Hello, welcome to today's webcast presentation with Rottneros. With us presenting today, we have the CEO, Lennart Eberleh, and CFO, Monica Pasanen. We'll do a Q&A after the presentation, and you can type your question in using the form that is located to the right. With that said, I'll give the floor to you guys. Please go ahead.
Thank you very much, Martin, and hello, everybody to this report. It's a strong start into 2023 that we've seen, a quarterly result of SEK 149 million, which is slightly above last year's first quarter, which we know was the beginning of the record high year of 2022. The main reason for this at this point is that we still have very high pulp prices on historical high levels. However, we've seen them declining during the quarter, as we've seen during the end of the last year, and we had a good production in our mills. This is also the first quarter where we have discontinued the groundwood line at the Rottneros Mill, and demolition is going on, and we see the impact of the improved product mix on our results.
After the period, we also had some further events in order to mitigate the inflation and cost increases that we've seen, as a continuation of the organizational review of the Rottneros Mill and our central staff functions, we have initiated an organizational review of the Vallvik Mill, which is then the last part to be going through in order to be efficient and modernized. We've also taken a decision, as earlier announced when we were running the pre-project, to increase the CTMP capacity at the Rottneros Mill. This will add some 40,000 tons of mechanical pulp at a very favorable investment cost per ton of round about SEK 4,500, which is very competitive in the pulp market. Furthermore, we're also starting to invest in renewable energy generation.
It's a 3 MW solar park, as well as a battery storage in order to participate in the frequency balancing of the Swedish grid, which provides a favorable return on the investment. This brings us to what Rottneros presents to you shareholders. We are not only seeing that the green transition is profiting our pulps, but we are also actively taking part in it. We see that we generate a long-term profitability in our operations, and that has led to a very robust balance sheet that enables us to take significant steps now to further develop the company. We create stable shareholder return, and we have a strong market position in our selected niches, which we not the least during the last quarter see gives advantages to the way how we can sell our products.
With that, we come over to the market situation and the development we see here. As you can see in this graph, the broader lines are the gross prices where we have to deduct the rebate, whereas the thinner lines are the net prices, according to TTO. Left lines, left part of the diagram is in U.S. dollars and right is in Swedish kronors. We see that we have peaked towards the end of 2022. These are the quarterly average prices, and there has been a drop in prices during the last six months. However, that drop has not been as strong in Swedish kronors as in US dollars. If we look at the supply balance in the market, we see that stock levels have increased. We are now back at levels that we've seen back in 2018.
It's more on the short fiber, 52 days, a little bit less on long fiber, 47 days. For both grades, it has been an increase during the month of February that we see here. March figures are at this point not disclosed as of yet. Also here now we have introduced the net price list for Europe according to TTO, which is the lower line. We see how this price develops without taking into consideration the rebate. We know the prices go up. Since a couple of months now, we see that the oversupply that is in the market that is shown in a stock increase has also weighed on the pulp prices.
If we look at our main market, which is the paper and board market in Europe, 2022, it was a total of round about 85 million tons. You see that the part in the middle that represents board and packaging is the increasing part of the market. This is both integrated and non-integrated producers. On the basis of that, and especially the lower part of the diagram where we see the paper volumes decreasing, was the reason behind closing down the groundwood line. Given the very dramatic development during recent months that we can also see here for the full year, and that development has continued into Q1, especially newsprint and graphic paper. It had been a very negative development on volumes, and this would have caused tremendous problems on our groundwood sales.
Having taken those tough but necessary decisions, during last year was well-timed. We also see that board and packaging is currently undergoing a negative growth as the general economical situation is weighing on sales and, all supply chains are pretty much fault. We will have to wait for a couple of month before balance is restored. What does this mean for the pulp market? If we look around the world, Europe, January to February, has seen very slow sales of market pulp. North America, a little less so, and especially China has seen a pickup. You see here also the full year 2022. The first 2 month in 2022 versus the first month of this year, sorry, where it has been a negative growth there in China.
China is not yet back to where we thought it should be, and it hasn't really fueled the market after the release of the restrictions after Corona. There is still some headroom for market development going forward. For the time being, we see an oversupply into the market. If we look at our sales and how they have developed, we are adjusting our sales to where we find the takeoff. You see it especially in the tissue segment, which is not a strategic segment, and there we could increase our sales on the short run, while board and packaging has decreased a little bit but still is the major segment of our sales.
Filter is stable and has increased, year-over-year, and, so do the electrotechnical applications, transformer board and the electrical papers, which is proof of the customer value that we supply. With that brief overview, I leave over to Monica to guide you through the quarter one results.
