Hi, and welcome to Rottneros' Second Quarter Report 2025. With us to present, we have CEO Lennart Eberleh and CFO Monica Pasanen. If you have questions for the company, you can write them in the form to your right. With that, I give the word to you, Lennart.
Thank you very much, Tim, and hello everybody to our second quarter report and the first half of 2025. A bit later than usual, but still in summer, and summer certainly has come back to Sweden with sun and warm weather. Enough about the weather and more about Rottneros and our results. We can see a sequentially better EBITDA for the second quarter compared to the first quarter, primarily driven by very good production, 90,000 tons, and high invoicing, especially from the Vallvik Mill. Still, this is not a result we are proud and happy for, and the main headwinds are high raw material costs that have continued to rise. We have seen the first turnaround here already in April for sawmill chips, and going forward, the negotiations for the second half have also shown that we've reached a plateau and realized some first small reductions.
That is looking good going forward. Nevertheless, in order to put the company on a very stable financial position, we've successfully closed the rights issue in the middle of July. That was announced earlier in June, and we raised SEK 300 million. Some more details on the updated balance sheet as a consequence of that will Monica come back to a little bit later. With this being the highlights of the second quarter, let's look into the market for pulp, paper, and board, which is still very uncertain, of course, due to the global insecurity and the trade issues that we all are very much aware of, and that also pulp is not immune against. If we look at the stock development, which are the bars, we've seen stocks have increased during the beginning of 2025, and that, as usual, has led to prices coming down.
This is the list price in Europe for NBSK as a net price, and it's close to the bottom that we have seen now since 2021, around $700. There is an oversupply and a lack of demand in the bulk grades. Nevertheless, the niches that we are supplying to from Vallvik with the UKP and ECF for filter grades, electrotechnical applications, specialty applications, still are healthy, and we see a good demand to move the volume out into the market. Calculating the prices into Swedish kronors, we have seen, of course, the effect of a strengthening kronor against the dollar, y ou see that we are closer to the bottom for the last three dips, around SEK 7,000 kronor.
The lower line is the CTMP price line, and we've seen that deteriorating since the middle of 2023 due to an overcapacity and increased capacity of hardwood-based CTMP in China that has taken away a lot of the market from Canada and the Nordics. Of course, we see the uncertainty when it comes to tariffs and where exchange rates will take us going forward. Looking a bit more specific into the market, again, Europe being our main market with some 67%, 68%, we see that the beginning of this year has been weak for most grades, with the exception of container board and some other grades. Container board is paper for corrugated boxes.
Newsprint and graphical paper has had a very weak start, and also cotton board, which is one of the main end users for both Vallvik and Rottneros pulp, has seen a sideline movement here, no real pickup that was expected. Even tissue has had a slow start into the year. Maybe also the comparison to 2024 was a bit skewed due to the fact that there has been some restocking going on in the beginning of last year. Nevertheless, this is what our customers are experiencing, and that's why in the bulk grades, the volumes aren't really moving as they should be. What we've seen is that there have been production curtailments in the industry, both in the Nordics for long fiber, but also in the southern hemisphere for short fiber. Now here in August, the first price increase announcements have been put out into the market.
Let's see how that will be affecting prices and market balances going forward, and if this can trigger buying behavior from customers, as they will see that this really might be the bottom for this trough. A little bit on a longer perspective, how the European paper and board production has developed. Have a look at the more straight line, which is not so erratic. It's the 12-month moving average, and here we see that there has been a significant drop in the entire paper and board production in Europe. We've lost around about 1 million tons on a monthly basis, or 12 million tons on an annual basis. That is, of course, setting the scene for this entire industry for the time being. Translating this into pulp, we see that Europe and North America had a weak start.
We had good deliveries there last year as an industry, while China was weak and now has rebounded strongly. All in all, taking everything together, we've seen increased deliveries of some 3% for both grades, long fiber and short fiber. Again, we see that the European market has dipped, and that has, of course, led to those prices having come down during the first six months of this year. North America is still having slightly higher prices, both list and net, but also there we've seen some decrease. How that will be going forward is a big question when it comes to the tariffs that will be imposed on Europe and Canada, of course, and how that will impact the market balance over there. Nevertheless, volumes are moving, and we all believe that there is a need for renewable fibers also in these markets going forward.
Talking about the general market so far, we can also look a little bit more specifically into where Rottneros is selling our products for the first half year compared to the full year of 2024. Cotton board is continuously shrinking, mainly driven by that we have seen lower production coming out of Rottneros Mill, which is very dominated by deliveries into the cotton board sector. Here, the Asian markets have come a lot under pressure with the competition from China. On the other side, we can see that filter and electrotechnical are increasing, and specialties are stable. We still have regular deliveries into tissue and also uptake in printing and writing. These are not our strategic segments, but again, we've got long-lasting customer relations here, which we can activate in market situations such as the one we are currently experiencing.
