Rottneros AB (publ)

Hello and welcome to today's webcast with Rotterus where CEO Lennart Eberle and CFO Monica Fassanen will present the report for the first quarter of 2025. After the presentation there will be a Q&A so if you have any questions you can send them in via the form to the right and with that said I hand over the word to you guys.

Thank you very much Ludvig and hello everybody to this quarter one presentation of 2025. A stable production in a turbulent world is what we have achieved during the quarter. We are focusing on the things we can control ourselves, health and safety for our employees, production and cost control. But sometimes these things are not enough to create a result which we are satisfied with or being proud of. And as we saw that development emerge during the first months, We decided by the end of the quarter on 21st of March to publish a profit warning and instantly went into negotiations with our unions to see over our costume and our organization in order to be able to adjust the production capacity and our costs. And that is ongoing and we have very constructive and positive dialogues with the unions and we believe this can be concluded fairly soon. So that will lead to some cost adjustments that we believe over time will reduce our annual costs by some 35 to 40 million Swedish. And that is of course in order to counteract the high raw material cost that we still see the strengthening of the Swedish Kronor that has started during the first three months of this year and also being able to adopt to a currently new situation on the mechanical bulb market where we see a slightly lesser demand and prices are under pressure. So if we with that move over and look into the market, which is characterized, of course, by a high uncertainty, pulp is a global product from global players in the global economy where terrorists suddenly can redraw the map that we were used to see. And we have to see how these things play out. But for the first quarter in general, the stocks have remained low at 41 days, which is more or less seen as the normal level, a bit lower for the long fiber, which is the most important grade for Rottenruths, around about 37, a decrease of one day, and 41 days for the short fiber, which is the dominant quality in this market. And especially in our niches, we see good demand for our UKP and ECF grades out of Valvik, but a challenging market situation for the mechanical pulp that we produce at Rottnerus Mill. But overall, you can see here, we've gone now over to only displaying the net prices, no more gross prices, less a rebate, which is somewhat difficult to define. we see a level of around about $800 for our grades. And if we translate that into Swedish kronors, that's the upper line here, that's around about 8,000 kronors. So it's pretty stable. We've seen an uptick during the autumn of 2024 into the winter, went up to some $1,600 from 1480. So a good uptick. But it seems that we're now moving more sideways since we come into the second quarter. As you can see on the lower graph, the prices for the mechanical pulp have constantly come under pressure over the last years. That decline has sort of stopped somewhat now during the recent months. but certainly on a level which is not healthy. And that is also why we have decided to exit certain markets where our profitability simply doesn't add up anymore. And of course, the exchange rates are playing their role in this as most of these export businesses are denominated in US dollars. But looking into Europe, which is our main market, some 67% of our production is delivered to European customers. And there we can see a slow start in 2025. 2024 was characterized by a rebound from 2023, which was low. uh and now it has sort of stalled especially on the graphical side we see continuous closures and rebuilds into other areas but also cotton board which used to be a good growth area and where certainly our mechanical pulp is aimed for has stalled a little bit. So here we are really eagerly waiting for consumer confidence coming back and the general pickup in economy, which fuels consumption, the use of carton board and thus the use of our mechanical pulp with our European customers. But more interesting maybe is to see to this development over time. Here, if you take the green line and the sort of smooth line, which looks like a sinus curve back to 2021 and to 2025, that's a rolling 12 month average production volume of paper in board in Europe. We peaked there around February of 2022 at 7.3 million tons per month and that has now reduced to 6.3 million. So there's around about 1 million tons per month that has disappeared. That's 12 million tons on an annual basis on the market, which is around about 80-85 million tons, which is quite a considerable volume. There are various various things that are impacting this development. Of course, there are still closures as part of this, but also slight underutilization of the existing capacity that has been installed. So I think everybody in this value chain is ready to ramp up as soon as the demand is coming back. How that translates into pulp deliveries, we can see on this slide. Again, China, very volatile, a very weak market in 2024, which is now rebounding. And in 2025, they're really playing their card of being the world's biggest market for market pulp and trying to optimize their pricing. Pricing cycles have shortened considerably over the last years. It's more like three to six month cycles now, where it used to be maybe one or one and a half years, a couple of years ago. So again, a lot of uncertainty, unpredictability and difficult to have visibility on where we're going. China is also a lot dominated by short fiber imports from Latin America. And here we see that prices have come under pressure as that is a great where we see a lot of capacity additions, both in China, but also furthermore in Latin America. And then we can see that there is a gap between short fiber and long fiber. And that gap has increased dramatically over the recent month and price cycle. So historically, maybe some $100 to $150 is now north of $200 as a price gap. And of course, it's not everybody who can sort of support that kind of gap. And those who are more pressured on their margins downstream, of course, are looking into substitutions. Less prone to substitution are the speciality areas where we are active, especially filter and electrotechnical are standing out here. As you see, we have a growth in the quarter one over 2024. Filter has gone from 23% to 26%. Electrotechnical, which is our brown pulp out of Valvik from 22% to 24%. specialities stable, carton board also stable, but the carton board as in general has come down a bit. If we look in a longer perspective, a new segment is growing fiber cement going from three to 4% and tissue that has grown again as we've seen this shortcoming in the carton board area. So here again, it's a sort of spot area where we can place our volumes if needed to make sure that we can utilize our capacity, especially in Valvik. It's more difficult for the Rotten-Blues Mill. The grade is more specialized and formed for certain areas such as cotton board. and not so easy to get into the tissue market. But some inroads have been made and we are eagerly looking for new applications, of course, at all times to make sure that we also can come back to running the rotten roost mill at full. We were coming back to that. And with that broad overview, I hand over the word to Monika to guide us through the results.

