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 Esén. I'm head of investor relations at Nordic Paper. Today we have this presentation from Karlstad, the head office of Nordic Paper. With me today I have Anita Schellander, CEO and Miklas 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 Schellander and I have the privilege of being the CEO of Nordic Paper since now it's a bit more than five years. 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 the paper industry. 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. 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, Schanning, announced their intention to sell part or all of their .2% ownership. And it led to that the board of directors decided to run this as a sales process. Both of it 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 products and the needs of high quality specialty paper. Our strategy is to focus on more stable end-usages like less cyclical food sector and reducing exposure to more volatile end-usages 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 Cloth Paper and Natural Reef Paper as they have different exposures and they also perform differently 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 combined throughout changing business environments 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 replace for cell-based materials, sustainability is a strong driver for our growth. Two segments, Cloth Paper, Natural Reef Proof, both of them specialty paper and Minority 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 of Food sector, but as a specialty paper producer we are also providing paper to some more, 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 quarter one, 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 billion to 125 million compared to quarter two 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 .9% which is above our target 20%. For the segment, Natural Greens 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 EBITDA 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 dividends and also continuing the investment in Beckhamer our net web EBITDA ratio has increased to 1.5 but it is still very low compared to our target to be below 2.5. So let's look a bit closer to the development of NetSinks and EBITDA. We are reusing half of the headline for this report. Last report we had net sales on second highest ever and now we are also adding EBITDA on second highest level. Net sales on 1 billion to 1.25 million as I said increased by 9% compared to 2023 and in that quarter, the comparing quarter, we saw the start of a softer market. It was evident that the customers were desocking and they were reducing their inventory from a high level. That was especially notable in Europe which is our main market. But now when inventories and 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. 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 tonne for quarter 2 this year. So EBITDA of 280 million is just 2 million lower than the current record that we achieved in quarter 1 2023. The margin is .9% and that is an increase by .7% compared to quarter 2 last year. So it's a result driven by very good sales volumes and on the next slide we will see the development of the sales volume. So demand continues to be healthy, resulting in an 11% increase of sales volumes compared to quarter 2 last year. And as you can see from the bars, that was when the market started to become a bit softer quarter 2 last year, especially Europe. And that's also the period when we intentionally reduced our sales volumes to protect our margins. The volume increase is mainly coming from our European customers and also most 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 segments, 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 volumes. But I just want to repeat what we said last quarter. We have a push for volume in quarter 4, approximately 4,000 tonnes. We held that in stock last December because the situation in the supply chain was so insecure and we didn't want to send out until we knew the situation. So when we adjust for those 4,000 tonnes in Q1, we are on the same level 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. The craft paper is unbleached paper that we are producing into 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 this paper in a large share to food applications. Unbleached paper bags and other packaging 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. They are replacing some of the plastic bags in that part of the business. Then the market situation continues that we are sending 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 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, pulp wood, has continued to increase. One of the drivers for the price increases in these raw materials is the lower availability of pulp wood. Finland has closed the border to Russia after their invasion in Ukraine, which leads to a more scarce market for pulp wood. But we have opposite development for energy and chemicals that is contributing positively to the development of the energy margin. And in craft paper, we reached an everyday margin of 24.7. We have the last three quarters continue to improve the margin. Even if when we look at this graph, of course, looking into what we achieved in Q4 in 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. And that is the customer Sven Kåns Synke. They have more than a century of expertise from production of yarn and textile. And they have recently developed a thread and also fabric made from craft paper from Omafor. Under the brand of Fabric Forest, for one of their collections, they are using this special 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 user, but I think it points out and shows the broad applications that specialty paper can have. A chair made from renewable resources of 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 proof net quality is important here. We have two large end uses, that's baking paper, baking pouch. And it can also be used for other things like food wrapping, we have bacon paper, etc. 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 PFOV to achieve the quality of this paper. But you might know there will be some advance implemented further on when it comes to PFOV, 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 that we have a softer market, continue 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 volume is 21%. And the higher sales volume plus product price increases on average to percent higher, improved 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 power 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 module 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 figures for the quarter and the 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 debris spools. Compared to the second quarter last year we have during 2024, the CNL continued normalization of the market demand and we can present a large positive volume effect, mainly related to natural debris spools. 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 craft paper where the prices are 10% lower than last year, while we have 2% higher prices in natural debris spools. Our invoice in currencies are generally on the same level as last year and gives only a minor positive effect to the net sales. We can move on to the EBITDA quarter. The disclosed EBITDA of 280 million is an improvement of 65 million compared to 2023, just a few million below our best quarter, Q1 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 in craft paper and pulp in natural debris spools, we have seen increased prices, which is negative of course, both in segments 88. 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 compared to Q2 2023 and the difference we see mainly in craft paper. Higher stable production gives in general a lower consumption per ton, which has contributed positively to the result for the quarter. Other good production have also gave a larger increase from inventory of energy to compare to last year, which we report under other. Other also including the valuations of accounts receivables and accounts payables, claims of other income, gives the zero effect to the result 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 become lower prices. Almost two thirds of the volume effect comes from natural debris spools 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 craft paper and the positive volume effect mitigates negative price effects year to date. Year to date we looked at the EBITDA. Year to date we disclosed a 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 cost and positive currency effect. For the first half of the year, the variable cost followed the same pattern with increasing prices for part-posed and part- but decreasing prices for energy, chemicals and freight. And currency gave a positive effect also year to date to the EBITDA, supported by results from the realized derivatives. If we look at the working capital in 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 goods sales during the quarter gave a normal level of account exceedables. 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 graph to the left, you can see the line showing working capital in 12 months basis in relation to the net sales. 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 back-camp buy investment 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 Q2. The higher compared figure for Q2 last year was affected of a lower demand and a decreased size of accounts receivable during Q2. We can have a short look on our investment level. The investment in new wardroom and electrostatic filter in December is proceeding according to plan and we are currently doing work with the building part of the project. We plan to finalise this investment in the autumn 2025 and we expect that the investment will deliver approximately 100 million obv improvement with full effects from 2026. And the other investments in the group are on normal level year-based. Finally, some words on the financial position. In Q2 we have paid out dividends of 268 million to the shareholders and we have significantly higher investment level than normal because of the back-hammer project. The net debt has increased 150 million compared to last year. The balance sheet remains strong and robust and we report a net debt to EBITDA ratio of 1.5 compared to 1.3 last year. And this is with a good margin inside or goes to be below 2.5. Thank you

