Earnings call transcript: Norske Skog Q2 2025 sees stock rise amid strategic shifts

Norske Skog Asa (market cap: $183.45M) reported its Q2 2025 earnings, revealing strategic shifts and financial improvements that drove a 7.99% increase in its stock price, closing at 23.65 USD. The company highlighted a Q2 EBITDA of 106 million NOK and pretax profits of 49 million NOK, despite facing a challenging market environment with declining publication paper demand and excess containerboard capacity. According to InvestingPro analysis, the company is currently trading near its Fair Value, with a notably low Price/Book ratio of 0.33x.

Key Takeaways

• Q2 EBITDA improved to 106 million NOK.
• Stock price rose by 7.99% following the earnings release.
• Initiation of containerboard production at Golbe PM1.
• Publication paper market experiencing a 5-10% decline.
• Focus on cost efficiency and strategic innovation.

Company Performance

Norske Skog demonstrated resilience in Q2 2025, with improved EBITDA and profitability. The company navigated a tough landscape marked by declining demand in the publication paper market and excess capacity in the containerboard sector. Despite these challenges, strategic moves, such as starting production at Golbe PM1, positioned the company favorably.

Financial Highlights

• Q2 EBITDA: 106 million NOK, up from Q1.
• Pretax profits: 49 million NOK.
• Equity ratio: 42%.
• Interest coverage ratio: 5.5x.
• Cash balance: 1.1 billion NOK.
• Net debt: less than 4 billion NOK.

Market Reaction

Norske Skog’s stock price increased by 7.99%, closing at 23.65 USD, reflecting investor confidence in the company’s strategic initiatives and financial health. This rise comes despite broader market challenges, suggesting optimism about future prospects.

Outlook & Guidance

The company remains focused on cost efficiency and strategic innovation, anticipating a 10% decline in pulpwood prices in the second half of the year. Full utilization of Golbe PM1 is expected by the first half of 2027, providing a long-term growth trajectory.

Executive Commentary

"We continue to focus on our strategy of being a committed and cost-efficient supplier," stated Thorsteinze Torbund, CFO. Evan Lund, SVP Corporate Finance, highlighted the significance of Golbe PM1’s startup as a major milestone.

Risks and Challenges

• Declining publication paper market by 5-10%.
• Excess capacity in the containerboard market.
• Potential market closures in the containerboard segment.
• Volatile operating environment.
• Pricing pressures in publication paper.

Q&A

Analysts inquired about the impact of declining pulpwood prices and the dynamics of the containerboard market. The company’s management addressed strategies to mitigate pricing pressures and enhance working capital efficiency.

Full transcript - Norske Skog Asa (NSKOG) Q2 2025:

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Good morning, everybody. My name is Karsten Dybubik, and I’m the Vice President of Communication and Public Affairs. Welcome to a short webinar of Vernorski Skogs CFO, Thorsteinze Torbund and SVP Corporate Finance, Evan Lund, will present highlights from the second quarter. Also present is CEO, Geijdrangslan and SVP, Commercial, Robert Wood. There is no pre recorded Q2 presentation on the Nordisko web page.

This webinar will be recorded and will later be available on the web page. After the presentation, you will be able to raise questions by raising the yellow hand in the Teams. Please keep your microphones on mute. And the word is yours, Torbjorn, the CFO of Nordschke Skoop.

Thorsteinze Torbund, CFO, Nordiskug: Thank you, Karsten, and welcome, everyone, to Nordiskug’s Second Quarter twenty twenty five Results Presentation. I’m a say it’s like that.

: Yeah.

Thorsteinze Torbund, CFO, Nordiskug: So in an OSFI school, we continue to focus on our strategy of being a committed and cost efficient supplier of publication paper to all our customers, also growing our deliveries of packaging paper, and in addition, exploring profitable fiber projects across all our four mills in Europe, always then with a focus on sustainable business operations. These are the quarter highlights. EBITDA came in at 106,000,000 in the quarter, which is an improvement in operational EBITDA compared to Q1. We are increasing our market share despite challenging markets and low industry utilization rates. In addition, we did have a better than expected contribution from CO2 compensation and energy contracts mechanisms, which in isolation contributed positively in the quarter.

