Speaker #1: Hello, and a warm welcome to today's broadcast with ROTTNEROS, who will present the report for the 3rd quarter of 2026. With us, we have CEO Per Bjurbom and CFO Monica Pasanen.
Speaker #1: At the end of the broadcast, there will be a Q&A, so if you would like to ask a question, you can do so via the form found to the right of the broadcast.
Speaker #1: And with that said, I will hand over to you guys, and I will be back for the Q&A. Please go ahead.
Speaker #2: Thank you, Elliot. I wish to welcome you all to the Q3 report of ROTTNEROS here in with me. I have Monica Pasanen, the CFO, and myself, and I'm the CEO of the company, Per Bjurbom.
Speaker #2: First, let's start this off then with some highlights for the quarter. We are reporting an EBITDA of 26 million SEK, an improvement compared to last year.
Speaker #2: 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.
Speaker #2: The demands in the marketplace, especially in our niches, have been positive, and stable. But all over the market has maybe been a little bit challenging.
Speaker #2: In the quarter, we have also had two things that have affected our output that has been planned. It has been. Summer shut in for vacation in our ROTTNEROS mill.
Speaker #2: And we have our started our maintenance stop in Vallvik at a very end of September. That's this the quarter is affected with some production volumes at that point.
Speaker #2: Let's go on to the next slide, and a short presentation of the ROTTNEROS company then. And we are a company specialized in producing pulps for demanding customers.
Speaker #2: 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.
Speaker #2: The company have a turnover roughly about 2.4 million SEK. We are 258 employees. And production volume of roughly 335,000 tons. And of these tons, we are say placing those in our say prioritized niches like 78%.
Speaker #2: And our mills is located here in central Sweden. And we also have 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 Kostlin, Poland.
Speaker #2: Going over to the market then, still the pulp markets are challenging. There say they are still compared to last quarter still say moving sideways.
Speaker #2: 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 and in China they have new legislation now that this pulp has to be is more inspected than before and and this is putting down the the availability of unbleached recycled pulp and the substitute for this is unbleached pulp.
Speaker #2: The good thing for us is then when when then 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.
Speaker #2: 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.
Speaker #2: If you then look over on the the pricing here it's it's moving slightly upwards. There's some effects on on US pricing being positive but also the the situation here with the dollar that has the Swedish krona has weakened compared to the dollar that and of course have effect on our pricing in SEK.
Speaker #2: There is a positive trend in this slide is also a slight positive trend that is the global producing stocks level is moving down. You see the last three is months here it's been on a slightly lower level and hopefully this is a trend that will go on going into Q4.
Speaker #2: The production or different paper grades in Europe has declined this year with compared to last year with 0.3%. Last year it was down 2.5.
Speaker #2: 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 or container board and carton board.
Speaker #2: And if if you then look on deliveries of chemical part then you can see that the that has decreased year over compared to last year with 2.7%.
Speaker #2: And the big driver in the global pulp market is China. And and you can see in the slide here that China has had a say tough year with a decline this year.
Speaker #2: And and and what happened in China is is important for what what will be the future in the pulp market. And then if you look on the European ROTTNEROS markets positions and so production of paper and board in Europe decreased by 0.3% this compared to last year.
Speaker #2: And but if you look on our deliveries we have been able to to increase our deliveries into Europe and for us as a say local producer here in Europe this is is of course important.
Speaker #2: And we have also done our our stable position in Asia and North America but our home market is Europe. With that I leave it over to you Monica and then take the financials.
Speaker #1: Thank you Per. Yes the the the highlight for the quarter is the improved earnings as we had already in the second quarter. And lower costs.
Speaker #1: When we see on the EBITDA development we go from minus 21 last year to plus 26 that's an improvement of 47 million. And as we saw on the previous slides there is not much happening on on price and currency in the last a bit more than a year of fairly flat curve.
Speaker #1: And we also have similar volumes this year compared to last year. The big difference is really the lower cost of of wood. They they were at their peak in the spring of 2025 and and started declining but we during the year we have seen a big improvement in our biggest cost item which is wood.
Speaker #1: And wood is really the the majority of these 51 million that you see on the slide. We do have increased fixed costs would say that it's not our cost base that has increased as such.
Speaker #1: 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.
Speaker #1: So it's more of a timing issue than than any underlying increase. During the third quarter we sold emission rights which had a positive effect on on on other items.
Speaker #1: 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.
Speaker #1: Looking at the full year it is a slightly different picture. We see here that that price and currency has a negative impact the prices were very high at the beginning of 2025 also the the Swedish krona was weak at that stage so the majority of this price and currency effect is for the first half year.
Speaker #1: 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.
Speaker #1: It was a a cold winter and Vallvik experienced production problems. Which is the the main reason for the negative development. And here you see the big positive impact of the of the wood prices.
Speaker #1: And and also that our fixed cost base is on a on a lower level than we have had in previous years. Item other is is minus 33 for the first nine months.
