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Arctic Paper S.A., Q1 2020: Strong Q1 prepare the Group for tougher times

May 15 2020
Arctic Paper S.A., Q1 2020: Strong Q1 prepare the Group for tougher times

• Q1 consolidated sales revenue was PLN 813,9 mn (EUR 188,2 mn).
• EBITDA Q1 was PLN 111,8mn (EUR 25,9 mn).
• EBIT Q1 was PLN 79,7mn (EUR 18,4 mn) and net profit PLN 62,3mn (EUR 14,4 mn).
• A combination of strong paper and stable pulp boosted Q1 results.
• At the end of the period there is a decline in demand due to Covid-19.
• Measures taken to mitigate negative effects: short-term allowance for Grycksbo and Munkedal.
• The board has decided not to recommend dividend for 2019.

The year began with a record strong first quarter, with EBITDA earnings of PLN 111.8 million (PLN 81,1 million) and an EBIT margin of 9.8 percent, which is in line with the financial target. Sales amounted to PLN 813.9 million (PLN 820.6 million). Both the pulp and paper segments developed well. The trend with stable raw material prices continued to favour the paper business. The strong consolidated result contributed to the Group reducing its net debt by PLN 65 million compared to Q1, 2019.

The paper business made one of the best quarters with total sales of PLN 587.8 million (PLN 573.3 million) and an EBITDA of PLN 84.8 million (PLN 16.3 million). The driving forces behind the strong result are mainly stable raw material costs. The profit improvement program launched in 2019 contributed to lower fixed costs, although partly offset by costs for maintenance work that normally takes place during summer. Production amounted to 167,000 tons of paper (149,000) and the capacity utilization reached 97 percent.

For Rottneros net turnover decreased to SEK 585 million (630 million). After a stable start of the year, the pulp market has been profoundly affected by the corona pandemic. The negative price trend was offset by higher delivery volumes 110,000 (99,100) tons. Production reached a new quarterly record at 109,400 (97,600) tons. EBIT for the first quarter was SEK 48 million (141 million).

After a solid fourth quarter 2019 and a robust beginning of this year, the Group stands strong and is better equipped to meet the significant increase in uncertainty. Our main European markets are highly affected by the massive restrictions that have been imposed to protect us all against the spread of Covid-19.

Since mid-March, we have started to see weakened markets and subsequently a decline in demand for our products. We are therefore adjusting our operations to mitigate the negative effects and handle the considerable uncertainty. This means, among other things, that we have applied for relevant supporting measures offered by the states in the markets where we operate. For example, in Sweden, the staff at our mills in Grycksbo and Munkedal have been subject to short-term allowance. For the time being, the Kostrzyn mill is operating as normal. We continuously evaluate the market situation and are prepared to take the necessary steps to adapt our operations to market conditions. As a measure of precaution, the supervisory board has decided to withdraw the proposed dividend of PLN 0.20 per share.

Last but not least, we do whatever we can to secure the health and safety of our employees. We have taken measures to protect them, and thus our operations, against the corona virus. We strictly follow the rules and recommendations that apply in each country. So far, no employees have been found to be infected by Covid-19. Challenging times lie ahead of us. We expect both the second and the third quarters of 2020 to be impacted by the corona crisis. Resilience, prudence and creativity will guide our actions as we deal with the current situation and plan for different future scenarios.

Michał Jarczyński, CEO of Arctic Paper S.A.