Please. Well, good morning, everybody. It's very convenient if you please put your phone on mute. Good morning, everybody. Welcome to a short webinar where Norske Skog's CEO, Tore Hansesætre, will present highlights from a very good quarter. The CEO and the corporate management are present. After presentation, you will be able to raise questions to the CEO by raising the yellow hand in the teams. Please keep your microphones on mute. The word is yours, Tore.
Thank you, good morning, everyone. Thanks for spending the morning with Norske Skog. I will take you through, as Carsten mentioned, briefly, the parts of the presentations here. If you manage to, there we are. First page, just to remind everyone who Norske Skog is, with our five high-quality industrial sites, four in Europe, one in Malaysia. Also remind you that we are in an investment program, where the main earnings are in front of us from that. Of course, we are now entering the recycled containerboard market, which we are very pleased about. On the financials, we see that the net debt is NOK 1.7 billion.
The remaining net CapEx for the expansion project are NOK 1.4 billion. The cash position of the company is NOK 2.7 billion by the end of the quarter. With undraw financing facilities, we have liquidity up to NOK 4 billion, so well covered for the remaining part of the expansion CapEx. Carsten, do you push to the next slide? This doesn't work, I think. The next slide shows the highlight of the second quarter. We have a strong financial position; however, with huge earnings into a market downturn. EBITDA of the company ended on NOK 380 million, which are then including NOK 90 million from business interruption at the Saugbrugs for the month of May and June.
The net debt of the company, NOK 1.746 billion, with then a leverage ratio of [.0 ], with then net cash position of NOK 2.673 billion. The market remains challenging with price and profitability pressure. The publication paper prices are lower due to continued demand decline, weaker market balance, but also lower raw material costs. We see also on containerboard that prices have been stabilizing after dropping in the previous quarters, but also, both in publication paper and containerboard markets, we believe additional capacity closures are required, and we believe that also will happen. Saugbrugs PM6 is unfortunately stopped since the 27th of April due to a rock slide. The extent of the damages and the rebuild is still to be investigated.
But PM6, we... From the inspections so far, we then say that PM6 will likely be closed through the first half of next year. The mill is insured both for property damages and business interruption for up to 18 months. This quarter, we are entering the containerboard market with the start-up of Bruck PM3, which is running according to plan, and we expect that machines to be in full utilization in the second half of 2025. However, we have moved the Golbey start-up from the fourth quarter of this year to the second quarter of 2024.
Due to the financial situation, solid financial position of the group, the board has resolved to initiate a share repurchasing program for up to 10% of the share capital, in line with the mandate given from the annual general assembly. The repurchasing program will start today, and run then to the end of the year or when the max amount of NOK 472 million is reached. One page on the Saugbrugs incident, which you also see here visible on the slide. The rock slide on 27th April damaged buildings, machinery, and equipment. That is by far the most important here, is that no one was physically harmed in this uncontrolled and unfortunate incident.
The main focus for us in the second quarter has been to secure the site, remove rocks and building materials to get access to the paper machine. PM6 has a 260,000 tons of SC capacity and will be out of the market for the first half of next year as well. Bruck has insurance coverage for both property damage and business interruption for up to 18 months, and we have for the May and June months a recognized business interruption of NOK 90 million in other revenue, and by that also, EBITDA in the second quarter of 2023. In Bruck, we are ramping up the production for containerboard, which you also see here on the picture.
The deliveries in the second quarter was 10,000 tons of recycled containerboard, and we expect that to more than double in line with a normal ramp-up phase for the machine. Of course, for us now, it's both to introduce ourselves to customers and qualify and get that up and running. Of course, from a production point of view, it's about stabilizing the production, optimize production cost, recipes, and so on, which is normal for a ramp-up of these type of machines.
On Golbey in France, we have a startup of PM1. We have moved to the second quarter of 2024 to reflect the revised time plan for installation work, and the startup of the machine is now then aligned with a new biomass boiler from Green Valley Energie ( GVE).
