Rottneros AB (publ)

Hello and welcome to this webcast with Drott News, where CEO Lennart Eberle and CFO Monica Palsson will present a report for the third 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 Lennart.

Thank you very much Ludvig and hello everybody to this quarter three of 2025. On the 30th of October, a rainy and autumn-like day in Sweden. And like the weather, our results are really not as summer-like as the picture on the first slide. It has been a challenging market that we've seen during the quarter. We are still struggling with very high raw material prices, although they have peaked and they're starting to come down. The pulp market has not really improved since the spring. On the contrary, it has moved sideways and with some lackluster in China. And as a result of that, we've seen a decline. result, which is really not anything we are happy with. As a consequence, we continue to focus on the things we can control ourselves. We have a very strong cost focus. The reorganization is in place. We will see the result of that program towards the end of the year with a full effect of some 35 to 40 million. We do not stop there. We will work further to see if we can achieve further savings. We have a working capital, which is too high that we've seen some reductions in that we will work with to continue further going onwards. And of course, we go also through all the variable costs we have to see if additional savings can be achieved in those areas. So this is a time where to put up our sleeves and really show that we can be a part of turning this around. If we look into the market, it's, as I've said, a very challenging climate. If we look at the prices in US dollars for the chemical grades, it has come down after a pickup at the beginning of that year. which we thought was the beginning of the cycle. It has stopped then. Stocks have increased. They have now decreased. But if we look into the various grades which are in stock, short fiber and long fiber, the short fiber has had a better run and there have been some increases in the short fiber pricing in Asia with two times $20 during the summer break. And the stocks have been coming down to a more normalized level. whereas the long fiber sulfate craft pulp has increased its stock to a slightly overbalanced level, and thus the prices have come under pressure. This is valid for the standard grades. If we look into the chemical pulp grades that we make in niches for brown and white and porous grades for filters, we still see a very good and continued good demand in those niches with increased demand from our customers. We'll come back to that in a short while. Translating prices into Swedish kronors is, of course, important. And here we see the effect of the kronor that has strengthened over the last months as well. So in addition of reduced list prices in US dollars, these prices also have come down even further if we translate them back to the Swedish kronor. And that is, of course, an effect of the weak market that we've seen where it simply has not been possible to forward the price and cost increases that we have seen lately. But if we look into how the market has developed as it is weak, as I've said, mainly in Europe, we see all across the board that all grades are struggling with a small exception of container board, which mainly is self-sufficient on recycled fibers. That's just not a big market for fresh fibers. And Europe is Rotterdam's biggest market with some 65% to 70% of our sales. 2024 for downward production was still a good year. But the first eight months of 2025, we've seen a slowdown of activity. And this slowdown has increased since May. The slowdown already shown up in the first four months. it has accelerated then and especially in the cotton board area which is important for us we've seen that the activity hasn't really come back and that is weighing on our high yield pulp production and deliveries And translating this into the chemical deliveries, we see that Europe is down as much as the U.S. as well. And the entire uptake of some 5% is from China, where we see a strong restocking as the Chinese buyers expect the current prices to be the low price. And if there's anything to be said about the current prices, We are at levels which are not sustainable for the high-cost producers. And thus, I believe that the Chinese buyers are right in assuming that this is the bottom of the cycle. It's time to start buying. And this should have some positive momentum going forward. But there are some imbalances. There is an oversupply or a lack of demand. And that has to be rectified before we will see a strong uptick in the development going forward. And on top of the imbalances as a consequence of a weak downstream market in Europe, we have also seen an emergence of pulp production in China itself. China is still the biggest market for market pulp. both from Europe, Canada and Latin America for short fiber-based products. But they have started over the last decade to make more and more of their own pulp and also integrated pulp and board, which we will see on the next slide. So you see here the availability of domestic wood that until the early 2010s has been the primary uh raw material for making pulp domestically up until some 10 million tons which is the dotted line and that availability of domestic wood has increased during the last five years year over year and that is a consequence of the building market that is weak and down so a lot of wood is going into building buildings and as the entire property market has come to hold these fibers are now finding their ways into the pulp and paper market so the increase in chinese production of pulp is fueled by availability of local fibers. And on top, of course, you see that there is also be an increased import of wood chips, which are certainly more price sensitive, but they are weighing on the market sentiment in China quite strongly. And if we translate the pulp production in China also into what this means for paper and board output from China, you see the same picture here since 1920. That has moved up to larger volumes, quite a strong increase during the first month of 2025. And this is a level of production that cannot be consumed domestically in China. So we've seen exports out of China, both from paper and board, into Asia and Europe and other markets where we historically have our customers. So our customers have been... are meeting these kind of low-cost producers from China and had to reduce their own production and thus wait on the demand for market pop. There are actions being in place. India, for example, has put duties and tariffs in place to stop this import of low-priced Chinese products. And also there are discussions in Europe to start anti-dumping actions against the import of Chinese production. So we will have to see how this is playing out going forward. This is however more for standard bulk grades of pulp, hard and soft wood, bleached grades of standard quality. and if we look into the rotten rules qualities we still see a strong and increasing demand for our ukp grades for filter and electrotechnical applications but also ecf grades for specialities or tissue printing writing an area that we have not been so active in for the last years is now coming back as we have to find new outlets for the volumes that we cannot place within carton board And also a new segment is emerging, which is fiber cement, where our fibers are substituting asbestos fibers to give some strength to cement. So we do see a good development on the sales of our chemical speciality grades, which have grown in the quarter and outpaced the production level. So we've seen for Rotterdam some reduced stocks. The challenge here is to find the market outlets for our high yield pulp. where we have a very cost-efficient mill now after all the changes we had during the last years. We are very efficient when it comes to head count per tonne of pulp produced. The energy efficiency has increased over the last years, so everything is really in place to be performing very well, and we do see good production on those days when we are running. And now with these tariffs being in place, for example, in India, we see also that some of the export markets are coming down, coming back and improving our order books. So there are some lights of hope going forward also for the high yield pulp area. And with that, I leave over to Monika to guide us through the results for the third quarter and the first nine months.

