THE ROTTNEROS GROUP INTERIM REPORT JANUARY–MARCH 2010
Rottneros in brief
Rottneros, a company that was originally established in the 1600s, is an independent and flexible supplier of customised paper pulp of high quality. Rottneros has been able to adapt in order to meet high customer expectations by continually developing its products and maintaining high levels of delivery reliability, technical support and service.
Rottneros has an annual production capacity of almost 400,000 tonnes of pulp at two mills in Sweden. Increasingly intensive product development in line with the requirements of customers will result in profitability that is higher and more stable throughout the business cycle.
New Chair of the Board
On 22 January 2010, the Board of Rottneros AB appointed board member Kjell Ormegard to chair the Board of Rottneros up to and including the AGM in April 2010. This change was brought about by former chair Rune Ingvarsson asking to resign from the Board of Rottneros with immediate effect for personal reasons.
Rottneros investing in Vallvik
On 2 February 2010, the Board of Rottneros approved an investment of SEK 45 million in the soda boiler at Vallvik Mill. This investment is a second step in the environmental and energy improvement measures that were previously communicated. Improving the soda boiler will in turn increase its incineration capacity, which will increase Vallvik's production of bioenergy. Installation is scheduled for the fourth quarter of 2010 in conjunction with the annual maintenance shutdown.
Transfer agreement concluded
In February 2010, Rottneros concluded an agreement with the Swiss packaging company SIG Combibloc regarding the transfer of intangible assets, primarily in the form of patents and patent applications, from Rottneros' subsidiary Rottneros Packaging AB. Rottneros Packaging's operation relating to food trays under the SilviPak brand does not form part of this agreement. The transaction will have a minor impact on Rottneros' income statement and a positive impact on the Group's cash flow.
New Chief Financial Officer
Tomas Hedström was appointed as CFO for Rottneros AB starting 1 May 2010. Tomas Hedström was most recently employed by the SCA Group, where he was in charge of the Group's accounting staff. Tomas Hedström will replace Karl Ove Grönqvist, who decided to leave Rottneros to take up another position as CFO.
THE PULP MARKET
Market and products
There has been a strong demand for all grades of pulp, and global pulp deliveries showed positive growth at the start of the year. The market has been characterised by a good balance, which has enabled pulp price increases. There have also been disruptions to the supply of pulp, mainly due to significant production capacity in Chile being shut down on account of the earthquake in February.
The USD pulp price rose at the beginning of the year. Further price increases were announced during the second quarter of 2010. Statistics for the total global market for bleached chemical market pulp showed that deliveries for the period January to February 2010 amounted to 6.4 (5.8) million tonnes, which was 10.3% higher than the same period in 2009. Ninety-one per cent (84% for the same period in 2009) of the global supply capacity for bleached chemical pulp was used for the period January to February. An estimated 93% (86%) of production capacity was utilised for the same period.
The average price of bleached long-fibre chemical pulp during the first quarter of 2010 amounted to USD 844 per tonne (USD 595 per tonne), an increase of 42%. The price of long-fibre chemical pulp (NBSK) at the end of March 2010 was USD 889, an increase of 11% from the beginning of the year when the price was USD 799.
The price of short-fibre chemical pulp increased from USD 700 at the beginning of the year to USD 789 at the end of March, an increase of 13%.
Global producer stocks of bleached chemical pulp amounted to 2.8 million tonnes in early 2010 and were estimated at 3.0 million tonnes at the end of February.
Long-fibre chemical pulp (NBSK) (produced in Vallvik)
The price was USD 799 per tonne at the beginning of the year and USD 889 at the end of March. The market for long-fibre chemical pulp is strong. The level of producer stocks of pulp remains low.
Delivery capacity utilisation for the period January to February 2010 was 93% (84% for the same period in 2009), and production capacity utilisation was around 96% (85%).
Mechanical pulp and CTMP (produced in Rottneros)
The price of short-fibre CTMP was around USD 600 per tonne in the Western European market at the start of the year. The price and demand for CTMP grew more slowly at the start of the year compared with chemical pulp. A recovery materialised toward the end of the first quarter and in April.
