Rottneros : 2021-04-22 Rottneros interim report January-March

Q1

2021

INTERIM REPORT

JAN- MAR 2021

Rising prices

and strong demand

for market pulp

EBIT 11 MSEK		Cold winter - challenge		Good liquidity
		for production

Q1

2021

Rottnerosinterim reportJanuary-March 2021

Risingpricesandstrongdemandformarketpulp

Q12021 COMPARED WITH(Q1 2020)

SOLD VOLUME was 112,0 (110,0) thousand tonnes	THE LIST PRICE of NBSKpulp was 16 percent
dueto strong demand for market pulp.	higherin USDcompared with the first quarterof 2020.
PRODUCEDVOLUME was 102,5 (109,4)thousand	A weaker USD againstthe SEK meant that the increase
in SEK was only 1 percent. Thelist price has risen
tonnes.It was mainlythe coldwinter that hada	sharplyover the last half year,from 840 to 1030 USD/t.
negative impacton production.
THE CORONA PANDEMICentails continued	EBIT(operating profit) for thefirst quarter of2021 was
11 (48) MSEK. Lower sales prices and lowerproduction
measures to minimise the risk ofspreading the in-	had a negative impact on earnings. Atthe same time,
fection in theGroup's facilities. Production was	lower variable and fixedcosts contributed positively.
not affected by the pandemic during thequarter.
However, the development atPackaging has been	NET PROFIT forthe first quarterof 2021 was
delayed.	5 (32)MSEK. Earnings per share for thequarter were
NETTURNOVER decreased by 7 percent to	0,03(0,21) SEK.
542(585) MSEK. The higher list prices are reflected	THE BALANCESHEET remains strong. The equity/
in invoiced prices with some delay. Highersales	assetsratio is 57 percent (54) and available liquidity
volumes contributed positively.	amounts to 513 (569)MSEK.

THEQUARTER AND YEAR INFIGURES	Jan-Mar	Jan-Mar		rolling	Jan-Dec
	2021	2020	change,%	12 mounth	2020
Net turnover,MSEK	542	585	-7	2 050	2 093
EBITDA, MSEK	40	80	-50	37	77
EBIT, MSEK	11	48	-77	-79	-42
Profit after financialitems, MSEK	7	43	-84	-97	-61
Net income, MSEK	5	32	-84	-77	-50
Earnings per share, SEK	0,03	0,21	-86	-0,50	-0,33
Cash flow from operating activities,MSEK	13	48	-73	50	85
Return on capital employed (rolling 12mounths), %	-5,7	12,1		-5,7	-3,0
Production, thousandtonnes	102,5	109,4	-6	405,7	412,6
Deliveries, thousand tonnes	112,0	110,0	2	418,5	416,5

2 ROTTNEROS INTERIM REPORT JAN-MAR 2021

Lennart Eberleh

President and CEO

Q1

2021

Comments from the CEO

The performance for the quarter was not satisfactory but shows a positive development. Compared with the first quarter of 2020, a weaker USD had the main impact. At the same time, lower variable costs had a positive impact, clearly influenced by the good availability of wood. The pulp market continues to improve, with a strong trend in list prices. The unusually cold winter impacted production volumes. Our focus on continuously higher production and cost control will remain in 2021, at the same time as we maintain our solid balance sheet.

Production fell by 6 percent to 102 500 tonnes, mainly as a result of the unusually cold winter weather. At the same time, our deliveries increased by two percent to 112 000 tonnes. Net turnover decreased by seven percent during the quarter compared with the same quarter last year. EBIT fell 37 MSEK to 11 MSEK. The decline can mainly be explained by lower sales prices denominated in SEK because of the weaker USD. The average SEK/USD exchange rate for Q1 was 13 percent lower than in Q1 2020. The supply of pulp wood remains at a healthy level and clearly affected our purchasing costs.

Since our prices are affected with some lag in relation to list prices, second-quarter earnings should benefit to a larger extent than was the case for Q1. In March, the production rate was back to normal levels.

The Swedish electricity market was more balanced during the quarter than previously, which reduced the differences between the system price and the price we pay locally.

Consequently, our electricity futures, which are linked to the system price, had the intended effect of reducing exposure to the electricity price.

THE CORONA PANDEMIC

After more than a year of the corona pandemic, we can say that our extensive measures have largely kept the infection out of our facilities. The safety and well-being of our employees always come first and we work systematically to minimise the impact of the pandemic. For example, we address the psychosocial consequences that can arise when employees must work from home to a large extent.

