ROTTNEROS INTERIM REPORT JANUARY – SEPTEMBER 2018
RECORD PROFIT FOR THE THIRD QUARTER
- Net turnover for the third quarter of 2018 rose by 27% to SEK 601m (472).
- EBIT for the third quarter of 2018 increased by 152% to SEK 111m (44) and represents a record for a single quarter in the Group’s current structure, despite the cost of annual maintenance shutdown in Rottneros Mill during the quarter.
- Profit after financial items for the third quarter surged to SEK 106m (41) and for the nine months to SEK 269m (159). Earnings per share for the third quarter rose to SEK 0.54 (0.21) and for the nine months to SEK 1.39 (0.81).
- NBSK list price during the third quarter 2018 was 51% higher in SEK compared with the third quarter 2017. Compared with the second quarter 2018, the list price in SEK was 9% higher.
- Rising pulp wood costs had a negative effect of some SEK 50m and pulp price hedges a negative effect of SEK 43m on the third quarter results, compared with third quarter 2017.
- Focus on increased profitability. Fixed costs for the third quarter were SEK 23m lower compared to the third quarter of 2017, equal to a decrease of 17%.
- Production volume for the third quarter was stable at 100.0 (102.5) thousand tonnes.
- Investments are progressing according to plan, in terms of both increased capacity and costs. During the third quarter, investments in the CTMP line in Rottneros Mill were commissioned, increasing the mill’s capacity by 18,000 tonnes per year, with full effect by 2020.
COMMENTS BY THE CEO:
RECORD PROFIT FOR THE THIRD QUARTER
We are currently in a strong market situation, which has clearly characterized the third quarter of the Rottneros Group. The combination of high pulp prices, a favourable currency situation and our well-functioning processes are the main reasons for the strong results. A solid proof of the high engagement among our employees is the fact that we have reduced our fixed cost with 17 per cent during the quarter.
Net turnover increased by 27 per cent to SEK 601m (472). EBIT surged by 152 percent to SEK 111m (44) and represents a record for a single quarter in the Group's current structure. This despite a difficult pulp wood situation and that the maintenance shutdown at Rottneros Mill was slightly longer than planned.
Both mills have been running well and the total production volume was 100 thousand tonnes (102.5). Investments in the CTMP line at Rottneros Mill are in line with plan and will provide an additional 18,000 tonnes per year with full effect by 2020. A positive side effect of the investment will be lower energy consumption per tonne pulp.
The new organization that has been in place since the turn of the year works well and contributes to the good result. We have been working in a structured and cost-conscious way and created good dedication among all employees.
High wood costs impact the results
The difficult raw material situation for wood, linked to the extremely dry spring and summer in Sweden, has stabilized substantially after the end of the quarter, and the availability of fibre raw materials is better with certain regional differences. However, price levels have risen in general and together with increased import volumes the third quarter results are impacted by approximately SEK -50m.
Rottneros’ wood procurement organization and our subsidiary SIA Rottneros Baltic have managed to supply both of our mills with raw materials during the period of shortage in Sweden due to the weather situation. Rottneros usually imports about 10-12 per cent of its needs, mainly from Latvia. During 2018 this proportion has risen to 20-25 per cent. Being able to run our mills at full capacity and maintaining deliveries to our customers confirms the value of our own procurement team in the Baltics. The increased cost due to a higher share of import is a conscious decision in order to secure our pulp deliveries to customers.
The construction of Rottneros Packaging's manufacturing plant in Sunne runs according to plan. The plant will manufacture moulded pulp trays, especially for the food industry. It is for example single-use packages for ready-made meals, fresh meat and takeaway food. The moulded pulp trays, with raw material directly from the Group, compete with plastic alternatives.
Equipment has been moved into the new premises, and final adjustments and start-up are ongoing. During September, necessary environmental permits were also obtained for the start of production later this year.
Both today and in the future, getting the right competence is a key issue for Rottneros. We need to attract younger employees interested in technology who can bridge the generational shift and help develop the company. Given our geographical locations, we need to work harder compared to other companies to ensure that the right people are attracted to us. On the last page of this report you can read more about these initiatives.
We need our own presence in key markets to increase knowledge and build closer relationships with our customers. For this reason, a sales manager has been recruited with dedicated responsibility for the German market, which currently accounts for approximately 17 per cent of Rottneros’ sales. This means that cooperation with external agent will be phased out. Consequently, we will handle nearly 50 per cent of our total sales in-house.
Rottneros is in a currently strong market. However, price increases have levelled out during the quarter and the supply and demand balance has been normalized. In the short term there may be some uncertainty, not least in view of an increasingly unstable world. However, we still see a robust balance in the medium term, as there will not be much new capacity in the coming years. Having said that, one must at the same time be humble and remember that the pulp market is inherently cyclical.
What may challenge a continued positive earnings development for Rottneros is the risk of increasing electricity and wood prices. We closely monitor the development and maintain a well-balanced position through various agreements with our suppliers.
The good quarterly results demonstrate the effect of a strong team effort. I therefore want to warmly thank all employees who have made this possible through great commitment and determination. At the same time, I would like to thank our customers, suppliers, owners and lenders.
(For full report, please see attached file)
This information is information that Rottneros AB is obliged to publish under the EU Market Abuse Regulation and the Securities Market Act. The information was submitted via the contact person below for publication on 24 October 2018 at 8 a.m. CET. This report has been drawn up in both a Swedish and an English version. The Swedish version shall prevail in the event of differences between the two reports.
For further information, please contact:
Lennart Eberleh, President and CEO, Rottneros AB, +46 270 622 65