Thank you, Lennart. Yes, we had a quarter where we see that our margins are starting to be squeezed, which we can also see in the result. So an EBIT of minus 62 for the quarter is of course below our expectations or where we want to be. What has impacted Q1 versus the same quarter last year is negative on price and currency. It's really the weaker US dollar, which is approximately minus 24. So the prices are higher than a year ago, but in currency, but offset by the exchange rate. We've had a very good production quarter. As Lennart pointed out, very good production in Valvik, much higher than a year ago, which was marked by some production disruptions during the very cold winter. We have good production potential in Rottneros mill after the investments that have been made, but we are not running at full capacity. But when we are running, it is producing well. Our big headache is really the variable costs, where wood is actually more than the minus 37 that you see on the chart. We had some positive impact from other variable costs, meaning that the wood cost is our single largest item in our cost side in the profit and loss statement. On the fixed cost side, the biggest impact on the increased cost come from personnel, both in number, but also with the general inflation and wage increases. Inflation is, of course, also affecting other fixed costs. And that is why we have initiated the cost saving program, both looking at the organization, but of course, also looking at other fixed costs that we're having where we can where we can be more efficient and where we can influence. Let's have a closer look at how the variable costs have looked like during Q1. If we go back some years, the cost of wood was at 65-70%. Now it's up to 75% of the total. Of course, depending on how efficiently we run and cost of other items will have an impact on or mix of products that we produce has an impact, but definitely wood is the single largest item that is affecting our cost side. You see here that electricity that we quite often talk about in our report is only 3% during the quarter. This is thanks to very efficient production in Valvik Mill. When the production is good, then it's higher efficiency in the whole process with lower electricity consumption and also other inputs. And another variable is also that Rottneros Mill has had a limited production during the period, and they are the ones who are producing or consuming most of the electricity. Let's then have a look at the balance sheet. We have, as you know, we have been going through a big investment program that was mainly in 2024, but also now the reminder in 25. In total during 2024 plus the first quarter this year, we have invested a bit more than 470 million in our assets and where we now see that we also can reap the benefits with good production. For 2025 as a whole, we expect to have cash flow from our investment program of a bit more than 160 million. And on normal years, we should be around 120 to 130. So there are some leftovers from the big investment program that we still have in this year. looking at our profitability in Q1, we are, of course, very careful with investments, new investments being made at the moment. We're also closely looking at our working capital. That's also something we can influence. We did have an increase in working capital in the first quarter and that we are now reversing to release more funds from that part. We did secure a financing at the end of 2024. And that we have that was to finance our investment program, which has been this is how we then have been financing the costs that we have had. Our Equity to assets ratio is still at a solid 56%, which is above our target of minimum 50%. And with that, I hand it back to Lennart.

