Arctic Paper S.A.

Welcome all to this presentation where Arctic Paper presenting the interim report for Q3 2025. I am Fredrik Hansson from Finwire. With us today is Michael and Katarzyna. Michael, the audience is yours.

Good afternoon. It's a pleasure to present to you the summary of the results and the situation of Arctic Paper Group for the third quarter of 2025. I will firstly present to you the summary of financial results for the third quarter. The net sales amounted close to 800 million zlotys, which is slightly lower in comparison to the same quarter of the previous year. The main reason for that was some drop in paper prices and also in pop prices, but also it was accompanied with some lower currency effects. The EBITDA for the third quarter amounted close to 39 million zlotys, which was somehow lower than the similar quarter of 2024. On the other hand, it was much higher than in the second quarter of this year and slightly higher than in Q1 of the year. It proves that the company operates pretty stably in this difficult environment. Net debt to EBITDA was somehow higher in comparison to last year. The main reason was spending of cash to support the Rottner's share issue and also somehow increased loans.

I would like to present you some flavor regarding the market environment during the pandemic. Q3 2025. Still, there's a low demand for the pulp paper and packaging product, not only in Europe, but across the world. And it seems that the situation probably will not improve before the end of this year. Unfortunately, regarding the paper segment, we are still affected by very high wood prices in Scandinavia. but there are some positive signals since few weeks we already noticed some kind of stabilization and even first signals of correction regarding the prices due to low demand for the timber for the pulpwood it seems that the forest owners are more willing to accept lower prices to stabilize the business Turbulence regarding the trade and tariff policy is a hot issue since the beginning of this year and probably it will stay for the next three years. But it still means that we as European producers are affected regarding the tariffs. Unfortunately, sometimes it's very difficult to predict what will be the rules for the next quarter. Due to this reason, we are trying to organize and to sign the contract for the next month and maximum next quarter. But in some cases, the decision implemented tariff for the PAL from Europe or increasing or decreasing tariff for the PAL imported from Canada, or a few weeks ago from Brazil, make a huge impact for profitability of our business in North America. Even despite this, we as in the paper segment, we are quite successful to develop our sales outside of Europe and especially in US. Last year in 2023, the average volume was in a few hundred tons per year only. But this year, the U.S. is by far our biggest market, and we are sourcing this two, four times more compared to the previous year. It's mainly due to the fact that we well define the very niche products and very niche markets, which are more interesting from our perspective, like digital paper or digital printing. It's quite a growing business in the U.S. and also in Europe. Recently there was a lot of discussion on the EU level with the rules regarding EUDR and deforestation regulation which should be invalid since 1st of January next year. Tomorrow there will be discussion on the Commission and mid of November it will be the decision of the EU Parliament to implement or to put on hold maybe for six, maybe for one extra. Please point out that already a year ago it was decided that instead of implementation this EODR monitoring system for entire Europe in the forest-based product, you decided a few days before end of the last year that instead of 1st of January 2025, this system will start 1st of January 2026. Probably it seems that it will be delayed for another six or even one year, six months or one year. This turbulence regarding global trading and turbulence regarding US trade and tariff policy makes a huge impact regarding the flow of the forest-based product between China and US and as well between China and Europe. Due to low demand for the Chinese product in US and due to the tariffs the Chinese and some other Asian producers decided to increase the export of the paper, packaging and even tissue from Asia to Europe. It's quite interesting to see that especially on the tissue product For the last quarter we noticed significant growth by close to 300% quarter to quarter. We, as a European pulp and paper producer, already started the case and sent the application to the EU Commission in Brussels. to start the investigation against this anti-dumping procedures, which is now provided by the Chinese producers. Probably it takes several months and we will see the results not before mid of 2026. Still, from the pulp supplier's perspective, from the pulp producer's perspective, we see unhealthy exchange rate volatility. During the eight months of this year, the Swedish krona was thronging against US dollar by close to 15%. And it's quite important to emphasize that roughly 85% of the pulp costs are connected with Swedish krona, but 100% revenues are related in US dollar. We also noticed quite significant change regarding the structure of the Chinese import. During the last three years the Chinese were able to establish on-site pulp production. There are several new pulp lines and year by year more and more pulp is produced domestically in China and used for the domestic production. Based on our calculations, today China is able to produce up to 5 million tons of domestic product and it has a huge impact to reduce the demand for the export pulp from Scandinavia to China. And probably this trend will continue for the next years. And not only Arctic, but as well the entire industry is underperforming and no one is satisfied regarding the financial performance of the companies