Nordic Paper Holding AB (publ)

and welcome to this presentation of Nordic Paper First Quarter 2024. Today, our CEO, Anita Schellander, and CFO, Niklas Ericsson, will present the report, and the presentation will, as you heard, be followed by a Q&A session. With that, I leave the floor over to you, Anita.

Thank you, Henrik, and thank you all for listening in today. I would just first like to touch on the news that we shared in March. As you all know, the main owner, Shanyin International, has shared the intention to sell part or all of their shares in Nordic Paper, and the board of directors are now running this as a sales process for the entire company. But today, there is no news or no information to share on this process. But, of course, we are happy to share another strong quarter for Nordic Paper, a quarter where we again illustrate the robustness of our business model. Last time we met, that was when we shared the results of 2023, the full year and the quarter. And 2023 was a year with both highs and lows. We started very, very strong in the first quarter. We reached all-time high net sales and EBITDA new records. But then the market softened during 2023, the rest of the year, and we had the pressure on our product prices. But when we shared the 2023 and quarter four results, we also shared that we believed that we had seen the trough of the market. And today, I'm happy to confirm that we have a much more positive market environment. Demand has increased to a healthier level during the first three months. And I'm also happy to report that we continue to deliver a strong result. I've been in the paper industry more than 30 years now. Since 2018, I've shared the journey of Nordic Paper, privilege of being the CEO the last five years. I joined a company that had a really great track record of delivering strong results. And that's based on the growing demand for the products, niche specialty paper. It's also based on the strategy to focus on more stable end uses, like the food sector, and reducing the exposure to more volatile end uses. And that's been beneficial to, given the ability to deliver good results throughout business cycles. And another important factor is that Nordic Paper has two segments. And these two segments, they are moving differently in the business cycle. And that's different patterns, is stabilizing the financial performance of Nordic Paper. And before we get into the numbers and the results, I will, as a courtesy for potential new shareholders listening in today, and a friendly reminder to those of you that already know the company well by now, a very, very short overview. We are a global supplier of high quality specialty paper. We have many customers, around 800 customers all over the world. Europe is our main market, where we have approximately two thirds of our net sales. There's growing demand, both in the current applications we have, and also in the new applications, where our products, our specialty paper, can replace fossil-based products. So sustainability is a strong driver for our business. Two segments, I already mentioned that, craft paper and natural grease proof. And the paper we are producing, the specialty paper, that can be used when handling, packaging, transporting, or protecting different kinds of goods. And majority of that would be food, food applications, where we as end consumers also get into contact with this kind of paper. So that was the very short, high-level description of the company. And now I would like to start to share the results. At the end of last year, we shared that we saw the first signs of a strengthening market. Demand has improved in quarter one, and we have also increased sales volume. And with this stronger market in quarter one, we deliver another strong result when it comes to net sales. This is the second highest ever, 1.2 billion of net sales. And we also reached a new record for sales volumes. The higher sales volumes partly offset the lower product prices, which were on average 16% lower compared to quarter one last year. We reached an EBITDA of 231 million, corresponding to a margin of 19.1%. And happy to report that this is the second quarter in a row where we are reaching a new EBITDA record for our segment natural grease proof. While the pressure on the product prices in craft paper is affecting the result in that segment. We have a stable net depth level, and the ratio net depth to EBITDA increased slightly than to 1.3, which is still very low, of course, and it's also very much below the target. We have to be below 2.5. And then during the quarter, we shared the news on the decision from the main owner to sell parts or all of the shares in the company. So let's look into the development of net sales and EBITDA. We're talking, we're looking and referring to a very strong quarter last year, Q1, 2023. So it's a tough comparison. You see the last three quarters up to quarter one is here. We saw a softer market, but now it is strengthening again, and we are increasing our net sales in quarter one. Second highest ever, 1.2 billion net sales in quarter one. And we have achieved this level despite the lower product prices. And it is, of course, the softer demand that has cost the lower product prices, and especially in our main market Europe, we have seen more pressure on our prices. But thanks to the strong customer relationships we have, and also thanks to a really strong product portfolio, we have achieved all-time high sales volumes in quarter one. The inventory at our customers are on a more normalized level right now. Order intake has increased and strengthened during the last three months. Demand in the main market Europe is improving, but it's slightly softer still than the other markets. On EBITDA, 231 million and then a margin of 19.1%. This is lower than last year where we achieved a margin of 21.6%, but still .1% very good at this part of the business cycle. I already touched upon the sales volume, but let's look at the trends. As the market has strengthened and demand returned to healthier levels, we have a new record for sales volumes. And you can see in the graph here, it's an increase by 8% compared to quarter one last year. Demand, of course, driven the higher sales volumes. We do have also extra push in this quarter. In the end of quarter four, end of December, we intentionally held back some volumes that were planned to be delivered in December. That was due to the situation we had in the supply chain as we had the Middle East situation. So some of the volumes originally planned to go out to customers in December were actually pushed over then into quarter one. It's approximately 4,000 tons that we have added to quarter one due to this reason. And as described previously, we have two segments in Nordic Paper, and we always report these two segments, resulting these two segments individually. And I will start with the craft paper segment. Just a few words first about craft paper for those of you who are wondering what is craft paper. In this segment, we