Rottneros: Capacity change to increase profitability - ABG

Will close down its groundwood pulp line at year-end Invests SEK 160-200m into a new CTMP line CTMP line fully funded from hedge realization

Will close down its groundwood pulp line at yead-end
Rottneros will close down its groundwood pulp line at the Rottneros mill (64kt ’21 production, heavy on electricity consumption) at the end of 2022. Due to the high electricity prices and the declining demand for groundwood pulp (mainly used for paper production), the economics for the line is not supportive for continued operations going forward. The profit contribution from the groundwood line was close to nil in 2021 including electricity hedges. The one-off cost of the closure is expected to be ~SEK 60m expensed in Q3, but this figure will be partly offset by realization of electricity futures related to the groundwood production line. 40 employees will be redundant and laid off following the shut-down of the groundwood production line.

Invests SEK 160-200m into a new CTMP line Rotternos will invest SEK 160-200m into a new CTMP line. This will increase the CTMP capacity from 120kt to 150kt and the new line is expected to reach first production in 2023. CTMP is mainly used for tissue, packaging and other special applications. On a mid-cycle basis, we believe the new CTMP line can add 7-10% to EBIT. Hence, Rottneros is making profitable investments into the growing packaging segment and closing down non-profitable production lines.

CTMP line fully funded from hedge realization As of Q2’22, Rottneros had a positive mark-to-mark hedging position of SEK 648m. Since then, the electricity future curve has surged further. To our understanding, ~90% of the company’s electricity consumption is at the Rottneros Mill, and we expect that the realization of the hedges related to the groundwood line will result in a cash inflow of SEK 150-250m (i.e., the CTMP line capex is fully funded by hedge realization).

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