Speaker #1: 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.
Speaker #1: So those are the main reasons. But all in all we are going from from minus 63 to plus 20 for the for the period.
Speaker #1: 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.
Speaker #1: This is why we it is important to be as efficient as possible on on the wood procurement. Then going to the balance sheet we 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 two weeks.
Speaker #1: That is affecting the the operating cash flow for the quarter. We are very diligent with our investments so far this year we have invested 23 million versus 102 for the same period last year.
Speaker #1: And we we expect to have approximately 60 65 in investments for the full year. The investments are usually in combination with the maintenance shutdown that is why they come in in in the last quarter.
Speaker #1: 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.
Speaker #2: Thank you Monica. And saying something about our business done. We are active in in fields that has strong mega trends supporting the development of these different areas.
Speaker #2: And we experience in in in relation to electrification we we can see that that is a trend that is also affecting us that's a lot of electrical equipment being built driven by different different things happening on the planet.
Speaker #2: The sustainability sustainability mega trend relation to packaging is still moving forward and and of course e-commerce is becoming more and more normal and and developing cost.
Speaker #2: Tissue is of course a business that we all like we all like tissue at home. So we are quite convinced that these selected niches that they're active in is is quite good for us.
Speaker #2: And we can see here on our sales of pulp here in relation in 2026 nine 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.
Speaker #2: The one prioritized niche that is a little bit down here is the is the packaging carton board niche and hopefully this segment of the board market will pick up.
Speaker #2: There have been under a lot of pressure here the last couple of years but hopefully that will pick up. So we are quite well positioned with our offering here going forward.
Speaker #2: So just in summary here then we have improved our earnings wood prices has come down and in these selected niches we see good demand.
Speaker #2: So that with that I would like to hand over to Elliot and please put some questions to us.
Speaker #3: Thank you so much for that presentation. We will now open up for a short Q&A. And as mentioned earlier if you would like to ask questions you can do so via the forum found to the right of the broadcast.
Speaker #3: We can go straight ahead since we received some questions. The first question is that Q3 EBITDA of 26 26 million SEC included 8 million from emission allowance sales and 8 million inventory write down reversible.
Speaker #3: Were there any other non-recurring items in Q3 or the first nine months?
Speaker #1: I though those are the main items we also talked about the maintenance shutdowns that have some impact already in Q3 but they are not non-recurring it depends on when we get the invoices and when we record them.
Speaker #1: But but I I think you summed up quite nicely the ones that are out of ordinary business.
Speaker #3: Yes. Thank you for that. How much of the 51 million SEC 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 purchasing price reductions has yet to flow through inventories in the income statement?
Speaker #3: And do you expect further savings in Q4 and 2027? Or have wood prices largely bottomed out?
Speaker #1: Long question. I I'm not sure. I I can take I'll hand over to you in a while Per. I I think one question was how big portion of the 51 million that was related to wood costs.
Speaker #1: And it's it's really the majority let's say 90% or or similar we do have have also costs for for chemicals and electricity and and fuels but but they have smaller movements and some moved up and some moved down.
Speaker #1: And then if if we want to comment on how the wood prices have been moving maybe I hand over to you Per.
Speaker #2: Yes. And I 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 the momentum in in in in the reduction of wood prices would not be as big going forward compared to what they've had.
Speaker #2: And then but then of course let's see see where where where this this goes in in the short while. We are coming from a situation where the the pricing on wood has been quite good for the forest owners and of course if it prices goes down maybe or a little bit reluctant then and and wishes that you want to have the old prices back.
Speaker #2: So I don't I don't know. But let's see. But we we we we we've hoped that this movement will will move on further but how big it will will the reduction will be that's that we cannot speculate.
Speaker #3: Yes. Thank you for that. For the 285 million SEC Grixbo biomass and pellet project what energy savings pellet sales and net EBITDA contribution?
Speaker #2: Now you're on the wrong you're on the wrong company here. That's Arctic Paper. So that is we are ROTNEROS. So this is not within our our company.
Speaker #2: That's investment.
Speaker #3: I received that through the ROTNEROS but excuse me. I'm sorry. How much of the total impact of 70 to 80 million from the Valdic maintenance shutdown has already been charged to the third quarter?
Speaker #1: Yeah. It's the the 70 to 80 million has two parts. One is the actual costs for the maintenance activities carried out during the stop and the other part is the is the lost income on tons of pulp not being produced.
Speaker #1: Valdic Mill is producing apart from this maintenance stop all days during the year and we have customers for for this production so if we lose a ton it is the gross margin on that ton that is affecting the the profitability in in a certain quarter.
Speaker #1: So what has happened this year is that we started the the annual maintenance shutdown one day earlier than last year. It has to do when when the weekends arrive.
Speaker #1: So we had approximately five days of out of the total of of approximately two 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.