STRONG DEVELOPMENT FOR LIST PRICES

The strong market recovery, driven mainly by China, con- tinues. The NBSK list price per tonne increased during the first quarter by 150 USD, to 1 030 USD at the end of March. The upturn continued at the beginning of the second quarter to 1 120 USD and announcements of further price increases of 100 USD have been made for May.

During the quarter, we further defined the Group's vision, "Always make a difference", by adding environmental targets to the sustainability targets. Emissions to water (COD) and fossil free production (CO2) have thereby been added as long-term target. The ambition is to continuously reduce environmental impact and to achieve completely fossil free production by 2030.

ENVIRONMENTAL INVESTMENT DECISIONS RAISE THE LEVEL IN 2021

In January the Board approved a number of investments to reduce emissions to water from Vallvik Mill. The investments total 33 MSEK and are linked to the mill's recently updated environmental permit. At the beginning of April, the Board of Directors decided to invest an additional 40 MSEK in the biomass boiler at Rottneros Mill in order to increase availability and thereby minimise the need for fossil fuels for drying the pulp. Taken together, this means that the Group's investments this year will total around 140 MSEK. The long-term base level required to maintain our facilities while increasing production levels by at least three percent annually remains at around SEK 100 MSEK.

PACKAGING´S NEW PRODUCTION LINE

DOUBLES CAPACITY

Rottneros Packaging's new production line went into operation at the beginning of April, thereby doubling our capacity in Sunne. We have also entered into a cooperation agreement with a Central European paper manufacturer with the aim of achieving industrial scale tray production in the European market.

In closing, once again I would like to warmly thank all of our employees for the considerable efforts they have made to take the Group to another level despite the major challenges we have faced since the start of the pandemic. I would also like to thank both customers and suppliers for their good cooperation.

ROTTNEROS INTERIM REPORT JAN-MAR 2021 3

Q1

2021

The pulp market

The world economy is still characterised by the corona pandemic and its aftermath. According to IMF forecasts, the recovery in 2021 will be strongest in emerging markets with a robust recovery and GDP growth of 8,4 percent in China and 12,5 percent in India, while the GDP growth in developed countries will be somewhat more subdued .

The US, which has launched several large stimulus packages, is recovering the strongest of the developed economies with GDP growth of 6,4 percent, while the Eurozone, whose stimulus packages have been slowed by national parliaments, is forecast to achieve growth of 4,4 percent. The impact of the third wave, the easing of restrictions, the opening up of society and the vaccination pace will determine the growth rate.

The recovery in the pulp market that began in late 2020 accelerated dramatically at the beginning of 2021. Clearly lower inventory levels combined with a recovery in demand, reduced supply due to pulp mill maintenance shutdowns, challenges in container logistics and speculative behaviour on the Shanghai commodity exchange clearly tipped the market balance to the sellers' side. Net prices in China rose by a record 55 percent during the period December to March.

In a global market, prices should find a balance over time and the effect of this is reflected in the rise in list prices in other markets to close the gap with China, which averaged 200 USD/t net in the first quarter. The NBSK list price per tonne in Europe was 880 USD at the end of 2020 and at the end of the first quarter of 2021 it was 1 030 USD, rising further in April to 1 120 USD. Price increase announcements of 100 USD have been issued for May, but the outcome depends on the continued price trend in China, as well as the general demand situation. The limited increase in supply, along with a favourable macroeconomy, suggest that the market will remain tight, but high prices tend to dampen demand historically.

NBSK QUARTERLY GROSS PRICES 2016-2021

USD/t					SEK/t
1 300					13 000
1 200					12 000
1 100					11 000
1 000					10 000
900					9 000
800					8 000
700					7 000
600					6 000
500					5 000
2016	2017	2018	2019	2020	2021

NBSK i USD per tonne*

NBSK i SEK per tonne

* Average gross prices for softwood sulphate pulp deliveries in Europe.

In 2020, global demand for chemical pulp increased by

3 percent compared with 2019. Demand for short fibre pulp increased by 6 percent, unbleached pulp by 9 percent, while demand for long fibre bleached pulp fell by 1.5 percent.

Demand in China increased by 8 percent, North America rose by 6 percent, while demand in Western Europe fell by 6 percent.

In the first two months of 2021, demand for chemical pulp has fallen by 4 percent (long fibre pulp -8 percent, short fibre pulp -2 percent) compared with the same period last year. The positive exception at the beginning of the year was unbleached pulp, where demand increased by 21 percent due to a shortage of recycled paper for the production of corrugated packaging, but also thanks to a strong market for electrotechnical applications and fibre cement.

