Hello and welcome to today's webcast with Rottneros. We are CEO Lennart Eberleh and CFO Monica Pasanen, and we will present the report for the first quarter of 2025. After the presentation, there will be a Q&A, so if you have any questions, you can send them in via the form to the right. With that said, I hand over the word to you guys.
Thank you very much, Ludwig, and hello everybody to this Quarter One Presentation of 2025. A stable production in a turbulent world is what we have achieved during the quarter. We are focusing on the things we can control ourselves: health and safety for our employees, production, and cost control. Sometimes these things are not enough to create a result which we are satisfied with or being proud of. As we saw that development emerge during the first months, we decided by the end of the quarter, on the 21st of March, to publish a profit warning and instantly went into negotiations with our unions to see over our cost and our organization in order to be able to adjust the production capacity and our costs.
That is ongoing, and we have very constructive and positive dialogues with the unions, and we believe this can be concluded fairly soon. That will lead to some cost adjustments that we believe over time will reduce our annual cost by SEK 35 million-SEK 40 million. That is, of course, in order to counteract the high raw material cost that we still see, the strengthening of the Swedish krona that has started during the first three months of this year, and also being able to adapt to a currently new situation on the mechanical pulp market where we see a slightly lesser demand and prices are under pressure.
If we with that move over and look into the market, which is characterized, of course, by a high uncertainty, pulp is a global product from global players in the global economy where tariffs suddenly can redraw the map that we were used to see. We have to see how these things play out. For the first quarter in general, the stocks have remained low at 41 days, which is more or less seen as the normal level, a bit lower for the long fiber, which is the most important grade for Rottneros, around about 37, a decrease of one day, and 41 days for the short fiber, which is the dominant quality in this market.
Especially in our niches, we see good demand for our UKP and ECF grades out of Vallvik, but a challenging market situation for the mechanical pulp that we produce at Rottneros Mill. Overall, you can see here we have gone now over to only displaying the net prices, no more gross prices, less a rebate, which is somewhat difficult to define. We see a level of around about $800 for our grades. If we translate that into SEK, that is the upper line here. That is around about SEK 8,000. It is pretty stable. We have seen an uptick during the autumn of 2024 into the winter, went up to some $1,600 from $1,480. A good uptick, but it seems that we are now moving more sideways since we come into the second quarter.
As you can see on the lower graph, the prices for the mechanical pulp have constantly come under pressure over the last years. That decline has sort of stopped somewhat now during the recent months, but certainly on a level which is not healthy. That is also why we have decided to exit certain markets where our profitability simply does not add up anymore. Of course, the exchange rates are playing their role in this, as most of these export businesses are denominated in US dollars. Looking into Europe, which is our main market, some 67% of our production is delivered to European customers. There we can see a slow start in 2025. 2024 was characterized by a rebound from 2023, which was low. Now it has sort of stalled, especially on the graphical side.
We see continuous closures and rebuilds into other areas, but also cotton board, which used to be a good growth area, and where certainly our mechanical pulp is aimed for, has stalled a little bit. Here we are really eagerly waiting for consumer confidence coming back and the general pickup in the economy, which fuels consumption, the use of cotton board, and thus the use of our mechanical pulp with our European customers. More interesting maybe is to see this development over time here. If you take the green line and the sort of smooth line, which looks like a sinus curve back to 2021 into 2025, that is a rolling 12-month average production volume of paper and board in Europe. We peaked there around February of 2022 at 7.3 million tons per month, and that has now reduced to 6.3 million.
There is around about 1 million tons per month that has disappeared. That is 12 million tons on an annual basis on a market which is around 80-85 million tons, which is quite a considerable volume. There are various things that are impacting this development. Of course, there are still closures as part of this, but also slight underutilization of the existing capacity that has been installed. I think everybody in this value chain is ready to ramp up as soon as the demand is coming back. How that translates into pulp deliveries, we can see on this slide. Again, China, very volatile, a very weak market in 2024, which is now rebounding. In 2025, they are really playing their card of being the world's biggest market for market pulp and trying to optimize their pricing. Pricing cycles have shortened considerably over the last years.
