Good morning, everybody. My name is Carsten Dybevig, and I'm the Vice President of Communication and Public Affairs. Welcome to a short webinar with Norske Skog's CFO, Tord Steinset Torvund, and VP Corporate Finance, Even Lund, who will present highlights from the second quarter. Also present is the CEO, Geir Drangsland, and SVP Commercial, Robert Wood. There is no prerecorded Q2 presentation on the Norske Skog webpage. This webinar will be recorded and will later be available on the webpage. After the presentation, you will be able to raise questions by raising the yellow hand in Teams. Please keep your microphones on mute. The word is yours, Tord Torvund, the CFO of Norske Skog.
Thank you, Carsten. Welcome, everyone, to Norske Skog's Second Quarter 2025 Results Presentation. Vi må se en liten slide.
In Norske Skog, we continue to focus on our strategy of being a committed and cost-efficient supplier of publication paper to all our customers. Also, growing our deliveries of packaging paper, and in addition, exploring profitable fiber projects across all our four mills in Europe. Always then with a focus on sustainable business operations. These are the quarter highlights. EBITDA came in at $106 million in the quarter, which is an improvement in operational EBITDA compared to Q1. We are increasing our market share despite challenging markets and low industry utilization rates. In addition, we did have a better than expected contribution from CO2 compensation and energy contracts mechanisms, which in isolation contributed positively in the quarter. We maintain our cash position despite significant investments in Golbey. Some key contributing factors are that we have received the proceeds from selling Boyer, our Australian paper mill.
We have sold our 2025 surplus of CO2 allowances at Skogn and Saugbrugs, and we have received the annual CO2 compensation at Skogn, Saugbrugs, and Golbey. We have also reached an agreement with lenders to revise loan repayment schedules and release restricted cash accounts. We have started the containerboard production at Golbey PM1, and we expect the utilization of about 20% - 30% in the third quarter of 2025 and to reach full utilization in the first half of 2027. We have several initiatives to improve profitability across our mills, both in terms of top line growth and moving into higher margin products, and also cost-saving initiatives. Two examples listed on this slide. We have optimized the fiber mix at the Bruck PM4, the LWC machine, to enhance both product quality and reduce production costs.
We have started a project at Skogn PM1 to enable switching between newsprint and book paper during 2026. On Saugbrugs, the BCTMP project is currently put on hold, mainly due to the size of the investment. We do expect to reach a conclusion on whether to restart PM6, the SC machine that was damaged in the rockslide some years back, during the second half of 2025. We stress that a potential restart of PM6 would be done in parallel with the permanent closure of PM4 and PM5. These are the key figures for the quarter. Production of publication paper is in line with prior quarter, while deliveries, as you can see, are slightly down, resulting in some increased finished goods inventory. On the containerboard side, we also have some inventory build, mostly as a result of the Golbey PM1 startup.
Operating revenue decreased due to lower volumes and lower average selling prices on publication paper, while the prices on containerboard increased. Other operating income is down, as prior quarter included the insurance compensation at Saugbrugs of NOK 560 million. Pre-tax profit came in at NOK 49 million. Briefly on financial position, the equity ratio increased to 42%, and interest coverage ratio stands at 5.5 times. The cash balance is maintained at NOK 1.1 billion, as CO2 compensation, sale of surplus CO2 allowances, and proceeds from selling Boyer offset the capex primarily at Golbey and the loan repayments made in the quarter. The net debt decreased to less than NOK 4 billion. Looking at the segments for publication paper, we have lower deliveries due to some inventory build, but also both planned and unplanned shuts. Average prices for the segment are slightly down on all grades we deliver.
Lower cost of materials is due to the higher contribution from CO2 compensation and energy contract mechanisms, and also seasonally lower energy prices and improved operational efficiency. This is partly offset by higher fiber prices, in particular higher prices on recycled fiber. On packaging paper, Bruck PM3 delivered positive EBITDA of NOK 26 million, which is the best quarter to date. Higher containerboard prices mitigated the cost of recycled paper or OCC. On Golbey PM1, the ramp-up is ongoing, and we made the first customer deliveries in the quarter. The first deliveries from Golbey PM1 are expected to receive lower average selling prices in the initial months due to trial volumes and some exports out of Europe when compared to prices achieved at Bruck and prices in the general European containerboard markets. That concludes the segment.
I now hand over the word to the Senior Vice President, Corporate Finance, Even Lund, for an update on financing, projects, and markets.
Thank you, Tord. We continue to be grateful for the close relation and cooperation that we have with all of our lenders. During the quarter, we have been able to secure a revised repayment schedule for some of our loan facility agreements. This would not have been possible without the patience and openness from our lenders, and it has been very valuable to the company. With the new repayment schedules, we have better aligned the repayment with the production ramp-up at Golbey PM1, and we have improved liquidity for the next 30 months to the end of 2027. In addition, we have the option to extend certain loan facility maturities further out, but we'll come back to that at a later point. On the right-hand side, you see an overview of our main financing facilities, but I guess you can read that on your own.