The net investment for the project is NOK 265 million, which then is including energy-related grants and certificates, which will be paid out in the period of 2023- 2027. The group financials, very short, that the revenue increased by 2.5% to NOK 3.404 billion, and that the main driver there is 10% increase in deliveries, while the selling prices went down, which is also the main driver for EBITDA, decreasing from NOK 675 million in the previous quarter to NOK 380 million, giving them EBITDA margin of 11%, which is more in line with over recycled EBITDA for publication paper. Operating cash flow, the cash conversion from EBITDA to operating cash flow was fairly good, ending on NOK 353 million for the quarter.
This is mainly driven by working capital release through reduced inventories, but also receive payment for CO2 compensation for the previous year. Net debt increased to NOK 1.746 billion, with still a healthy leverage ratio of 0.7. This is the increase is driven by the planned investment program for the conversion projects main. Briefly on the segments, Norske or the Publication Paper Europe, we have seen pressure on prices and profitability. We ended on NOK 429 million, which is a EBITDA margin of 15%. In the number, we have included business interruption for May and June for Saugbrugs.
We also are pleased that Austria approved CO2 compensation for 2022 to be paid out this year, but the amount of EUR 4.7 million is then recognized in the second quarter of 2023, fully in the publication paper segment. Publication paper Australia, we are improving operations even though the result is still disappointing and negative by minus NOK 5 million. We have challenging profitability, mainly due to increased raw material costs, which we have not been able to offset fully on prices in the second quarter. However, they have implemented price increases for the second half of this year, which should then improve the profitability for the region. packaging paper, we are still on the second quarter in a very first phase of a ramp-up.
Result-wise, it's very equal to the first quarter, where we did not have any production. Other activities is slightly negative, but an improvement from previous quarter due to reduced valuation of the long-term incentive program. In the market, we see that variable costs, the main input factors are coming down from the peak levels in 2022 and have been then reducing throughout 2023, both energy recycled fiber. However, the virgin fiber in the Nordics is still highly priced, among other, due to reduced import of wood from Russia to the Nordic area.
Even though the variable costs have come down, and also driving prices, or one of the reasons for price, the selling prices also coming down, it's also important to mention that the trend, we are still above the trend levels, in terms of historical prices versus where we are now on these variable costs. Selling prices have decreased from the peaks and throughout also the second quarter. For all publication paper grades, while for recycled containerboard, it has stabilized in the quarter, which is reflecting that we are meeting the cost bottom here.
The European, we also remind you on the CO2 allowances that Norske Skog, due to its low carbon footprint, we have surplus allowances to sell. That is then positively impacted by higher CO2 prices. The publication paper market, the industry is used to handle structural demand decline. As you can see, the industry take out capacity along with demand on the left-hand side. On the right-hand side, you see that from basically beginning of 2022 and that the deviation between supply and demand has increased, and that the industry is currently on low utilizations.
There is announced, or capacity have been taken out, now, mid this year in the industry, also 600,000 tons more is announced to be closed by the end of the year, there is still need for more capacity takeout to balance the market. The Norske Skog group is in a strong financial position, the board has therefore decided to initiate a share repurchasing program in accordance with the authority given by the general assembly, with the maximum number of shares to be 10% of the share capital, with the maximum consideration of NOK 472 million. The purpose of the program is to return excess capital to the shareholders, this program will start today, and we will report on a weekly basis the transactions made.
Finalizing with the outlook, the raw material and energy costs are stabilizing. However, the development going forward remains uncertain. In general, it is higher volatility than, let's say, previous years. Paper prices are influenced by the lower variable cost but also weak market balance. Containerboard prices, we see signs of stabilizing now in the second quarter, and we expect no further price decreases going forward. There is still a challenging market situation also for containerboard. Further capacity closures and industry consolidation are therefore required in both publication paper and containerboard. The introduction of Norske Skog Bruck in the recycled containerboard market is well underway, but we still expect negative EBITDA from the packaging paper segment in 2023 as we ramp up production.
