Okay, good morning, everybody. Welcome to a short webinar where Norske Skog CEO Sven Ombudstvedt will present highlights from a very good quarter. The CEO and the corporate management are present today. After the presentation, you will be able to raise some questions to the CEO by raising the yellow hand in the Teams. Please keep your microphone on mute, and the word is yours, Sven.
Thank you, Carsten, and good morning, ladies and gentlemen, and welcome to this short presentation and Q&A of our second quarter 2022 financial results. Very briefly, as you know, we are still trying to optimize our legacy business of the publication paper business as at the same time we are moving into the packaging space. We are in the process of joining the European packaging industry by converting two machines in continental Europe. At the same time, we have in the quarter started the waste energy boiler in Bruck, and our energy production and the segment of energy is becoming more important.
Finally, also the bioproducts, we have made significant progress on commercialization of the CEBINA and the CEBICO family of products in the second quarter as well, and we're looking forward to an exciting second half in that respect. Very briefly on the second quarter, in the numbers, an EBITDA of NOK 905 million. The main positives were the contribution from the waste-to-energy facility in Bruck and the price increases in the market compared to the first quarter. Worthy of note is the fact that energy and raw material costs have increased and have become increasingly volatile towards the end of the quarter and certainly into July as well.
The net profit is NOK 935 million in the quarter, impacted by a positive non-cash valuation of energy contracts mainly related to the south of Norway and the Saugbrugs mill. We expect that the energy and raw material markets will continue to be challenging certainly into the second half of 2021 and possibly beyond, which may impact both production and market prices of our products. The waste-to-energy plant is in commissioning now and will continue that in the third quarter. We also have announced in the second quarter the financing of the biomass boiler at Golbey. All in all, these two will eventually enable a reduction of gas imports to Europe of 1.2 TWh, so a significant reduction.
Publication paper is expected to be tight also going forward into the next quarters and next years as significant reductions have already been announced, and we now have the somewhat rare luxury of being able to see forward also on the supply side in the market. Our own contribution to that has already taken place on the 10th of July as Bruck's PM3, the newsprint machine, has been stopped to facilitate the conversion. Given the present market prices of raw material and energy, we only expect a marginal negative impact from that despite the fact that the fixed cost is still on site until the conversion has happened.
The growth projects, as mentioned, is on time and on budget, save for the comment we made in the first quarter that there is some NOK 20 million in addition. In general, the budgets, including the NOK 20 million increase is still what we guide to. Very briefly on the bridge to the right-hand side on this page, we see the first quarter 610 reported EBITDA, then positive volume and variable costs levels, but pricing is the bigger part. On the negative side, there is somewhat higher fixed costs, mainly related to the fact that the long-term incentives are adjusted to an increase in share price.
On the other, this is including the fact that we booked a one-off gain on the sales on Noksåslia in the first quarter. The operating segments also briefly, I think Europe of course is having the brunt of the positive development, but also worth to note that we now have three quarters in Australia where with Boyer operating as a standalone with very little other activities around, we can see that it's possible to sustain at least a reasonable margin. We are not obviously where we need to be at around 10%, but still it has shown that we can operate this on a sustainable basis.
The balance sheet is also solid now, both in terms of cash on the balance sheet in terms of available liquidity, and also the fact that we now have three quarters with positive cash earnings after several COVID quarters with negative cash earnings. All in all, this is quite solid compared to the remaining CapEx of the project, so NOK 260 million-NOK 280 million that still needs to be invested over the next two years. Two words on the raw material side. Everyone is aware of the energy situation in Europe, so we are clearly following this closely.
This is a challenge from the operational point of view, but it also means that our Boyer investments are better than maybe what we thought when we did it, and also that the competitiveness of Nordic paper and pulp production is higher than we thought it was relevant. Recovered paper also very volatile and somewhat tough to predict and has created a slight downtime in the quarter. Finally, the Norwegian and the Nordic markets for wood is more stable in the world of turbulence. It almost looks like an old oasis of peace for the time being. We also here have a slight increase in wood prices from the second half of the year onwards.
