Artic Paper : Pulp boosted Q1 result, but bruised the paper segment

“We work continuously to develop new products. By the end of 2022, a quarter of our sales must come from other products than graphic paper.”
Michał Jarczyński, CEO of Arctic Paper S.A.

During the first quarter of 2019, Arctic Paper Group had a turnover of PLN 820.6 million (compared to PLN 788.1 million in Q1 2018) with an EBITDA of PLN 82.4 million (71.5 million). The consolidated result makes the quarter the best Q1 we have seen.
Despite a good consolidated result, the results of the paper segment were below our expectations. This segment is operating in a continued tough market and generated a turnover of PLN 573.3 million (573.6 million) with an EBITDA of PLN 16.3 million (31.1 million). Price increases and a better product mix grew the average revenue per tonne by 9.8 percent compared to the first quarter 2018, which compensated for the volume loss. Pulp prices are still 40–45 percent higher than Q1 2017, leading to higher raw material costs, increased paper prices and, as a result, lower demand for paper. In spite of this, the demand for premium and speciality products remains stable and now represents 30 percent of total sales (28). Production amounted to 149,000 tonnes (166,000) and sales 154,000 tonnes (169,000).
In 2018, Arctic Paper decided on a new strategy, which now is being implemented, but at the same time the market development clearly shows that market-related actions are not enough to restore our margins. The Group therefore introduced a profit improvement program for the paper segment, with the ambition to generate annual cost savings of approximately PLN 40 million from 2020. Actions have already been taken to reduce costs, among them closure of PM7 at the Grycksbo Mill and staff reductions at Arctic Paper Munkedals. Further initiatives were taken during the period. The head office in Poznań will be closed and that function moved to our mill in Kostrzyn, where a shared services centre will be established for Group support functions. We are also revitalising the sales organisation, and in March appointed a new EVP for Sales. A cooperation agreement has been reached with Adven AB for an investment in a biomass boiler in Munkedal that will ensure lower, stable, predictable energy costs and reduce CO2 emissions.
In order to expand our product portfolio, we have recently introduced Munken Kraft, a paper for non-graphic applications aimed at the growing packaging segment. We work continuously to develop new products. By the end of 2022, a quarter of our sales must come from other products than graphic paper. During the period we also launched G-snow, a new, ultra-white, high-quality coated paper which has been well received by the market.
The past quarter proves that the decision taken in 2012 to combine pulp and paper to stabilise consolidated results was right. The fluctuations on the two segments offset each other. For Rottneros AB, of which the Arctic Paper Group owns 51 percent, net turnover increased by 17 percent to SEK 630 million (537 million) and EBITDA by 81 percent to a record-high SEK 141 million (78 million).

In order to meet the market development and strengthen our competitiveness, we must work ever harder to lower our costs, increase productivity and accelerate the reshaping of our product portfolio. I am confident that these actions will give us the necessary take-off on the road towards better margins.

Michał Jarczyński, CEO of Arctic Paper S.A.
Financial calendar for 2019: Q2 2019: September 3rd, 2019 * Q3 2019: November 28th, 2019