Comments by the CEO

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LENNART EBERLEH, PRESIDENT AND CEO

INTERIM REPORT JANUARY-SEPTEMBER 2019

Strong deliveries in a weakening market

During the third quarter, the Group was characterized by a stable production and high delivery rates compared with the corresponding quarter last year. Lower pulp prices and continued high wood costs meant that EBIT earnings fell just over 50 percent to 54 MSEK. Cash flow was still good, which combined with a solid balance sheet means that there is room for an extra dividend. The focus on continuous improvements in both production and sustainability continues.

Production was stable compared to Q3 last year and amounted to 100 thousand tons. During the quarter, the volume was affected by the annual maintenance shutdown at Rottneros Mill, which went according to plan. In Vallvik, the production pace slowed somewhat towards the end of September, ahead of the planned maintenance shutdown during October. Overall, the mills’ production followed our long-term ambition to gradually increase availability. The EBIT for the quarter, 54 MSEK, meant that the EBIT margin fell to 8,8 percent from last year’s 19,6. The quarter’s results were mainly impacted by the lower pulp prices and continued high prices for wood and other input goods. At the same time, exchange rates and good delivery volumes were positive factors. Sales volume increased 20 percent to almost 111 thousand tons, which is a new quarterly record. The supply of pulp wood remains good, and the balance between local wood supply and imports is at a favourable and long-term sustainable level.

During the quarter, we began preparations for an extra dividend of 0,70 SEK per share, according to the Board’s proposal. Final decision will be made at an Extra General Meeting on November 4.

KEY RECRUITMENTS IN PLACE
We completed two key recruitments during the quarter through the employment of Ola Thomasson as Mill Director for Rottneros Mill and Peter Sävelin as Mill Director for Vallvik Mill. I am very pleased to welcome both Ola and Peter to the group management. Their solid experience as leaders and successful careers in the pulp and paper industry are key for taking our mills to the next level.

PRICE PRESSURE REMAINED BUT SIGNS OF THE MARKET BOTTOMING OUT
Pulp prices continued to be squeezed in the third quarter by the short-term deteriorating market balance. The gross price for NBSK fell from approximately USD 1 000 at the beginning of the quarter to just over USD 800 by mid-October. This is the result of a lower consumption growth due to the slowdown in the world economy, and China that has been affected by increased trade barriers. At the same time, the supply in the market has increased through high capacity utilization in the pulp industry worldwide and new production volumes from several Nordic players during the year. However, a slightly improved stock balance and some announcements about price increases in Asia indicate that the trend is levelling out. The long-term trend of an annual consumption increase of 1-2 percent is expected to continue. It is also positive that there is no new capacity coming on stream in the next few years.

ROTTNEROS PACKAGING’S NEW MACHINE UP AND RUNNING BY YEAR END
Our efforts in Rottneros Packaging follow plan. The new machine is ready to be delivered and will start up at the end of the fourth quarter. Demand for climate-smart packaging products and fiber trays continues to be high and is growing rapidly.

In September, a tragic death of a truck driver occurred whilst picking up goods from Vallvik Mill. Although the cause is yet not clear, the incident underscores the importance of always putting safety first in our workplaces. Our thoughts go to the deceased’s relatives, friends and colleagues.

In conclusion, it is clear that we have established a new level of availability and production volumes in the mills. This creates continued growth opportunities, not least in our selected niches. Our focus is to constantly optimize the factors that we can influence ourselves regardless of external factors. With a strong spirit in the organization and solid finances, we are well prepared for both challenges and opportunities. Once again, I would like to extend a warm thanks to our organization, customers and suppliers.

Lennart Eberleh, President and CEO