Comments by the CEO

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Lennart Eberleh, CEO and President Rottneros AB

"In conclusion, Rottneros is continuing on its journey towards becoming a sustainable company in a broad sense with respect to the environment, our employees and our financial strength. While we can clearly see the effects of what we have accomplished, much remains to be done. I look forward to an exciting year."

INTERIM REPORT JANUARY-JUNE 2017

YET ANOTHER QUARTER WITH PRODUCTION OVER 100 THOUSAND TONNES

During the second quarter, the underlying trend of rising production rates continued in our mills. Operating profit increased by SEK 5 million despite some negative effects from unplanned items. We can see that the extensive investments within the framework of the Agenda 500 programme are paying off in higher volumes, even though the unplanned shutdown at Vallvik held back growth for the quarter as a whole. We steadfastly continue to take a structured approach to further improve safety and increase capacity utilization, thereby sustainably increasing volumes in our niches.

Production rose by 1 per cent in the Group to 101,400 tonnes compared with last year’s second quarter, despite the negative impact of 4.5 per cent from the unplanned shutdown at Vallvik. In May, however, the mill achieved a record volume for a single month at the same time that Rottneros Mill demonstrated the highest production ever for a single quarter. These achievements confirm that we continue to clearly move upwards on the volume curve. Meanwhile, more remains to be done to increase availability and production in the future.

Our goal-oriented efforts are also paying off in terms of operating profit, which rose by SEK 5 million compared with the second quarter last year to SEK 62 million, despite the negative impact of certain unplanned items amounting to approximately SEK 5 million and primarily related to the production shutdown at Vallvik. Conflict actions among social partners at the Port of Gothenburg also had a negative impact.

Continued stable market 
The market continues to be stable with a good balance between supply and demand and we are cautiously optimistic in the run-up to the third quarter. At the end of the second quarter, the NBSK list price was USD 890, up about 7 per cent. However, new volumes coming from several Nordic players in the second half of the year and 2018 may have a negative impact on the market balance in the future.

Our development area, Rottneros Packaging, is now approaching start of construction for the new production line for bio-based food trays in Sunne. Demand in the sustainable packaging solutions market is robust and we are optimistic about the development potential of this new segment.

Key new hire at Vallvik
The hiring of Michael Berggren as head of Vallvik Mill represents an important step for the further development of the mill. Although we have come a long way, much remains to be done in the development of the organisation. A constant effort to improve skills is crucial for increasing availability at the mills and leveraging our investments.

Agenda 500
Within the framework for the Agenda 500 programme, the Board of Directors has approved a total of approximately SEK 620 million, of which approximately SEK 460 million has been spent on implementing measures to date and measures for the remaining approximately SEK 160 million will be implemented in 2017 and 2018. The company has good liquidity. As previously announced, we are working with an extended long-term funding strategy, which ensures our ability to carry out the investment programme while changing the capital structure.

Planning for the autumn maintenance shutdown is in full swing. Rottneros Mill carries out its shutdown in September and Vallvik plans to stop production in the beginning of the fourth quarter. The estimated cost of these shutdowns is SEK 10 million and SEK 55 million, respectively.

We were pleased to see so many shareholders at the Annual General Meeting in Söderhamn. The opportunity to see our new investments at the tour of the mill in Vallvik definitely contributed to the strong attendance.

In summary, it is clear that we have established a new level of availability and production volumes at the mills, creating continued growth opportunities, especially in our selected niches. Our focus is to continually optimise the factors we can influence, regardless of external factors. This is particularly important in light of potentially rising costs for our inputs such as wood and electricity in the future. We are becoming better equipped for the future, in terms of both meeting potential challenges and taking advantage of our opportunities.

 

Lennart Eberleh

August 2017