We are maintaining a healthy balance sheet, we have a strong liquidity position, and we have a strong cost competitiveness for our mills. We will also put a placeholder in your calendars for the Capital Markets Day on 16th November, here in Oslo. Details will be provided, but we hope to see you there. By that, we end the short recap of the presentation. I guess we are open for questions.
You may raise questions by pushing the hand, yellow hand on your screen. There is nobody so far. Kristian Sp etalen, you are welcome to raise your question.
Thank you. I just had a question on the paid taxes here, which was half a billion. Just trying to understand that in with regards to the tax assets you have in Norway.
Yeah. This is mainly linked to where we are in tax position, which is in Austria and France. This is linked to tax for the year of 2022, mainly in France.
Okay, thanks.
Yeah.
We have another question? No? Okay, Johan, Johannes Grönselius, you're welcome to raise your question.
Yes, good morning. Could you maybe elaborate a little bit on how you see the third quarter in terms of, let's say, building blocks for earnings? You indicate that you will continue to have negative earnings for the new containerboard business. That's pretty clear. Should these be sort of less negative Q3 versus Q2 because of absorption of fixed cost? If you can talk a little bit about that. Secondly, if you could talk a little bit, if there will be heavier price pressure in the third quarter on publication paper versus the Q2, since it appears that the big price weakness came at the end of Q2.
Yeah. To start with the first part of your question, Johannes, on the packaging paper segment, we expect to ramp up and more than double both the production and the deliveries, at least the deliveries in this second or the next quarter, the third quarter. It is clear that we will have profitability-wise, we don't expect a significant improvement quarter-over-quarter. We are still running, you know, 50% to 60% to 70% on utilization. It's I think you should not expect a significant improvement in that segment into the third quarter. On the publication paper part, the main building blocks there, we do see paper prices coming down in Europe from second to now into the third quarter.
I will not guide on percentages there, but we also see that the variable cost in general should, for us, go also somewhat down from the second to the third quarter.
Okay.
Yeah.
Okay.
Do you have any more questions, Johannes?
Maybe I can also ask you about how you foresee 2024, 2025 on your new packaging business, given that it appears that your, you know, market are really, really weak at the moment for containerboard. We have seen competitors walking out from projects and, yeah, some closures, et cetera. If you can talk about, I mean, I think your guidance has always been 20%+ plus EBITDA margin on this new business. If this is still valid, given what you see at the moment in the market?
I would say it's, the numbers you referred to are then, linked to that when we are fully up and running with both machines, which will happen in 2026, in a way.
Mm-hmm.
I think that needs to be taken into the context of the 20% margin and which shape the industry will be in at that point in time. I think we from our side, we of course, it's positive for us that some of the, what you say, projects are put on hold or not gone through from the, from the other suppliers. It's, I think, reflecting that the industry, as of now, have a very challenging times, and that further, I think capacity will be taken out permanent or temporarily to balance the market, to improve margins.
Right. Thank you.
Okay. Thank you, Johannes. The next one on the list is Martin Melbye. You're welcome to raise your questions.
Good morning. Two questions. You highlight that your markets need capacity cuts. Will you participate, or who do you think should do it? The second question, where do you foresee net debt at the end of the CapEx period?
On the capacity cuts, we of course, we have taken out capacity with the conversion projects, so both in Bruck and Golbey. Right now, Saugbrugs is temporarily down with PM6. We will of course adjust, what you say, our capacity to the market as well as you can see from utilization rates in the first half of this year as well. As of now, it's, we don't believe that we are the one to make permanent closures due to cost competitiveness, at least right now. It's. I cannot speculate on who others that should take out, more saying that the overcapacity is there and the industry historically has always addressed this, and we believe this will happen this time as well.
Thank you.
Yes, yes. The net debt question, I don't have any specific, what you say, number on that. Others saying that we have approximately remaining, what you say, undrawn facilities for the conversion projects over around EUR 90 million. Any other questions, Martin?