On the next slide, we have shown this slide now for quite some quarters, and finally, we're able to show four green check marks. The Golbey project has finally been completed, and we are now at the early stage of ramping up. Ramping up production always involves some burning issues. That's also the case at Golbey, but we are positive and optimistic that this will become one of the very best containerboard machines in the world. Very excited to finally be up and running. Some CapEx is remaining and will most likely be expensed during the third quarter, about €20 million - €25 million. As mentioned several times, we will also have some grants and energy certificates of approximately €52 million to be received over the coming 30 months or so. On the next slide, an update on the future opportunities at Saugbrugs.
As Tord mentioned, we have put the BCTMP project on hold for now due to both market conditions and the relative size of the investment. However, we do continue to look at the potential restart of the paper machine 6, which was damaged in April 2023. The CapEx to rebuild that or restore the machine is estimated at approximately NOK 300 million, and the project would take between 12 and 18 months. We continue to evaluate the potential restart, and we'll get back on that during the second half of this year. Going into the markets, publication paper markets continue on their trend decline of about 5% - 10% and is expected to have that demand decline also in 2025.
Looking at the utilization, we see that the newsprint market is fairly good at the mid-80% level, whereas the two magazine paper grades are more challenging with between 60% and 70% or high 70% utilization. However, as we see on the cash cost curves on the next slide, we have a competitive position for most of our machines. The newsprint machines are very competitive in their segment. Both Golbey PM2 and all three machines at Skogn remain at the very low end of the cash cost curve, and also the LWC machine at Bruck, Bruck PM4 is very competitive, although the market is challenging. Saugbrugs PM4 and 5 are located at the high end of the cost curve.
We have communicated several times that the cost efficiency of those two smaller machines is not ideal, and that's also why we are looking at the potential restart of the PM6 machine to secure the long-term future for Saugbrugs. However, we are also weighing, of course, financial discipline and profitability. We'll get back to that in the second half. Here you see the demand development for containerboard. Containerboard is a growing market around GDP growth, maybe a bit higher from time to time. The market is now characterized by excess capacity and utilization, which should be above 90%, is now below 90%. That means that there is pressure on prices and pressure on profitability. We do expect the situation to improve over time, given that no new conversions or greenfield projects are announced. However, it could take some years for the situation to improve on its own.
On the other hand, we do expect some closures to occur, given how pressured the market is at the moment. On our part, we are very secure with our own two machines in this segment. Bruck PM3 delivered a positive EBITDA in the quarter, despite challenging markets. Also, Golbey PM1 is now ramping up, and we expect it to become a very competitive machine once utilization picks up. Here you see the cost development for the main raw materials. I guess most of you follow these on a daily basis. However, we see energy prices still at a high level, although down from the peaks seen a couple of years ago, it's still above what we consider the pre-pandemic price levels. That's also reflected in the product prices for most of our markets.
Fiber costs are high, especially virgin fiber, has been on an extreme incline for the past couple of years. We do now see tendencies of this reversing, and a 10% price decline for spruce pulpwood in the second half is expected. The EUA, so the CO2 allowances, have remained at between €65 and €70 per allowance, and we have sold about 200,000 allowances in the quarter, or about NOK 176 million of CO2 allowance-related cash proceeds in the quarter. Here you see the product prices. On the left-hand side, you see the three publication paper grades that we produce: newsprint, SC magazine, and LWC magazine paper. Prices have been mainly flat for a long period.
During the second quarter, we did see price declines on our part, a weighted average price decline of about 4% in the quarter due to both some reduction in input factor cost, especially energy, but also due to general market pressure. On the right-hand side, you see the containerboard price index. It has been increasing lately due to increasing OCC cost, but we do now expect OCC cost and the containerboard price to turn, following each other down a couple of notches. On the outlook, as stated for the past couple of quarters, we see both uncertain and volatile operating environment putting pressure on profitability and making the future uncertain. We have a significant focus on our cost position and also improving our working capital in order to remain competitive. Golbey PM1 finally started up, a big milestone for Norske Skog. We expect full utilization during 2027.
As already mentioned, expected remaining CapEx of around €20 million- €25 million with related energy grants and energy certificates and grants of about €52 million to be received over the next 30 months or so. As always, we continue to monitor our capital and liquidity position closely and have always ongoing initiatives to secure our financial performance and optimize our cost position. With that, I think we can conclude the prepared remarks and open up for some questions.
Okay, I'll give the word to Sean O'Rourke. You're welcome to raise your questions.
