Hello, welcome to today's webcast presentation with Rottneros. With us today presenting, we have the CEO, Lennart Eberleh, and the CFO, Monica Pasanen, with us. If you have any questions for Lennart and Monica, please use the form that is located to the right. With that said, please go ahead with the presentation.
Thank you, Martin. Hello, everybody, to our webcast for the 2nd quarter of 2023. It has been a quarter that was full of activity in order to prepare Rottneros and continuing on our road to improving our competitiveness while safeguarding our financial stability. We look at what has happened during the quarter. We have accumulated an EBIT of SEK 41 million for the quarter, or SEK 190 million for the 1st half of the year. It is a somewhat pale comparison to 2022, but I think if you look at the historical figures, especially for the 1st half of the year, it stands well. We have a continued solid balance sheet that gives us the freedom and the possibility to do necessary investments to continue our competitiveness.
We've worked hard with controlling our costs, that is the things we can control. That has kicked off last year with the closing of the groundwood line. It also led to an overview of our overheads in central functions and support functions. Now, lastly, we had an organizational review of the Vallvik Mill that also has impacted the results of the second quarter. With having done all that, we are close to reducing our headcount with 20%, which is, of course, always very hard and tough. The majority of this could be solved through early retirements. The packaging JV in Poland is proceeding. We are in the phase of sourcing all the necessary equipment, and that will then be delivered and installed in the coming time.
We've also done a couple of investments earlier on in this quarter, which have been announced previously. More CTMP pulp in Rottneros Mill, a renewable electricity production from solar panels, and towards the end of the quarter, we have signed a deal for long-term PPA, 8.5 years from 2025, for some 30 GWh on an annual basis, which would correspond to close to 12% of our electricity consumption, and it will be green electricity with the corresponding guarantees of origin. All of that has been done in order to prepare Rottneros for the very challenging times that we are in currently.
If those of you who haven't followed us for some time, looking at what is it we do, as being part of the forest industry, we are part of the green transition. We can provide sustainable and renewable products for the market in order to substitute less so sustainable products that have been there for a long time. We are focused on maintaining a robust balance sheet. It's a capital-intense industry that we're in, with its ups and downs, and it's important to make sure that we have a solid situation to do the things that are necessary to develop our operations going forward.
I think also now in the weak market situation that we see, we have strong positions in selected niches, filter electrotechnical applications, that stand well with their demand, while other segments are certainly much weaker when it comes to the demands. With that, I go over to the market and the current trends and challenges that we see. If we start off with the quarterly average prices, you see 4 lines, 2 at the top, which are a bit bolder. Those are the gross prices for NBSK, that's a softwood in Europe, and the ones in the bottom are the net prices. You see that they are diverging more and more as the rebates are increasing year-over-year, and it's more interesting to look at the net prices.
Currently, net prices are roundabout where we were at the beginning of 2021, in Swedish krona, still slightly higher. Of course, much lower than 2022, which was a record year. If we look a bit, a little bit more into detail and how these prices have developed on a monthly basis, as well as how the stock levels have developed, you see that stocks has risen dramatically. They are now over 55 days for all grades for the producers, which is a record high level, and that has led to sort of a depressed market situation, not the least in Europe, which currently is probably the least favorable market when it comes to the price development. China still has lower prices, and China is the biggest market for market pulp.
It has bottomed out earlier this year and turned around, especially for hardwood grades, where we've seen- price increases coming through, and that has led to some increase in demand in China, and deliveries have been picking up, whilst the European prices still are on a downward trajectory. We have to see how that will continue going forward. Looking at the European market and the paper and board production in Europe, you've seen this slide now for some quarters, and we see a continued trend here, where the board and packaging segment is increasing as its share of the total market, while paper is decreasing. Yeah, that was one of the reasons why we closed the groundwood line and also investing in more CTMP, as the mechanical pulp is skewed to the board and packaging market.
Although it is currently in a weak state, I'm very convinced that this will turn around once the supply chains have been emptied out, and then we are ready with our grades for our customers. More in detail, into this year's development, January to May, so far, a decrease in pulp and paper of -17.5%. A lot in graphical papers, 25 or less so, but also, packaging has had a couple of tough months, where we hear anecdotal descriptions from our customers and downwards in the supply chain, that the stocks are full, and they have to be emptied before ordering can pick up again. If we look at how that translates into pulp supplies, we see now that China, here more to the right, has had a good start into this year versus last year.
Deliveries there have increased. As I said earlier, there we had a clear bottom for hardwood pulp, whereas Europe and North America, still at higher prices compared to China, are working through the stock levels, and we see prices declining. That is, of course, not triggering any purchasing activity until we see that prices will bottom out, and then activity will return. As a consequence of that, we have diverted some of our sales to other markets. Europe is our biggest market, with 67%. We have been successful in doing so, but it takes a little bit longer time for the product to reach the customer. It takes longer time for the invoicing, and thus there has been a gap between production, which has been good in our mills during the quarter, versus the invoicing.