We maintain our cash position despite significant investments in Golbe. Some key contributing factors are that we have received the proceeds from selling Boyer, our Australian paper mill. We have sold our twenty twenty five surplus of CO2 allowances at Skogin Survoys, and we have received the annual CO2 compensation at Skogin Survoys Golbe. We have also reached an agreement with lenders to revise loan repayment schedules and release restricted cash accounts. We have started the containerboard production at Gurbe PM1, and we expect the utilization of about 20% to 30 in the third quarter of twenty twenty five and to reach full utilization in the first half of twenty twenty seven.

We have several initiatives to improve profitability across our mills, both in terms of top line growth and moving into higher margin products and also cost saving initiatives. Two example listed on this slide. We have optimized the fiber mix at the Bruck EM4, the LWC machine, to enhance both product quality and reduce production costs. And we have started a project at Skong PM1 to enable switching between newsprint and book paper during 2026. On Sobriggs, the BCTMP project is currently put on hold, mainly due to the size of the investments.

We do expect to reach a conclusion on whether to restart PM6, the SE machine that was damaged in the rock slide, some years back, during the second half of twenty twenty five. We stress that the potential restart of PM6 would be done in parallel with the permanent closure of PM4 and These are the key figures for the quarter. Production of publication paper is in line with prior quarter, while deliveries, as you can see, are slightly down, resulting in some increased finished goods inventory. On the containerboard side, we also have some inventory build, mostly as a result of the Golbei PM1 start up. Operating revenue decreased due to lower volumes and lower average selling prices on publication paper, while the prices on containerboard increased.

Other operating income is down, as prior quarter included the insurance compensation at SurVoice of NOK560 million. And pretax profits came in at NOK49 million. Briefly on financial position, the equity ratio increased to 42% and interest coverage ratio stands at 5.5 times. The cash balance is maintained at 1,100,000,000 as CO2 compensation, sale of surplus CO2 allowances and proceeds from selling Boyer offsets the CapEx primarily at Cold Bay and the loan repayments made in the quarter. The net debt decreased to less than 4,000,000,000.

Looking at segments for our publication paper, we have lower deliveries due to some inventory build, but also both planned and unplanned shots. Average prices for the segment are slightly down on all grades we deliver. Lower cost of materials is due to the higher contribution from CO2 compensation and energy contract mechanisms and also seasonally lower energy prices and improved operational efficiency. This is partly offset by higher fiber prices, in particular, higher prices on recycled fiber.

Evan Lund, SVP Corporate Finance, Nordiskug: On Packaging Paper, Brooke PM3 delivered positive EBITDA of million, which

Thorsteinze Torbund, CFO, Nordiskug: is the best quarter to date. Higher containerboard prices mitigated the cost of recycled paper or OCC. On PM1, the ramp up is ongoing, and we made the first customer deliveries in the quarter. The first deliveries from Gombe PM1 is expected to receive lower average selling prices in the initial months due to trial volumes and some exports out of Europe when compared to prices achieved at Bruck and prices in the general European containerboard markets. So that concludes the segment.

I now hand over the word to Senior Vice President, Corporate Finance, Emmel Lund, for an update on financing, projects and markets.

Evan Lund, SVP Corporate Finance, Nordiskug: Thank you, Thurgood. We continue to be great grateful for the close relation and cooperation that we have with all of our lenders. During the quarter, we have been able to secure revised repayment schedule for some of our loan facility agreements. This would not have been possible without the patience and openness from our lenders, and it has been very valuable to the company. With the new repayment schedules, we have better aligned the repayment with the production ramp up at Gulbe PM1, and we have improved liquidity for the next thirty months to the end of twenty twenty seven.

In addition, we have option to extend certain loan facility maturities further out, but we’ll come back to that at a later point. On the right hand side, you see an overview of our main financing facilities, but I guess you can read that on your own. On the next slide, we have shown this slide now for quite some quarters. And finally, we are able to show four green check marks. The Gold Bay project has finally been completed, and we are now at the early stage of ramping up.