Demand for tissue paper, which grew strongly during the initial phase of the pandemic, has stabilised. The global manufacturing volume in January 2021 was at the same level or slightly below the level at the end of 2020. The year-on-year increase is 2 percent. Rising raw material costs and the difficulty of passing on cost increases to customers are putting pressure on margins, and some manufacturers have chosen to limit production in China and Europe. The return to more open societies favours tissue paper used in public settings over at-home products, which are usually based on market pulp. Tissue paper is the largest end use for market pulp globally, accounting for more than 40 percent of consumption.

Pressure on the market for printing and writing papers continued in the first quarter. Capacity rationalisation in the industry has improved the balance between supply and demand, and cost increases could be shifted downstream to some extent. The comparative figure for January shows a year-on-year decline of 18 percent and preliminary data for February showed no improvement.

Manufacturers' global stocks in February were 36 days for long fibre pulp and 35 days for short fibre pulp. These levels are normal or slightly below normal, indicating that the pulp market is in good balance.

DIFFERENCE IN EBIT Q1 2021

COMPARED WITH Q1 2020 (MSEK)

60

50	48
40
30
20
									5	2		1
10
0							24
															11
-10
				-57
-20
					-12
-30
	Jan-Mar	Price and		Effect of	Variable costs	Fixed	Depredation	Other	Jan-Mar
	2020		currency		delivery	(non volume	costs	and amortisation			2021
						volume		based)*

• Variable costs are excluding costs that are related to higher or lower production and delivery volumes. Instead, such costs are included in the "volume effect", together with the volume increase/decrease in net turnover.

4 ROTTNEROS INTERIM REPORT JAN-MAR 2021

Sales and results, Q1

Turnover in the first quarter of 2021 amounted to

542 (585) MSEK, a decline of 7 percent. Turnover was impacted negatively by lower sales prices and positively by higher volumes. The list price of NBSK rose during the quarter from 880 USD to 1 030 USD per tonne. The higher list prices are reflected in invoiced prices with a slight lag. The increase was offset by a weaker USD exchange rate. The list price in SEK was 1 percent higher than in the first quarter of 2019. Sales of products other than pulp were unchanged at SEK 37 (37) MSEK. Sales of wood increased, while lower prices for by-products reduced turnover. Pulp price hedging yielded a positive outcome of 4 (3) MSEK.

The winter of 2021 was significantly colder than 2020. This was also reflected in higher spot prices. The average price of electricity on the Nord Pool electricity exchange in the first quarter of 2021 was 0,46 (0,20) SEK per kWh in electricity area SE3, at the same time as the system price was 0,43 (0,16) SEK per kWh. Rottneros hedges most of the its electricity consumption. Realised gain on electricity price hedges was 12 (-4) MSEK. The average price for the Group after the hedging result was 0,29 (0,25) SEK/kWh.

The supply of pulp wood continued on a good level during the quarter. The strong sawmill industry benefits the availability of woodchips for pulp producers. In all, the variable costs (based on cost per tonne) had a positive impact on earnings of 24 MSEK.

As a result of the continued focus on costs, the fixed costs for the quarter were 7 MSEK lower than in the first quarter of 2020.

Depreciation according to plan amounted to 29 (32) MSEK. EBIT for the first quarter of 2021 was 11 (48) MSEK. Lower invoiced prices and lower production had a negative impact on earnings, while lower variable and fixed costs contributed positively.

First quarter 2021 compared	Jan-Mar	Jan-Mar	change,
to first quarter 2020
2021	2020	%
NBSK, USD	958	826	16
SEK/USD	8,40	9,67	-13
NBSK, SEK	8044	7 988	1
Net turnover, MSEK	542	585	-7
EBIT, MSEK	11	48	-77

Q1

2021

OTHER INCOME STATEMENT ITEMS

Net financial expenses totalled 4 (5) MSEK for January - March and mainly relate to the 400 MSEK bond that Rottne- ros issued in August 2017.

The Group's result after financial items declined to 7 (43) MSEK.

Income tax expense for the period was 2 (11) MSEK.

Net profit declined to 5 (32) MSEK and earnings per share to 0,03 (0,21) SEK.

Return on capital employed for the 12 month rolling period was -5,7 (12,1) percent.

Return on equity after tax for the 12 month rolling period was -6,0 (8,4) percent.

EBIT, ROLLING 12 MONTHS

400						40%
350						35%
300						30%
250						25%
200						20%
150						15%
100						10%
50						5%
0	2016	2017	2018	2019	2020	0%
-50						-5%
-100						2021 -10%

EBIT, rolling 12 months, MSEK

Return on capital employed, rolling 12 months, %

ROTTNEROS INTERIM REPORT JAN-MAR 2021 5