Good morning, everyone. My name is Carsten Dybevig, Vice President of Communication and Public Affairs at Norske Skog. Welcome to this webinar, where we will present highlights from the third quarter. Presenting today are Geir Drangsland, the Chief Executive Officer, Tord Steinset Torvund, Chief Financial Officer, Even Lund, Senior Vice President, Corporate Finance. Also joining us from the corporate management team is Einar Blaauw, General Counsel. There is no prerecorded presentation for this quarter available on Norske Skog website. This webinar is being recorded and will be made available on the website after the event. Following the presentation, there will be a Q&A session. To ask questions, please raise your hand using the reaction function in Teams. We ask that all microphones remain muted. With that, I hand it over to you, Geir.
Thank you, Carsten. Good morning to all of you this October morning. Thank you for sharing time with us to go through the third quarter figures for Norske Skog. I just think I will hand it over to you, Even, so we can start. Thank you.
Thank you, Geir. The last few years have been characterized by a focus on liquidity and governance from the Norske Skog side. However, with the transactions completed in 2025 and 2026, we now feel it's time to look forward and reflect on where we have come and where we are going. We are on the offensive in our growth and transition strategy, recently exemplified by our decision to rebuild the Saugbrugs PM6 paper machine. Since our announcement to enter the packaging market more than six years ago, we have delivered more than 800,000 tons of recycled containerboard. We have introduced Interliner at Skogn and will now further expand our product portfolio with TMP Liner at Saugbrugs. Our publication paper portfolio remains complete, and we will remain a reliable supplier of quality paper while navigating an exceptionally challenging energy market.
Simultaneously, we are increasing commercial deliveries of book paper at Skogn, and we are exploring new paper grades across all of our mills. We hope to provide exciting news on this going forward. Although less frequently discussed, ancillary services and energy generation remain integral to our business. We provide important and, at times, critical services to the regions in which we operate through heating, grid stabilization, and backup capacities. We also produce sustainable energy from a range of sources. Combined, these developments have allowed us to establish a diversified revenue base, and we intend to continue along this path going forward. Last year, we successfully concluded our Australian divestment process, completing our transition into becoming a European group. We have two mills in Norway producing paper from high-quality Norwegian spruce and two mills in continental Europe producing recycled packaging paper and publication papers.
We believe these two represent strongholds for the group that complement each other without being dependent on one another. Briefly on our mills. This is a picture of Norske Skog Golbey, our flagship mill and most valuable asset. It has a state-of-the-art containerboard machine, the PM1, with 550,000 tons of capacity currently being ramped up. In addition to a modern newsprint machine, the PM2, with 330,000 tons capacity. It has competitive long-term energy access through both agreements with Exeltium and steam supply with Green Valley Energie. Further, it has biomass boiler capacity and gas boiler capacity of around 90 megawatts each, and we are now developing a high-value biogas grid injection to the French power grid. Norske Skog Bruck is performing better and better, and we are proud to say that we have seen a successful turnaround of this mill after a few challenging years.
Production in the quarter from the containerboard machine was at new record levels, and profitability is improving every day. We are very proud of what the team at Bruck has been able to achieve over the past few years. The mill has a very profitable containerboard machine, the PM3, with 210,000 tons capacity and a well-invested LWC machine, the PM4. It has extensive energy assets through both the waste energy boiler, biomass boiler, and a large grid connection. We are now in the process of installing a 20-MW battery energy storage system, which will be live in the second half of 2027. Bruck is also a regional supplier of industrial district heating and an important balancing energy supplier to the power grid.
Norske Skog Skogn operates three newsprint paper machines, which are highly competitive in their markets, and we believe this mill is well-positioned to be the last man standing in the newsprint market. It is now the main newsprint supplier to the U.K., utilizing an on-site deep-sea, ice-free Atlantic port. This year, we successfully launched the NOR Book paper grade, targeting customers within the main publishing markets. In addition, we are diversifying our revenue stream with NOR Strato packaging papers. Skogn represents the largest wood processing mill in Norway, built on Nordic spruce, which enables long-term competitiveness. Norske Skog Saugbrugs PM6 to restore both the profitability and the outlook for Saugbrugs. This rebuild will allow us to have flexible production of both up to 300,000 tons of TMP-based kraftliner or 230,000 tons of SC magazine paper.
The rebuild will be based on important infrastructure at the mill, including low cost TMP of 450,000 tons and Norway's largest biomass boiler. PM6 has an excellent operating track record and is considered a top machine within the SC magazine paper market. Furthermore, the unique fiber processing competence at Saugbrugs, and production equipment will enable high strength TMP-based kraftliner. We target EBITDA margins of 10% for magazine papers and up to 20% for TMP-based kraftliner over the cycle. Through the PM6 rebuild, we will bring back a world-class paper machine. The damages at the machine are mainly at the back end of the production process, and will only be requiring small changes in the production equipment and some repair works. The upgrade is primarily at the wet end of the production machine, which will allow us to produce both a thicker and stronger paper for packaging applications.