Delivery capacity utilisation for the period January to February was 86% (74%) and production capacity utilisation was 97% (66%).
PRODUCTION AND DELIVERIES
The Group’s pulp mills in Rottneros and Vallvik have a combined production capacity of almost 400,000 tonnes per year. In 2009, a production level of 335,900 tonnes was achieved for the full year. Weak demand at the start of 2009 resulted in production restrictions of around 65,000 tonnes.
The level of production during the period January to March 2010 was lower than compared with the same period of the previous year and amounted to 81,400 (89,500) tonnes. The first quarter of 2009 included 11,100 tonnes that related to production at Rockhammar Mill, which has now been disposed of. The high price of electricity at the beginning of the year meant production disruptions and shutdowns corresponding to 6,000 tonnes at Rottneros Mill during the first quarter of 2010. During the first quarter of 2009, Group production was restricted by approximately 50,000 tonnes as a consequence of weak demand. Shutdowns for annual maintenance work will take place in the third quarter for Rottneros Mill and in the fourth quarter for Vallvik Mill. All costs relating to maintenance shutdowns are recognised in the period during which the shutdown takes place.
Deliveries during the first quarter of 2010 amounted to 87,300 (105,700) tonnes, corresponding to a reduction of 17%.
INVOICED SALES AND RESULTS
January to March 2010 compared with January to March 2009
The Group generated a net turnover of SEK 407 (433) million for the period January to March 2010.
The turnover for January to March 2010 was SEK 26 million less than for the corresponding period of the previous year. The main factors affecting turnover include: lower delivery levels, SEK 75 million; a weaker USD, SEK -69 million; higher pulp prices in USD, SEK 120 million; and other changes, SEK -2 million. The lower delivery levels are mainly the result of the sale of Rockhammar Mill and the closure of Rottneros Miranda in Spain.
The average price in USD of long-fibre sulphate pulp (NBSK) increased by 42% – from USD 595 to USD 844 – while the average price of NBSK pulp converted into SEK increased from SEK 4,997 to SEK 6,073 per tonne, an increase of 22%. The average price in USD of eucalyptus pulp (BEK) increased from USD 536 to USD 748 per tonne, or by 40%, while the corresponding average price converted into SEK rose from SEK 4,506 to SEK 5,380 per tonne, an increase of 19%.
As a result of the high price of electricity during the quarter, Rottneros Mill periodically stopped production, which had a strong negative impact on the results. The problems associated with the Swedish electricity market, including sharp increases in energy costs resulting in production stoppages, negatively affected the quarterly earnings by approximately SEK 30 million. The price of pulp in USD showed an increasing trend during the entire first quarter and further price increases have been announced. The stronger market and improved prices have created the necessary preconditions for profitability at the Group’s pulp mills.
The average price of electricity on the Nord Pool exchange amounted to SEK 0.73 per kWh for the period January to March 2010, compared to SEK 0.42 per kWh for the same period of 2009. There is some uncertainty about the price trend for electricity. Electricity on Nord Pool will be traded at the current rate of SEK 0.40-0.45 per kWh for the remainder of 2010. For 2011 and beyond, electricity will be traded on Nord Pool at around SEK 0.40 - 0.41 per kWh.
The wood supply was reliable during the period. The cost of pulpwood increased during the first quarter of 2010 and a price increase of SEK 30 per m3 was announced with effect from 1 April. The Group's operating result for the period January to March 2010 amounted to SEK 7 (-110) million.
Hedging activities realised during the first quarter of 2010 resulted in a gain of SEK 3 (3) million.
The Group's result after net financial items amounted to SEK 11 ( 115) million, including net financial items totalling SEK 4 (5) million. Net financial items include financial exchange gains of SEK 6 (8) million. These amounts were largely countered by operating exchange losses on accounts receivable. Profit/loss after tax was SEK 11 (-115) million. Earnings per share after tax amounted to SEK 0.01 (-0.64). Cash flow per share was SEK 0.03 (0.09).
(For full report, including tables, see attached file)