Nordic Paper Holding AB (publ)

Thank you very much. Good morning and warm welcome again to this Q2 presentation from Nordic Paper. My name is Henrik Essén. I'm head of investor relations at Nordic Paper. And today we send this presentation from Karlstad, the head office of Nordic Paper. And with me today, I have Anita Sjölande, CEO and Niklas Eriksson, CFO. With this, please go ahead, Anita.

Thank you, Henrik, and good morning to you all, and thank you for listening in today to our Q2 results. My name is Anita Fernander, and I have the privilege of being the CEO of Norris Paper since now it's a bit more than five years, and I joined the company in 2018. But I spent quite a lot of time in this business. I have devoted more than 30 years of my work life to pulp and paper industry. And the reason for that is really the passion I have for the product that is based on a renewable resource. And also the difference this product can make when it comes to replacing fossil based material. And before we get into the numbers and the report, I would like to first address the question you might have regarding the sales process. As you know, in March, our main owner, Channing, announced their intention to sell part or all of their 48.2% ownership. And this led to that the board of directors decided to run this as a sales process. The process is ongoing and I have no news to share today. But in the management team, we have continued full focus to run the operations and develop Nordic Paper. So here today, I stand very happy, very proud to share the results of the Nordic Paper team. And yet again, a very good quarterly result. This is the latest result in a track record of achieving good results based on growing demand for the product's niche, high quality specialty paper. Our strategy is to focus on more stable end uses like less cyclical food sector and reducing exposure to more volatile end uses such as building industry and construction. That's really beneficial for our ability to deliver good results throughout changing business environments. And another important factor is the combination of the two segments. We have the segment cloud paper and network research, as they have different exposures and they also perform different in a business cycle. And that's also stabilizing the performance of Nordic paper. And that's something that we continuously present proof of, as Nordic paper is creating value where the segments combine. throughout changing business environment delivers great results. And before we start with the numbers again, I just want to give the very high-level presentation of the company as a courtesy to new shareholders and a friendly reminder to those of you that know the company really well by now. We are a global supplier of specialty paper. We have more than 800 customers all over the world. Europe is the main market with two-thirds of our net sales. And based on growing demand, both for the paper in current applications, but also applications where paper is a replaced fossil-based material, sustainability is a strong driver for our growth. Two segments, craft paper, natural grease proof, both of them specialty paper and majority of food applications, where the paper is used when handling, packaging, transporting and protecting goods. And where we as end consumer get in contact with this kind of paper on our average every day. But we also have paper for industrial end applications. More than 800 customers, that's quite a large number for a company of our size, majority food sector, both. As a specialty paper producer, we are also providing paper to some customers that are more specialized. And today's presentation, I would like to say a few words of one of the smallest customers that we are serving with specialty paper for a different end use. That was in short. Now let's get into the result of quarter two. Last quarter, when we presented the results for Q1, we shared that the market was returning to a healthier level after the more challenging year 2023. And in this quarter, demand has continued to be healthy and net sales is up by 9%, 1,225,000,000 compared to Q2 last year. Sales volumes are on a very good level and increased by 11%. And we have continued to implement price increases. On Q1 to Q2 basis, we have on average increased by 4%. However, product prices are still 5% lower than the corresponding quarter last year. A very good net sales, combined with high production as well, means that we are delivering a very good EBITDA result of 280 million. An EBITDA margin of 22.9%, which is above our target 20%. For the segment Master Brings Proof, we have a new record for EBITDA margin, and it is also the third consecutive quarter where we are presenting a new EBITDA record as well. The direction of the development of the everyday margin for the other segment crop paper is positive, but from lower levels, but we are happy to see the development in that segment as well. Our balance sheet remains strong and robust. And after paying out dividend and also continuing the investment in Beckhammar, our net depth everyday ratio has increased to 1.5. But it's still very, very low compared to our target to be below 2.5. So let's look a bit closer to the development of NetSync and EBTA. We are reusing half of the headline for this report. Last report, we had net sales on second highest ever. And now we're also adding EBITDA on second highest level. Net sales on 1,225,000,000, as I said, increased by 9% compared to 2023. And in that quarter, the comparing quarter, we saw the start of a foster It was evident that the customers were destocking and they were reducing their inventories from a high level. That was especially notable in Europe, which is our main market. But now when inventories that customers are returning to the more normal level and the underlying demand is healthy, we can present very good sales volume for this quarter. So supporting the good sales with a quarter with very stable production, even some new monthly records during this quarter for paper production, we are delivering a very good result on EBITDA level. And the good production is also beneficial when it comes to reducing consumption of raw material and energy. So we also have a lower specific cost per ton for quarter two this year. So EBITDA of 280 million, it's just two millions lower than the current record that we achieved in Q1 2023. The margin is 22.9% and that is an increase by 2.7 percentage points compared to Q2 last year. It's a result driven by very good On the next slide, we will see the development of the sales volume. Demand continues to be healthy, resulting