It's more like three- to six-month cycles now, where it used to be maybe one or 1.5 years a couple of years ago. Again, a lot of uncertainty, unpredictability, and difficult to have visibility on where we're going. China is also a lot dominated by short fiber imports from Latin America. Here we see that prices have come under pressure, as that is a grade where we see a lot of capacity additions, both in China and furthermore in Latin America. We can see that there is a gap between short fiber and long fiber, and that gap has increased dramatically over the recent month and price cycle. Historically, maybe some $100-$150 is now north of $200 as a price gap. Of course, it's not everybody who can sort of support that kind of gap.
Those who are more pressured on their margins downstream, of course, are looking into substitutions. Less prone to substitution are the specialty rare areas where we are active, especially filter and electrotechnical are standing out here. As you see, we have a growth in the quarter one over 2024. Filter has gone from 23% to 26%, electrotechnical, which is our brown pulp out of Vallvik, from 22% to 24%. Specialties stable, cotton board also stable, but cotton board as in general has come down a bit. If we look in a longer perspective, a new segment is growing, fiber cement going from 3% to 4%, and tissue that has grown again as we have seen this shortcoming in the cotton board area.
Here again, it's a sort of spot area where we can place our volumes if needed to make sure that we can utilize our capacity, especially in Vallvik. It's more difficult for the Rottneros Mill. The grade is more specialized and formed for certain areas such as cotton board and not so easy to get into the tissue market. Some inroads have been made, and we are eagerly looking for new applications, of course, at all times to make sure that we also can come back to running the Rottneros Mill at full. We will come back to that. With that broad overview, I hand over the word to Monica to guide us through the results.
Thank you, Lennart. Yes, we had a quarter where we see that our margins are starting to be squeezed, which we can also see in the result. So an EBIT of SEK -62 million for the quarter is, of course, below our expectations or where we want to be. What has impacted Q1 versus the same quarter last year is negative on price and currency. It's really the weaker US dollar, which is approximately SEK -24 million. The prices are higher than a year ago, but in currency, but offset by the exchange rate. We've had a very good production quarter, as Lennart pointed out, very good production in Vallvik, much higher than a year ago, which was marked by some production disruptions during the very cold winter. We have good production potential in Rottneros Mill after the investments that have been made, but we are not running at full capacity.
When we are running, it is producing well. Our big headache is really the variable costs, where wood is actually more than the -37 that you see on the chart. We had some positive impact from other variable costs, meaning that the wood cost is our single largest item in our cost side in the profit and loss statement. On the fixed cost side, the biggest impact on the increased costs comes from personnel, both in number, but also with the general inflation and wage increases. Inflation is, of course, also affecting other fixed costs, and that is why we have initiated the cost-saving program, both looking at the organization, but of course also looking at other fixed costs that we're having where we can be more efficient and where we can influence. Let's have a closer look at how the variable costs have looked like during Q1.
If we go back some years, the cost of wood was at 65%-70%. Now it is up to 75% of the total. Of course, depending on how efficiently we run and the cost of other items will have an impact on or mix of products that we produce has an impact, but definitely wood is the single largest item that is affecting our cost side. You see here that electricity that we quite often talk about in our report is only 3% during the quarter. This is thanks to very efficient production in Vallvik Mill. When the production is good, then it is higher efficiency in the whole process with lower electricity consumption and also other inputs. Another variable is also that Rottneros Mill has had a limited production during the period, and they are the ones who are producing or consuming most of the electricity.
Let's then have a look at the balance sheet. We have, as you know, we have been going through a big investment program that was mainly in 2024, but also now the remainder in 2025. In total, during 2024 plus the first quarter this year, we have invested a bit more than SEK 470 million in our assets, and where we now see that we also can reap the benefits with good production. For 2025 as a whole, we expect to have cash flow from our investment program of a bit more than SEK 160 million. On normal years, we should be around SEK 120 million-SEK 130 million. There are some leftovers from the big investment program that we still have in this year. Looking at our profitability in Q1, we're of course very careful with investments, new investments being made at the moment.
We're also closely looking at our working capital. That's also something we can influence. We did have an increase in working capital in the first quarter and that we are now reversing to release more funds from that part. We did secure financing at the end of 2024 and that was to finance our investment program, which has been how we then have been financing the costs that we have had. Our equity to assets ratio is still at a solid 56%, which is above our target of minimum 50%. With that, I hand it back to Lennart.