Thank you, Lennart. One of the highlights is that we have a strengthened balance sheet thanks to the rights issue during the quarter, but we'll come back to that later on. And we'll start with the profit and loss for the third quarter. We see here that we go from a plus 70 million in EBITDA to minus 21. This is, of course, where we see a very disappointing development. The majority is due to price and currency of our prime product, pulp. Lennart went through the graphs, so you could all see the sloping trend, and that is also what we can see in our own pricing when we are looking at the waterfall here. We are also selling a bit less, but that's mainly on the high yield pulp side. We exited the Asian market earlier on this year when prices were at a level where we were not really covering our variable costs. And now we are getting some volumes back, but we have lost some on volume. We see some positive signs on variable costs. In the previous quarters, we have showed big negative numbers when we have been comparing quarter this year to quarter last year, but now it is evening out. Behind this zero, we have a slight negative impact from higher wood costs, but they are offset by slightly lower costs. other variable costs like chemicals and fuels. What is really positive to see is that we are improving our fixed cost position. We are working very actively, very hard with our fixed costs and we start seeing improvements. We have to admit that some of the improvements are also due to when our annual maintenance shots are and when the costs for these annual maintenance costs come into our profit and loss statement. But the majority of the positive improvement is from our cost saving program. We see a fairly large number, minus 34 million for byproducts and other things. We had lower variable costs for fuels, but at the same time, we get a lower price for our byproducts, mainly tall oil and bark that we are selling. We also sold some emission rights last year, which we didn't do in the last quarter. So those are the main reason behind the minus 34. Then if we look at the same picture, but for the first nine months, we see a very similar trend. Price and currency having the major impact. On this slide, we see that the variable costs for the first nine months this year are higher than last year. And if we break it up between wood and other variable costs, it's approximately 100 million higher costs from wood. and then we have positive impact from other variable costs. On these nine months, we are still seeing higher fixed costs, but that is what we are addressing at the moment, plus that we have some one-off items affecting the comparability. With that, we can continue looking at the wood costs a bit more. 76% of the variable costs for producing pulp is today the cost of wood. If we look five years back and would have had a similar picture, the percentage would have been approximately a third. And if we take this into million Swedish crown, in a 12 month period, use approximately 1.2 billion Swedish crowns for variable costs to produce our pulp. So 1.6 billion. The 1.2 billion is the cost for wood. And if we would have had the same wood costs as five years ago, this number would have been a bit more than 600 million. So we have a higher cost for wood of approximately 580 million for the volume we are producing now in a 12 month period. And that's of course a very big number when you're thinking of what our EBIT is normally. And if we compare it to the cost for our personnel in the last 12 months, that was a bit more than 300 million. So this is the cost increases more than double of that. On the next slide, you will see how the wood prices have evolved. So the comparison year that I talked about was 2021. And it's really from 2022 and forward, we had seen the huge increase in the cost of wood. This is from official numbers from Skogsstyrelsen for the price of spruce wood, pulp wood to our industries. We see here that the prices are starting to peak. We don't have the statistics yet for the third quarter. But when looking at our own costs, we see that they were marginally higher in the third quarter of this year compared to last year. And there have been several announcements of price decreases in the market. So it will be interesting to see what the picture looks like when we have the official statistics also for the third quarter. Then we go into the balance sheet. At the beginning of this quarter in July, we successfully concluded the rights issue of approximately 300 million Swedish crowns that we raised. That, of course, improved our equity to assets ratio. We're back at 63%, above the 60% line. We used part of the rights issue to reduce our debt, so our net debt position has improved. What is really positive to see during the last two quarters is that we have had a positive cash flow from operations before investments. We have had a negative EBITDA, but that has been more than offset with working companies on our working capital in reducing our stocks. And that is something that we are continuing to doing. And we see that we still have good potential to improve our working capital position further. With that, I hand back to Lennart.