Ramping up production always involves some birthing issues. That’s also the case at Gold Bay, but we are positive and optimistic that this will become one of the very best containerboard machines in the world. So very excited to finally be up and running. Some CapEx is remaining and will most likely be expensed during the third quarter, about EUR 20,000,000 to 25,000,000. And as mentioned several times, we will also have some grants and energy certificates of approximately EUR 52,000,000 to be received over the coming thirty months or so.

On the next slide, an update on the future opportunities at Saybrugs. As Thord mentioned, we have put the BCT MP project on hold for now due to both market conditions and the relative size of the investment. However, we do continue to look at the potential restart of the paper machine six, which was damaged in April 2023. The CapEx to rebuild that or restore the machine is estimated at approximately SEK 300,000,000, and the project would take between twelve and eighteen months. But we continue to evaluate the potential restart, and we’ll get back on that during the second half of this year.

Going into the markets, publication paper markets continue on their trend decline of about 5% to 10% and is expected to have that demand decline also in 2025. Looking at the utilization, we see that newsprint market is fairly good at mid-80s level, whereas the two magazine paper grades are more challenging with between 6070% or high 70s percent utilization. However, as we see on the cash cost curves on the next slide, we have a competitive position for most of our machines. The newsprint machines are very competitive in their segment, both Gold Bay PM2 and all three machines at Skongen remain at the very low end of the cash cost curve. And also the LWC machine at Bruck, Bruck PM4 is very competitive, although the market is challenging.

Sao Bruck’s PM4 and five are located at the high end of the cost curve. We have communicated several times that the cost efficiency of those two smaller machines is not ideal, and that’s also why we are looking at the potential restart of the PM6 machine to secure the long term future for Cedricks. However, we are also weighing, of course, financial discipline and profitability. So we’ll get back to that in the second half. Here, you see the demand development for containerboard.

Containerboard is a growing market around GDP growth, maybe a bit higher from time to time. The market is now characterized by excess capacity and utilization, which should be above 90%, is now below 90%. That means that there is pressure on prices and pressure on the profitability. We do expect the situation to improve over time given that no new conversions or greenfield projects are announced. However, it could take some years for the situation to improve on its own.

On the other hand, we do expect some closures to occur given how pressured the market is at the moment. On our part, we are very secure with our own two machines in this segment. Bruck PM3 delivered a positive EBITDA in the quarter despite challenging markets. And also, Gold Bay PM1 is now ramping up, and we expect it to become a very competitive machine once utilization picks up. Here you see the cost development for the main raw materials.

I guess most of you follow this on a daily basis. However, we see energy prices still at a high level, although down from the peaks seen a couple of years ago. It’s still above what we consider the pre pandemic price levels. However, that’s also reflected in the product prices for most of our in most of our markets. Fiber costs are high, especially virgin fiber has been on an extreme incline for the past couple of years.

But we do now see tendencies of this reversing, and the 10% price decline for spruce pulpwood in the second half is expected. The EUAs or the CO2 quotas have remained at between EUR 65 and 70 per allowance, and we have sold about 200,000 allowances in the quarter or about 176,000,000 of CO2 quota related cash proceeds in the quarter. Here, you see the product prices. On the left hand side, you see the three publication paper grades that we produce: newsprint, SC Magazine and LWC Magazine paper. Prices have been mainly flat for a long period.

During the second quarter, we did see price declines for on our part, a weighted average price decline of about 4% in the quarter due to both some reduction in input factor cost, especially energy, but also due to general market pressure. On the right hand side, you see the containerboard price index. It has been increasing lately due to increasing OCC cost, but we do now expect OCC cost and the containerboard price to turn following each other down a couple of notches. On the outlook, so as stated for the past couple of quarters, we see both uncertain and volatile operating environment putting pressure on profitability and making the future uncertain. We have a significant focus on our cost position and also improving our working capital in order to remain competitive.