in an 11% increase of sales volume compared to Q2 last year. As you can see from the bars, that was when the market started to become a bit softer, quoted to last year, especially Europe. And that's also the period when we intentionally reduced our sales volume to protect our margins. The volume increase is mainly coming from our European customers and also North American customers, an increase. But we also have higher sales volumes in Middle East and Africa. But almost all markets are stronger compared to last year. And we are also finding new business opportunities in North America and Australia for our craft paper segment, as we have some competitors that have closed their operations, serving those customers. So when we look also at the development here, you see we have a really high bar for Q1 2024, when the market started to return to a healthier situation. So that's our record for sales volume. But I just want to repeat what we said last quarter. We have a push from volume in quarter four, approximately 4,000 pounds. We held that in stock last day of December because the situation in the supply chain was so unsecure and we didn't want to send out until we knew the situation. When we adjust for those 4,000 tons in Q1, we are on the same levels for the sales volumes in Q2. So the same very healthy market situation and leading to good sales volumes. Two segments in our paper, and we report these segments individually, and I will start with the craft paper segments. It's very short, and what is our craft paper? It's unbleached paper that we are producing in two Swedish production sites. All the paper is based on our own unbleached pulp production, and we are sourcing the raw material, which is pulp wood, in the vicinity of the largest production site, Beckhamma. The customers that we are buying paper from us, they are converting the paper in a large share to food applications, unbleached paper bags, sacks and other packaging. This is an end demand that is steadily growing, but there's also other end uses, technical, industrial end uses, for example, climate control or protective paper or e-commerce bags as well, where we see an increasing level of paper-based bags, replacing some of the plastic bags in that part of the business. As the market situation continues, as we said in Q2, net sales increased by 2% compared to Q2 last year. The market in Europe, the main market, continues to grow back to previous demand levels after the lower level 2023, as it has been for also other markets that we are targeting. In total, sales volumes in craft paper segments increased by 7% compared to Q2 last year. From the previous quarter, from Q1, we managed to increase further our product price increases in all markets, but we are still 10% lower than the product prices we saw last year. The price for our raw material in this segment, pulpwood, has continued to increase. And one of the drivers for the price increases in this raw material is the lower availability of pulpwood. Finland has closed the border to Russia after their invasion in Ukraine, which leads to a more scarce market for pulpwood. But we have an opposite development for energy and chemicals that is contributing positively to the development of the EBITDA margin. And in CAR paper, we reached an EBITDA margin of 24.7. We have the last three quarters continued to improve the margin. Even if, when you look at this graph, of course, looking into what we achieved in Q4 2022, Q1 2023, and beginning of 2023, when we had 30 plus, that was exceptionally high, of course, margin for the segment. So we are happy that we continue to increase our margin from the low level we saw during 2023. I mentioned that we have more than 800 customers and quite a lot of customers and the largest one has approximately 5% of our net sales. So it's a very many customers and I just wanted to say a few words about one of the smaller customers and for different end-users as well. That is the customer Svens Kolm Silke. They have more than a century of expertise from production of yarn and textiles and they have recently developed a thread and also fabric made from craft paper from Ommo Fors. Under the brand of Fabric Forest for one of their products then they are using this specialty paper from one of our craft mills. And from that producing this fabric that you can see in the picture. So not a large customer, not a large end use, but I think it points out and shows the broad applications specialty paper can have. A chair made from renewable resources wood and also the fabric made from the same renewable resource in the form of paper. So a strong great combination. And then the next segment, the other segment, natural grease proof. Natural grease proof, this is the segment where we are producing specialty paper excellent for food contact purposes. Grease proofness quality is important here. We have two large end uses, that's baking paper and baking pouch. And it can also be used for other things like food wrapping, we have bake on a yellow paper, et cetera. And also in this segment, we can use the paper for textile application, but then it's the bobbin that the thread is wrapped around. We have chosen to name this segment natural grease proof and that's just we want to point out that we are not using any harmful chemicals like PFOS to achieve the quality of this paper. But you might know there will be some advance implemented further on when it comes to PFOS and we were really early out to reduce and take out that chemical. The market has continued to be really good as well for natural grease proof compared to last year when we had a much weaker situation and intentionally reduced the sales volume to protect the margins. If you look at the margins in the graph here, you can see that we, despite it was a softer market, continued to deliver margins on a fairly good level anyway. The increased demand comes from the two largest markets, Europe and North America. But we have increased sales volumes in all markets, and the total increase of sales volumes is 21%. And the higher sales volume plus product price increases, on average 2% higher, improves the net sales by almost 100 million to 617 million, which is an increase by 19%. In combination with lower raw material costs, as we have lower energy costs, which is offsetting the increasing and higher pulp costs, we delivered a new record for EBITDA, 125 million. And that's the third EBITDA record in a row for this segment. And we also achieved a new EBITDA margin record of 20.3%. And then I would like to hand over to my colleague, Niklas, and he will guide you through the development.