Also, fiber cement is continuously growing year by year and now reaching 4%, which is quite nice, and we see a positive movement forward in that segment. With the overall description of the market and where we are, I leave the word over to Monica to take us more in detail through the financials.
Thank you, Lennart. We will talk about the balance sheet a bit later on, but let's start with the profit and loss, and more specifically, EBITDA. We are looking here at a waterfall between the second quarter in 2024 compared to this year. Lower prices both in U.S. dollar, sorry, and in Swedish kronor has really been a main theme during this period. We are seeing a drop in our invoicing. That is the first - 19, but it is also impacting the following bar. Unfortunately, prices are at such a level that we are not covering full costs in all markets for all products. In our accounting, we have to recognize the value of finished goods in stock at the lower of production costs or selling price. This is impacting the change in finished goods. So, the volumes as such have been very good during this period.
New production record in Vallvik and very good production also in Rottneros Mill when they are producing. The big impact is, of course, the variable costs and primarily the cost of wood. They are still at a higher level than last year, even though we have seen some drops. We need to come down from the peaks and see lower levels to come back to where we were before. In this slide, we are following EBITDA. That is the result before depreciation and amortization. During the second quarter, we also had a write-down, which is then below the EBITDA. According to accounting practices, we need to look at all the units where we have values and what future cash flows they will generate. In particular, we looked at the operating value for Rottneros Mill.
We are looking at what we have in our books and what the discounted future cash flows will be. Based on this analysis, we took a decision to write down the value of the assets in Rottneros Mill by SEK 140 million. That is, of course, impacting the EBIT for the period. Looking at the first half year, we see that the lower price and currency has an impact also here, but the big impact is, again, the variable costs. When we saw what was happening during the first quarter and also seeing higher cost levels in general, we see here that we have -SEK 35 million on the fixed cost side. We initiated a cost reduction program, and we are reducing the number of personnel. It has been announced.
We are still basically the same amount of people, but we will see the full impact of the cost-saving program during the autumn. We estimate that the impact will be positive in the region of SEK 35 million - SEK 40 million per year. Looking specifically at variable costs, we see here how big importance the wood costs have in our total variable cost. It is 75%. Of course, small variations in the price of wood will also have a big impact on our cost side. Looking more specifically at the balance sheet, as Lennart mentioned, we had the rights issue during the summer. The proceeds were approximately SEK 300 million. We used part of the proceeds to pay back part of our long-term debt. We also reduced the short-term debt.
After the rights issue, our net debt decreased from approximately SEK 550 million -SEK 250 million, which is the same amount as the rights issue. After the issue, the equity-to-assets ratio recovered to 64%. We also see a better liquidity position. We have available liquidity in our financing facilities of approximately SEK 340 million. What is positive for the quarter is that we have a positive operating cash flow. This is mainly due to decreased working capital. That has also been high on our agenda to make sure that we don't have too much inventories, raw material inventories, finished goods inventories, and that we keep track of our receivables and also payables. With that, I hand back to Lennart.
Thank you very much, Monica. While the macro environment still is supplying plenty of headwind to our results, we effortlessly strive to optimize the things which are under our own control: our operational setup, our structure, our cost position, and our financial position, as Monica just has explained. We start to see the small fruitful results of that if we compare the first quarter of 2025, when all of this suddenly has exploded, compared to the second quarter. We will continue to do our very best to take care and do this going forward. There are also some major macro trends that we believe will continue favoring the usage of cellulose fibers from a renewable and respectfully managed forest. We have a growing number of people with a higher disposal of income that wants to have a better standard of living using more tissue.
This will consume a lot of the short fiber pulp capacity that has been built up historically. That will minimize also the thrive for substitution into applications which are more dominated by the long fiber pulp, which is produced in the Nordic Hemisphere, in Canada, and Scandinavia, especially in packaging rates, which are then more and more also used in e-commerce corrugated boxes for secondary packaging. Primary carton boxes are using still a high amount of long fiber pulp that's used to have efficient packaging at a low gramage to give the right technical functionality, a good printing surface. This area will continue to grow. More people, more consuming. Even though if it's turbulent times, I believe we will continue to see global trade also needing packaging materials to ship goods around and not destroying them. We, of course, have a strong movement into renewable energy.