Speaker #1: But but the majority will really come in the fourth quarter. That's where where we have the the big impact of the maintenance shutdown. And if you look at our historical earnings per quarter you will see the same pattern.
Speaker #3: Yes. Thank you for that. How much headroom do you estimate you will have to you will have to the limits in your loan in your loan terms when the original covenants come back into force in the second quarter of 2027?
Speaker #1: Yes. This is of course an interesting question to have. We we are at the moment with with temporary covenants and we'll go back to the normal covenants at the second quarter of 2027.
Speaker #1: We are not giving forecasts but what will affect us is how the the pulp market is developing and and the pricing in the pulp market.
Speaker #1: 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 10 Swedish crowns to the dollar.
Speaker #1: But we continue to focus very hard on our on our cost savings and improving operations. It's not only fixed cost but also other improvements can be more efficient and and also decrease variable costs.
Speaker #3: Yes. Thank you for that. EBITDA improved by almost 47 million and almost all of the improvement is explained by lower variable costs mainly shift for pulp wood.
Speaker #3: At the same time you write that the decline in wood prices are is leveling out. Where will the next earnings improvement come from when that tailwind fades?
Speaker #2: And where will it go? Okay. So we we we continue to work on on all all say cost issues that we can can can affect.
Speaker #2: And then of course the the the pricing of pulp has been depressed for some time. So the if you so in in and and it's it's about how long time will this situation be when before the prices on on pulp start to increase.
Speaker #2: So so that is is is to say the key for the future. But but as long as but we cannot affect that. So we need to work on what we can affect.
Speaker #2: And that is cost working capital this this this kind of issues. And and of course if if if the pricing turns up then it's it's it's it's it's and this has the market hasn't historical pattern of goes up and it goes down.
Speaker #2: So and we are been now on this this lower level now for quite some time.
Speaker #1: And I I I could add that we we have always been strong in our our niches where we see that we can make a difference with our pulps.
Speaker #1: But but that is something we also continuously work with to have a to be able to to use the pulp where it has the most benefits.
Speaker #3: Yes. Thank you so much for that. Electro technical applications are now your largest end use segment and grew to 140 million in the quarter.
Speaker #3: How much more can you grow there and what is required from your side to capture a larger share of that demand?
Speaker #2: So we we can it it's the electrotechnical pulp is made at you know Valdic Mill. And this is say a matter of choice for us how much we want to produce.
Speaker #2: So so this is our prioritized prioritized end segment. So we will you we so the strategy is to grow with the market and and also take and if opportunity arises take more market shares.
Speaker #2: But not on the but we we're not sacrifice our our profit margins on the product.
Speaker #3: Yes. Cash was 23 million and available liquidity was 109 million at the end of the quarter while the maintenance shutdown at Valdic expected to impact earnings by 70 to 80 million in the fourth quarter.
Speaker #3: How does liquidity liquidity look through the shutdown and can you rule out the need for new capital?
Speaker #1: It is a it is costly to have the maintenance shutdown and it's the same thing every year. What we are working on to to have a good liquidity is apart from being efficient on our cost side is really on working capital.
Speaker #1: And that is a high priority for us to be efficient on the working capitals side and here we we have room for improvement to release capital and improve liquidity through such measures.
Speaker #3: Yes. Your target is 415,000 tons of pulp production by 2030. You are currently at 335 tons on a rolling 12 month basis. At the same time investments have been cut to around 60 million for the year.
Speaker #3: Is production target still realistic?
Speaker #2: From an operational point of view yes.
Speaker #3: Yes. Thank you for that. Or was it something more?
Speaker #2: No. That's that's not.
Speaker #3: Yes. On the other hand full task decrease from 140 to 150 million and tissue from 75 to 45 million compared with the same quarter last year.
Speaker #3: And sales to China have been more than held. What is behind this and do you expect to win those volumes back?
Speaker #1: Well you.
Speaker #2: Can you repeat the question please?
Speaker #3: Yeah. I'm sorry. Filter has decreased from 140 to 150 million and tissue from 75 to 45 million compared with the same quarter last year.
Speaker #3: Sales to China have been more than held. What is behind this and when do you expect to win those volumes back?
Speaker #1: Tissue is not a a prioritized end end use. So that has to do with with how we choose to to sell our pulps. So if we are selling more to the electrotechnical segment we we will reduce others.
Speaker #1: I have to admit that I haven't made a a big deep dive into into the Chinese volumes. As you saw from from earlier slides Europe is is our prioritized we we want to to stay that's where we want to have our sales and and that's that is what we're focusing on.
Speaker #3: Yes. Thank you so much for that. And that was actually the last question for today. So with that we round off today's broadcast. Thanks to everybody who joined and a big thanks to Per Monica with now some closing words from Per.
Speaker #2: Yes. And thank you all that have been listening in. It's we would like to thank you for taking the time and and show interest in our company and we we have strive on to do our very best to improve the profitability of the operators.