Gold Bay PM1 finally started up, a big milestone for Nostrasgog. We expect full utilization during 2027. As already mentioned, expected remaining CapEx of around 25,000,000 with related energy grants and energy certificates and grants of about EUR 52,000,000 to be received over the next thirty months or so. And as always, we continue to monitor our capital and liquidity position closely and have always ongoing initiatives to secure our financial performance and optimize our cost position. So with that, I think we can conclude the prepared remarks and open up for some questions.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Okay. We give the word to Sean. You’re welcome to raise your questions.

Thorsteinze Torbund, CFO, Nordiskug: I

Evan Lund, SVP Corporate Finance, Nordiskug: think you can now unmute, Sean. Right. Maybe we can move to Cole Hathorn, if you’re unable to unmute your microphone, Cole.

Cole Hathorn, Analyst: Good morning. Thanks for taking my questions. I’d just like to start on some of the comments that you mentioned on the raw materials. I see your charts are to the end of the second quarter, and you mentioned some decline in pulpwood in Norway. Just to like a little bit more color, what’s driving the kind of pulpwood decline into the second half?

And are you seeing it kind of across regions? You know, do you think this is kind of a Nordic wide view? And then also, what are you seeing on OCC considering OCC prices have come down for your recycled containerboard business? Let’s start there, and I’ll come back to another one.

Evan Lund, SVP Corporate Finance, Nordiskug: Yeah. Absolutely. So I can start, and then feel free to fill in on our end. But on pulpwood, as you can see from the chart, it’s obviously been a fairly steep incline for a long time now, and prices are at record high levels. As you know, it’s been pressure in the pulp market for some time now, and we see reduced demand for pulpwood in The Nordics as a result of that.

In addition, then the felling of the forest in The Nordics has increased significantly following a longer period of less harvesting from the forests, meaning that you have both a supply and a demand development indicating sort of less pressure on the market. So I think that’s what we’re seeing the effect of now. So unless there’s any further comments

Cole Hathorn, Analyst: quantification any quantification on how much it’s kind of easing at this stage?

Evan Lund, SVP Corporate Finance, Nordiskug: About 10% is what we see now at least for the second half, but it’s a developing situation. Sean, you’re Okay. I think you Cole had a question also on the OCC and what we see there. So yes, OCC also has been volatile over the past few years and has been at a very high level and steep increases lately. We do see it coming off a bit based on the discussions we have in the market and but also expect then containerboard prices to follow that quite closely due to the overcapacity in the market.

I’m not sure if that answers the Yes, question,

Cole Hathorn, Analyst: that’s helpful. And then maybe just following up on the Packaging division, just to kind of understand the impact of the ramp up. You helpfully called out that Brook generated about $26,000,000 of EBITDA. So should we think about 10% EBITDA margins for Brook? And then just the ramp up drag, you probably didn’t sell very much, but you had high fixed costs in Gold Bay.

And I’m just wondering, considering we’re at a position where demand is a bit muted, has it been helpful to get people to trial your paper whilst maybe demand’s a bit softer and they’ve got the availability to do it? I’m just wondering how the commercial testing and sales is going for the Gold Bay paper. Any color there? And split between, you know, is my kind of 10% margin correct for Brooke?

Evan Lund, SVP Corporate Finance, Nordiskug: So I can start with with Brooke, and then I will hand it over to Robert Wood for the testing of the containerboard volumes from Gull Bay. But yes, Brook, it’s I think we have stated for a long time that we expect about 20% EBITDA margin over the cycle for our containerboard division, the Packaging Paper segment. Obviously, now, as you know, the market is depressed, and there is pressure on profitability. So a 10% margin in the current environment is probably a fair assessment given where we are, but we do expect it to be better in a better market, obviously. So but in the current situation, I guess, that’s fair.

I will hand it over to Robert Wood just to make sure that he can now hopefully, he can unmute his microphone.

Robert Wood, SVP Commercial, Nordiskug: Devin?

Evan Lund, SVP Corporate Finance, Nordiskug: Robert, now I can hear you.

: Mitch? Yeah. Sorry. Yeah. Yeah.

Just to the question, yeah, there’s a a window at the moment for, obviously, sending out the test samples and then getting trial trucks arranged. So we we we’ll make use of that. That was always the plan, of course. You know, you have to send out samples for testing and then get trial deliveries made and then go from there. So that’s why we’ve said it’s a slightly slower ramp up in in q three because of the some of the earlier problems.