Saugbrugs has a proven track record of delivering projects on time and on budget, last shown through the Next/Therminator project in 2020. We estimate the investment to be around NOK 850 million, with startup expected in the first half of 2028 and a short ramp-up period. In parallel, we will continue to explore the establishment of a data center at the site between 80 and 100 MW capacity, and we will restart the zoning process together with the municipality during the fourth quarter. With that, I will hand the word over to our Chief Financial Officer, Tord Torvund.
Thank you, Even. Let me start with the key highlights for the third quarter. We maintain profitability in a challenging operating environment. Costs increased for energy, fuel, and chemicals, and the stronger Norwegian crown continued to create a headwind for the Norwegian mills. We have responded with price increases across most grades, cost surcharges where required and continued cost reduction initiatives across all mills. Reported EBITDA was NOK 448 million and pre-tax profit NOK 251 million. The quarter includes a NOK 338 million gain from the NND transaction at Saugbrugs, but the figures also show an improvement in underlying operating performance. The main operational challenge was Golbey PM1. Deliveries were affected by a regional drought, unplanned maintenance at the wastewater treatment plant, and press crushing issues. We expect these issues to improve during the fourth quarter, and we have already seen signs of that so far.
Liquidity strengthened after quarter end when we received NOK 770 million from NND in early October. Around NOK 50 million of these are earmarked for dismantling. The remaining proceeds provide a clear basis for the significant debt installments in the fourth quarter. Moving to the key figures. Total deliveries were slightly below the previous quarter, with publication paper deliveries in line with Q2, while packaging paper deliveries declined to 115,000 tons, or recycled containerboard deliveries declined to 115,000 tons because of the Golbey issues I just mentioned. The volume mix is also developing. Newsprint remains the largest grade, but book paper, Interliner, and recycled containerboard increasingly broaden portfolio and will continue to broaden the portfolio going forward. That flexibility is strategically important because it allows us to direct our capacity towards markets and customers with a more attractive contribution margin.
Operating revenue increased to NOK 2.6 billion and total operating income reached just above NOK 3 billion. The increase in total operating income is mainly explained by the NND gain recorded in other operating income. EBITDA, as mentioned, NOK 448 million corresponding to a 15% margin. Excluding the NOK 338 million NND gain, the quarter still shows positive underlying EBITDA, but the level remains somewhat constrained by the Golbey issues and higher energy and raw material costs. Pre-tax profit was NOK 251 million, compared with a loss of NOK 163 million in the previous quarter. Turning to the financial position, the equity ratio was stable at 41%, and interest coverage improved to 3.8 x. Cash at the end of the quarter was NOK 577 million. The NOK 770 million NND proceeds were received at quarter end and is therefore, of course, not included in the cash closing figure.
Reported net debt was NOK 4.4 billion at quarter end. On a simple illustrative basis, receipt of the NND proceeds would reduce the net debt to approximately below NOK 3.7 billion before the related dismantling use and other cash movements. Significant installments will be paid during the fourth quarter while we continue to maintain discipline on working capital and investment control. Moving to the segments and looking first at publication paper, deliveries increased to 282,000 tons and operating revenue to NOK 1.95 billion. Prices and deliveries were both slightly higher than in the second quarter. The positive commercial development was offset somewhat by higher raw material costs and particularly higher energy prices. Distribution costs were also higher, while employee benefit expenses and other operating expenses declined compared to the previous quarter. Reported EBITDA NOK 431 million, including the NOK 338 million NND gain.
We are implementing cost surcharges where required and considering market-related downtime when production economics do not justify running full. Alongside this, the mills continue to reduce fixed costs and improve efficiency. In Packaging Paper, operating revenue increased to NOK 535 million, despite deliveries declining to 115,000 tons. Higher prices helped, but raw material costs increased significantly due to energy, fuel, and recycled fiber. Bruck PM3 delivered 55,000 tons and EBITDA of NOK 40 million, the best quarter since the machine started, both in terms of production sold volumes and results. It is now operating at full capacity or technically even above the nameplate full capacity and demonstrates the earnings potential of an efficient recycled containerboard machine. Golbey PM1 delivered 60,000 tons and EBITDA of NOK -4 0 million.
As mentioned, the quarter was affected by a regional drought, issues in the effluent treatment plant, and some machine-related issues, resulting in press crushing. Removing these operational disruptions and continuing the ramp-up are the most important levers for profitability in this segment going forward and a key focus area for the whole organization. The first tranche of the French energy certificates will come in 2027 and subject to the price of these certificates, the CEE price. We now expect the certificates with an estimated market value of around EUR 23 million in 2027 and EUR 52 million in 2029. These are numbers in euros. Moving to publication paper market balance. The publication paper charts you see here show why capacity discipline remains essential.
