Arctic Paper S.A.

Hello and welcome to today's webcast with Arctic Paper who will be presenting the report for the second quarter of 2025. After the presentation, there will be a Q&A session. So if you would like to ask the company any questions, you can submit them in the form to the right. And with that said, I hand over the word to you guys.

Good morning. Welcome to this quarterly presentation of financial results for the second quarter 2025 for Arctic Paper Group. I will focus in the beginning on the general situation. This was a tough quarter for the entire group. We experienced, as all segments, the global uncertainty, turbulences within the tariffs and also volatile currency situation. This all caused that the macroeconomic situation was difficult, not just for us. For the first half year of 2025, in comparison to the same period of 2025, we had lower net sales. This was mainly the impact of lower demand, but also we experienced some influences of currency volatility. As an effect of lower sales, the EBITDA was also decreased. It was significantly lower than in the same period of 2024. And within the paper segment, it was mainly lower demand for the paper product, but also price pressure. And we also experienced higher pulp prices in the second quarter. Within the pulp segment, they had still the problem with high material prices, mainly within wood, but also the volatility within currencies and weak US dollar had significant impact. The net debt to EBITDA, which shows the financial situation of the entire group, increased a little bit above one, which is still a pretty good level considering current situation. And within our sectors of operation, it's still on a good level and relatively low. If we summarize Q2 results, the situation looks pretty similar as for the first half of the year. We had somehow lower sales, lower EBITDA and net debt to EBITDA as mentioned before. In few bullet points, how we can summarize the first half. We experienced low demand for both pulp and paper products. Especially the pulp segment was affected by currency rates volatility, in particular unfavorable US dollar exchange rates. The pulp segment also was affected by high raw material costs. We noticed lower market price, both for pulp and paper, with increasing pressure on these prices. The market and supply chains was affected by both uncertainty and turbulences within tariffs from US. The second quarter results were also affected, the net results were also affected by the write-off on some assets in Rotneros Group, which amounted to close to 53 million slots. On the other hand, In the pub segment, we plan to have some significant cost reduction, which will restore the competitiveness of this segment and perform a successful share issue.

