Rottneros AB (publ) (RROS) Earnings Call Transcript & Summary

Hello, and a warm welcome to today's broadcast with Rottneros, who will present the report for the third quarter of 2026. With us, we have CEO, Per Bjurbom and CFO, Monica Pasanen. At the end of the broadcast, there will be a Q&A. [Operator Instructions] With that said, I will hand over to you guys, and I will be back for the Q&A. Please go ahead.

Thank you, Elliot. I wish to welcome you all to the Q3 report of Rottneros here. With me, I have Monica Pasanen, the CFO and myself, I'm the CEO of the company, Per Bjurbom. First, let's start this off then with some highlights for the quarter. We are reporting an EBITDA of SEK 26 million, an improvement compared to last year. We can also see that there are continuing reporting lower wood prices. That is, of course, extremely important for us with this -- because this is the biggest cost driver that we have in our company. The demands in the marketplace, especially in our niches, has been positive and stable. But all over the market has maybe been a little bit challenging. In the quarter, we have also had 2 things that have affected our output that has been planned. It has been the summer shut in -- for vacation in our Rottneros Mill. And we have started our maintenance stop in Vallvik at the very end of September. That this -- the quarter is affected with some production volumes that have come out. Let's go on to the next slide and a short presentation of the Rottneros company. And we are a company specialized in producing pulps for demanding customers. And the special thing with our pulps is that they are very pure and have high strength. And they are then produced on the fibers here in Central Sweden that has very, very good properties for long fiber pulp. The company, we have a turnover of roughly about SEK 2.4 billion. We are 258 employees, and a production volume of roughly 335,000 tonnes. And of these tonnes, we are, say, placing those in our, say, prioritized niches, like 78%. And our mills is located here in Central Sweden. And we also have a good procurement operation here in Värmland and in the Baltics. And we also have a part in a joint venture packaging with Arctic Paper in Kostrzyn, Poland. Going over to the market then. Still, the pulp markets are challenging. They are still compared to last quarter, still, say, moving sideways. There are some positive things happening and then especially within the unbleached segment, there is a higher demand of this. And the driver behind this demand is the recycled fiber in China, where in China, we have -- they have produced recycled pulp importing this. And in China, they have new legislation now that this pulp has to be -- is more inspected than before. And this is putting down the availability of unbleached recycled pulp, and the substitute for this is unbleached pulp. The good thing for us is when this market grows, some of our competitors doing bleached pulp is turning over to unbleached pulp, and the capacity utilization for normal bleached pulp goes down, and this will then reduce output in the market. So that's good for us. And for our unbleached pulp, we are so specialized. So we are not affected by more competition in the unbleached segment. If you then look over on the pricing here, it's moving slightly upwards. There are some effects on U.S. pricing being positive, but also the situation here with the dollar that has -- the Swedish krona has weakened compared to the dollar that, of course, have an effect on our pricing in SEK. There is a positive trend in this slide is also -- it's a slight positive trend that is the global producing stock level is moving down. You see the last 3 months here, it's been on a slightly lower level. And hopefully, this is a trend that will go on going into Q4. The production of different paper grades in Europe has declined this year with -- compared to last year with 0.3%. Last year, it was down 2.5%. And if you look on the slides here, you can see that it's a negative development in all grades except for the packaging-related grades of containerboard and cartonboard. And if you then look on deliveries of chemical pulp, then you can see that has decreased year over -- compared to last year with 2.7%. And the big driver in the global pulp market is China. And you can see in the slide here that China has had a, say, tough year with a decline this year. And what happened in China is important for what will be the future in the pulp market. And then if you look on the European Rottneros market positions, so production of paper and board in Europe decreased by 0.3% compared to last year. And -- but if you look on our deliveries, we have been able to increase our deliveries into Europe. And for us as, say, a local producer here in Europe, this is, of course, important. And we have also then our stable position in Asia and North America, but our home market is Europe. With that, I leave it over to you, Monica, and take the financials.

Thank you, Per. Yes, the highlight for the quarter is the improved earnings as we had already in the second quarter and lower costs. When we see on the EBITDA development, we go from minus SEK 21 million last year to plus SEK 26 million. That's an improvement of SEK 47 million. And as we saw on the previous slides, there is not much happening on price and currency in the last a bit more than a year, a fairly flat curve, and we also have similar volumes this year compared to last year. The big difference is really the lower cost of wood. They were at their peak in the spring of 2025 and started declining. But we -- during the year, we have seen a big improvement in our biggest cost item, which is wood, and wood is really the majority of the SEK 51 million that you see on the slide. We do have increased fixed costs. I would say that it's not our cost base that has increased as such. We have had our savings program, which is developing well, but this is depending on when the costs come into our books for the maintenance shutdown in Vallvik Mill that started in September. So it's more of a timing issue than any underlying increase. During the third quarter, we sold emission rights, which had a positive effect on other items. A small negative effect is coming from our wood procurement units as the wood prices are declining, we have lower profitability this year versus last year. Looking at the full year, it is a slightly different picture. We see here that price and currency has a negative impact. The prices were very high at the beginning of 2025. Also, the Swedish krona was weak at that stage. So the majority of this price and currency effect is for the first half year. Volume is negative. Those of you who have been following us might remember that we had a troublesome production in the beginning of the year. It was a cold winter, and Vallvik experienced production problems, which is the main reason for the negative development. And here, you see the big positive impact of the wood prices and also that our fixed cost base is on a lower level than we have had in previous years. Item other is minus SEK 33 million for the first 9 months. A big portion comes from emission rights. We sold more emission rights in 2025 than this year, but also the prices for our byproducts have been lower this year. So those are the main reasons. But all in all, we are going from minus SEK 63 million to plus SEK 20 million for the period. This is good to see what the cost structure is. You see all the cost items here. Wood is really a big portion of our costs as well as variable costs. So this is why we -- it is important to be as efficient as possible on the wood procurement. Then going to the balance sheet. We have an improved EBITDA. But in the quarter, we also had some increased working capital. Part of that is due to this maintenance shutdown as we need to build up stocks as we are not producing for almost 2 weeks. That is affecting the operating cash flow for the quarter. We are very diligent with our investments. So far this year, we have invested SEK 23 million versus SEK 102 million for the same period last year, and we expect to have approximately SEK 60 million, SEK 65 million in investments for the full year. The investments are usually in combination with the maintenance shutdown. That is why they come in the last quarter. We have a solid equity-to-assets ratio around 60%. It's 61% at the end of the third quarter. So with that, I hand back to Per.