Thank you, Anita. I will take you through a deeper analysis of the financial figure for the quarter and year to date. The second quarter has been a rather good period for Nordic Paper. The net sales level is the second best we have reached and is mainly supported by high sales volumes. In the second quarter 2023, we saw a decrease in demand and price pressure on our markets, especially related to natural grease proofs. Compared to the second quarter last year, we have during 2024 seen a continued normalization of the market demand, and we can present a large positive volume effect, mainly related to natural resources. Product mix is slightly positive, but related to craft paper. In Q2 2024, we have continued to deliver price increases, but the prices are on total level lower than last year. The largest reason we see in class paper, where the prices are 10% lower than last year, while we have 2% higher prices in next year. Our invoicing currencies are in general on the same level as last year and gives only a minor positive effect in that sense. We can move on to the EBITDA quarter. The disclosed RDA of 280 million is an improvement of 65 million compared to 2023. Just a few million below our best quarter, quarter one 2023. The negative price effect is mitigated by positive effects from volume. Variable costs have developed in different directions during the quarter. Our fiber costs, the pulp, wood, and grass paper, and pulp in natural grease proof, we have seen increased prices, which is negative, of course, for those segments in 1988. But for energy and chemicals, we see lower prices. Energy prices on the spot markets are significantly lower than last year, since Nordic paper have the larger part of the consumption on fixed price agreements. The lower spot prices hits a lower part of the consumption. Chemicals are in general purchased at lower prices than compacted Q2 2020T and the difference we see in mainly in cross paper. Higher stable production gives in general a lower consumption per ton, which has contributed positively to the result for the quarter. As a good production, I also gave a larger increase in inventory of finished goods compared to last year, which we report on the out there. Other, also including the valuations of the accounts receivables and accounts payables, claims of other income, gives a zero effect to your results this quarter. Currency gives a positive effect, supported mainly by positive results from realized derivatives during the quarter. We move on to the year-to-date figures. Sales volumes have been good in the first half of the year, which gives a strong volume effect compared to 2023, when we intentionally reduced our sales volumes to account our prices. Almost two thirds of the volume effect comes from absolute growth and the mixed effect included is small. The magnitude of the negative price effect was larger in Q1 this year compared to Q2 after introducing price increases in the second quarter. The negative price effect year-to-date is mainly related to cross paper and the positive volume effect mitigate negative price effects year-to-date. Year-to-date, we look at the EBITDA. Year-to-date, we disclose slightly higher EBITDA compared to the same period last year. The negative price effect compared to last year, mainly related to Q1, is mitigated by the higher sales volume, lower variable costs and positive currency effects. For the first half of the year, the variable cost followed the same pattern, with increasing prices for pulpwood and pulp, but decreasing prices for energy, chemical and freight. Iron apparently gave the positive oil effect also year-to-date to the MTA, supported by results from the real estate. If we look at the working capital with cash flow, we can see that the working capital have developed in an expected way during Q2, being on approximately the same level as in Q1. The good sales during the quarter gives normal level of accounts receivable. Inventory of finished goods is slightly higher compared to Q1, which is good in front of QC when we now have our maintenance stops and the reduced production output in front of us. In the broad to the left, you can see the line showing working capital and 12 months basis in relation to the net sales and that it has decreased quite a lot in the quarter. We are on a good level on working capital, but we get an additional effect from the backhand buy investments with increased accounts payable in the later quarters. Cash flow has significantly increased after the unusual situation we had in Q1, when we had a large build-up of accounts receivable as an effect from the increased net sales during the quarter. And the higher compared figure for Q2 last year was affected of a lower demand and a decreased size of accounts received during the quarter. We can have a short look on our investment level. The investment in new wardroom and electrostatic filter in Deckhammar is proceeding according to plan. We are currently doing work with the building part of the project. We plan to finalize this investment in the autumn 2025 and we expect that the investment will deliver approximately 100 million RBCA improvements with full effect from 2026. And the other investments in the group they are on normal level year-to-date. Finally, some words on the financial position. In Q2, we have paid out a dividend of 268 million to the shareholders, and we have a significantly higher investment level than normal because of the Beckhammer project. The net debt has increased 150 million compared to last year. The balance sheet remains strong and robust. We report a net debt to EBITDA ratio of 1.5 compared to 1.3 last year. This is a good margin inside. Our goal should be below 2.5. With that, I can give the word back to them.