For 2026, estimated utilization is 82% in newsprint, 74% in uncoated mechanical, and 75% in coated mechanical, and demand is expected to decline by 7%, 9%, and 9%, respectively. Newsprint has historically shown the best ability to restore balance through closures and conversions. Magazine paper markets remain more challenging, although market downtime and extended maintenance shuts at competitors contribute to making the market tighter than what the utilization rates on these graphs indicates. Our commercial position is stronger than the market averages suggest. We continue to gain market share and focus on customers, products, and geographies where our mills have a structural advantage. Nevertheless, further industry capacity closures are required to maintain a sustainable balance across all grades. In declining markets, cost position is decisive. Skogn and Golbey PM2 are competitively positioned in newsprint.
Their scale, energy positions, and well-invested assets support the strategy of remaining among the last efficient producers in the market. Bruck PM4 is positioned toward the higher end of the coated mechanical curve, both operating performance and integration with the wider Bruck energy platform support profitability. The current Saugbrugs PM4 and PM5 setup is high on the uncoated mechanical cost curve. The planned PM6 rebuild is therefore strategically important. PM6 is expected to move service materially down the SC cost curve through scale, efficiency, and the use of existing fiber and energy infrastructure. It is also important to remember when reading the curve that Saugbrugs produces premium virgin fiber SC qualities that achieve a different pricing compared to the lower grade recycled fiber products that are also included in the uncoated mechanical figures on this graph.
Moving to the packaging paper markets, the recycled containerboard market is structurally more attractive, but current utilization remains too low for broad pricing power for producers. Western European utilization is estimated at 86% in 2026, with demand growth of around 1.4%. The industry is still absorbing capacity added through recent conversions. We therefore expect competition to remain intense in the near term, while demand growth and the absence of major new announced conversions should gradually improve balance over time. On the cost curve, Golbey PM1 is well-positioned, and when including revenues from gate fees from the waste to energy boiler at Bruck PM3 have a significantly better cost position than what are indicated on this chart and are more in the same area as Golbey PM1. On raw materials, raw materials remain a major source of volatility.
Energy and fiber, together, represent a substantial part of our cost base. Electricity and natural gas prices have risen sharply in 2026 following the geopolitical events. We manage this through hedging, flexible production, and participation in energy and grid balancing markets where this is available. Recovered paper prices have also increased from early lows, putting pressure on recycled containerboard margins. However, at the same time, Norwegian spruce pulpwood prices have declined from their 2025 peak but remain high compared to historical levels. European carbon allowances are less important for our company now, following the decision to kick Skogn and Saugbrugs out of EU ETS as a result of having too low fossil CO2 emissions. On selling prices, we are implementing increases across most grades over the coming months. Publication paper prices have been relatively stable since 2024, with a modest increase visible towards the end of the current period.
The priority is to protect margin against higher energy, fuel, and chemical costs, including through surcharges, where general price movements do not compensate for the cost pressure. The German test liner index has strengthened during 2026. We realized higher recycled containerboard prices in the third quarter and expect further increase in the average prices also in the fourth quarter. The commercial focus is therefore not volume for its own sake. We will balance price, contribution margin, customer relationships, and utilization, and we will use market downtime when running would destroy value. Moving to the outlook, we continue to take market share while protecting contribution margins through price increases and operating discipline. We have ongoing initiatives to reduce cost and working capital across all mills to maintain competitive. The Golbey PM1 ramp-up is a key focus area.
The machine's long-term industrial position is very attractive, but we need to restore operational stability and move toward full utilization in 2027. Profitability and outlook for service to be restored with the rebuild of PM6, which is expected to be completed in the first half of 2028. In summary, we have strengthened liquidity, made visible progress on costs and pricing, and clarified the future for Saugbrugs. The near-term focus is execution, particularly at Golbey, while preserving financial discipline in challenging markets.
Thank you, Tord. We will now open for questions. So far, there is no questions. You're also possible to raise your questions in the Q&A session. Yes, we have from Sean Ungerer. You're welcome to raise your question. You have to unmute your mic.
Can you hear me? Good morning. Good morning. Can you hear me?
You're welcome, Sean, to raise your questions.
Can you guys hear me? Hello, can you hear me?
If you can't talk to us, you can write the question in the Q&A.
Okay.
Yeah, area. I can't understand what the questions.
[inaudible]
No, we can't hear you.
[inaudible] If you got more. [inaudible] Hello?
If you can please try again, Sean.
Can you hear me?
Yes.
