RTTNY (RTTNY) Q2 2026 Earnings Report, Transcript and Summary

Hello, and welcome to today's broadcast with Rottneros, who will be presenting the financial report for the second quarter of 2026. With us, we have the CEO, Per Bjurbom; and CFO, Monica Pasanen. [Operator Instructions] And with that said, I hand it over to you guys. Go ahead and present.

Thank you, Elliot, and I would like to wish you all welcome to this Q2 report for Rottneros. Myself, Per Bjurbom, CEO, I will start to make a presentation of the highlights and the market, and then I will turn the word over to Monica that will present the financials, and then I will wrap up at the end, and then we are open for Q&As. So we move on to the highlights for Q2. And as you may be all aware of, we are coming out of a streak of quarters where we have been on the negative side on EBITDA number, and we are very pleased to see that we are showing up an EBITDA of SEK 31 million. Also a theme during the quarter is the wood pricing. The wood pricing has come down as we have anticipated earlier quarters, and we are happy to see that materialize in our numbers. We also can see that in our niches where we are prioritizing our production, we can also see a stable demand. And we continue within the company to scrutinize cost, and we are also happy to see that, that is giving results. So we are happy on the cost development of the company this quarter. Please next slide. And for you, maybe it's new to Rottneros, just some short words about the company. So producer of softwood pulp for demanding customer when it comes to purity and strength. We are located here in central Sweden. We also have a joint venture in Poland with Arctic Paper, producing packaging. And if you look on our rolling 12 months figures, we have a net turnover of about SEK 2.3 billion, and we are running at 266 employees, production volume 328,000 tons. And of our volumes, 79% goes into these prioritized niches. Please next. Then let's take a look then at what have happened in the market. And if we start with pricing, we can see that basically, it's been moving sideways. It is affected by the currency. We have enjoyed a little bit weaker Swedish crown during the last quarter. And maybe there is -- we can -- at least they're not going down. So they're moving sideways, and I think we should be happy about that. If you look on the producer stock of bleached softwood pulp around the world, you can see that they are on 46 days, and that is a number that is on the high side. So that also shows that there's plenty of pulp out there that is available for our customers. Please next slide. And then if we then look what is happening in our main market, Europe, production of different paper grades, we can see that here, we have a decline. In 2025, the decline was 2.5%. And for the first 4 months here in '26, the decline is continuing. Containerboard has a slightly positive effect, and that is the biggest product area. So that has a huge impact on the averaging of this. But otherwise, you can see that the paper production in Europe is declining. And here, we can also see that there is, say, paper and board coming in from other places in the world, especially from Asia. Next slide. And then if you take a look on deliveries of chemical pulp on a global basis, you can see that China, if you start with the circle here on the left side, you can see that 41% of the consumption is -- the deliveries are made to China. So what is happening in China has a huge impact on this market. And then if you look on the right here, we can see that China is still growing consumption. Europe is lagging. And North America is lagging and Latin America is on par. So next slide. And then if you look on where we are doing our business, and we have 69% of our business in Europe and 24% in Asia and 7% in North America. So we consider, of course, Europe is our home market. And when you're dealing with this kind of product, it's always important to deliver them as so close to home as possible because it's easier to have a good service to customers and make good deliveries and good planning together with the customers. And if you then remember that the consumption here has gone down -- the production have gone down with 1.7%. We have increased our share in volume by 2.8% in the first half. So we have a strong position here in the European market. With that, I leave it over to Monica.

Thank you, Per. As Per already concluded, we have a quarter where we are posting a positive EBITDA. What we see here is the bridge from second quarter last year when it was minus SEK 15 million to plus SEK 31 million this quarter. But if you remember the price slides that we saw earlier, there was a big decline in prices throughout 2025, but they were still on a fairly high level during second quarter compared to where we are now. Much is due to pricing. The NBSK price in dollars is 9% down quarter to this year compared to last year, but also the dollar has weakened in this period by 3%. But the big impact and plus comes from variable cost where really the cost of wood is the major cost item or major improvement. They were at the peak during spring 2015 -- 2025, sorry, and have continued coming down since then. We also see some positive effects from lower costs for chemicals and fuels. In the beginning of 2025, we saw that the market was going in the wrong direction and our profitability was low. We initiated a savings program that was targeted at fixed costs and especially at personnel. And we are now 266, as we heard earlier, down from 288 a year ago, but we also targeted all other fixed costs. The other 2 big items are maintenance and also both services. And we have been able to decrease also in the cost in these areas. The item other here is the majority or half of it comes from that we sold emission rights last year. This year, so far, we haven't sold any emission rights. So that is, of course, a negative in the comparison. We also see lower sales prices on our byproducts, and that goes partly together with the general fuel costs. Then if we look at the first 6 months, it's very much a similar picture. Really, the big difference is that it's a bigger impact on price and currency for the half year as they were very favorable still in Q1 2025. Those of you who have been following us might remember that in the first quarter, we talked about the production issues that we had, especially in Vallvik Mill during the very cold winter. So we have a negative impact in volume, especially from the beginning of the year this year. But for the variable cost and fixed cost, you see a similar picture as for the second quarter. This picture is just to highlight the importance of the cost of wood for our whole profitability. For the first half year, it was 45% of our cost structure. This is a look at the balance sheet. With an improved EBITDA, we should, of course, have a better operational cash flow. However, we have had an increased working capital during the quarter. It has a lot to do with how the production is being planned. Now in July, Rottneros Mill was standing still as planned for summer vacation for 4 weeks, and we needed to build stocks ahead of the standstill to be able to service our customers. And then at the end of September, we will go into Vallvik Mill's annual maintenance shutdown and to be able to keep up our service levels, we also have usually building some stock at this time of the year. However, we will continue to have very strict focus on our working capital and on our cash flow considering the several quarters of lower profitability. We also have focus on our investment levels and foresee that they will be much lower this year compared to last year approximately SEK 60 million this year versus SEK 166 million the year before and also the year prior to that. So that continues to be our focus on the cash flow and decreasing costs. With that, I hand back to Per to make a summary.