Thank you very much, Monica. Let's see if we can try and look around the corner at what lies ahead. As we've mentioned, we are of course focusing extremely on the things we can impact ourselves: health and safety, production, and costs. We're taking the necessary steps to bring those costs down and do our part of being able to offset these very high prices we see on the raw material side. We are engaged in very intense discussions with our suppliers as well as with our customers to make sure that we optimize the entire supply chain. We are a part of a very important supply chain. There are a set of different products that are using fibers where our customers and the ultimate consumer loves fibers.
Tissue, of course, continues to be a very important area where there is growth, where there is profitability, but it's mainly supplied from the short fiber. On the other side, that means that the short fiber capacity that is coming on stream is finding its home in the tissue area. Packaging grades continue usually to grow. We haven't seen that now in the first two months in Europe, but by and large, that's where everybody is looking at and focusing on to redirect graphical and newsprint capacity into the packaging area. Packaging area is a product where a lot of recycled fiber is used, but you can only recycle a fiber a certain number of times, five to seven times at most. It sort of gets worn out and used and doesn't contribute with any strength anymore. There has to be an inflow of fresh fibers.
You can either have that in the form of fresh fiber-based products, which are made in Scandinavia or in Canada, or you can actually use fresh fiber pulp in the furnish of a recycled paper mill, which you would find on the continent. As this market is growing, there is less recycled fibers available as the office market is, we call about office waste. All the copy papers have become less and less. One way or the other, you have to reinforce the fibers in this recycling loop. This recycling loop, of course, is very important for the entire sustainable performance of the forest pulp and paper industry. We have the transition in the energy sector, which is driven by new solar and wind farms coming on stream. Electrification is important to offset climate change.
We also have a grid both in the U.S. and in Europe, which needs renewal. That means more cables. Cables need fibers in the form of insulation paper. It means also more transformers. Also, transformers consume a lot of fibers as there is insulation inside the transformer. Of course, sustainability. Overall, I think in a world where we are maybe now looking more on what we can do ourselves in Sweden, in Europe, the forest industry is self-sufficient when it comes to raw material supply. It is all local. We are using a local sustainable and renewable resource, which is grown here in Sweden. We, as the Swedish forest industry, are an important part of the Swedish industry cluster. We provide also energy and, of course, tax and workplaces. The products we use are used in everyday life.
It is quite important to maintain these value chains that are in place. I am sure we will all see that that will be the case going forward. We not only focus on pulp production, even if that is our main core, but we are in the move of getting into the packaging area with our molded fiber. We have now finally commissioned our new machine lines, three in total, one in Sunne and two in Poland, which are now being finally trimmed, meaning that we move up. Our share in Blue Ocean Closures, where we produce fiber-based caps, is also developing nicely. New investors have joined the group. Market products are out in the market. There is again a big search for plastic alternatives, fossil-free alternatives.
If we summarize the quarter one of 2025, of course, the overall achieving aim was to stabilize our production and operations. That has been the case. We've seen a 16% growth in the Vallvik volumes. Of course, the reference wasn't too good, but it was necessary to get back and demonstrate what we are able to do. We've had a big set of investments during 2024. All in all, some SEK 460 million have been invested. They all are closed and commissioned and are ready to run. We've seen that the performance targets have been met, which is great. We know what we have sort of as an engine under the hood. As we are now in a more turmoil situation, of course, we do all we can to get our costs under control. They have been under control. They have to be reduced.
We have to be flexible when it comes to the production of mechanical pulp, utilizing the volatility. There is a big volatility when it comes to energy prices, but also being agile and adapt to a quickly changing market environment. Again, together with our suppliers and customers, long-standing relations make the best out of the situation. Baltic, again, running very well, and our Polish and packaging efforts now coming to fruition. With that, I will leave the word back to Ludwig and see if any questions have come in. Please, Ludwig.
Thank you so much for the presentation, Eber. As you mentioned, we will now carry on with the Q&A here. The first question is here. Despite higher MBSK prices, net turnover fell due to lower sales volumes. What are the key reasons behind the weaker demand, and how do you plan to recover volumes going forward?