We see that that has picked up towards the end of the quarter and continued good in the beginning of this quarter, so I'm sure we will see some more volumes going out from stock going forward. Looking at where we sell our pulp to, board and packaging continues to be the biggest part. That is where we can make a difference for our customers. Filter has improved. Filter has been very strong, as much as electrotechnical applications. Here we haven't seen hardly any decline in demand during the earlier part of this year. Specialty is stable. We were able to find some new outlets within tissue, and of course, the printing and writing segment is decreasing as we've closed down the groundwood line. This is for the first half of the year.
We still had some deliveries in quarter one of groundwood to printing and writing. This will decrease further going on. All in all, a well-balanced portfolio of applications that we supply to, and I think this also bears fruit in that we haven't seen too much of a negative effect on our sales. With that broad overview of the market, I leave over to Monica to guide us through the financials.
Thank you. Yes, this is the first quarter that we are without the groundwood line, so this, of course, has some impact on our waterfall. One impact is that when we are selling only CTMP and NBSK pulp, or softwood pulp, we get a better price mix, product mix, and also with higher margins. That we can see in price and currency, but looking at the products that we are now selling, we also actually have a higher price in both US dollars and Swedish crowns, quarter-on-quarter.
On the volume side, as Lennart just mentioned, we have had good production. The negative impact comes from a delay in being able to deliver and invoice the products, which we believe will happen now in the quarters and months that are coming. The really big impact for this quarter is the variable cost increase. The majority comes from the cost of wood. It is a twofold impact. The prices in Sweden, the domestic prices, have increased. There has been a high demand, and especially at the beginning of the quarter, there was a lack of supply, which then led us to the second part that is influencing our wood costs, and that is a need for increased imports.
We had a more unfavorable mix in that respect. On the fixed costs side, we have been able to mitigate the impact of inflation, and much of this is thanks to the organizational review and the program we have had ongoing since last year. Out of the 20% decrease in personnel, approximately 10% has materialized by this quarter. In the item other, we have provision for additional redundancies at Vallvik Mill, which has affected the result in the second quarter. So we have gone from SEK 219 million to SEK 41 million. If we look at the half year, we see a very similar picture.
The big difference is really that in the 1st quarter, we still benefited from higher prices, and the price levels were higher in the beginning. On the variable cost side, we had quite high chemical costs in the beginning of the year. That is something that has come down throughout the quarter, and they are quite closely connected to energy prices, which have come down. If we look at a bit of a historical view and looking where we are coming from, we see that the record quarters that we are comparing against this is really Q2 last year. On a more looking back some years, we can see that these are more normal levels. Looking at our balance sheet, we have a very strong balance sheet.
We had a net cash position of SEK 274 million at the end of the quarter, and the equity to assets ratio was 65%. Looking at the actual cash during the period, we have paid a dividend of SEK 214 million, so that's a fair amount. On the other hand, we have the benefit of our financial derivatives throughout the year. When we closed the groundwood pulp line, we had excess electricity hedges that we locked in, and we are now seeing them maturing each month. The positive cash flow effect is SEK 38 million per quarter. The actual effect in the PNL was taken last year. During the quarter, we also refinanced our long-term loan.
It is a facility of SEK 250 million. A fixed loan of SEK 100 million. That is what we have drawn, and that is our, in our balance sheet right now. We have a revolving credit facility of an additional SEK 150 million, which we can draw on where needed. All in all, we have a very stable financial position going forward.
Thank you, Monica. Looking into how we see the future, despite the challenging times we are in currently, we have a very positive view for the need for renewable fiber-based materials. This is coming from various different fields of applications, mostly linked to a global increased population, globally increased disposable income, which is asking for more sanitary and tissue products. The e-commerce is here to stay. We see how that is creating demand for packaging, corrugated, as well as board. We have a transition to renewable energy that is asking for more transformators and for more cables, and here our E-grade and electrotechnical pulps are making a difference, as they are one of the cleanest pulps in the market for these applications.
Of course, the general trend towards a more sustainable society, where we participate in with our own molded fiber packaging business, which is on the way. Some more words about the Rottneros Packaging and the JV that we have in Poland. As I've said initially, the project is on its way. We are one of the leaders in this market with a top quality for food packaging that does not need to be frozen, but has a prolonged shelf life, thanks to the modified atmosphere that you can pack it in within our molded fibers. All of this and our technology and position in the market was confirmed through our participation at one of the globally largest packaging fairs, interpack, in May, earlier this year, with a great success.