All right, and I would like to present some more details regarding the operation, the market and activities for the future. Yesterday, the Rotneros result has been presented by CEO of Rotneros, Leonel Eberle, in details, but I just make only short summary of this situation from the Arctic perspective. Still low demand and even some fluctuation regarding the demand and regarding the prices. For the beginning of the year 2025, we notice small increase month by month week by week regarding the pulp prices. But then on the end of Q1, we noticed that the market is very stable and the demand dropped significantly in Europe and even overseas. And then since April, we noticed a significant drop of the pulp prices, which affected revenues and the result of our pulp segment, which partly is offset by a positive trend for the paper sector. Now, it seems that demand for pulp globally is very low. It's mainly due to low demand of global economy and also the tariff turbulences. It's quite severe expense regarding the export to the US. It seems that export of the pulp from Canada to the US is still on the zero trend. high zero zero tariffs, and the export of the eucalyptus part from Latin America to the US would be even up to 50% fixated on the tariffs. Then significant influence regarding the currencies. We have most of the costs in Swedish krona, partly also in euros, but the total sales in our pulp segment is mainly counted in US dollars. Recently, we see some small recovery of the exchange rate between Swedish krona and dollar, but still it's a significant lower compared it was last quarter or even beginning of this year before Trump goes on duty. Operating rate is growing. We have a very good progress regarding the chemical pulp in valvic milk. I hope that it seems that probably 2025 will be the best year regarding the volume produced by valvic milk. And we have the struggle regarding low demand for mechanical pulp, which is mainly due to low demand in China. Please point out that at least 20% of our pulp size was dedicated for China. And 2025, it's affected by first of all, low export from China to US. Secondly, low domestic consumption and significant increase of the domestic pulp production. And no big changes regarding the structure of the application for our bulb. I would like to emphasize that still 25% of our business is connected with filter business, mainly automotive. And unfortunately, automotive business, especially in Europe, is quite a weak situation for them, probably even for the next quarters. Then we see a very good and positive trend regarding development of the electrical technical applications. The special quality of the part produced by Rotner's group is dedicated for the insulating paper, which is a very important part of the production of special transformers. uh development of energy globalization and energy application of different equipments means the demand for the transformer in europe is growing up and even recently we already started to make some investigation to combine our competence on the specialty part production and specialty paper production to be able to even to produce this insulating paper in our costume in poland paper segment, very low demand, very huge export of paper from China to Europe. And it's mainly due to the fact that due to the tariffs, import tariffs in US, it seems that Chinese and Korean export to US is limited. Mateusz Piorkowski- Looking for the last three months of 2025 we notice significant increase of the export from Korea of the fine paper to Europe, mainly coated means that we have, as we already see a clear competition for all good export products. And as well, the Chinese already started to use their government subsidies to cover part of the cost and logistic cost. And they are trying to locate in Europe the surplus of the paper, which is not able to be located in the US. Recently, we have seen some kind of stable paper prices. It seems that low demand, low profitability make a decision for several European paper mills to make a decision not to make a stark price war, but rather to optimize the production process to reduce the resources and even to reduce capacity. Currently, no so big changes regarding the capacities. So far this year, only two paper mills have been closed in Germany, but there are a lot of discussion about new closures in Finland and as well in Germany. And some of them will affect better balancing between supply and demand in our sector. Looking for Arctic performance we have a quite similar capacity utilization in Q2 compared to Q1 this year. Volume is also quite similar and we are expecting a small recovery after a summer period. Already in August we noticed increasing trend for order inflows And it seems that end of Q3 and beginning of Q4 could be some kind of recovery compared with what happened during Q1 and Q2 this year. They're regarding the exchange rates quite stable against dollars and against euros. Please point out that significant part of our paper operation are counted in euros, then in Swedish krona, British pounds and partly also in parish currency. Unfortunately, still, the demand on our key market, Germany, is very weak. I don't see a significant recovery of the German economy and probably for the next one or two quarters. So we have to struggle regarding oversupply for our key market means German. No big changes regarding the brands. I already mentioned that we already started to think about technical paper. And recently we did a positive test to produce a special paper dedicated for the pharmaceutical and medical business. And it seems that Arctic is able to produce a high quality paper as a base for medical tests. Unfortunately, the demand on the global is quite limited, but this is rather niche product with very high margin. No big changes regarding the global geostructure. We are focusing on Europe like during the last years. Please point out that Germany for the last years was around 25%, and due to this low performance of German economy and low deliveries, we dropped close to 21-20% in 2025. We noticed, in fact, quite positive trends regarding the sales to the US. Even during this turbulent time, then even you are not able to predict the business terms for the next quarter, we are trying to maneuver and to find a niche product application for our paper, mainly from Munkedals. And we are quite successful. If we just compare the volume of the paper, which was exported from Arctic to US last year versus this year, we have seen significant improvements. A year ago, it was roughly maybe less than 300 tons per year. But this year, already we sold to US 1,500. And it seems that even we were able to maneuver with new clients. This stable, I hope stable, term condition of 15% tariffs for the exported paper from Europe to US could create a stable business relation with our new American clients. We hope that already next year will be even better. Why? Please point out that even the American domestic paper production is quite expensive. The old, not modernized for the decades, American paper mills have to import the pulp from Canada, free of duties, and from Brazil and the rest of the Latin America, when you have an application between 15% even to 50% of the tariffs. It means that if you count all this element of the expensive pulp, tariffs, expensive labor costs in the US, in some cases, even the paper imported from Europe adding 15% tax could be very competitive compared to the domestic US production. Regarding packaging business, quite slow development regarding the craft paper. It's also connected with a slow economy development in Europe. We already completed the project of the molded pulp trace in question and we start already in summer period to deliver first trace to our customers. Hope that next year the revenues from this business and as well from the new segment means wood pellet production will contribute additional 20, means 20 million zlotys to the EBTA, which is roughly extra 50 million Swedish krones to the EBTA expected in 2026. There are some problems because it seems that this less green approach presented by American administration could affect our ambitious program to export also receivable packaging to US. But let's hope What will happen? The power power segment, which also affected by global turbulences. But as you remember, during the last years, we put a lot of efforts, a lot of activities and a lot of money to develop energy production, green energy production for our fast city production facilities. And as well, we had a plan to increase significantly to generate energy to be sold to the third parties. Recently, during the last six months of 2025, we discovered that business environment is maybe not in favour for the new project. in Poland and in Sweden as well. Fluctuation of the prices are not helping us to improve profitability and then already we decided to put on hold some projects. Now we are focusing mainly or even only on the energy efficiency for our internal production processes and as well to increase green energy production for our pulp and paper mills in Sweden and in Poland. On this screen you can see what was the layout of the site in question January 2025 when we decided to build additional 10 megawatt installation of PV in question. Then after six months we are happy to announce this project is completed and already since June 10th 2025 we are able to generate extra of 9 megawatts green energy dedicated for our Polish operation. On this screen you can see the developments between 2025-23 and the current situation regarding the energy generation, green energy consumption for our paper production. Please point out that the last bar shows only six months of 2025. and this is without this new 9 megawatt installation. When we will present our outcome of the energy segment in February next year as a summer of 2025, you will be impressed regarding development what was done by our operations. Today we are continuing our project in Grixpo. It's a modernization of the biomass boiler and this main concept is to be able to use cheaper material, cheaper fuel, instead of pellets. This project runs according to plan and according to budget. And the startup is planning for the 20th of November this year, with a full energy impact for the next 2026, roughly 30 million Swedish kronor lower energy costs. Another project which is already ongoing is the wood pellet production line also in Grygspo. The expected capacity will be roughly 50, even maybe to 55,000 tons per year. The project will be also completed by November this year. And already next year, we hope to have additional APTA from this line, roughly 15 million zlotys. Today, by the mid of 2025, the total capacity of the green energy produced by the installation in Arctic Group is over 30 megawatts.