Pricing is high, and may even go higher in the second half as energy and raw material costs are still on the up. Operating rates for the industry is high, and that is expected to remain for the foreseeable future. Packaging, as mentioned, we are entering the market. You are all aware of this, that we are entering a completely new market with highly competitive sites located in the middle of both the catchment area for raw materials and the consumption area. We're certainly looking forward to start that up for real. In order to stay competitive, we are securing the steam supply also in France. This is Greenalia boiler, which is here illustrated on the picture of the Golbey site.
This foundation work is now ongoing in France, and this boiler will start up then most likely in April 2024. It is a joint venture, but most importantly, in the second quarter, the financing was secured for the joint venture between PEARL and Norske Skog. We have then been able to issue notice to proceed to all our suppliers. This is now underway, and we are all looking forward to the biomass boiler becoming operational. Similarly, here we illustrate Bruck's waste to energy, the reduction of external energy purchases. You can see that both in terms of gas and electricity and megawatt hours in the middle graph here. The reduction has been achieved in the second quarter and will continue to be achieved going forward.
As I mentioned, we also now stopped production on PM3, so in the second half we will have even less external energy. The plant itself will then run on a slightly higher capacity as it was still in commissioning in the second quarter. We expect a higher utilization going forward and obviously in the second quarter of 2022. Milestones on CEBINA and CEBICO, we're quite happy with the progress we made. One example for CEBINA is when it was applied in spray as a spray filler for Salmon Evolution farming tanks on the northwest coast of Norway. We saw a significant saving in the time spent to do the job, which means that this can enable significant labor savings for the users of the products.
Quite encouraging with the ongoing work, we think that this will be a very exciting product for Saugbrugs and for Norske Skog in total. Similarly with CEBICO, in May, we opened the pilot plant. You can see the picture on this slide, which was also supported by the Norwegian government and was opened by the Minister for Industry. Significantly, there was also a signed partnership deal between Norske Skog, BEWI and BE Form, to develop this further into various applications in terms of for packaging and other applications to replace pure plastic.
A few words on Circa at the end of the slide here, which entered into a partnership with Norske Skog to build the ReSolute plant in France, and we think it's a significant development for Circa. We're also quite encouraged by the work that has happened there in the first half. On the CO2 side, also sort of a main topic now, given the price developments for carbon in Europe, which is now back in sort of between EUR 80 and EUR 100 per ton after a bit of volatility after the Ukraine invasion earlier in the year.
This remains an important point for us, partly to reduce our own carbon footprint and reach our own targets, as you can see on the left-hand side, and partly because it economically makes a lot of sense these days. Just to end this short presentation with the outlook. As mentioned, we expect the market for our publication papers to remain tight due to the closures that have been announced. Also, consumption shows no real signs of declining beyond sort of what we now term as more normal declines of around 5% per annum. Energy and raw material will continue to cause us operational challenges.
I think today no one can really say how much we are able to run continental European plants that require energy in the second half and into the winter. Obviously we will optimize our operations and our EBITDA going forward. The conversion project will still continue and in the second half of the year, Bruck's PM3 will then be ready to start production into the new year. The Golbey mill will also continue its path towards containerboard production in 2023. Waste-to-energy will improve the mix further.
As I mentioned, we have not been running fully in the second quarter because of the commissioning phase, but we expect this to run at higher levels going forward. Finally, again, the existing development projects both on bioproducts and energy will be developed and gradually moving into meaningful commercialization. On that note, I will end this short presentation this morning, and I will hand it back to you, Carsten, for the Q&A session.
Thank you, Sven. Now it's ready for Q&A. Kenneth Sivertsen, he raised his hand. Kenneth, the word is yours.
Thank you. Congratulations with the solid results. Just a few questions from me, if I may. First of all, on the price negotiation in for second half, if you could provide some color there, what to expect, and also perhaps looking into 2023, what we should anticipate given the current energy markets. Secondly, if I may, on the waste-to-energy, if it's possible to quantify the earnings contribution during the quarter and also expectations for Q3 as you're now running on 100% utilization. That's my two.