are supplying our customers with unbleached strong craft paper. We have production on two sites. Both of them are in Sweden. And all of the paper that we are producing in this segment is based on our own production of unbleached pulp. The raw material for this segment is pulpwood. We are sourcing it locally around the plant in Beckhammar. The customers, they are converters, and they are producing different kinds of bags and sacks, different kind of packaging for food. It can be also packaging for other kind of goods. It can be e-commerce bags and also some industrial applications. And when we go into grocery shops ourselves, we can find these kinds of converted products when we put our groceries, bread in bags, and bring them home to ourselves. As we said, a large share of the paper also in this segment is going into food application, where demand is growing steadily. The market for craft paper improved during quarter one with increasing sales volumes, and we reached a net sales of 597 million. This is lower than the comparable quarter in 2023, and primarily driven by the 19% lower product prices. But it's also partly due to product mix, as we have sold bale pulp in this quarter, which we did not do last year. Our main market Europe has strengthened, not as much though as some of the other markets, Asia and Pacific region has actually increased net sales to a higher degree. When we look into the graph, you can see that compared to quarter four, we have improved our EBITDA margin from .4% to 19.1%. And compared then again, record quarter, quarter one 2023, we have reduced the margin from 37.6 to 19.1%. On the cost side, the increasing pulpwood cost was partly compensated by reduction of other costs, chemical, energy and freight costs. That was the financial result from this segment. I talked in the beginning of sustainability being a strong driver for our business. And when it comes to sustainability, of course, carbon footprint is one very important factor to consider. And I would like to share some data regarding carbon footprint. And one of the papers that we are producing that goes into the end use as e-commerce bag. To increase our knowledge and also to have some facts, supporting the possibility to offer product, supporting sustainability, we have conducted a third party assessment, evaluation of the carbon footprint of our craft paper converted into e-commerce bags. We have done this together with one of our long-term customers, Jonsak. They are besides producing e-commerce bags, they are producing all different kinds of bags from made from paper. Yeah, and when we look into the results of this study, you can see in the graph here, the paper, craft paper from Beckhamer is representing approximately 30% of the total carbon footprint. And when we are looking into the data that is available, that is general data for a plastic bag. And comparing our paper into this kind of bag to the general data available for a fossil bag, we can see that we have about 25% of the climate impact of this model plastic bag. So that's one example of a very positive difference that we can create with our paper. And now we'll go into the next segment, natural grease proof and the financial results of this segment. And also a few words first, and what is grease proof paper? This is a specialty paper. Once upon a time, it was produced, well actually to small parts still, produced to wrap butter and margarine where grease proof quality was needed. This is a paper that is excellent for food contact purposes. We are producing baking paper. We are producing paper for baking cups. And that is baking cups, both for the professional bakeries, as well as households where we can use them at home. It can also be used as a bacon paper and it can be used in textile application where grease proof properties are required. We have chosen to name this segment natural grease proof. And the reason for that is that we want to differentiate ourselves and also signal that we are not using any harmful chemicals to achieve this quality, grease proofness. We are not using any fluorocarbons or PFAS as they sometimes are mentioned. We have three production units where we are producing this paper. One each in Sweden, Norway and Canada. And the raw material is mainly external pulp for this segment. When we look at the market for grease proof paper in quarter one, this market has also strengthened. And we achieved a net sales of 624 million. And we have almost the same level actually as quarter one last year. You can see it in the graph. It's almost the same level as the strong Q1 2023. We reached a new record for sales volume and we also have a positive product mix. And this has almost mitigated the 13% lower product prices. EBTA improved from the record level we had in quarter four last year to a new quarterly record, 124 million. And our efforts to limit the product price reductions and also the decrease in input costs when it comes to pulp, energy and freight compared to last year, has achieved an EBTA margin of 19.9%. And when you look at the graph here, it's also obvious that we've had a stronger result now the last six quarters. And currently we are on the same level in both segments when it comes to EBTA and EBTA margin. And this is then again, the evidence of the strength to have two segments that are moving differently in a business cycle. When one segment is facing pressure, the other one is improving. And this provides the stability in the good results of the company. And that was the financial result in this segment. And I would also like to share a story of one of our customers, a story that we in Nordic Paper are sharing in some ways. And that's the customer Tilman. They are a long-term customer of Nordic Paper. They have a long history and tradition. They started in the 1930s in Linköping. They have also been growing their sales volumes with Nordic Paper. They saw a growing demand of baking cups in North America. And they decided to expand their production capacity into Canada. And since 2014, they are serving the North American market with baking cups. And one of their customers are Tim Horton. It is a Canadian cafe and fast food chain. I had the opportunity recently to visit Tilman Canada. And I am really impressed with their ambitious growth plans they have since they established themselves there grown out of their production facility several times and grown their sales volumes substantially over the years. And I'm also proud that we are a value supplier to their plants both in Scandinavia and in Canada. And also for us and for the Greenspur segment, North America is an important market. And that was one of the important aspects when we decided to increase our footprint there as well. Our acquisition of the Canadian Quebec plant end of 2021 is giving us also the opportunity to be closer to our customers in North America and to meet demand locally. And now it's time to give the word to my colleague and CFO, Niklas Eriksson. Please, Niklas, give us the guidance of the development.