That, of course, gives us confidence with our focus and investment in this area, which also will create a broader portfolio of businesses in the future for Rottneros and make us less of a pure pulp player. To summarize the quarter one, as you've seen, we have a continued strong balance sheet with the equity to assets ratio of over 60%. We're working hard on improving our competitiveness, both by controlling our costs as well as investing in our assets in order to increase the capacity without increasing fixed costs, more pulp with the same headcount, own energy production, and upgrade of our system in Vallvik. Of course, the continued focus on molded fiber, which is leading to a transformation of a pure pulp player in the future.
This gives us the confidence that we will get through these very challenging times. The result, as such, for the second quarter is a disappointment, but we know where it's coming from. It's largely related to the current state of the European pulp market, and as we've seen historically, the pulp market goes ups and downs, I'm confident that there will be another going trend once this downwards trend is broken. With that, I'm opening up for questions, and leave the word back to Martin. Please, Martin, give us some questions.
Thank you very much for that presentation, and like I said, we'll jump into the Q&A section now. We'll start with the first question. The biggest negative impact on Q2 EBIT year-on-year is the variable cost inflation. Can you give a picture on the sequential inflation, 1st half versus the 2nd half 2023?
I'm not exactly sure what is being asked for, but as we pointed out earlier, the biggest change is the wood cost, and it's not only connected to inflation. It is a bigger picture of supply and demand. The total supply of wood has been impacted this year by on a bigger scale by no wood coming from Russia and Belarus into Finland, which is then also impacting the balance in Sweden.
There has also been fewer fellings in from the Swedish suppliers in the beginning of the year. All this has led to a squeezed supply situation. Still a good demand. This is what we saw for a big part of the first half of the year. Towards the end, or the first six months, towards the end of this period, we have seen that this has changed. There has been actually a very good supply of wood. I hope that this answers the question.
Thank you, Monica, for that answer. We'll take the next question here, which I believe you answered, but maybe you can elaborate. Given the current economic climate, would you say that the demand for your products are increasing or decreasing?
I think the underlying demand is there, and it is increasing. What we're seeing is a current squeeze where, you know, supply chains have been elevated during and after the pandemic. There have been logistical issues. We all hear how long delivery times of cars has been. Semiconductors have been a scarce source of material into any kind of production, and all of that has led that an inflation in stocks along the entire supply chain. This is easing up. Consumption is going down due to the lesser availability of money, higher interest rates. In general, there is a trend towards sustainable products. There is a trend towards fiber-based products, and once these supply chains are back in balance, I think we will continue in our customers' products.
Thank you for that. We'll move over to the next question here. The pulp price is falling. How does that affect the Rottneros exactly?
Yep. Well, it's maybe a quite easy answer, is that if the prices are lower, it will affect our bottom line. Maybe it is a bigger question as well. When the prices are falling, it will affect also the demand for pulp and which, or the reason for the falling prices is actually that demand is falling, and it can be different in different sectors. Like we pointed out, we see a good demand from our niches, the electrotechnical applications, filters, to some extent, the board applications. But of course, also in the sectors where we have good demand, we see falling prices and this has an impact on our bottom line, which was also seen in the result for the quarter.
What risks do you see that could lead Rottneros to not reaching, your goals for 2023?
I think we all have been very much aware of the kind of risk that nobody can foresee during the. You know, it's difficult to foresee the future. What we do is we focus on the things in our daily operations that we can focus on, that keep us motivated and doing the best for Rottneros to maintain our competitive position. That is what we're doing. Usually, things fall into place if you work hard on a systematic structured way on the things that you can impact.
Thank you. We'll take the next question here. Is there something that you're excited about in the remainder of 2023?
I'm very excited about the seeing how the Polish plant will develop and actually evolve. Also how our investment will fall into place. I think with the sort of production basis that we have now and the records we've seen on daily basis, weekly basis, monthly basis, that will continue. We will see that the organization will come together closer, as now every uncertainty has been taken out. Everybody knows that there is a place for them, and what place exactly it is. We're starting a educational program for those who have to shift their position.
I think, we will, as a company, come closer together to really tackle the challenges that lies ahead and deliver on the investment plans that have been taken, and thus create a position of strength once the market will turn around.
Thank you. We'll take the final question here: What can investors expect of Rottneros in 2023?
A company that is ahead of the curve. We have early identified challenges that will come. We have acted upon them. We will do our best to maintain a stable financial situation and, of course, make our utmost to create shareholder value by long-term, stable results. The remainder of 2023 is the beginning of that journey, so I hope we can motivate everybody to be a part of this journey going forward.
Okay. Thank you very much, Lennart and Monica, for that presentation and answering all of our questions. A big thanks to all of you who tuned in for today's webcast with Rottneros. Hope you have a great rest of the day, and until next time, thank you and goodbye, everyone.
Thank you, everybody. Have a nice summer.