Thank you, Monica. And saying something about our business then. And we are active in fields that have strong megatrends supporting the development of these different areas. And we experience, in relation to electrification, we can see that, that is a trend that is also affecting us. There's a lot of electrical equipment being built, driven by different things happening on the planet. The sustainability megatrend in relation to packaging is still moving forward. And of course, e-commerce is becoming more and more, say, normal and developing fast. Tissue is, of course, a business that we all like -- we all like tissue at home. So we are quite convinced that the selected niches that we are active in is quite good for us. And we can see here on our sales of pulp here in relation, in 2026, 9 months compared to full year '25 that we have been growing our segment of electrotechnical papers -- technical pulps. And we are also growing in our filter segments. The one prioritized niche that is a little bit down here is the packaging cartonboard niche. And hopefully, this segment of the board market will pick up. They have been under a lot of pressure in the last couple of years. But hopefully, that will pick up. So we are quite well positioned with our offering here going forward. So just in summary here then, we have improved our earnings. Wood prices have come down. And in these selected niches, we see good demand. So with that, I would like to hand over to Elliot and please put some questions to us.

Thank you so much for that presentation. We will now open up for a short Q&A. [Operator Instructions] We can go straight ahead since we received some questions. The first question is that Q3 EBITDA of SEK 26 million included SEK 8 million from emission allowance sales and SEK 8 million inventory write-down reversal. Were there any other nonrecurring items in Q3 or the first 9 months?

Those are the main items. We also talked about the maintenance shutdowns that have some impact already in Q3, but they are not -- nonrecurring. It depends on when we get the invoices and when we record them. But I think you summed up quite nicely the ones that are out of ordinary business.

Yes. How much of the SEK 51 million year-on-year reduction in Q3 variable costs came from wood? What was the quarter-on-quarter change in delivered wood costs? And how much of the earlier purchase price reductions has yet to flow through inventories in the income statement? And do you expect further savings in Q4 and 2027? Or have wood prices largely bottomed out?

Long question. I'm not sure. I can take -- I will hand over to you in a while, Per. I think one question was how big portion of the SEK 51 million that was related to wood costs. And it's really the majority, let's say, 90% or similar. We do have also costs for chemicals and electricity and fuels, but they have smaller movements and some moved up and some moved down. And then if we want to comment on how the wood prices have been moving, maybe I hand over to you, Per.

Yes. And I do not want to do any forecast regarding wood prices, but the wood prices have come down. And I don't think we should expect, say, the momentum in the reduction of wood prices would not be as big going forward compared to what they have. But then, of course, let's see where this goes in the short while. We are coming from a situation where the pricing on wood has been quite good for the forest owners. And of course, if prices goes down, maybe you are a little bit reluctant and wishes that you want to have the old prices back. So I don't know. But let's see. But we hope that this movement will move on further, but how big the reduction will be, that we cannot speculate.

Yes. For the SEK 285 million Grycksbo biomass and pellet project, what energy savings, pellet sales, and net EBITDA contribution?

Now you're on the wrong company here. That's Arctic Paper. So that is -- we are Rottneros. So this is not within our company that investment has been done.

I received that through the Rottneros, but I'm sorry. How much of the total impact of SEK 70 million to SEK 80 million from the Vallvik maintenance shutdown has already been charged to the third quarter?

Yes. It's -- the SEK 70 million to SEK 80 million has 2 parts. One is the actual costs for the maintenance activities carried out during the stop. And the other part is the lost income on tonnes of pulp not being produced. Vallvik Mill is producing, apart from this maintenance stop, all days during the year, and we have customers for this production. So if we lose a tonne, it is the gross margin on that tonne that is affecting the profitability in a certain quarter. So what has happened this year is that we started the annual maintenance shutdown 1 day earlier than last year. It has to do when the weekends arrive. So we had approximately 5 days out of the total of approximately 2 weeks already in September. So that has affected the Q3 result as well as some additional costs that were incurred also ahead of the stop. But the majority will really come in the fourth quarter. That's where we have the big impact of the maintenance shutdown. And if you look at our historical earnings per quarter, you will see the same pattern.

Yes. How much headroom do you estimate that you will have to the limits in your loan terms when the original covenants come back into force in the second quarter of 2027?

Yes. This is, of course, an interesting question to have. We are at the moment with temporary covenants, and we'll go back to the normal covenants at the second quarter of 2027. We are not giving forecast, but what will affect us is how the pulp market is developing and the pricing in the pulp market. But of course, the wood costs have a big impact. Also currency rate with the currency rate where we are now, it is favorable to us at closer to SEK 10 to the dollar, but we continue to focus very hard on our -- on our cost savings and improving operations. It's not only fixed costs, but also other improvements, so it can be more efficient and also decrease variable costs.

Yes. EBITDA improved by almost SEK 47 million, and almost all the improvement is explained by lower variable costs, mainly cheaper pulpwood. At the same time, you're right that the decline in wood prices is leveling out. Where will the next earnings improvement come from when that tailwind fades?