Hello. Good morning, everybody. Welcome to this Norske Skog Q3 webcast. This morning we have present part of the corporate management, the CFO and the Strategic Director, the IR manager, and the CEO. I'm Carsten Dybevig, and will be the moderator of this webcast. Sven Ombudstvedt, please, the word is yours.
Good morning, everyone, and also from me, welcome to this short presentation of our Q3 financial results. I will start off by covering a few highlights for the quarter, and then we will open up for Q&A. The quarter was indeed an eventful quarter for us. We term it a good quarter. It's an EBITDA reported of more than NOK 500 million. However, it's obviously down from the second quarter. We had a negative impact by the CO2 compensation scheme, where the government has proposed a floor to the regime. This means sort of roughly NOK 75 million per half year, which we had to adjust then in September. There was a one-off negative effect in September, larger than what it would have been.
We have then adjusted EBITDA of NOK 580 million. In addition to that, if we compare the two quarters, the second and the third quarter, we have reduced volumes as we stopped the PM3 in Bruck for conversion in early July, which then leads to higher fixed costs. There's fewer tons to spread the same fixed cost as we still retain the people in advance of the conversion. The next highlight here is the energy and raw material markets, and they indeed impacted us partly with the high recovered paper prices and to a certain extent unavailability in Central Europe. More importantly on the energy side, we did have some one-off costs both in France and in Australia.
We booked costs which are of more of a one-off nature which are significant, which leads us to believe that the fourth quarter is going to be significantly better than the third quarter. Publication paper capacity, as we have talked about before, is significantly down also in the period 2022-2024 due to conversion projects mainly. Our Bruck machine as mentioned was stopped, but also we will most likely stop our Golbey PM1 for conversion earlier than we previously thought, in maybe towards the end of the fourth quarter. The balance sheet remains solid, and the liquidity is strong presently.
We have a high cash generation in the quarter, leading to a cash and cash equivalent balance of more than NOK 2 billion and a leverage ratio of 0.4, while obviously we still have available lines also, which means that the remaining CapEx for containerboard should be a non-issue. Just very, very briefly on the EBITDA bridge. As mentioned, the volumes are down mainly because of the Bruck closure, but also some, let's say, energy optimization in France and a few production hiccups. Then pricing was higher, which more or less covered the volume shortfall, but obviously was not enough to cover the variable cost impact in the quarter here. Of course, there is also the effect of the CO2 changes, the CO2 compensation scheme changes, so this is somewhat overstated in the quarter.
Just briefly on Australia. Europe was still strong in our opinion. Australia is a bit weaker in the third quarter. We did book a gain share item as we have when Boyer reaches a certain profitability. We have a gain share with the electricity supplier, Hydro Tasmania. Since we now realize this will happen this year, we booked most of this in the third quarter. Overall, the Boyer performance is quite stable at just NOK 50 million if you adjust for it. Balance sheet again quite strong and cash is strong and the cash generation in the quarter was satisfactory. We also expect the fourth quarter, as always, to be relatively cash generative. Just a few words on the raw material costs.
As you can see from these graphs, energy and recovered paper remains very volatile. Clearly there is some positive news in terms of just the cost picture here. But we have indicated that we will still keep energy surcharges, and we still have to remind everyone, despite the downward slope just recently on some of these curves, the costs remain very high in a historical sense. Clearly we also just a few words on electricity. This is becoming more and more important. Obviously, we try strategically to manage this via our waste-to-energy project in Austria and the energy project in the biomass plant at Golbey, which is under construction.
However, we obviously also have day-to-day and hour-to-hour management, and we try to optimize this so we don't either use too expensive spot energy and that we also sometimes take opportunities to sell contract energy in the market when there are interesting opportunities. Probably during the fourth and the first quarter, there will be more opportunities than what has presented itself now in the summer period. Just very briefly on the containerboard projects. The message here is one of on time, on budget. We still are on time for the Bruck conversion, where there will be commercial paper in the market in the first quarter of next year.
The project is sort of in the final stages now and everything is according to what we have communicated previously. Similarly, in Golbey, which are for start-up later in the fourth quarter of 2023. Also here we have now committed around NOK 200 million of the net investment, so NOK 250 million, which also should give a relatively high comfort around both the number itself but also on the timing that we have communicated. In general, these projects, as we have indicated before, looks even better now than when we made the investment decisions and despite, let's say, some weakness in the containerboard market over the European summer, we are still relatively optimistic when it comes to this space going forward.
Just a couple words on CO2. Clearly we were disappointed by the proposed national budget by the present Norwegian government and this is clearly something that we will try to lobby for a reversal. We are not overly optimistic that we are able to do that, as we obviously booked the difference in the quarter. However, CO2 emissions remain high on our agenda, and we will still keep our targets for reduction, and we will still obviously have quotas and important contributions also in France and hopefully in Austria also for CO2 compensation. Despite the setback, we still continue on the path towards reductions and towards harvesting also money from these schemes.
Just to round off this very short walkthrough of the third quarter presentation with a few words on the outlook, we still think that the publication paper market will remain tight. Closures will see to that. There is still a reasonable demand development for all products. If you look at the year-to-date figures that we published, you have to keep in mind for magazine that the UPM strike in Finland means that there was quite a curtailment of supply in the first half. Both supply and demand is probably more now at sort of a normalized level, but the industry is still running with low stocks and it's fair to assume a tight market also going into 2023. Raw materials and energy continues to be volatile.