Thank you, Lennart. Yes, we are living in very turbulent times, market-wise. What has happened then to our profitability? It looks very stable. We go from SEK 145 million to SEK 149 million quarter-on-quarter, there is a lot of things happening in between. The most positive item affecting is the price and currency. You saw the price curves. We were still on a upward trend a year ago and have now peaked, but we have higher prices in US dollars in the first quarter than a year ago. Also the currency is more favorable with a weakening Swedish kronors. We also get a positive effect from mix.
Part of the mix is that we now have more sulfate pulp in the total volume as the groundwood is closed. We can also see here positive from sales of byproducts when we're producing our pulp. All prices have been going up with inflation and so has also the prices for our byproducts, which in turn shows us the variable costs where we have a very high cost increase. The majority comes from wood, where prices have been increasing continuously since a year ago. A fairly big portion, about a third, comes from chemical costs, and we know that a lot of the chemical costs are linked to energy prices, which have been high.
Having said that, we can see that some of the chemicals pricing have peaked or are flattening out or even decreasing. We'll see what happens going forward. There is inflation also on the fixed cost side, we do have a smaller overall costume with the closure of the groundwood pulp line, meaning that we have basically a ± 0 on the fixed cost side. If we look a bit on what it has on history, this is EBIT and EBITDA per quarter since 2019. First quarter this year shows a strong profit also from a historical point of view, we have an EBIT margin of 20% in the quarter, and for the moving 12 months, it is 16.5%.
Tomorrow we will have our annual general meeting. The proposed dividend is SEK 1.40, which is a significant increase from last year, and would mean, if it is approved, that we would have a SEK 214 million payout to our shareholders in about a week's time. Looking at the balance sheet, we continue having a very strong balance sheet. On the right-hand side, you see the green bar, which is net cash. SEK 578 million is the actual cash we have in our books, and this is then minus our debts. We have some credit lines that are unutilized. Available liquidity is SEK 860 million or where at the quarter end.
We have one thing happening from our electricity price hedges from last year, where we now for 2023 and 2024 have excess electricity price hedges due to that we are not producing the groundwood pulp. We secured the main part of these hedges selling the hedges, and meaning that we will have a positive cash flow for these financial derivatives in 2023 of SEK 156 million for the full year or SEK 38 million per quarter. What are we going to use our cash for?
We have the dividend proposal of SEK 214 million. We have investments that were approved in addition to normal maintenance investments, which will give approximately a SEK 300 million outflow of cash during this year in 2023, which is higher than previous years. Apart from having a strong balance sheet, we are, or apart from financing it ourselves, we are discussing new financing lines to support our investment program. Thank you.
Thank you, Monica. That leads us into how we think things will develop going forward. As shown before, we do see some opportunities that are behind a continued positive development of pulp and paper usage overall. There is a growing number of people on the planet with a increasing disposable income, which leads to better life standard, which is driving demand for tissue. We have seen how e-commerce has emerged during the pandemic, and our habits have changed, and this will remain and continue to grow. There is the need for renewable energy to mitigate energy which was based on fossil fuels, and this will lead to the need for transformers as well as cables and transmission. There is a good demand there for our clean UKP, the unbleached kraft pulp.
Of course, overall sustainability is here to stay, and we are adopting our habits, and this is where we have seen a potential for us to develop a new line of business, our Rottneros Packaging, where we have, during the quarter, formalized the joint venture company in Poland together with Arctic Paper. We are now sourcing and contractually negotiating the equipment into this factory, which will significantly increase the capacity of molded fiber trays. The mill or the factory is developing according to plan, and we are still one of the first producers of a very high quality fiber-based packaging that can replace fossil-based packaging.
The demand and the interest we see from the market still is very strong, we will be at one of Europe's largest packaging fairs in May and believe that this will further fuel the demand and see where things are going. If we wrap this up, we have stable results at the beginning of 2023 on the back of remaining high pulp prices, although in a declining mode. Production is stable. We have now a new production structure in place where we are not making any groundwood pulp for the printing and graphical market anymore. We have a significant financial buffer that enables us to take investment decisions to further develop the company forward.
From two years ago, when Rottneros was 2 pulp mills, we have now acquired a wood sourcing organization that has strengthened our raw material purchases in Nykvist Skogs three years ago. We are also investing in more CTMP capacity, which will profit the group by moving volumes from a less profitable groundwood into the more profitable CTMP. We have packaging that is emerging here now during the year as to become something more significant and substantial. With that, I think we see how Rottneros is transforming itself into a continued interesting investment within the paper and pulp sector. With that, I'll leave the word back to Martin to see if there are any questions.
Thank you very much for that presentation. I will jump into the Q&A section. If you have any question for Lennart and Monica, please use the form that is located to the right. We'll start off with the first question here: We are one month into Q2. How has the demand for Rottneros pulp developed in April?
