by the mid of this year our total PV installation will exceed over 30 megawatts and probably by the next two years we will be over exceeding 50 megawatts.

If we come back again to the financial performance and look at the BTA evolution for the past years, We can see that we are trying to stabilize financial results in medium and long term between the segments. And we can see that the percentage or the share of our pulp and paper results is being more and more stable. And the result, the BDA that we achieved in 2024, which was close to 300 million zlotys, was above the levels before 2021, even despite very low capacity utilization. Please note that at that time, so before 2021, our capacity utilization was very often more than 90%. Now, as mentioned in the previous slide, it was approximately 75%, and still we are able to gain quite a good Our financial position is still very strong. We have a very safe position as regards to cash and net debt to FBTA is close to zero. In 2024, we were realizing a very ambitious investment plan. And as you can see here, over 35% of our capital expenditures in 2024 was for our new segments, which was power and packaging. And this way we are proving that this is the right path to execute our 4P strategy.

Arctic is a stable company. Arctic is a solid company. And also we would like to be in line with our dividend policy, which has already been published three years ago. Our dividend policy consists that between 20 to 40% of the net profit should be dedicated for the shareholders. Already yesterday, the management of the company decided to propose to the AGM that 30% of the net profit, which was achieved in 2024, will be as a dividend. It means that we would like to propose 0.7 zloty per share as a dividend. The yield is close to 5%, which I think is quite okay compared to our peers, especially in Finland or in Sweden. 2025 will be probably also the challenging year. I have a big concern regarding the growth of the European economy. It's quite difficult to see when the positive signals will be received. Germany has an election in the next four days. Let's see what will be the outcome. But probably the first six months of 2025 will be difficult. and we are expecting significant changes and improvement of the economy on the second part of the year. This year we are also expecting some kind of stability regarding the prices for raw materials and for final product. And also we expect some kind of improvement regarding availability of raw materials, especially some improvement on the drop of the wood prices in Sweden would help us to improve the result on the pulp segments. And a lot of discussion is currently on the Brussels level, how to help the European economy to be more competitive on long-term perspective. One of the elements is that definitely several declarations which was included in the Green Deal has to be rediscussed and reconstructed. And we also expect some positive things for us, especially regarding the bureaucracy. The number of papers, the number of regulations is definitely by far too complicated for liberal business. And this competitive compass, what was already initiated by Ursula von der Leyen during her speech in Davos two weeks ago, creates some kind of expectation from the European business. Quite difficult to predict what could happen due to a new administration in the US. There is some discussion about implementation of the 10 or even 20% tariffs for the import from Europe to the US. So far it's unclear if it will be only connected with several products or only for all exports connected. Today it's only connected with steel and aluminium. Let's see if there will be some changes regarding the automotive business or for another product. Then 2025 would be also the year that we are expecting to reduce our capital expenditures. We would like to continue to complete on our ongoing projects, which are mainly related to our 4P strategy. Some improvements regarding efficiency on the pulp and paper mills. And our main focus is to maintain strong balance and strong cash flow. It seems that during the two-buland time, probably 2025 will be also the two-buland time, the companies which have a strong balance and strong cash flow situation will be much better. I think that we are silent and we are well prepared from one side for a turbulent time, but as well the project which we already completed and with the project which are ongoing to be completed this year and beginning of next year will create a better future for the company. Thank you very much.

Thank you for that presentation and let's dive into the Q&A section here. Given the ongoing challenges with rising raw material costs, how do you plan to manage the pressure on margins in both the paper and pulp segments? And do you foresee any structural changes to mitigate these cost fluctuations?

Cost is... also connected regarding the total business climate changes and regarding the wood prices definitely the shortage of wood in the Scandinavia compared to the demand pushed the prices for the very high level as I mentioned today prices for timber today prices for the pulpwood are two or even sometimes three times more expensive versus it was four or five years ago Without significant changes on this sector, it will be quite difficult to maintain competitiveness position of Scandinavian fiber-based producers. And fortunately, there is no plans to increase new capacity on the long fiber. Fortunately, still the long fibre is a key element to produce high quality paper, high quality packaging. And then, of course, no plans regarding new paper mills or paper lines or packaging. I think that since two years we have some kind of overcapacity and even some companies are announcing plans to reduce capacity, to stop the production line, to make some kind of balance. We as Arctic, we have no plan to increase our capacity or investment are mainly related to the new growing sector like power and packaging. And the project which are related to the existing two main sectors in pulp and paper are mainly to maintain the high quality products and as well to improve efficiency and to reduce energy consumption.

Thank you for that answer. You mentioned a strong market position in coated fine paper and stable performance in uncoated paper. How do you plan to maintain or grow market share in these segments, especially in light of increasing competition and shifting market dynamics?