in the pulp and paper sector for Q3 and for the entire 2025. Regarding the pulp, we have noticed significant drop of the demand due to the lower demand for the packaging and for the paper product. And as well, this unfavorable costs regarding the exchange rates and the currencies makes us decision to be more flexible and even to decide to reduce our capacity for some weeks or even some months to have in balance. The same is regarding other, several other, especially Latin American producers decided to put on hold their production line for several weeks. just to have a better ratio between supply and demand and probably this situation will continue for Q4 or even beginning of 2026. There is a big difference between short fiber and long fiber. It seems that the limited number of the long fiber producers, especially from Scandinavia. Due to lower performance and due to lower financial results, we are able to make some kind of more discipline to reduce capacity to be closer to the reduced demand on the On eucalyptus side, on the short fiber side, on the hardwood, it seems that there is more and more competition. And during the last year, we can notice that the price for the short fiber was decreased by over 25%. Already mentioned regarding these exchange rates, as mentioned that during these eight months of this year, the Swedish krona is stronger against the US dollar by around 15%. It's a huge impact. During Q3, we were able to optimize the production capacity and we were able to reduce our stock to improve cash flow situation and the difference around 3,000 tons during Q3. Then jumping to the paper sector. Paper sector is also affected by this recession or in some countries even slowdown of economy. The demand for the paper is lower and we all are able, we have to struggle between the unbalance between supply and demand. Fortunately, during the last quarter, we were able to use our more power position towards clients and we were able to increase our volume by roughly 8%. And as well, we were able to achieve close to 83% capacity utilization, which is the highest this year. And it's even higher compared to the average in our industry. Sales prices are a bit lower. It seems that this is mainly due to the currencies, but as well some kind of pressure from the non-European producers. We already see the flow of the Chinese and Indonesian paper, which is delivered by ships to European harbours. No big changes regarding the product structure, but as already mentioned, we noticed significant increase of the sales outside of Europe, normally during 2024 and 2023. The sales outside of Europe was maximum 2% of our revenue. This year we are already 4% and it's mainly to US, also to South Africa, to Singapore, Australia and Latin America and Mexico as well. Recently, which is quite important, we are so proud that we win the big tender on the Polish side, One year ago, the paper from our Swedish Mill Grigspo was selected by the Swedish government to print out these 5 million copies of this self-defense brochure, which was delivered to all of our houses end of last year. And recently, a few days ago, we win the tender to deliver close to 2,000 tons of our paper to produce, to print out close to 16 million copies of the similar brochure for the Polish market. Regarding the packaging business, we are running according to plan of our new production facility in Poland, this molded pulp trace factory, which is dedicated for the German and Austrian market. We are delivering the product to our client, which are mainly in the food industry. Regarding paper for a packaging application, means Munk & Kraft, we have a stable business. It's less fluctuated due to the currencies. We have a limited number of clients, but the volume is quite stable. And I hope that by the end of this year, we will exceed 16,000 tons for the packaging grade 2025. Some updates regarding the power segments. As I remember during our last discussion after Q2 and after Q1, I mentioned that I'm not so happy regarding the development and turbulences of the Polish and Swedish and even EU regulations for the energy industry. are expecting some drop of the profitability and due to this fact we decided to focus much more on our internal production for internal consumption versus to be not so offensive and decided not to invest anymore for next two years for the external PV installation or wind farms dedicated to supply third party from the energy. This year by the mid of summer we have completed a big project in the Polish site to install additional 10 megawatts of the PV installation and all together on-site installation on the Polish mill is already close to 30 megawatts installed capacity of the PV installation and all energy is used internally. It means that is a part of our decarbonization process. And as well, we decided recently, a few days ago, to install a new electrical steam boiler in Kostrzyn mill to be able to use this surplus of cheap energy from the grid and as well to use the surplus of green energy from our PV installation and to produce carbon-free, fossil-free steam process. This is also the part of our decarbonization strategy. The biggest project which is still ongoing for the last two years is Bio25 connected with our Swedish mills in Grixpo. We will complete the modernization of the biomass boiler. It will be ready by the end of this year. It will give us a benefit to reduce energy costs dedicated to produce steam for the paper production process. In the connection with this, we will also complete the project of the wood pellet production line. It will be ready by the end of this year. This project will give us a chance to use this excess heat from the paper production process to dry the wood and to produce up to 50,000 tons of pellets. And these pellets we would like to sell on the Polish, German and Swedish market. It will be totally our new business line, which will be valid since beginning of next year.