INTERIM REPORT JANUARY-MARCH 2019
NEW RECORD-STRONG QUARTER FOR ROTTNEROS
Good results and continued strong finances
Sales prices are still high as a weak Swedish krona helps to balance the price pressure in the market. A very strong result and good cash flow further strengthen our balance sheet and improve our resilience to any uncertainty in the global economy. Still, we can never stop striving for higher efficiency in all parts of the organisation. This is a work that is constantly ongoing and can never stop. It is assuring to know that Rottneros’ employees embrace this thinking and understand the value of all of us working as efficiently as possible.
As we are dependent on raw material costs and the market's willingness to pay for our products, only one tool really remains that we can directly influence: our own efficiency.
Focus on managing disruptions
Despite the good results, it has not been a first quarter completely free from concerns. Shortcomings in the quality of the wood raw material caused disturbances in production, especially at Vallvik Mill. The winter months can be difficult from a raw material point of view, especially after a summer with extreme drought and forest fires. However, it is an area that we forcefully address on two fronts to minimize in the long run. Firstly, we work with our raw material suppliers to ensure quality. Secondly, we are continuously upgrading our own facilities to reduce sensitivity to any deficiencies in the raw material. It is an ongoing modernisation that is within the scope of our planned annual investments.
As a whole, the wood supply is good and winter disturbances have only marginally affected production volumes. The cost of raw material has in line with high demand throughout the Swedish forest industry risen in 2018, but price increases have come to an end which is favourable for our business.
We have also had some equipment-related disturbances that have held back the positive development in production. The disturbances also resulted in higher maintenance costs. It is frustrating that we have not been able to increase production when we see the capacity the plants have when everything runs as it should.
A good and safe working environment as well as increased competence are areas that create the conditions for higher capacity utilisation. Our focus on these areas contribute to deliberate cost increases.
Stable demand with price pressure
Demand and price levels for our products remain good even though prices have fallen since the top listing at year-end. This is how we can summarize the market right now. We have a certain increase in stocks compared to the first quarter of 2018, but this is less of a concern as the stock level has been in line with that of the fourth quarter of 2018. We can also see a stabilisation in Asia after a long period of decline. We are cautiously optimistic that the stabilisation will be followed by increasing demand in Asia, which is positive for price development in Europe and North America.
Full speed ahead for the future
Rottneros Packaging has moved into new functional premises in Sunne and has started manufacturing moulded fibre trays for commercial use. In parallel with the construction of the factory, the organisation has been strengthened and is now staffed for production in three shifts as well as continued development of the business. The investment in Rottneros Packaging is fully in line with our ambition to satisfy the market demand for products that are smart for the environment and the climate.
I want to thank all my colleagues who have contributed to this extraordinary quarter. I also want to thank our shareholders, customers, suppliers and lenders.
Lennart Eberleh, President and CEO