Thank you very much, Monica. And let's see if we can try and look around the corner what lies ahead. As we've mentioned, we are, of course, focusing extremely on the things we can impact ourselves, health and safety, production and costs. We're taking the necessary steps to bring those costs down and do our part of being able to offset these very high prices we see on the raw material side. We are engaged in very intense discussions with our suppliers as well as with our customers to make sure that we optimize the entire supply chain. We are part of a very important supply chain. There are a set of different products that are using fibers where our customers and the ultimate consumer loves fibers. Tissue, of course, continues to be A very important area where there is growth, where there is profitability, but it's mainly supplied from the short fiber. But on the other side, that means that the short fiber capacity that is coming on stream is finding its home in the tissue area. Packaging grades continue usually to grow. We haven't seen that now in the first two months in Europe, but by and large, that's where everybody is looking at and focusing on to redirect graphical and newsprint capacity into the packaging area. Packaging area is a product where a lot of recycled fiber is used, but you can only recycle a fiber a certain number of times, five to seven times at most, then it sort of gets Worn out and used and doesn't contribute with any strength anymore. So there has to be an inflow of fresh virus, you can either have that in the form of fresh fiber based products which are made in In Scandinavia or in Canada, or you can actually use fresh fiber pulp in the furnace of a recycled paper more which you find on the continent. And as this market is growing, there's less recycled fibers available as the office market is, we call about office waste. All the copy papers have become less and less. So one way or the other, you have to reinforce the fibers in this recycling loop. And this recycling loop, of course, is very important for the entire sustainable performance of the forest pulp and paper industry. We have the transition in the energy sector, which is A, driven by new solar and wind farms coming on stream. Electrification is important to offset climate change. But we also have a grid both in the US and in Europe, which needs renewal. And that means more cables. Cables need the fibers in form of insulation paper, means also more transformers and also transformers consume a lot of fibers as there is an insulation inside the transformer. And of course, sustainability. And overall, I think in a world where we are maybe now looking more on what we can do ourselves in Sweden, in Europe, the forest industry is self-sufficient when it comes to raw material supply. It's all local. We are using a local, sustainable and renewable resource, which is grown here in Sweden as the Swedish forest industry are an important part of the Swedish industry cluster. We provide also energy and, of course, tax and workplaces. And the products we use are used in everyday life. So it's quite important to maintain these value chains that are in place. And I'm sure we will all see that that will be the case going forward. We're only not only focus on pulp production, even if that's our main core, but we are in the move of getting into the packaging area with our molded fiber. And we've now finally have commissioned our new machine lines, three in total, one in Suna and two in Poland, which are now being finally trimmed and then meaning that we move up. Our share in Blue Ocean Closures, where we produce fiber-based caps, is also developing nicely. New investors have joined the group. Market products are out in the market and there's again a big search for plastic alternatives, fossil free alternatives. So if we summarize the quarter one of 2025, of course, the overall achieving aim was to stabilize our production and operations. That has been the case. We've seen a 16% growth in the volvic volumes. Of course, the reference wasn't too good, but it was necessary to get back and demonstrate what we are able to do. We've had a big set of investments during 2024. All in all, some 460 million Swedish kronors have been invested. They all are closed and commissioned and are ready to go. Run. We've seen that the performance targets have been met, which is great. So we know what we have sort of as as an engine under the the HUD. And as we are now in a more turmoil situation, of course, we do all we can to get our costs under control. They have been under control. They have to be reduced. We have to be flexible when it comes to the production of mechanical pulp, utilizing the volatility. There's a big volatility when it comes to energy prices, but also being agile and adopt to a quickly changing market environment. And again, together with our suppliers and customers, longstanding relations make the best out of the situation. Valvik, again, running very well and our Polish and packaging efforts now coming to fruition. And with that, I will leave the word back to Ludwig and see if any questions have come in. Please, Ludwig.

Thank you so much for the presentation. And as you mentioned, we will now carry on with the Q&A here. And the first question is here. Despite higher MBSK prices, net turnover fell due to lower sales volumes. What are the key reasons behind the weaker demand and how do you plan to recover volumes going forward?