Thank you, Anita. And I will take you through a deeper analysis of the financials for Q1. And we start with the net sales. In quarter one, we have seen a good recovery of the market and with addition of some sales from stock, we have reached a new record level for volume in this quarter which gives us a positive volume effect compared to Q1 2023. Mix is neutral compared to last year. In Q1 2023, we had a record high net sales for the group supported by very high prices on the market. In Q2 last year and in the remaining part of 2023, we saw decreasing prices on the market while we report a negative price deviation compared to last year. In Q1 this year compared to Q4, we see all in all stable prices in our sales, but of course lower than Q1 2023. The volume effect does not mitigate the price effect in all, but the net sales figure we reached is still the second highest that we have had in the group. We move on to the FTA. For the quarter one, we report an FTA that is 51 million lower than last year, but again, the last year FTA Q1 was the record high level for the group. We have the negative price effect. We saw a net sales and it's partly mitigated by lower costs, improved volume and positive currency effects. If we look into the variable costs, we see that our input material have had different development this quarter. Pulpwood have continued to increase in price, which is negative to craft paper. The market price for pulp have increased since October last year, but we still see that the average price for the quarter is lower compared to Q1 last year, and this is positive for natural grease proof. The other main variable costs like chemicals, energy and freight, they are on lower levels compared to last year, which is positive for the group. We have good cost control, which makes the difference in fixed cost level very low compared to last year. And the currency effect from sales and costs supported by results from currency derivatives gives us a positive effect to the FTA as well. If we take us into the working capital and cash flow, we have had a good level of net sales in the quarter as described, and this has effects to the working capital and cash flow for the quarter. The working capital is seasonally increasing in Q1 compared to Q4 with a corresponding effect to the cash flow, which gets lower in Q1 compared to Q4. We have had the large net sales for Q1, which have increased the accounts receivables during the quarter compared to Q4, and in accounts payables, we can see that we have a lower amount of supplier invoices related to the Beckhamer program at this time compared to Q4, which makes the accounts payables lower. So we have had the normal effect to the working capital and cash flow for Q1, but this time a bit stronger than normal. The rolling 12-month working capital in relation to net sales is still on a very low level, 11.2%. We can move on to some words on capex. And as planned in Q4-23 and also first quarter-24, we see higher amounts of capex compared to the normal levels, and the reason is, of course, the ongoing Beckhamer investment. The project runs according to plan, and we expect that this investment will give us approximately 100 million of VGA improvement with full effect from 2026. And then we can look on the financial position of the company, and despite the ongoing investments in Beckhamer, we can conclude that the net debt at the end of Q1 this year is on the same level as end of Q1-23. The net debt to VGA relation is 1.3 when we end this quarter compared to 1.1 in 2023, and these figures are well below the target to be below 2.5 for the group. And then back to you, Anita.

Thank you, Niklas. Then we change to future mode from reporting, and we will share like we do the coming quarter, and this is what when we are looking into quarter two, what we assess. We assess that the positive market situation will continue during quarter two. We also assess that the average product prices in quarter two will be low to mid-single digit percentage points higher than the average of the first quarter. We see announcements, and we believe and assess that the price will increase, and we also assess that there will be further price increases for pulpwood and chips. And that concludes our presentation and reporting, and I'll hand over the word to Henrik.

Thank you. Then we open up for questions. Operator, please, do we have any questions?

We now begin the question and answer session. If anyone wished to ask a question, may press start at one, and then touch on telephone. Anyone who has a question may press start at one at this time. The first question comes from the line of Senol Yiv, from Meghal LLP. Please go ahead.