But, yeah, you’re you’re right to think that that’s that there’s a window of opportunity there, and we’ll take it from there.

Cole Hathorn, Analyst: Thank you.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Anything more, Cole? No. Let me give the word to Sean. Sean O’Rourke, if you’re still there.

Sean O’Rourke, Analyst: Yes. Good morning, gentlemen. Just just in terms of your comments around the containable market taking some years sort of improved. I mean, why have we not seen sort of closures given that there’s low cost capacity coming online? What do you think is preventing that at this stage?

: Maybe I can take it.

: I think

: Yeah. You

Thorsteinze Torbund, CFO, Nordiskug: go go ahead, Robert.

: No. No. No. It’s just I think we we discussed it before. I think I think it’s inevitable that there will be closures, but it it does take some time.

We’ve seen that in the publication paper market as well. You know, there are small some smaller, particularly in Germany, some smaller sort of family owned medium sized businesses, and they they tend to do everything they can to hold on. So I think it will take a little bit of time. We’ll see, you know, there’s been consolidation, obviously, on some of the larger integrated players as well. That that takes time to, you know, see what they they do and how their synergies, work.

And and it it does take a little bit of time, but I think it’s inevitable that that that will happen.

Sean O’Rourke, Analyst: Thank you. And then sort of follow on on that, what is your sort of best estimate of excess capacity as of today?

: Well, there’s there’s depends how you see the demand, but it’s it is significant. But we are confident with the the low cost production that we’ve got and being in the right position with our assets that we’ll be able to, you know, grow our market share as we have done. I mean, we’ve we’ve done that with Brooke, and we will do that do it with with Gobi. We’re we’re confident in that.

Sean O’Rourke, Analyst: And then just last one from my side. Just think we’ve spoken quite a bit on the supply side. Just in terms of underlying demand from the corrugators, how’s that sort of evolved in q two compared to q one for year on year as well?

: Yeah. It’s still positive. I think it will be a little bit slower over the summer. But as we said, we were able to have the best quarter from from Brook and obviously, start up in Golby. So I think we’re in a good place.

Sean O’Rourke, Analyst: Okay. So thanks for the time.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Thank you, Joel. Then we have Marcus Cavilli. You’re welcome to raise your questions.

Marcus Cavilli, Analyst: Yes. Thank you. I wonder if you could provide some color on the, like, the severity of the effect from the plan and unplanned shutdowns within publication paper as you state. If that is tonnes EBITDA effect, just to understand, like, what is how we should think about the current run rate within publication paper?

Evan Lund, SVP Corporate Finance, Nordiskug: Yes, I think so we’ve had two challenging quarters in a row now, especially on the unplanned shuts impacting us on the newsprint part of the business. In the fourth quarter of twenty twenty four, we delivered almost 200,000 tonnes of newsprint in that quarter. In the current quarter, it’s about 173,000 tonnes. So I guess that gives you a sense of how many tonnes we should be able to increase if we avoid these unplanned shuts. So about 25,000 tonnes more of newsprint per quarter should be realizable if we are able to improve the operations further.

Marcus Cavilli, Analyst: Yes, that’s perfect. Thank you. And also, state in the presentation as you did, I think, in Q1 as well that you have this emphasis on reducing production cost and also working capital. Maybe first, if you could provide us with some idea of what you do, when reducing costs. Is it particular, like, publication paper, or is this also containerboard?

And also if you could, you know, maybe, try to make us understand what you do to reduce working capital as well, that would be appreciated.

Thorsteinze Torbund, CFO, Nordiskug: Yes. So on the cost initiatives, we have several initiatives to reduce fixed costs. Of course, an important part of that is reducing labor costs and kind of adjusting the number of employees to be as efficient and cost leading as possible. So that’s a big part of it. And there’s also initiatives on on other elements, maintenance, etcetera, to to really evaluate what we what we need and what can be can be postponed.

And on the working capital, payment terms, for instance, is a key element of that, trying to in every negotiation work with our suppliers to extend the payment terms. Also, optimizing inventories to kind of what we what we need and not building unnecessary amounts of finished goods, raw material, or parts and accessories and inventories. So that’s been a strong focus for the last couple of quarters.