I think you can now unmute, Sean. All right, maybe we can move to Cole Hathorne if you're able to unmute your microphone, Cole.
Good morning. Thanks for taking my questions. I'd just like to start on some of the comments that you mentioned on the raw materials. I see your charts are to the end of the second quarter, and you mentioned some decline in pulpwood in Norway. I'd just like a little bit more color, you know, what's driving the kind of pulpwood decline into the second half, and are you seeing it kind of across regions? Do you think this is kind of a Nordic-wide view? Also, what are you seeing on OCC considering OCC prices have come down for your recycled containerboard business? Let's start there, and I'll come back to another one.
Yeah, absolutely. I can start, and then feel free to fill in on our end. On pulpwood, as you can see from the chart, it's obviously been a fairly steep incline for a long time now, and prices are at record high levels. As you know, it's been pressure in the pulp market for some time now, and we see reduced demand for pulpwood in the Nordics as a result of that. In addition, the felling of the forest in the Nordics has increased significantly following a longer period of less harvesting from the forests, meaning that you have both a supply and a demand development indicating sort of less pressure on the market. I think that's what we're seeing the effect of now. Unless there's any further comments to...
Any quantification on how much it's kind of easing at this stage?
About 10% is what we see now, at least for the second half, but it's a developing situation.
Okay, Sean O'Rourke, you're...
I think Cole had a question also on the OCC and what we see there. Yes, OCC also has been volatile over the past few years and has been at a very high level with steep increases lately. We do see it coming off a bit based on the discussions we have in the market, and also expect containerboard prices to follow that quite closely due to the overcapacity in the market. I'm not sure if that answers the question, Cole.
Yes, that's helpful. Maybe just following up on the packaging division, just to kind of understand the impact of the ramp-up. You helpfully called out that Bruck generated about €26 million of EBITDA. Should we think about 10% EBITDA margins for Bruck and then just the ramp-up drag? You probably didn't sell very much, but you had high fixed costs in Golbey. I'm just wondering, considering we're at a position where demand is a bit muted, has it been helpful to get people to trial your paper whilst maybe demand's a bit softer and they've got the availability to do it? I'm just wondering how the commercial testing and sales is going for the Golbey paper. Any color there and split between, you know, is my kind of 10% margin correct for Bruck?
I can start with Bruck and then I will hand it over to Robert Wood for the testing of the containerboard volumes from Golbey. Yes, Bruck, I think we've stated for a long time that we expect about 20% EBITDA margin over the cycle for our containerboard division, the packaging paper segment. Obviously, now, as you know, the market is depressed and there is pressure on profitability. A 10% margin in the current environment is probably a fair assessment given where we are, but we do expect it to be better in a better market, obviously. In the current situation, I guess that's fair. I will hand it over to Robert Wood just to make sure that he can now hopefully unmute his microphone.
He does.
Now, Sean.
Robert.
can you hear me?
Sorry. Yeah, just the question. There's a window at the moment for obviously sending out the test samples and then getting trial trucks arranged. We'll make use of that. That was always the plan, of course. You have to send out samples for testing and then get trial deliveries made and then go from there. That's why we've said it's a slightly slower ramp-up in Q3 because of some of the earlier problems. You're right to think that there's a window of opportunity there, and we'll take it from there.
Thank you.
Anything more, Cole?
No, then we give the word to Sean O'Rourke if you're still there.
Yes, good morning, James. Just in terms of your comment around the containerboard market taking some years to sort of improve, why have we not seen closures given that there's low cost as they're coming online? What do you think is creating that at this stage?
Maybe I can take it.
I think, yeah.
Yeah, you go.
Go ahead, Robert.
I think we discussed it before. I think it's inevitable that there will be closures, but it does take some time. We've seen that in the publication paper market as well. There are some smaller, particularly in Germany, some smaller sort of family-owned medium-sized businesses, and they tend to do everything they can to hold on. I think it will take a little bit of time. We'll see, there's been consolidation, obviously, on some of the larger integrated players as well. That takes time to see what they do and how their synergies work. It does take a little bit of time, but I think it's inevitable that that will happen.
Thank you. It's sort of on the online net. What is your sort of best estimate of excess capacity as of today?
It depends how you see the demand, but it is significant. We're confident with the low-cost production that we've got and being in the right position with our assets that we'll be able to, you know, grow our market share as we have done. I mean, we've done that with Bruck, and we will do it with Golbey. We're confident in that.
Just the last one from my side. I just think we're spending quite a bit on the supply side. In terms of underlying demand from the caregivers, how's that sort of evolved in Q2 compared to Q1? What are your narrative?
Yeah, it's still positive. I think it will be a little bit slower over the summer. As we said, we were able to have the best quarter from Bruck and obviously start up in Golbey. I think we're in a good place.