That is a good question, of course, but unfortunately, we cannot comment the market development after the first quarter.
Understood. Thank you. We'll take the next question here. Have pulpwood prices peaked or are they still on the rise?
We see that there are recently some new announcement for pulpwood. I think there will be certainly one more step, but I think we also see that everybody is seeing the crunch between increased raw materials and decreasing products prices. I think there is a limit how far these products can prices can continue. Let's see what happens, but I'm cautiously optimistic that we will not see too much more of increases on pulpwood.
Thank you. I'll take the next question here. Could you elaborate on the economics for the solar park investment and in particular, the additional revenues from the battery storage?
Yes. The solar park is a more long-term investment in terms of that we want to secure electricity and green electricity for Rottneros Mill at long-term good prices. I think everyone who is investing in solar panels knows that it's not a quick payback. On the other hand, with the battery storage, there is an opportunity to be part of the infrastructure to help the electricity situation in the Effektmarknaden, frequency regulating market. We want to be part of that, and we can see that that is a profitable investment.
Thank you, Monica, for that answer. The next question here, could you also elaborate on the tall oil plant investment in Vallvik, and why now?
That is a replacement investment. The tall oil plant is an integral part of a sulfate kraft pulp mill, which enables you to take the soap that you separate and transform it into tall oil, which then can be the basis for biofuels or other bio-based products. It generates additional income. It is very difficult to get rid of the soap, I would call it now. Not really a chemist. So you have to use it in your plant. So it's basically up for life, end of lifetime.
Thank you. Do you expect any market-related disruptions to production now in Q2?
I cannot comment upon that.
Take the next question here. Congratulations with a strong result. What have you seen for tissue demand in Q1?
We've seen a continued good demand for tissue during quarter one, and that enabled us to shift some volumes from other segments into the tissue segment to keep up with our deliveries.
Thank you. Regarding cash, is your need for credit facilities substantial still?
I wouldn't say it is substantial, but we see that this is a good opportunity to look at financing, and also there is a possibility to get financing linked to the green investments that we are doing. Of course, we need to long term look at our portfolio. The current long-term loan that we have will expire in a year's time, so this is a good time to look at the portfolio.
Thank you. How will you finance the joint venture project in packaging, and how will we see the effect on cash flow?
The joint venture will finance the majority in the joint venture, meaning that it will not have a cash flow effect on Rottneros. Of course, we are supporting with a portion of the funds needed, but they are quite small compared to the total picture.
What will be the contribution to Rottneros' total sales and EBIT from the new packaging operation in, Poland?
We haven't commented exactly on the profitability of the joint venture, but we see that it will be profitable once it is up and running, which is a few years down the line. I think we need to get back to exactly how that will affect our financials.
Okay. Thank you. Looking at the CTMP investment, how is the investment distributed between 2023 and 2024?
The majority of the investment will be done in 2024. We are now starting to negotiate with suppliers, and it will be installed during the annual maintenance shut in 2024. The majority of the investment will come.
Thank you. What would you say were the main drivers for Rottneros' net sales growth in Q1?
The main driver is the price in terms of higher pulp prices, but also higher prices is in Swedish kronors. We have slightly lower volumes, as you know, because of the closure of the groundwood pulp line. We did sell some groundwood that was produced last year. Those are part of it. Also the byproducts have increased in value, meaning that we actually had 10% of our turnover from or from other products than pulp in the first quarter, which is our long-term target as well.
Perfect. Thank you. What are the main risks facing Rottneros, and how are you managing these risks to protect both shareholder value and ensure sustainable growth over the long term?
There are operational risks, there are financial risks, and there are risks on the market side. We have a fair part in our annual report that was released a couple of weeks ago that is discussing that. I think you have to look into that section to grasp the risk section as a whole and not now in a quick answer, just pick out one or two of these risks. Having said that, what we see is one of the major risks that was hitting Western Europe and the industry in a whole was electricity prices, energy prices. Here we had a good energy hedging portfolio that enables us to limit the risk and balance out our electricity prices over time.
We are filling up our hedges. We're now taking the first step into renewable energy. I'm confident that we will soon also be able to announce a long-term energy agreement, a so-called PPA, that will further diversify our portfolio of energy risks. It is a description that I think you have to read in its whole to get a grip on our situation.
Thank you, Lennart, for that answer. We'll take the final question here. What milestones should investors look out for in the coming quarters?
The milestones that we see ourselves is the continued production availability in our units, how we are able to modernize our organization and reduce fixed costs, and how we are able to find customers for the volumes that we are producing.
Perfect. Thank you very much, Lennart and Monica, for that presentation. Big thanks to all of you who followed along this presentation with Rottneros. I hope you have a great rest of the day, and until next time, thank you and goodbye.