Renewable energy needs more transformers and cables to bring the electricity to where it is needed. We see our customers in this area are investing into creating more capacity for transformer board, more capacity for electrotechnical paper grades. That will mean that in the future, they need this very high clean pulp from us and a limited number of competitors with very low conductivity. It's once, of course, the investments in the renewable energy, but it also is the modernization of old grids in the Western world, which have reached the end of their lifetime. We all agree on that we have to continue to fight for a better world going forward. Sustainability is key and will always be key for consumers when making their choices in the store.
Here it's about having cost-competitive, functional solutions, which we're also working with to provide, not the least through our own development focus in Rottneros Packaging, together with Poland, where we are now having started up our industrial-scale factory after the summer. Customers are coming more and more. We see more products and more shapes coming out of this factory. Of course, while we are focusing on one certain way of producing these kinds of trays within wet molding, we also have a foot into a new technology provider, Blue Ocean Closures, that does this in a dry forming technology. There are certain differences, and we believe both these technologies will complement each other going forward. This still is a very exciting application for fibers and offering a very good substitution for fossil-based packaging materials.
Summarizing it, the company stands on a very strong, solid financial foundation, thanks to all the shareholders that have participated in the rights issue that was concluded in July. We have worked on stabilizing our operations. The investments that we have taken are giving their effects. We have reached the operational targets, and the mills are running fine. The things that have caused most headache over the last three years, the raw material finally seems to have reached its peak, and we see the first small signs of raw material costs coming down. That, of course, gives a lot of hope for the future. With that, I'm happy to open up for questions and answers.
Thank you for that presentation. Now moving over to the Q&A. First question here: What has driven the improved market balance for pulp wood? Is this due to seasonal lower demand from the energy sector, or is this a broader trend?
I think that's a combination of both. Yes, we do see that the energy sector in general has less demand. They're not the big off-takers, and we see less of a sort of gliding between the segments. That is, of course, releasing pressure. Continued good focus on harvesting, on sustainable and respectfully managing levels is also doing it. Of course, in general, there have been outages, there have been capacity reductions. The industry as such has adopted to the amount of pulp wood that is available, and that has to be then mirrored by the harvesting capacity that is in place. Right now, this is, of course, playing into our hands, and we hear anecdotal stories of suppliers that would like to place pulp wood volumes. Once they're harvested, of course, they have to be moved very quickly.
So, I think this will open up for quite an interesting price development going forward.
Thanks. What is the situation in the U.S. market? How do you assess the impact of the change in tariffs from 10%- 15% on competitiveness?
That is, of course, a heavy impact on our competitiveness. It remains to be seen what the final tariffs will be for Canadian competitors. I would say we have to compare that to a zero tariff that we used to have prior to this trade war. It's a 15% increase. On the other hand, we are supplying around about 8 - 9% of our entire sales into the U.S. on very specific tailor-made products. A 15% disadvantage to other grades is not sustainable. Our customers will look, I think, in the long run for substitution if that will prevail. We do have very good relations. We do have unique product properties. I'm confident that we find a solution for this going forward. But again, it's 9% of sales, so it's not too much. There are no local competitors that you could switch to by plug and play and then just one-to-one.
Customers would have to change their validation processes and find other substrates to work with. For the grades we're working with, these are long cycles to work through. It's quite an effort from our customers. I'm cautiously optimistic that we will find a solution going forward.
Thanks. Why did personnel costs rise despite the workforce being reduced by 26 people? When will we see the impact of the savings?
Yes, the personnel costs are, of course, for the period we are in right now. We initiated our cost-saving program during the first quarter, and we announced the outcome during the second quarter. We still have approximately by the end of June that we are talking about now. We have the same amount of people. We will see that our workforce will gradually decrease mainly during the third quarter. The effect of fewer people will come a bit later on. In addition, we had some one-time costs connected with the reorganization that we have taken during Q1 and Q2. We believe that we will have, as I mentioned before, a positive impact from our cost-savings program of some SEK 35 - 40 million per year. We think that we will see that from the autumn and forward. Back to you, Tim.
Thanks. Now for the final question here. Where in the financial statement could you find the cost of purchased emission allowances?
Yeah, I think that we're talking about the sales of emission allowances, which we have had in excess. We have sold emission allowances last year and also during the first and second quarter. We record these sales under other operating income in the profit and loss statement. If you look a bit higher up in the profit and loss and look at net turnover, we consider also our byproducts from our pulp production as part of our main business. The sales of tall oil and turpentine or bark is part of our net turnover. That was a short summary about accounting.
Thanks. Now I'll give the word to you, Lennart, for the closing remarks.
Thank you very much, Tim, and also to Monica assisting us here with all the financial analysis. Thank you, everybody, for listening in. I wish you a continued nice summer. Looking back to rejoin you in October for our quarter three results. Thank you very much.