Hi, and welcome to today's webcast with Rottneros. Today we have the CEO, Lennart Eberleh, and the CFO, Pia Ohlson, with us. My name is Martin Westerlund, and I work for Finwire. After the presentation, there will be a Q&A session. If you have any questions for Lennart and Pia, please visit finwire.tv and click on this webcast. With that said, I hand over the word to you, Lennart and Pia. Please go ahead.
Thank you very much, Martin, and hello to everybody and to our Q1 report for 2022. It is a fantastic quarter that we have behind us, and if it wasn't for the troublesome times that we live in in Europe currently, it would have been even greater pleasure and joy to present it today. Nevertheless, we have achieved a record high profits of SEK 145 million, and this has been driven primarily by the very strong pulp market that we experience. During the quarter, the board has decided to take the next step forward for packaging and to jointly invest in a new factory in Poland with Arctic Paper.
We have also proposed for today's annual shareholders meeting to pay out a dividend for the profits for 2021.
All in all, a very strong quarter, which I think once again shows the resilience of the forest industry sector in troublesome times. If you look at Rottneros as an investment, we are part of the circular economy. We have sustainable products which are made from renewable raw materials, and our main material, the wood, is harvested around 150 kilometers from our site, so it's a local raw material. We have a lot of local raw materials on top of the wood that we consume, and our main part of sales goes into Western Europe. Also this is supporting the strong resilience of our business model. We can also see that we work accordingly to our strategy to remain our establishment in niches, and over time, we generate strong cash flow from our operations.
I start off by looking into the market and what has happened there recently. As I've said, the pulp market has gone through a very strong cycle, and we've seen that, quarter one prices have not dropped as far as we would have feared at the end of 2021, and in local currency, they already have improved. If we look at the monthly average, this is the quarterly average. If we look at the monthly average, then we see that the prices have turned around in March after a very short fall of two months and stable prices in January. This indicates that we are actually in a strong situation. The bars below the graph are a measure of the stock levels.
You see that they are relatively leveled out but on a slightly higher level than what we usually would think is normal, and most of that is attributable to logistics problems. Pulp is in places where it cannot be shipped from. Container ships cannot be unloaded still due to some restrictions in ports, and all of that means that there is more pulp in transit, but the market is longing to get its delivery. We see a very strong market, and on the basis of that, the prices have turned up again in March, and we will have to see how that goes going down this year.
If we look at our main market, Europe, paper and board, you see that graphical paper still is a large part of it, but container board is continued growing, now up to 40%, and other packaging materials is another 19%. So all in all, 59 or almost 60% is packaging materials. This is both integrated and non-integrated. If we look to the development by the different applications in the first two months of this year, you see that newsprint and uncoated still has a negative trend, whereas coated paper is currently experiencing a very strong market. Nevertheless, packaging, which is also one of our main focuses, is doing strongly. On the back of that, we have seen that the pulp market in the beginning of this year also has remained stable. Europe unchanged, a good increase in North America.
China, still a little bit of a sluggish demand situation, mainly due to restrictions that are still in place. Nevertheless, China is a small market, and our main market is Europe with more than 60% of our sales. If we look at how our sales go into various applications, you see here our shares of 2021, and in brackets are the figures for 2020. Packaging and board, one of our bespoke niches that we want to grow and has grown from 28%-32%. Filter, another specialty of ours, thanks to the way that we produce our pulp, has gone from 16% to 21%. You see that we are following the decline in printing and writing, as that has gone down from 21% to 11% in our portfolio.
Electrical applications, one of our most respected areas where we are one of the best suppliers to this market has gone from 11% to 13%. All in all, we are following our strategy to grow in niches where we do provide added value to our customers, and you also see tissue is more of an area where we can be flexible going in and out depending on the market situation. We always make sure that we find sales for all the volume that we produce. Having said that, I hand over the word to Pia to guide us through the quarter one figures. Please, Pia, go ahead.
Thank you, Lennart. Of course, I'm very proud to present our strongest quarter ever to you. Let's start with taking a look at the EBIT quarter one 2022 versus quarter one 2021 and what is driving the profitability. The last year's quarter one was actually coming up with SEK 11 million, and as you see here on the great blue bar, we have a big improvement in the price and the currency. As Lennart showed you earlier, we actually had an improvement in the NBSK in US dollar of 35% versus last year. Actually, NBSK in SEK was improved by 50%. That's the greatest part of the good result. Another positive is our volume that actually made up SEK 2 million on the improved profit.
We also have some negatives, and we had our variable cost that has actually decreased versus last year, and that is due to the input goods and rising prices. As you all know, we have a beginning inflation. That's the biggest drop. Even though we have effective hedges that we will take a look at next slide, we have seen increases in gas, wood, and freight, and chemicals. Also, we had some negative with SEK 11 million in our fixed cost, and that is due to lots of different parts, but mostly it's price increases in our internal cost of freight and also in maintenance. That was a drop by SEK 11 million. All this adds up to our best quarter ever, an EBIT of SEK 145 million. Next slide, please.