The weaker demand is maybe more offset by an imbalance that we had during 2024. As we had a weak production in the beginning, our stocks came down and we felt we have to restock. entered into 2025 with coming out of this imbalance. We're now focusing on activating all the channels. We're having to make sure that we're getting back in phase and really ramping up our sales in line with the production that has now proven to be very stable on a good level, knock on wood. Never mentioned the good things too early, but also into quarter or two as we're quite far advanced in that. It looks good. So we see that there is a good demand from our customers. We can activate additional channels that we used to have. And I'm positive that that will turn out in reducing our stocks and freeing up some of the working capital that Monika has talked about.

Thank you. EBIT dropped to minus 62 million SEK, largely due to exchange rate losses, rising wood costs and higher fixed costs. Which of these factors do you see as temporary versus structural? And what is your timeline for margin recovery here?

Yes, some of the factors are, of course, difficult to influence. And maybe the exchange rate is, I don't know if it's structural or temporary. temporary someone else need to judge that but on the wood side where we have our one of our biggest costs that is really squeezing our margins in the first quarter we do however see that the balance in in the wood supply market is shifting somewhat in the favor of buyers It's a bit early to say when we can see a big impact in our profit and loss statement, but at least we see some signs of possibilities to source wood at more favorable prices. Other things like inflation is of course something that everyone is hit by and the inflation is coming down, but here is where we need to look at our costs, our organization, and that is what we're doing. And as mentioned earlier, we see a potential of reducing our fixed costs by approximately 35 to 40 million per year starting from this autumn. Back to you, Ludvig.

Thank you so much. Working capital have been increasing last four quarters, an increase of 222 million. Why and what can you do to decrease working capital?

Maybe I take that one as well. I think we have answered it to some extent already. There are two parts in this. One is how much we have in stock of cubic meters of wood and tons of pulp. And here we are looking actively at a program to make sure that we have what we need in stock to have good customer service and to supply our mills with the raw material needed. So that is one part of it. Another part of it is, of course, the price of wood. If wood costs have increased by approximately... They have doubled in the last three years, meaning that... what we have in stock is twice as costly and this also has an impact on the how we are valuing our finished goods which are also valued at a higher price so that is of course more difficult to impact but we can impact how much we have in in in cubic meter and in tons on the in working capital Thank you.

Tax payment of 45 million SEK in Q1. In Rotterdam's annual report showed short-term tax liabilities of only 1 million SEK end of 2024. Could you please explain this?

I don't think I can do that without looking closer into the numbers. I will have to pass on that one.

Yes. We'll go on to the next question here. You mentioned that CTMP prices are now below variable costs in some markets. What are your short and long-term strategies for CTMP and at what price levels would production become profitable again?

We do believe that the mechanical pulp, especially for the cotton board area, has its place in the market. Export markets are currently heavily impacted by subsidized capacity out of China, which is sort of flooding markets where we used to have our customers. So it's a question of the exchange rate, our customers' ability to pay as much as our suppliers' willingness to set the right price on the wood chips, which is a side product. So these three factors we're constantly evaluating and trying to find the best way forward but there is a place you have a very efficient board construction if you have mechanical pulp in the middle your overall use of fibers is going down at the same time as you improve your technical abilities so we can't give exact figures of course that would disclose too many things to both our customers and competitors But by and large, I think that there will be a rebound in the mechanical pulp market that will enable us to utilize the capacity increase that we have installed.

Thank you. Moving on to the last question here. Given the current earnings pressure, how are you prioritizing investments such as the solar park and the packaging project in Poland? Will future capex be scaled back to protect cash flow?

Yeah, I think we have to a large extent already addressed these questions. We have already commissioned and finalized the big investments and now looking forward we are really conservative on the investment side. We're making sure that the investments we have made will pay off and they are already paying off but to capitalize on the good benefits that we get from the investments made. So looking forward, we will, at least for the short term, limit our investments to be able to protect our balance sheet and cash flow. I hope that answers the question.

Yes. Thank you very much for presenting here today and answering all our questions. I thank you all for tuning in. I wish you a pleasant day.

Thank you, everybody, and see you soon again.