There's some difference between uncoated and coated segments. In Europe, The five biggest coated producer represents more than 85% of the capacity, which is totally opposite to the uncoated. On uncoated, even the five biggest are not exceeding even 30% of the capacity. It means that it's much better to have some kind of stabilization. Of course, I see some first signals regarding the flow of the product from Asia to Europe. Already some kind of discussion regarding tariff barriers and duties for the import of Chinese paper is already implemented. Now we see more import, more flow of the paper from Korea and also from Indonesia. And it seems that definitely that increasing competitiveness of European producers is the only way to survive. We as a European producer, we have to meet several limitations, several rules which are not implemented for the producer which are located outside of Europe. And I hope that this reduction of bureaucracy barrier help us to survive. Next year, some kind of special regulation which was already implemented by EU like CBAM system and other will be implemented. to improve and to avoid the situation regarding that paper which is not produced or product which are not produced in line with environment standards will come to Europe and will make some problems for European producers. In the next 18 months, this is the time for the EU Commission definitely to create a new frame, much better business condition for European industry. Otherwise, we as a Europe industry will have much bigger problem after 2027.

And EBITDA for the paper segment decreased significantly compared to the previous year. What actions are you taking to strengthen profitability in this segment, particularly in the challenging German market?

Last year, we were, sorry, two years ago, our focus was to maintain margin and to be able to flexibly accept even market-rated stops. In 2024, we decided to be more flexible regarding the prices and even the volume was higher of 70%. This year, we also would like to continue the success story to be very efficient and flexible regarding the prices and our goal regarding the paper is to increase at least by 15% by still trying to maintain our market position Still several projects are related to reduce our energy consumption and to improve efficiency. This combination of this flexible sales policy and step-by-step gradual improvement of efficiency, I think this is the best way to create long-term competitive position of Arctic towards the rest of the market.

Rotterus has invested in new production capacities and increased efficiency. How will these investments impact results in the short and also long term?

Of course, 2024 was the year to execute the project and complete it. And 2025 is the year that we would like to launch this additional volume on the market. CTMP, the mechanical pulp is more dedicated for the packaging business. And I see that packaging business has some first signal of recovery, which is not so in line like for the paper segment. I'm pretty sure that we'll be able to allocate this additional volume on the European market. But there are also some signals that markets outside of Europe are interested to use this mechanical pulp as well.

Arctic Paper has invested in molder fiber packaging, which is expected to have significant environmental benefits. How do you assess the long-term potential for this market and also the competitive landscape?

We have a strong commitment regarding this environment approach. We as a part of the bioeconomy sector, we see a lot of opportunities for us to develop the growing market. Green packaging are growing in Europe. Even a few days ago, it was some decision in America to withdraw with some limitation and go back to plastic. I think that Europe has a much more stronger and long-term approach to be more environment friendly. Our project in question is ready to launch a full production. and also we are willing to make a decision by the end of this year even to expand this project or what we are considering for another location because we strongly believe that the trend in Europe go out from plastic but to be more environment friendly to the recycling with packaging will continue despite the current turbulent time in America.

And you've also invested in solar energy and biofuels, expecting over 30 megawatts of installed capacity by mid 2025. How do you view the economic profitability of these energy projects in the long run?

From our perspective, the key element is to have a stable competitive energy price. And today in continental Europe, in Germany, in Poland, in France, even in France, when you have more than 70% of energy produced from the nuclear, today's price is 145 euros per megawatt hour. This morning the price in SA3 was 150 euros and SA2 120 euros. Of course, afternoon the price is more stable. and going down. But from our perspective, we would like to make a quite healthy energy mix to maintain our energy costs on the level between 35 to 45 euros. And this significant benefit of keeping control of all energy sources, I think give us a big chance to stabilize our results.

I will take one final question here before wrapping up. Given your strong financial position, what further cost savings and efficiencies do you plan to implement in your operations? Are there any specific areas that will be prioritized?

There are three ways, in fact. First of all, regarding efficiency. And we're already changing the equipment. Even we have some project to use artificial intelligence to help us to define the problems, to identify the weak part of the process. Secondly, we are still acting search for the cheaper raw material. And third way is to reduce energy consumption. As I mentioned, pulp and paper sectors is very energy intensive business. and each saving of, let's say, 0.3 or 0.5 megawatt hours per ton of paper or ton of pulp, calculated by annual basis, give us a big saving. These three elements, to be more efficient, to source cheaper raw materials, and to reduce energy consumption, they are the optimal way to maintain our long-term competitive position.

Okay, thank you very much both for presenting today and also answering all of our questions. And thank you everyone who followed this presentation with Arctic Paper. And I wish you all a great rest of the day. Thank you very much.

Thank you. Thank you.