• Nordic Paper benefitted from a strong Q2 21A:  Fundamentals for specialty paper products remains strong, providing underpin for volume growth of 7% y/y and EBITDA margin expansion to 20.3%. ROCE remains robust at 18.4% (Q2 20A: 33.7%) and gearing is in check, with net debt/EBITDA of 2.1x.
  • Kraft Paper Segment (79% of EBITDA) had a strong quarter: The EBITDA margin jumped by 605 bps y/y (721 q/q) to 27.1%. This was on the back of stronger volumes (+5.5% y/y), with average capacity utilisation at 111%, with maintenance shuts having been postponed. Demand now has a strong underpin from the adoption to new applications driven by the switch from plastic to paper. The average kraft paper price increased by 4.1% y/y (+4.8% q/q to EUR 774/t). Unbleached sack kraft is up as much as up EUR 200/t. However, they have not seen the same, having realised only EUR 20/t in Q2 due to the timing of their contracts. They expect to see further price realisation in Q3 and Q4.Net sales mix to Europe increased, while Asia declined. Net sales to the Middle East and Africa “increased significantly”.
  • Natural Greaseproof segment (21% of EBITDA) remains under pressure: EBITDA dropped 52% y/y and by 18% q/q as pricing remained under pressure. During the quarter, another multinational fast-food chain announced measures to phase out their use of packaging materials containing per- and polyfluorinated chemicals, so called PFAS. Nordic Paper doesn’t add PFAS in their production as they create the grease barrier in their papers by mechanical treatment of the cellulose fibre. Hence their natural greaseproof papers are more sustainable alternatives for customers in the food industry. Q3 should benefit from price increases being realised.
  • Cost inflation persists: Pulp and energy costs remain elevated. The market for sea freight remains strained with delays and cost increases consequently.
  • Nordic Paper expects to realise further price increases in Q3 21E: Nordic Paper continues to prepare for the expansion programme at its Bäckhammar mill (unbleached kraft paper) to add a new wood room. Maintenance for the Kraft Paper segment is expected to be taken in Q3.

Nordic Paper Background

  • Nordic Paper: 57% of revenue is from kraft paper, while 79% of EBITDA is generated from the Kraft Paper Segment. In FY 20A, Nordic Paper sold 200kt of kraft paper. Last reported group ROCE is 18.4%.
  • Nordic Paper Kraft Paper Segment: Produces unbleached sack paper, MG paper and different kind of specialty paper of high quality for industrial usage. Examples of applications for the MG and sack paper are sacks and bags for food and construction materials, and masking and protection paper for different applications. The specialty papers can be used as components in production of laminates, in stainless steel production, and in electrical transformers.

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