Hi, good morning, guys. This is Jez Senol here from Meghal Funds in London. We've been shareholders in Nordic Paper for a while, but first of all, congratulations. It's a fantastic set of results. As far as I can see, much better than what we were expecting. But especially in this very difficult market. So again, just congratulations on that one. Thank you. I think one of the things we're trying to understand here is that obviously we are operating in quite a volatile market right now. I'm just talking about the overall market, just in the paper market, and also the global equity markets. And we also understand the Nordic Papers shares could be just quite illiquid. So there might be big fluctuations in the share price. But having said all of this, I am a little bit astounded actually, not even surprised at the market reaction to the results today. I mean, as we speak right now, I mean, the share price has gone almost 3%. And I'm struggling to understand how that happens on the back of this fantastic results. I mean, just one of the things we can think of here is that obviously the company started the strategic review probably five or six weeks ago. So it's really early days. Obviously I can't speak on behalf of the whole community out there, but our expectation was, I mean, we did not expect to hear any sort of announcement today, either a sale of the company or some serious progress, because as far as we can see, these things, I mean, we've been doing this for almost 20 years now. In our experience, these things take a long time. I mean, it just doesn't happen in a couple of weeks time. So I understand there's so much you can share on this process. But I mean, just to give us a basic idea, like a rough idea, are we still in the very early days of this process or some progress has been made so far? I mean, I'm just wondering, like in three months time, are we still gonna be here or maybe we might be in a different position. I mean, what's your estimate basically? How long do you think this could take? Just obviously you have a lot of experience in the sector. I'm just wondering how long, what's your best estimate, if I may, if I may so. But again, well, thanks very much for taking my call. And again, just congratulations on a set of fantastic results.

Thank you, yeah. We are very proud of the results that we are presenting today. And we think it's a good result. And of course, we're not hoping for this kind of a reaction on the result. And interesting times that we are in right now with, and as you said, it was not so long ago it was announced. The board of directors are running this process and as a courtesy to the process and what's happening there, there's not really information that we can share at this moment. And of course, we understand the interest and that there's a waiting time for many right now. But unfortunately, there's no more information and estimates really on the time plan that we can give currently.

Understood, okay. That's fair enough. Like I mentioned, I mean, I didn't expect, I didn't expect a deal announcement this morning. I was more focused on the results. And when I saw the results, I thought, okay, this is good. This is definitely, well, not good, just better. Better than my estimates. So it seems like just the company is just moving in the right direction. But again, well, thank you very much. And hopefully we'll speak in the next call or maybe earlier. Thank you.

Thank you. We continue to focus on the business. We continue to focus to, continue to deliver good results. And that's of course our main focus has been and is going forward as well. Thank you.

Do we have any more questions?

No. If you wish to register for a question, please just start at one on your telephone. No more questions at this time.

We have received a number of written questions. The first was actually on the same line that we discussed about the sales process. Do we have another one here? Let me read it out here. There is a positive development in the lines between the sales process and the sales process. EBTA and net profit from Q4. Can you please describe the difference between EBTA and net profit this quarter? I guess that goes to Niklas.

Mm-hmm. Yes. Yeah. The difference there is one part is of course the financial result for the quarter and except for the effects from interest. We also have both realized currency effects and also revaluations of our bank accounts in foreign currencies. And because of the movements on the currency market, we always have an effect there. And for Q1, we can conclude that it was a positive effect.

Thank you. A third question on the market situation. Can you please provide some more color on the improvement in market conditions?

Mm-hmm.

Sita?

Yes. So, like we mentioned earlier, we have seen a strengthening market really in all the markets. We have some markets have been stronger, like the Asia Pacific and Asia and Pacific region. And we have seen strengthening also in the main markets, Europe still recovering, and we hope it will continue to strengthen. We see also possibility to increase our product prices going into quarter one with this stronger market. And we refer to it as a low to mid singer. How did we express it? Low to mid single digit percentage. And as we have a cost increase when it comes to pulpwood, it's necessary to work with the product prices, of course, in craft paper. And the level of product price increases will be on the higher region of that one interval. And we also see possibilities to increase the product prices in Greece proof, and that will be then in the lower region of that interval.

Thank you, Anita. And with that, we leave the Q&A session and the word back to Anita.

Yes, thank you. We would just like to reiterate our main message and the outlook that we have for this Q1 report. We shared that the market demand has improved in this quarter, and also that we have a second highest ever net sale of $1.2 billion, and with record high sales volumes as well. ABTA, $231 million, corresponding to a margin of 19.1%. That's the result. And looking into quarter two, we assess that the positive market situation will continue. And now I will hand over to Henrik to finalize this course.

Yeah, thank you very much. Thanks a lot for listening in this morning. We hereby conclude the meeting, the presentation, and we look forward to seeing as many of you as possible in our annual general meeting that we will hold in the end of May, 23rd of May in Karlstad, and of course looking forward to our next quarterly presentation in mid-summer in July. Looking forward to that. Thank you and goodbye.