Yes. And just back to our position thinking forward, we are in a position within our the niches we are delivering into that we have very strong underlying growth. We have our paper, pulp going into electrification. Here, we have a very strong position, and we tend to -- are going to grow with the market. This will improve our mix. We have the underlying trend of sustainability. And that, of course, favors fiber solutions. And maybe this trend, if you look from a pulp and paper producer, it's not that kind of hot at the moment, but we are quite sure that this will pick up going forward. And here also, we have our packaging endeavor that we are running up in Sunne and in Kostrzyn in Poland. And during the quarter, we decided to move all commercial production to the Polish site. So in Sunne today, we are doing development and customer service. E-commerce is a trend that we will continue -- will continue to be an underlying trend, and that definitely consumes fiber. And then in the Tissue segment, personal health, hygiene, this is something that is kind of a basic need for people. And here, we think this is also going to develop going forward. So I think we are well positioned. And then if you go back to the segments we are operating in, so our key areas is electrotechnical filters and cartonboard. And you can see in this slide that compared with full year '25, we are growing in those areas, except for the cartonboard one. And the board producers here in Scandinavia have had a really tough, tough year. And hopefully, this will pick up going forward. So the company is very well positioned. And as a last summary here, we see that in these prioritized initiatives, we have good demand. Wood prices has come down, and it's very difficult to say where this will go, but we will strive for -- so this trend will keep up. How big that will be, I don't know. And then, of course, we continue our efforts to reduce cost, and that is starting to become a DNA of this company is the cost aspects of things. So with this, I would like to say thank you for listening to us, and then I will turn it over to Elliot for Q&As.

Thank you so much for that presentation. We now open up for short Q&A session. [Operator Instructions] We can go right ahead and start. With that, the prices for the CTMP are continued low and declining. China is more and more integrated and the convert rate between SEK and U.S. dollar is weaker. Electricity prices are higher and you're not running the mill full. What is the difference in EBIT between the 2 mills?

On the topic of the EBIT of the two mills, we do not comment on EBIT levels on the mills, but we can elaborate a little bit about the CTMP situation. And here, you can see that the prices has come down, and there is an overcapacity. And -- but I would say the prices have kind of stalled and is rather than moving slightly not much, but a little bit upwards. And of course, then with a weaker, weaker ratio between dollar and SEK that we see in the last couple of months here, that is in favor for us. Then when you have this situation, you should not run at full capacity. So what we are doing is we are really diligent in what orders we've taken in. We are evaluating them on are they making any contribution or not. And then on the other side, we should not run when the electricity prices are high. So we kind of develop a modus operandi that we stop the mill according to electricity price. And then you have to kind of have an order stock that can take that kind of operation. That's why you cannot run it full. But that has been -- for us, it's been -- yes, it has improved the situation in the last quarter operating in this way.

Yes. How is the investment in the effluent treatment progressing that should make you independent of fossil fuels in the CTMP mill?

Yes. I think it's progressing. It's working, but I think some more fine-tuning has to be done to get it into the kind of operational mode that was expected from, say, when the investment was decided.

Yes. All the commercial production of trays have been moved to Poland. How much do you produce? And how is the market developing? And what is the profit of that business?

We are -- we have moved all the production to Poland. We have 2 lines operating there. We are in a trajectionary to do like somewhere between 0.5 million to 1 million pieces a month. And on this profitability thing, that we have -- sorry to say, but we need to say no comment on that since the policy is not to comment on each unit's profitability. Sorry about that.

No worries. [ Finnish ] pulpwood prices have increased again and the softwood pulp prices are low and declining. And as earlier said, the convert rate between SEK and U.S. dollar are still somewhat elevated. What is your earnings outlook for the next 12 months considering all these factors?

I can start and then maybe Monica should comment on it. That's a really difficult question because this is, let's say, a lot of moving pieces. And on general side, we would like to see lower wood prices. And then, of course, what's happening in the countries around where we are sourcing has an influence on the wood prices here. And here, it's important to be diligent and really strive for not increasing wood prices. And then what that will have an effect, I think that's very difficult to say. Monica?