The weaker demand is maybe more offset by an imbalance that we had during 2024. As we had a weak production in the beginning, our stocks came down, and we felt we have to restock. Entered into 2025 with coming out of this imbalance, we're now focusing on activating all the channels we are having to make sure that we're getting back in phase and really ramping up our sales in line with the production that has now proven to be very stable on a good level. Knock on wood, never mention the good things too early, but also into quarter two, as we're quite far advanced in that, it looks good. We see that there is a good demand from our customers.
We can activate additional channels that we used to have, and I'm positive that that will turn out in reducing our stocks and freeing up some of the working capital that Monica has talked about.
Thank you. EBIT dropped to SEK -62 million largely due to exchange rate losses, rising wood costs, and higher fixed costs. Which of these factors do you see as temporary versus structural? What is your timeline for margin recovery here?
Yes. Some of the factors are, of course, difficult to influence, and maybe the exchange rate is, I do not know if it is structural or temporary. Someone else needs to judge that. On the wood side, where we have one of our biggest costs, that is really squeezing our margins in the first quarter. We do, however, see that the balance in the wood supply market is shifting somewhat in favor of buyers. It is a bit early to say when we can see a big impact in our profit and loss statement, but at least we see some signs of possibilities to source wood at more favorable prices. Other things like inflation is, of course, something that everyone is hit by, and the inflation is coming down, but here is where we need to look at our costs, our organization, and that is what we are doing.
As mentioned earlier, we see a potential of reducing our fixed costs by approximately SEK 35 million-SEK 40 million per year starting from this autumn. Back to you, Ludwig.
Thank you so much. Working capital has been increasing in the last four quarters, an increase of SEK 222 million. Why and what can you do to decrease working capital?
Maybe I take that one as well. I think we have answered it to some extent already. There are two parts in this. One is how much we have in stock of cubic meters of wood and tons of pulp. Here we are looking actively at a program to make sure that we have what we need in stock to have good customer service and to supply our mills with the raw material needed. That is one part of it. Another part of it is, of course, the price of wood. If wood costs have increased by approximately, they have doubled in the last three years, meaning that what we have in stock is twice as costly. This also has an impact on how we are valuing our finished goods, which are also valued at a higher price.
That is, of course, more difficult to impact, but we can impact how much we have in cubic meter and in tons in working capital.
Thank you. Tax payment of SEK 45 million in Q1. Rottneros Lennart report showed short-term tax liabilities of only SEK 1 million end of 2024. Could you please explain this?
I don't think I can do that without looking closer into the numbers. I will have to pass on that one.
Yes. We'll go on to the next question here. You mentioned that CTMP prices are now below variable costs in some markets. What are your short and long-term strategies for CTMP, and at what price levels would production become profitable again?
We do believe that the mechanical pulp, especially for the cotton board area, has its place in the market. Export markets are currently heavily impacted by subsidized capacity out of China, which is sort of flooding markets where we used to have our customers. It is a question of the exchange rate, our customers' ability to pay as much as our suppliers' willingness to set the right price on the wood chips, which is a side product. These three factors we are constantly evaluating and trying to find the best way forward. There is a place. You have a very efficient board construction if you have mechanical pulp in the middle. Your overall use of fibers is going down at the same time as you improve your technical abilities. We cannot give exact figures, of course, that would disclose too many things to both our customers and competitors.
By and large, I think that there will be a rebound in the mechanical pulp market that will enable us to utilize the capacity increase that we have installed.
Thank you. Moving on to the last question here. Given the current earnings pressure, how are you prioritizing investments such as a solar park and a packaging project in Poland? Will future CapEx be scaled back to protect cash flow?
Yeah, I think we have to a large extent already addressed these questions. We have already commissioned and finalized the big investments. Now looking forward, we are really conservative on the investment side. We're making sure that the investments we have made will pay off, and they are already paying off, but to capitalize on the good benefits that we get from the investments made. Looking forward, we will, at least for the short term, limit our investments to be able to protect our balance sheet and cash flow. I hope that answers the question.
Yes. Thank you very much for presenting here today and answering all our questions. Thank you all for tuning in. I wish you a pleasant day.
Thank you, everybody, and see you soon again.