Niklas. And leaving the reporting part and looking into Q3 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 sum of lower rates than development Q1 to Q2 when we achieve an average of 4% price increases for our products. We assess that the product price increases will offset the expected price increases for cardboard and chips. That's the raw material for craft paper. And as a friendly reminder we also want to mention that in Q3 that's when we perform the plant maintenance dots in all our production plants. And with that finalizes our reporting and outlook and we are of course happy to answer any questions that you might have.

And then over to operator.

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 touch-down 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 two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star followed by one 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 dots in Q3? I guess that would be for Nicklas.

Yes,

thank you. We will have two kinds of effects. One effect is the cost for the maintenance itself. We have a chart in the reports where we show the level of that and except for the direct cost from maintenance we have the effect from the stops in the plants and the lower production output.

We

proceed on the second question. Are there any geographical differences in market sentiment for Q2? You were on that presentation. Yes, thank you.

Yes, I would say that like we have shared in the previous presentations that North America has actually been a market that has been upholding a better level even during the 2023 situation. The levels were on a fairly good level. It is more the European market that has returned but also Africa as well. Middle East Africa is also improving with the volume. 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 operator if there were any more questions while we were talking.

Yes, no there are no questions on the front line. Okay, thank you. Then we continue and

back to Anita. Yes,

then I would just like to before ending the call I want to reiterate our message in this report with the short summary of the high level result and outlook. Demand continues to be healthy in Q2. Net sales is up by 9% and we increase the sales volume by 11%. We continue to implement product price increases, but on average they are still 5% lower than the comparative quarter last year. It is the second best everyday result, 280 million, just two million below the record and this is corresponding to a good margin of 22.9%. And our outlook is that Q3 will remain healthy as well and we will continue to work and implement product price increases. And now I would like to hand over to you back to Henrik to finalize this meeting. Yeah,

and I just want to thank you for your participation in this telephone 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.