Thank you. Here we see a graph of the electricity price development, and this is a graph from Nord Pool with the day ahead prices. We can see that the blue line here is describing the system price, and the light green bar is the line describing the SE3 area price where we have most of our consumption. If we take a look at our hedges, they are really well functioning. We can see that the electricity prices have been increasing a lot since the quarter three 2021 in September, and they have even increased more during the end of 2021 and are still on a very high level. The cost, our real cost, is actually decreasing.
We had a cost of our electricity of SEK 0.22 per kilowatt, and last year at the same quarter, it was actually nearly double. It's really effective hedges that we have. As you know, we are well hedged forward, and we have hedges until 2025, and 47% of those are in SE3 area. That's something that we are really happy about right now. If we take a look at our EBIT development, we can see that in 2019, we had a really strong market, and we had a really good EBIT. We had a drop and a weakened market in 2020, and we can see that 2020 was actually not a good year for us.
The market was picking up, and it was an upgoing trend, and we had an upgoing trend during 2021. We can see that here in quarter one 2022, we actually landed on a record high EBIT, and it's the best performance ever in our history. If you take a look at the balance sheet, we have a really strong and efficient balance sheet. The good equity asset ratio is actually improving. We are at quarter one, we landed on 67%, and we usually have a very strong cash flow. During the end of the quarter one, we had a lot of invoices, and we had a lot of current receivables during the 31st of March, and that is actually giving us a little bit less cash flow from operations than usually.
It's also affecting the net debt. Of course, the result is good with a lot of invoicing. The investments that we have made during the quarter one was SEK 18 million, so a strong balance sheet. With that, I will turn it over to Lennart and the way ahead. Thank you.
Thank you, Pia. Let us just look at some of the trends that are favoring pulp and our sustainable products going forward. As you are well aware, there is an increasing number of people on the planet, and also we see that the disposable income is increasing, which leads to more consumption, and this is driving tissue. Tissue is mainly served by short fiber pulp out of Latin America, and all the increase that is coming out of there in the coming years will certainly find its home within tissue. E-commerce has driven, and as I've explained in the beginning, we see that container board, corrugated packaging, is growing, driven by the demand for e-commerce.
A lot of behaviors that we have picked up during the last 2 years of pandemic are certainly staying with us and will continue drive demand for packaging. We have a green transition now more than probably ever, where we have to invest in renewable energy to sort of minimize our dependency on fossil fuels in the energy mix. That leads to investments in transformers and cables and long distance cables to transport the power from one place where it's produced to where it is consumed. That is driving the demand for UKP, our brown pulp in E grades. Of course, sustainability, which is an ongoing drive to decrease the amount of plastic in packaging in general. Here, not only is it favoring demand for pulp, but we also see our business opportunity for molded fiber packaging.
To say something more about Rottneros Packaging that is now in the phase of creating a new factory in Poland together with Arctic Paper, it will be a 50/50 joint venture. The capacity of that factory will be around 80 million trays of a very high quality all formed fibers. We're actually the first fiber-based modified atmosphere packaging tray on the market, which means that you or our customers can place their product, the processed food in such a product that you see there on the shelf on the right side of this picture, and store it for up to three weeks, and then simply warm it up in the microwave oven at home. Convenience food product, which we see is increasing in demand quite a lot, in the coming time.
We see a great demand here from the market, and we are really looking into of getting this factory off the ground. The plan is to having it up and running by the end of 2023, and that will quadruple our capacity of trays. Meanwhile, we are developing the technology in Sunne, where we have our technology center, and we also already are supplying into the market to create a thorough pipeline of projects and customers into the new factory. We have a quick ramp up of it once it's up and running. To summarize this quarter, driven by the strong pulp market, we've seen invoicing and profits going up to a record of SEK 145 million, which is very good to see. We have strong earnings and low investments during the Q1 .
Usually, they come in line with the maintenance stops that are towards the end of the year. As Pia have explained, the cash flow has been dampened or slowed down a bit by an increase in our working capital, and we are taking the next step for packaging. The pulp market as such remains strong for the time being, and we see an increased demand from our customers in Europe there, where we have a good and long-lasting relation. We are happy to see how this will unfold in the coming month. With that, I leave the word over to Martin to see if there are any questions. Please, Martin, go ahead.
Thank you very much, Lennart and Pia, for that presentation, and now we'll jump right into the Q&A. We'll start with the 1st question. Can you elaborate on the investment in Poland?
Yes, I can do that. What we've seen is the demand that we see in the market based on the technology that we have developed in Sunne, Sweden, we simply cannot satisfy what the market is asking for. We had to start scaling up our technology. To mitigate the risk, we were looking for a partner to do that together with. Arctic Paper, who has a big pulp mill, a paper mill, sorry, with no pulp production in Poland, just 80 kilometers east of Berlin, is very well situated and located to be close to the great market, and all the consumers, and logistic cost is a key parameter to be cost efficient in this kind of product.