Yes. And we don't give guidance as such, but we show in our annual report in the risk section, how our profitability is affected by variations in the U.S. dollar to SEK exchange rate in the price of pulp and also in the price of wood. These are the main 3 items. Electricity is also in the chart or in the table, but not as much. But all of these 3 items are -- you need to predict them. So you need to have a crystal ball to try to think of what it will mean for the coming 12 months. But of course, we see that we have -- it is a good development on the wood prices. We hope that this will continue. Pulp prices is a lot more difficult to predict and as is exchange rates. So I think we will give a bit of an unsatisfactory answer, but I can refer to our annual report if you want to see the sensitivity analysis of these factors.

Yes. Another question we just got in is that how strong do you feel in your industry right now in 2026 compared to other companies?

Do you mean the strength -- or was it the strength of the industry?

Yes, exactly. How is your market position compared to others?

Okay. In the segments that I described in my presentation, I think we have a quite good positioning in those segments. And that is basically the philosophy of the company to kind of protect ourselves to become really good in certain niches where you can have some better pricing and protect yourself there. And these niches will not be that big and protect yourself from this kind of commodity pulp. So I think we have -- in the niches that we described, I would say we have a strong position.

Yes. The EBITDA improved from minus SEK 36 million in Q1 to plus SEK 31 million in Q2. Is it possible to roughly quantify how much of the improvement came from wood costs, production availability, fixed costs, pulp and currency development, inventory mix effects and respectively, that? Which of these are likely to be sustainable going forward into Q3?

I think that we saw in the slides that the biggest improvements are from -- is from the cost side. And on the variable cost side, it doesn't move so quickly the price levels. So that I think can continue. And of course, on the fixed cost side, what we have achieved in our savings program will continue. Having said that, I'm sure that you're all aware of that we go into the maintenance shutdown at Vallvik Mill, which will show in our cost side as we are doing the needed maintenance work once per year in this pulp mill that is otherwise running 24/7.

Yes. Thank you. We've got another question right here, and that is that there was no comment on the health and safety in the CEO comments. Has this become less of a focus for you guys?

Definitely not. I was -- I have like 40 years of experience in operations in pulp and paper industry. And this is like breathing for this industry. So it's completely on top of the agenda. And if you miss that here, I'm sorry about that, but it's -- that is something that we will never put down on the second place on the agenda for.

Yes. Thank you. The next question that we also got right now is that are you planning to increase the production of the pellet in the near future?

Meaning producing more the production pellet?

Exactly.

We are planning to focus on the niches that we have -- that we see are favorable for us, and we don't have in the cards to make other products, and I think that might be difficult as well. But the focus is to continue being good in our niches and making a difference to our customers.

Yes. You state that the wood prices have fallen by approximately 20% from their peak and the effect comes with a time lag of about 1 quarter. How much of the cost reduction was realized in Q2? And how much additional positive effect could come in Q3 and Q4 if current purchase prices persist?

We will -- if we compare costs to last year, we have had the downward trend now for almost 1.5 years. Of course, we will continue seeing positive effects on our result from lower wood prices. I guess that is the short answer to that question.

Yes. You have significantly scaled back the CapEx to around SEK 60 million for full year 2026, down from SEK 166 million in 2025 to prioritize balance sheet strength and cash flow. Given that your '23 vision targets 415,000 tons of annual pulp production, does this lower investment pace risk creating a bottleneck for future capacity growth or delayed maintenance?

It's -- when you do these kind of reductions, you do some kind of -- you do prioritization that maybe you would not have done when you're running with a profitable company. So it could have some effects going forward, but it's very difficult to quantify them. And basically, it means that the approaches we have to investment, the approach we have to maintenance, that is the key, so we kind of can do the right stuff. So it's very difficult to say how that will affect the future in that respect that was asked. So -- but our intention is, hopefully, that it will not have that effect.

Yes. And the free cash flow from operating activities was minus SEK 81 million from the first half of the year, impacted by working capital changes and inventory buildup. What is your target working capital level, which stood at SEK 458 million at the end of Q2 for year-end 2026. And when do you expect operating cash flow to turn sustainably positive?

The working capital is a big part of the cash flow and the changes in working capital. And as we are having the standstills in the summer in Rottneros Mill and the maintenance shutdown in Vallvik Mill, this will drive buildup of finished goods, and that is what we also see now in Q2 that has happened. But having said that, we, of course, look very closely at what we have in stock, both in finished goods to make sure that we have efficient usage of the stock and have the right amount to also be able to serve customers. And we are also looking at the raw material stock, mainly wood that we have in our wood yards. And of course, this should be at a low level, but reasonably high that we continue our operations. So we keep having a very strong focus on these items going forward.

Thank you so much. And that was today's last question. So with that, we will wrap up today's broadcast. We'd like to extend a big thank you to you guys for the presentation as well as everyone who has submitted questions and watched today's broadcast. I wish you all a continued pleasant day.