Comments by the CEO

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Lennart Eberleh, CEO and President Rottneros AB

"We have excellent opportunities to bring about sustainability, profitable growth through expanded production volumes, and increased efficiency at our facilities. Our focus is on constantly optimising the factors that we can influence while taking advantage of the opportunities the outside world provides us with."

INTERIM REPORT JANUARY-SEPTEMBER 2017

RECORD QUARTER AT VALLVIK

Our focus on profitable and sustainable growth continues to result in a clear trend towards increased production. Vallvik Mill reported a new production record during the third quarter. This proves that our strategic investment in the Agenda 500 programme is increasing the capacity in accordance with plans. Operating profit for the quarter decreased by SEK 2 million to SEK 44 million and was held back by certain unplanned events. The cost development is not satisfactory. We have increased our focus on the costs in order to return to a normal level. We are doing this in the same goal-oriented manner that has led us to the higher production volumes. 

The Group’s production rose by 12 per cent to 102,500 tonnes, which represents yet another quarter in which production exceeded 100,000 tonnes. This was all achieved despite the annual maintenance shutdown at Rottneros Mill, which proves that we are gradually moving towards higher production volumes. Potential is there to further increase availability at our mills in the future.

However, we are not satisfied with cost development. In the future, we will focus on achieving cost-efficiency in a structured and goal-oriented manner. In this way, we will take the next step towards increasing profitability alongside the expanded volume which we have been intensively working on over the last 15 months.

The strong market is creating good conditions for profitability, despite the weaker USD
The market continues to be positive with a good balance between supply and demand. Our outlook for the fourth quarter is thus optimistic. The weakening of the dollar against the krona over the summer has, to some extent, been reversed in the past few months, and has also been counteracted by an increasing USD pulp price. Taken as a whole, the external conditions for achieving both profitability and growth for the Group are good.

Sustainability lies at the heart of our operations
Sustainability is a key element when we continue to develop Rottneros. A number of important activities were closely linked to this during the quarter. The investment in the fully bio-based, solid-fuel boiler at Rottneros Mill has successfully been brought into operation. The new boiler replaces an old oil-based boiler. The mill’s energy consumption is now essentially fossil-free and more efficient, decreasing the mill’s variable costs by SEK 25 million annually.

The agreement with RenFuel, which we signed in September, means that we will start delivering lignin from Vallvik Mill. Lignin shipment will start up during the course of next year and will be used in RenFuel's lignin oil, which in turn can be refined into renewable petrol and diesel. This will undoubtedly be an exciting market in the future.

Rottneros Mill carried out its annual maintenance shutdown in September, while Vallvik performed its shutdown at the beginning of the fourth quarter. Both went according to plan, with costs in line with expectations, i.e. SEK 10 million and SEK 55 million, respectively. A new wash press was installed as part of the shutdown at Vallvik Mill, which ensures not only higher production capacity but also a reduction in emissions in order to comply with new, stricter environmental requirements.

Financing of Agenda 500 secured
In August, we concluded the financing of our strategic action plan, Agenda 500, through a bond issue of SEK 400 million within a framework of SEK 600 million. This ensures full financing of our expansion investments over the next four years. We will therefore meet our goal of achieving production volume of at least 470 thousand tonnes by the end of 2021. We are also creating a more optimal balance sheet through increased borrowing. This will allow us to raise the potential return on shareholders’ equity, while simultaneously keeping the balance sheet at a solid, strong level.

Looking ahead, conditions will remain positive for delivering on our goals. We have excellent opportunities to bring about sustainability, profitable growth through expanded production volumes, and increased efficiency at our facilities. Our focus is on constantly optimising the factors that we can influence while taking advantage of the opportunities the outside world provides us with.

 

Lennart Eberleh

November 2017