Marcus Cavilli, Analyst: Perfect. That’s all for me.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Okay. Thank you to Marcus. Then we have Nicolas Stan. You’re welcome to raise your questions.

Robert Wood, SVP Commercial, Nordiskug: Hi there. Can you hear me okay?

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Yes. We can hear you. Good.

Robert Wood, SVP Commercial, Nordiskug: Hi. Thanks for thanks for allowing me to ask a question. I just had one on the pulpwood prices, if I could. I know you mentioned you think it’s gonna be down kind of 10% half on half. But if I look at the chart that you’ve given us versus where, I guess, the the re the wood costs were back in ’21, ’22, there is potentially still quite a lot more normalization to go.

So I just wanted to get your thoughts, just given with, like, some of the capacity shuts in The Nordics, whether this might be the start of a trend lower, or do you think it’s or is it more temporary because of some factors?

Evan Lund, SVP Corporate Finance, Nordiskug: It’s a it’s a good question. So I think if you look at the chart, you see that the incline starts approximately around the time of the Ukraine invasion. And that was also the time, of course, when the Russian exports of pulpwood into the Nordics were significantly reduced, which has been sort of a key element in driving the price increase. So to think that the entire increase can be alleviated without anything happening on that side is perhaps unrealistic. But still, the price level that we see now and have seen for some time is extremely high and is putting pressure on the Nordic pulp and paper producers.

So it will have a demand effect on pulpwood, and we are seeing that now. So let’s see. It’s difficult to predict where it will end up, but 10% is a fairly good start. And then I think it also will depend heavily on how the forest owners react to this and how the harvest is going forward. So yes, difficult to have a strong opinion on.

Thorsteinze Torbund, CFO, Nordiskug: And just to add to that, a part of the price increase was also attributed to demand from the energy sector and pellets production, which should be kind of easing as we get lower energy prices and more normalized natural gas prices in Europe.

Robert Wood, SVP Commercial, Nordiskug: Okay. Cool. If I can just quickly follow-up on that, just a quick one maybe. But I’m if I had to make a guess, I’m guessing a 10% move lower in in the pulpwood cost is not enough to make some of the shut capacity competitive again. So it’d have to be a fair bit more than that for us to see maybe some of these pulp mills restarting again.

Is that a fair assumption to make?

Evan Lund, SVP Corporate Finance, Nordiskug: Well, I don’t think we would complain if if that was to happen, so we’re happy to take your view on that.

Robert Wood, SVP Commercial, Nordiskug: Thanks very much. I’ll pass it on.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Okay. Thank you, Nicolas. Martin, you’re welcome to raise your questions.

Nicolas Stan, Analyst: You mentioned that you had four percentage points lower prices quarter over quarter in q two. I think it was on publication paper, which is a bit hard to reconcile with these publication or prices that’s listed by RISI, for instance. So is that an exported an export price, or or where do you see the price pressure?

: Yeah. It’s Robert again. That’s probably a fair assumption that there’s been some movement to or more movement on on some of the export prices. Europe has been slightly better than that, I would agree. So maybe some effects of the market mix in the quarter.

But our European deliveries have held up rather well, so we’re we’re, you know, pleased with that at the same time. But, yeah, there’s an effect from from exports and US dollar as well.

: Thank you. And what kind

Nicolas Stan, Analyst: of price pressure do you expect for publication paper in q three?

: We’ve had different results depending on markets. Some are rollover. Some are down maybe 10 to €15. So I would say maybe two percentage points in general, two to two two point five. And and, of course, that’s that’s yeah.

That’s why we mitigate against those with the the cost reduction initiatives that we’ve talked about as well.

: Thank you.

Karsten Dybubik, Vice President of Communication and Public Affairs, Nordiskug: Okay. Thank you to Martin Milby. I cannot see any others have raised their hand, and that may conclude today’s session. I will thank you all for participating in this webinar. Have a really nice day.

Thank you.

Thorsteinze Torbund, CFO, Nordiskug: Thank you.

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