I'm good. Thank you.
Thank you. The next one on the list is [Martin Nordman]. You're welcome to raise your questions.
Hi, I came in a little bit too late now, so maybe that has been discussed before. Within the publication paper Europe, there is a large portion of so-called other operating income. I understand that NOK 90 million of that is the insurance, but could you please give me some more details on the remaining?
It is the CO2 compensation of Bruck for 2023 of EUR 4.7 million. That is included in the second quarter, together with the insurance compensation for Saugbrugs, so EUR 90 million, as you allude to. Then the rest is, yeah, more normalized with sales of CO2 allowances and other normal, smaller things.
Okay, thanks.
Okay, the next one on the list is, Kristian Spetalen. You're welcome to raise your question.
Thank you. Could you just elaborate on the variable cost per ton development, which came in quite higher than my expectations at least, and how you see that into the third quarter as well?
I think the, what you say, the bit, the disturbing effect that you, what you say, maybe took you by surprise is the, is then the effect of, the fact that we really, we decreased stocks in, from the first quarter to the second quarter, by that, also take in the, you know, when we take out from stocks, we also take out, part of the fixed cost, which is in a way put on the, on the valuation of these stocks, from the first quarter. If you take that out, I think we, say variable cost-wise, we are slightly, should be slightly down from first quarter to second quarter, linked to the raw material prices that we also shown in the presentation.
Okay, so there's a lagging effect there from periodization, from when those volumes were produced and not delivered.
Yes.
Right way I understand it? Okay, thanks.
Yes.
Okay, thank you. There are no others on the list that want to ask questions, that will...
Carsten?
Johannes Grönselius, you are welcome to raise your question.
Yeah. Okay, I take the opportunity for another question, and that's on the buybacks. How should we see this? I mean, are you pushing it mechanically through the number of shares you expect to buy over the coming weeks and months? Or, will you be more active in certain levels? Or if you can give any flavor on how you think about how to utilize this instrument.
Well, according to safe harbor rules and capital market standards, we are not planning to be strategic in, or we cannot be strategic in, when to buy or they go up and down in the volumes. Here, this will be taken within the safe harbor rule of up to maximum 116,000 a pproximate share per day, so it is dependent-
Yeah.
Of course on liquidity.
Okay.
We do that taken every day.
I mean, initially, you talked about the combination of buybacks and dividends. What's the reason why you only go for buybacks? If you can perhaps elaborate a bit on that.
I think the, r ight now it is only the share purchasing program that is decided on.
Okay.
I think the reason is that the board is believing this is the best way currently to give money back to the shareholders.
Okay, got you. Thank you.
Okay, thank you. I cannot see that there are any others waiting.
There's a question in the chat.
Questions in the chat? Yeah. Nils Holo, how much do you expect the Saugbrugs damage will consist of?
The damage at the Saugbrugs, this is, I guess this is, money-wise, what, that what you're asking for. This is too early to comment on from our side. We still are investigating the full damage of the rockslide from 27th of April. Then we will see the insurance, as you know, is there are two parts. It's the property damage, and it's the business interruption part. It's still way too early to comment on any amounts on this other than what we believe is a conservative estimate for the business interruption of May and June of the NOK 90 million, which we have booked in the second quarter.
Okay. Thank you, Tore. T hank you for asking the questions.
I think a new chat.
New chat. Okay. Thank you. Switching between the chats and raising here.
Yeah.
Following deliveries in excess of production this quarter, are your own paper inventories now fully normalized? Should we see similar lagging cost effect in the third quarter?
It's too early to say what, how the, in detail the third quarter will look like. I think it's true that we have, more normalized, inventory levels, I would say, by the end of the second quarter than the first quarter.
Okay. Thank you. There are no others in the waiting line for asking questions, so no chats. We will thank you all for participating in this webinar, and I wish you all a nice day. Thank you.