Excellent. I was unmuted. I am not sure what the issue was, but nevertheless, thank you for the time. I think just in light of the fragile supply-demand backdrop in recycled containerboard in Europe. Obviously, this is now being compounded by higher energy prices. Outside of having to try pass on these higher energy costs, what do you think the impact on the market is going to be? Do you think this is another trigger to potentially see some closures? How are customers responding to this from their side? That is the one question. Then the second question is, from a quarter ago, are you less optimistic, more optimistic on supply-demand fundamentals? My third question is, I think there is quite a bit of new capacity coming in in the next quarter or two, but I stand to be corrected. How do you think that will impact the market?
Thank you.
Yeah. Starting with the first question on the energy prices and the effect on recycled containerboard markets. We know that a significant portion of the European capacity is more or less depending 100% on natural gas. With natural gas prices seen now, we cannot see that this either has to be reflected in further price increases or some capacity needs to come out. The second question was—
On demand development since the last quarter, I think we have not really seen any material underlying change in demand since Q2. We see a fairly stable picture since then. I think there was some concern about overblown demand during the first half related to stock levels, et cetera, on the customer side, but we have not really seen a reversal of demand since the second quarter. I must admit I did not catch your third question, Sean.
The third question was—
[inaudible]
Sorry?
No. Carry on.
The third question was related to new capacity coming to the market and how you think that is going to affect, or how you think it is going to be absorbed.
I think that is certainly an interesting question for 2027 and 2028 with now the King's Lynn conversion and Shotton being established in the U.K. and also from what we hear, there is also a still ongoing ramp-up at other mills. Not only our own Golbey, but other recent startups over the past few years are still in the ramp-up phase. Clearly there will be more capacity coming into the market over the coming years. This must be also then met by further closures and clearly, of course, the capacity coming on stream now is significantly more competitive than some of the existing capacity. We believe the market would have to be balanced by closures going forward.
Awesome. Thank you. That is it from my side.
Thank you, Sean. We have got a chat from [Ole Andre Christensen]. You mentioned that Skogn has a large property bank with an attractive energy position and a possibility of significant future expansion on its 250 MW grid. Can you elaborate on this?
Yes, absolutely. As we write, Skogn has a significant property bank, where other developments can be made. In addition, we have both the physical power infrastructure and the required grid connection to establish additional activities. We currently use about 160-180 MW of our grid connection, so there is already a surplus. But we are also in the early stages of expanding our physical infrastructure and which could potentially, over time, lead to a greater grid connection also, potentially targeting up towards 500 MW connection, but that is 5-10 years into the future. But this is part of industrial profile and footprint of Norske Skog to continue to work with our industrial sites and try to generate possibilities where we see possible. But this is certainly one of the more interesting areas for Skogn in the longer term.
We also got a question, is it possible to visit your production facilities?
Yes. Of course. We are happy to invite both investors and shareholders, analysts and others to our mills. We have previously arranged trips to Saugbrugs and Golbey, and to Skogn. Of course, happy to try to facilitate something in 2027. I suggest you reach out by email to either Tord or myself, and we can keep you on the list for future mill visits.
We also got a Q&A. Can you elaborate on the future ownership structure of the data center development at Saugbrugs? It is from [Ole Andre Christensen].
There is no update on that front today, unfortunately. We still have an exclusive intention agreement with Green Mountain and are working with them to see what possibilities we can develop together at Saugbrugs. We have not come to the stage where we are discussing ownership or how to move forward with a joint venture project. We will update on that when relevant.
There is no other questions in the chat or Q&A. Yeah, there we have one from [Alexander Engevik]. You are welcome to raise your questions.
Hello, thanks for taking my question. My question is regarding Saugbrugs and how you intend to invest or finance that investment. Any color on that would be useful. That is my question.
Yes. Thank you, [Alexander]. We did not elaborate too much on this in the presentation. We did put some details on it in the press release from October 7th. We currently have an intention to undertake a sale-leaseback for the PM6 building and the property, to generate some cash proceeds from the sale and then to lease back the building for a 20+ year period. In addition, we are also in the process to extend or increase our lease, our office lease to the Norwegian Nuclear Decommissioning Agency. They currently lease two out of five floors in our Saugbrugs office building. We hope to motivate and convince them to expand their lease as their office needs increase in the coming two years. That will, of course, also then be an attractive property and with a long-term lease agreement that could be sold to property investors.
That is a second sale we are looking to raise funds. In addition, we have ongoing dialogue with our relationship lenders and are also, of course, generating a fair bit of cash from our recent property sale to NND. Those represent the main sources of financing for the PM6 project.
Thanks. That is very useful.
Thank you to [Alexander]. There are no further questions in the chats or in the Q&A or any questions from any of the people here. Thank you all for joining today's webinar. I wish you all a pleasant day.
Thank you.
Thank you.
Have a good day.