Okay, excellent. Thanks for the time.
Thank you, Joel. We have Marcus Cavalli. You're welcome to raise your questions.
Yes, thank you. I wonder if you could provide some color on the severity of the effect from the planned and unplanned shutdowns within publication paper, as you state. If that is tons EBITDA effect, just to understand, like what is, how would you think about the current run rate within publication paper?
Yeah, I think so. We've had two challenging quarters in a row now, especially on the unplanned shuts impacting us on the newsprint part of the business. In the fourth quarter of 2024, we delivered almost 200,000 tons of newsprint in that quarter. In the current quarter, it's about 173,000 tons. I guess that gives you a sense of how many tons we should be able to increase if we avoid these unplanned shuts. About 25,000 tons more of newsprint per quarter should be realizable if we are able to improve the operations further.
Yeah, that's perfect. Thank you. You state in the presentation, as you did, I think in Q1 as well, that you have this emphasis on reducing production cost and also working capital. Maybe first, if you could provide us with some idea of what you do when reducing cost. Is it particularly like publication paper or is it also containerboard? If you could maybe try to make us understand what you do to reduce working capital as well, that would be appreciated.
Yeah, on the cost initiatives, we have several initiatives to reduce fixed costs. Of course, an important part of that is reducing labor costs and adjusting the number of employees to be as efficient and, yeah, cost-leading as possible. That's a big part of it. There's also initiatives on other elements, maintenance, etc., to really evaluate what we need and what can be postponed. On the working capital, payment terms, for instance, is a key element of that. Trying to, in every negotiation, work with our suppliers to extend the payment terms. Also, optimizing inventories to what we need and not building unnecessary amounts of finished goods, raw material, or parts and accessories in inventories. That's been a strong focus for the last couple of quarters.
Perfect. That's all for me.
Okay, thank you to Marcus. Nicholas Stern, you're welcome to raise your questions.
Hi there, can you hear me okay?
Yes, we can hear you.
Hi. Thanks for allowing me to ask a question. I just had one on the pulpwood prices if I could. I know you mentioned you think it's going to be down kind of 10%, half and half, but if I look at the chart that you've given us versus where, I guess, the wood costs were back in 2021, 2022, there is potentially still quite a lot more of normalization to go. I just wanted to get your thoughts, just given with like some of the capacity shuts in the Nordics, whether this might be the start of a trend lower, or do you think, or is it more temporary because of some factors?
It's a good question. I think if you look at the chart, you see that the incline starts approximately around the time of the Ukraine invasion. That was also the time, of course, when Russian exports of pulpwood into the Nordics were significantly reduced, which has been sort of a key element in driving the price increase. To think that the entire increase can be alleviated without anything happening on that side is perhaps unrealistic. Still, the price level that we see now, and I've seen for some time, is extremely high and is putting pressure on the Nordic pulp and paper producers. It will have a demand effect on pulpwood, and we are seeing that now. Let's see. It's difficult to predict where it will end up, but 10% is a fairly good start.
I think it also will depend heavily on how the forest owners react to this and how the harvest is going forward. Difficult to have a strong opinion on.
A part of the price increase was also attributed to demand from the energy sector and pellets production, which should be kind of easing as we get lower energy prices and more normalized natural gas prices in Europe.
Okay. If I can just quickly follow up on that, it's a quick one, maybe, but if I had to make a guess, I'm guessing a 10% move lower in the pulpwood cost is not enough to make some of the shut capacity competitive again. It would have to be a fair bit more than that for us to see maybe some of these pulp mills restarting again. Is that a fair assumption to make?
I don't think we would complain if that was to happen. We're happy to take your view on that.
Thanks very much. I'll pass it on.
Okay. Thank you, Nicholas. Martin will be here. You're welcome to raise your questions.
I mentioned that you had 4% lower prices quarter to quarter in Q2. I think it was in publication paper, which is a bit hard to reconcile with these publication paper prices as listed by RISI, for instance. Is that an export price, or where do you see the price pressure?
Yeah, that's probably a fair assumption that there's been some movement or more movement on some of the export prices. Europe has been slightly better than that, I would agree. Maybe some effects of the market mix in the quarter. Our European deliveries have held up rather well, so we're pleased with that at the same time. There's an effect from exports and U.S. dollar as well.
Thank you. What kind of price pressure do you expect for publication paper in Q3?
We've had different results depending on markets. Some are rollover, some are down maybe €10 - €15. I would say maybe 2 percentage points in general, 2% - 2.5%. Of course, that's why we mitigate against those with the cost reduction initiatives that we've talked about as well.
Thank you.
Okay. Thank you to Martin Nordby. I cannot see any others have raised their hand. That may conclude today's session. I will thank you all for participating in this webinar. Have a really nice day.
Thank you. Thank you.