We will try to take as much opportunities on that around that as possible. The third bullet point here talks about the energy exposure. I think in the wintertime, there is probably more opportunities for us also to sell some surplus energy under contracts with some interesting results. Publication paper prices have increased into the fourth quarter. This is to address the cost increases that we saw during the third quarter, both as a company and as an industry. These price increases have been sticking in the market. There's maybe a slight weakness on lightweight coated, but in general, prices are sticking. Containerboard, as mentioned, we are certainly looking forward to that and to this market in the first quarter of next year.
The whole organization is now gearing up towards a successful launch of the Bruck project. Finally, just to not forget that we obviously are still working on our energy and bioproducts in Norway and elsewhere. We have also made progress in the third quarter. However, this is a longer schedule for most of these projects, and that we will only see the meaningful commercial results of that in the medium term rather than in the short term. On that note, Carsten, I will hand back to you for the Q&A.
Yes. Thank you for the presentation. You're now invited to raise questions or give comments to the results. The first on the list is Kenneth Svendsen. You're welcome.
Good morning, everyone. On the prices, it seems like, I guess reference price is lifted by some 7%-15%, based on various grades. How should we think about the timing effect for Q4 and then potentially moving into 2023 based on what is announced so far? Secondly, if I may, given the price uplift you have seen, it seems like demand or at least, supply-demand balance is holding up and remains tight, but how should we think about demand?
Well, in terms of the pricing, this is mostly pricing applicable from the first of October. You should think about the price increases as per the first of October and until further. That's the pricing in terms of the demand side. We do not really see a softening of demand. I think the general economic activity in Europe was relatively low in July and August. Also our deliveries were lower in July and August. In September it was more sort of back to normal level. For at least for newsprint and SC, the demand is holding up reasonably well.
Lightweight coated is probably slightly different as the prices and the cost figures push the price of lightweight coated higher. This is probably where we've seen some resistance, and there is maybe the usage of lightweight coated is more sort of on a decision basis rather than publications which are published every day. I think there's a slight weakness in the lightweight coated market, but we do not see a general weakening, quite the contrary. We believe that the supply demand balance will be strong also going into 2023.
Thank you.
Okay.
Just on a final note for me, the financial headroom, given what you said you have, a liquidity buffer at EUR 460 million and a remaining CapEx, it seems like you have a very solid headroom. How do you think about it? Do you want to have such a liquidity, or is it something you will consider as you move in toward the end of the project?
I think we will always be active and try to manage that part of the business as well as we can. Clearly, the present earnings and the cash flow is reasonably good, so it gives maybe opportunities that we didn't have, let's say a year ago or two years ago. Indeed, it's a better position than the opposite position, so I'm not going to be too problematic around that.
Thank you.
Thank you, Kenneth. The next one on the list is Christian Spital, and the word is yours.
Thank you. Looking at kind of the clean EBITDA margin in Europe, it's down from, well, all the way I defined it, from 23% to 15.5% quarter-over-quarter. Obviously you have some higher fiber cost, energy prices, et cetera, but you also took out PM3 at Bruck, which should kind of have a curative effect there. Is it fair to say that you have been a bit unlucky with how you have maneuvered in the quarter, in terms of temporary production halts and availability on raw materials? Could you give any flavor on that?
Yeah, I think unlucky is maybe not the right word. We have to be responsible for what we do. I think the big uncertainty and the big fluctuation here is mainly the energy positions that we have. In the quarter, of course, I mean, everyone knows about the CO2 compensation scheme in Norway. We had also in Australia similarly, and if you go to Europe, we also have French issues around energy. We are obviously a large scale consumer under various French schemes, and some of these schemes are a little bit sensitive to how much product you take out and when you stop, et cetera. It's difficult in any one quarter to exactly optimize that.
You shouldn't read too much into the quarterly margin per se. In other words, if you look when we come to year-end, if you look over the year, it's more reasonable because these systems are geared towards sort of an annual consumption rate. All in all, I think, for this year, we will probably be slightly higher on average in Europe on the margin side than what this quarter is.
Okay, thanks. You mentioned some risk to raw material availability in Q4. How are you seeing that now?
What we indicate here is that, as all large scale industrial consumers, if the winter is very cold and there is a huge, let's say, demand for household electricity, then there is obviously a risk that industry is asked to contribute to that. Other raw materials is probably less of a problem. We did have some recovered paper issues in the third quarter that is not going to be repeated in the fourth quarter. In general, we don't really have an availability issue. I think what can still impact us and other big industrial consumers both in the fourth quarter and the first quarter is energy and the energy situation. On the, let's say, more positive side of that equation is the fact that this may also give us an opportunity to sell some surplus energy at interesting returns in the more sort of short-term optimization.
You also mentioned that the maintenance was pushed into Q4.
Yeah.
How should we think about the volumes, quarter-over-quarter here?
Yeah, I don't think there will be a big change now despite the fact that we are indeed pushing maintenance. I don't think the volumes in the fourth quarter will be much different than the third quarter.
Okay, thanks.
Okay, thank you, Christian. Any others who wants to express their opinions or raise some questions? There is nobody on the list, so I guess you are all satisfied with the presentation and the questions and answers given. This will conclude the short webcast from Norske Skog today, and I wish you all a very pleasant day. Thank you all.