Yeah. Start with the prices. The price negotiations obviously for the third quarter is now done. I think we see shorter contracts and price validities, so most of the prices are valid for the third quarter. We could say that there is a slight increases from the second quarter levels. Fourth quarter is not a lot of volumes can be committed for the time being because we simply don't really know where the energy markets will be. Today, the forward price going into the fourth quarter is of a level which indicates limited production. Clearly we will have some production, and we will optimize this in the best possible way given the view to the bottom line, which is always a key point.
I don't think we can promise full production in the fourth quarter and first quarter of next year, which with the present energy. At the same time, this also provides some opportunities for us on the energy side. I don't think result-wise it's probably not bad for us, but I think it's very, very difficult to be too precise beyond the third quarter. Third quarter pricing is slightly higher than second quarter pricing. In terms of the waste energy, I think the starting point here is obviously that this mill really started up in April and was opened towards the end of April, so this was indeed a second quarter event.
As always, in commissioning of industrial scale facilities, you will never reach 100% occupancy in the first few months of operation. This plant was running at around probably, if I should venture a guess, around 75% occupancy in sort of May and June. We are gradually, with the help of ANDRITZ, the supplier, sort of gradually reaching higher levels. If I should give a guidance for the second half is that we will be able to run this at a more sort of more towards the 100% level in the second half only.
It's somewhat difficult to give very precise guidance on the profit impact because we are still buying energy from the grid, which are at high levels all the time. This will destroy every sort of attempt to this. We have in the past been guiding that on an annual basis this facility should generate about NOK 200 million, of which half is gate fee and half is energy. We can just repeat that the gate fee guidance is still quite accurate, while the energy guidance obviously is too low. In the present energy environments, this is much higher.
If you look at the Bruck operations, the impact in the quarter today could probably be more like NOK 100 million rather than NOK 50 million as guided before.
I think it's also just worth mentioning that in a regular quarter, Bruck has previously used between 250 GWh and 300 GWh of gas. Whereas now in the second quarter, we were down to approximately 125 GWh of gas purchases. We expect that of course to continue to decline as we fully ramp up the boiler going forward. That illustrates at least the energy savings effect and the reduction of gas imports required at Bruck by setting up this waste energy boiler.
Okay. The next person that raised his hand is Cole Hathorn. You're welcome.
Good morning. Thank you for taking my question. I'd like to explore two topics. The first is on just trying to understand the profitability of the wider industry. I mean, Norske Skog, you're in a good position considering your Nordic exposure, electricity needs. How do you feel the wider market's doing with more gas consumption in newsprint and publication paper? Any kind of commentary you can give on profitability levels there compared to yourself? Then the second question goes on to your biomass boiler in Golbey, I mean, for your containerboard conversion. With hindsight now, going into biomass is well-timed. Do you think that gives you a strategic advantage in your conversion doing more biomass than anything else? Thank you.
On the first question, Cole, I think the profitability you will see obviously when people report what they have achieved in the second quarter. I think in general, the Nordic mills enjoy a significant advantage currently. Our Swedish and Finnish competitors probably have a reasonable development as well. Everyone who's exposed to recovered paper and particularly gas and electricity purchases in continental Europe have a hard time. Mill per mill, as a general rule, there's probably not a lot of profitability in exposed mill in continental Europe, while probably the Nordic competitors will have similar positions as we have. In terms of the biomass boiler, indeed this is.
We think and have always thought that the steam supplies to Bruck and Golbey for commercial projects needs to come from a reliable source. It's not only the absolute level, but also the volatility the marketplace sometimes gives. We have always thought that has been and will be a competitive advantage. I think the timing now is a bit more favorable than we could have foreseen, but it's still anyone's guess what will happen in 2024 and 2025. It's a tough one. We generally believe it's the right strategic move to have a biomass boiler at Golbey in addition to what we already have and then the waste to energy in Bruck. Yes, indeed, this will give a competitive advantage to the container operation.