Thank you, Niklas. Leaving the reporting part and looking into quarter three, we are sharing our outlook for the coming quarter. We estimate and our view is that the market demand will remain at the healthy level. We will continue to work with product price increases and our estimation is that it will be on a somewhat lower rate than development Q1 to Q2 when we achieved an average of 4% price increases for our products. And we assess that the product price increases will offset the expected price increases for pulpwood and chips. That's the raw materials for craft paper. And as a friendly reminder, we also want to mention that in quarter three, that's when we perform the planned maintenance dots in all our production plants.

and with that that finalizes our reporting and outlook and we're of course happy to answer any questions that you might have and then over to operators do we have any questions yes ladies and gentlemen we will now begin the question and answer session anyone who wishes to ask a question may press star and one on their touchdown telephone You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star followed by 1 at this time. So it seems there are currently no questions in the queue.

We have received a number of written questions here during the day, so I go on with them. First one is, Can you please elaborate on the effects of the coming maintenance stops in Q3? We will have two kinds of effects. One effect is the cost for the maintenance itself. chart in the in the reports where we show the level of that and except for the direct cost from intervals we have the effect from the stops in the plants and the lower production output from that Second question is, are there any geographical differences in market sentiment for the second quarter? You were on that annual presentation.

Yes, thank you. I would say that, like we have shared also in the previous presentations, that North America has actually been a market that has been upholding a better level, even during the 2023 situation, and the levels were on a fairly good level. So it's more the European market that has returned, but also Africa as well. Middle East, Africa is also improving within volume. So all markets are improving, even the North American. But Europe is actually the market that is coming back more evident than the other one.

Thank you. Then back to operate if there were any more questions while we were talking.

Yes, no, there are no questions on the phone line. Okay, thank you. Then we continue and back to Anita.

Yeah, then I would just like to before ending the call, I want to reiterate our message in this report with a short summary of the the result, the high level result and outlook. Demand continues to be healthy in quarter two. Net sales is up by 9% and we increased the sales volumes by 11%. We continue to implement product price increases, but on average, they are still 5% lower than the comparable quarter last year. It is the second best EBITDA result, 280 million, just two millions below the record. And this is corresponding to a good margin of 22.9%. And our outlook is that quarter three will remain healthy as well, and we will continue to work and implement product price increases. And now I would like to hand over back to Henrik to finalize this meeting.

Yeah, and I just want to thank you for your participation in this conference. And we wish you a nice summer. We look forward to seeing you again in our Q3 reporting in October. Thank you and goodbye.

Thank you. Have a nice summer.

Thank you.