When you ship empty packaging of this kind of product, there's a lot of air to be shipped. The shorter the shipping distance, the better your competitive position. We are doing this together. The joint venture will rent housing from the mill. They will also get infrastructure such as electricity. We can link into the mill's wastewater system. Those are actually investments that we don't have to take opposed to if we would have had a greenfield installation. We are sharing the risk, and we're taking a couple of shortcuts by getting into an existing paper mill structure, and that is giving us quite some advantages. This will actually speed up our way to industrial-sized production very rapidly.
Thank you, Lennart, for that answer, and we'll take the next question. Regarding the factory in Poland, how much revenue and EBIT can we expect from 60 to 80 million trays?
We don't elaborate on the financials of our packaging arm at this point. It is still something which is under development. We are in turbulent times, and we have to see how all these things work out. What we know is that we are competitive compared to the existing fossil-based solutions when we get this kind of scale. We'll have to come back to those numbers more in detail once things are up and running.
Perfect. Thank you very much. Do you have any additional investments in your pipeline that you can share with us today, perhaps?
No, unfortunately not. What we're looking at is the usual debottlenecking, quality investments and environmental investments in our sites. We are guiding roughly around SEK 100 to 110 million on an annual basis, and that is what we're planning for 2022 as well. With that, we should be able to increase our production and capacity utilization rate to where it should be. We have a long-term target of increasing our pulp production with 3% per annum, and that is something we work very hard with. It's both operational excellence, and it means to make the right investments in our pulp mills to make sure that they are up to the level where we can achieve that.
Thank you very much. We'll take the next question. How does the outlook differ between pulpwood prices and flis coming from strong sawmills volumes? Are there any price differences?
Sawmill chips, translated to English from flis, are a sort of side product from the sawmills. Of course, as the timber prices have gone up and there is a very strong sawmill cycle, they are trying to sort of mitigate parts of their increased timber prices through having increased sawmill chips prices. Usually the sawmill chips are more expensive than the pulpwood that we get straight from the forest. Again, you don't have to sort of debark it. You don't have to chip it. There is a cost in the mill by converting round wood into chips on site. It is usually a well-balanced situation. I think more important it is to recognize that there is a good flow of raw material in mid-Sweden out from the forest and from the sawmills.
We see good volumes. We don't see any problems there in the near-term future. What we see is that there have been a couple of announcements now for increased pulpwood prices in order to make sure that the flow will not stop. We will have to see how that develops. There might be a small note of caution that that will further increase inflation on raw materials. The effect that we've already seen in quarter one will, of course, have to be monitored very closely going forward.
Thank you for that answer. We'll take the next question. Congrats on the great quarter. What are you most excited about for the remainder of 2022?
For once it is, of course, our project to build the factory in Poland. There's a lot of activity going on and that is very exciting. I mean, this means really a step forward in the value chain for us and creating a basis for Rottneros to not just be a pulp producer. Secondly, I think that we are very well positioned in Europe and in our niches to really continue our strategy and turn that into sales in niches where we add value to our customers, and we see that there is a strong demand. It's always difficult to predict where the pulp market is going, but we have seen a very strong start so far with a well-balanced market. It seems that logistical issues will prevail for some time to go.
Of course, that will also contribute to this market to be balanced going forward. Let's see. Of course, there is a lot of uncertainty around what happens, and we can only pray that the war in Ukraine will come to a very sudden stop, to the benefit of all of us, so that we get out of these turbulent times that we have wished for during the last two years of the pandemic.
Yes, I agree with that, Lennart. We'll take the next question here. Could you share your views on the cost for electricity and your measures to handle the support from price hedging?
Well, as Pia explained, our price hedges are very effective, and they go forward up until 2025. We are fully hedged for this year and next, and more than 87% in 2024. This gives us the sort of possibility to work with this going forward. We are looking into complementing our financial instruments, like the hedges, with more long-term price agreements, mostly known as power purchase agreement, PPAs, where we by coming into an agreement with a wind power producer, actually give them the possibility to start a new project building new wind power, and we would have the benefit of around 15 or 18-year fixed price. Those prices still are favorable in comparison to where the current spot prices are.
That is one of the things we're working with. Of course, one other thing is to decrease our dependency on energy. Investments in more efficient processes and decreasing our energy consumption per ton pulp are very favorable and very profitable at this time. That is also something which is high up on the agenda that we're working with. That will be part of our investments going forward.
Great. Thank you. We'll take the last question. The pulp market continues to be strong. Is there anything that indicates for it to not continue this trend for the coming years?
Well, I think everybody has to make up their own mind about where the pulp market is going. Trees do grow, but they never grow into the sky. If you look at the price curves that we've seen, it's a question of demand and supply, and it doesn't take a lot of additional supply or reduced demand to sort of unbalance the situation, and then prices do go up, and they do go down. I don't dare to say where it's going. We are currently very happy with where prices are, and we are following this very closely to make sure that we are adapting quickly, and we have the flexibility, and we have a very broad base of customers and applications to be flexible and counter possible effects on the market.
Okay. Thank you very much, Lennart and Pia, for that presentation and the answers to our questions. A big thanks to all of you that have followed today's webcast with Rottneros. I hope that you have a great rest of the day. Thank you and goodbye.
Thank you very much and bye-bye.
Thank you. Bye.