Thank you.
Okay. The next one on the list is Kristian Spetalen. You're welcome.
Yes. Thank you. I have two questions on the sales in Europe. First on, if you could just elaborate a bit on the implied average sales price here, because I think the increase sequentially was quite high. Was this just the energy surcharges or do we have some impact from the Norwegian mills here as well from price negotiations? Then the second question is on the utilization rate at 90%, which I thought was a bit low. I see that. I'm not sure if you specifically comment on this quarter, but you highlight in the outlook statement that there's some potential lack of raw material availability.
Could you just kind of dig into the quarter's utilization now and how you see that going forward? Thank you.
In terms of the pricing for the second quarter, there is definitely the main impact is definitely related to continental Europe and to the energy surcharges, but there is also some spillover into the Norwegian mills, and there's also contracts that were still there in the first quarter who were running out and where we negotiated for the second quarter and into the third quarter. I think for newsprint and supercalendered, there is definitely a positive impact also for Skogn and Saugbrugs. This will be slight, more slight from the second to the third quarter.
I think there is also slight negative effect on the lightweight coated which is mainly resulting from the fact that you can shut it down in the second quarter. So all in all, I think guidance for the third quarter is that probably prices is slightly up on average, but not material. In terms of utilization rate, I think there's just a couple of factors because it's still a relatively high utilization rate, meaning that we are mostly producing as much as we can, but there is always maintenance in this type of situations. In the second quarter, we also had what you could say is some red days. So we sometimes do maintenance more when there is a sort of a higher cost to run. So there is.
I don't think it's a material impact. We also have from time to time we try to reduce peak hours in terms of energy in order to optimize the result when there is more profitability by not running the TMP installation. I think all in all, this is in practice a full utilization in the quarter. Going forward, I think the main point is the fact that PM3 in Bruck has been shut down for newsprint production. Obviously you will have to take that out of the equation from the 10th of July. Otherwise, we will run sort of normal in the third quarter.
Again, coming to the fourth quarter and the first quarter of next year, we don't really know as we cannot foresee what the energy markets will do. That may impact utilization significantly, but we don't know, and it may impact utilization more than profitability.
Okay. That's helpful. Thank you. Just to follow up a bit on that because you mentioned Bruck, and it says that you expect slight negative or a limited negative impact from this.
Yeah.
Could you just elaborate on that? Because I mean, given the energy position now in Austria, is this a reflection of the power price volatility or why should we just expect a slight negative impact?
It basically means that PM3 has not had a lot of margins despite the high prices because of the high raw material cost, both for energy and for recovered paper.
Thank you.
Okay, Nils Foldal, the world is yours. Nils, Nils Foldal, you may raise your question. You probably have it on the mute or something. I don't know.
We can go to Martin Melbye first. Martin Melbye, you are welcome to raise your questions.
Yes, good morning. Could you try to indicate where the marginal producer's cash cost is now in Europe, and compare that to the current newsprint price, please?
I think the current marginal producer's cash cost is just above the present price.
Okay. Then the second question, say, if there is energy shortage in Europe, and where are you on that list of priority? Who is going to get cut off first, say, per country?
This is probably more a question for Brussels and Berlin and Paris than it is for Oslo, I think, Martin.
I know, but where is your hunch?
The position of the paper industry is that we are a vital industry for society and should not be cut off, so that will also be my position.
How is that in Norway, say?
I don't think that we will be cut off in Norway, to put it that way.
Okay, thank you.
Okay, thank you, Martin. Nils Foldal, we didn't hear you. You may try again. We can still not hear you. Okay.
Mm.
Okay, there are no others on the list today. If Nils, you have a question, you can call our IR manager, Even Lund.
Skagetveit.
Yeah.
His question was already answered.
Excellent. Thank you. Okay. Thank you all for participating in this webinar, and I wish you all a very nice day. Thank you all.