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Arctic Paper Reports First Half 2010 Profit

Sept. 1, 2010 - Arctic Paper S.A., the second-largest European producer of bulky book paper and one of Europe’s leading producers of high-quality graphic paper, earned revenues of PLN 1.06 billion in the first six months of 2010 and returned a net profit of PLN 755,000.

The first half of the year brought major changes to the paper industry. Most of the external factors that had a favourable impact on results in the previous year had a negative influence, which was reflected in the company’s results. Arctic Paper has taken a number of measures which over the next few months should minimize the effect of these unfavourable factors on the business of the Group. These steps include introducing further price increases for its products and continuing the profit optimisation process.

In terms of operations, all plants ran at over 90% of their production capacity during the period, thanks to a satisfactory level of demand. At the same time, the diversification of pulp supply sources enabled the company to avoid stoppages because of a lack of supply, which occurred at several other European paper mills.

The process of integrating the Grycksbo paper mill into the Arctic Paper group structure is currently well underway. Work is also in progress on modifying the logistics system in Scandinavia and rest of Europe to exploit synergies between the plants at Munkedal and Grycksbo.

The main factor having an unfavourable impact on the margins and financial results achieved was a marked increase in the prices of pulp, the main raw material used by the Group. The average price of pulp rose by more than 50%, compared to the same period last year. This was due to growing demand for paper, pressure from suppliers seeking to compensate for weak results in 2009, and limited supplies as a result of the earthquake in Chile, which provides 8% of global pulp production.

During the first quarter, the Group also noted a very sharp rise in electricity prices in Sweden. Unfavourable trends in currency exchange rates also had a major impact on the results. A weaker euro (in which the group mainly records sales) against the Swedish krona and Polish z?oty (local currencies of Arctic Paper’s mills in Sweden and Poland) and also against the US dollar (the base currency for pulp prices) reduced the Group’s profits to a large degree.

SALES VOLUME

In the second quarter of 2010, Arctic Paper recorded an increase in sales volume compared to the same quarter in 2009 of over 44%, to 195,000 metric tonnes from 135,000 tonnes. For the entire period, sales volume rose by more than 29%, to 361,000 tonnes from 279,000 tonnes. Like-For-Like sales volume (excluding AP Grycksbo) rose by 4.4% for the first quarter and by 2.8% for the full six months.

Growth in total volume and sales revenue in both the second quarter and the first half year was primarily due to sales by AP Grycksbo, which is included in the 2010 results from 1 March.

MEASURES TAKEN TO IMPROVE RESULTS

In order to minimize the effect of negative factors on the business of Arctic Paper, the Group introduced changes in its sales policy. Firstly, there were substantial price increases implemented on the company’s products. The increases varied, depending on the product, market, and customer segment.

Arctic Paper also continued its extensive work in optimising product and market mix given the changed external situation with pulp prises and currency exchange rates.

Furthermore, production capacity at the pulp plant in Mochenwangen was increased by about 10%, reducing costs associated with the purchasing of pulp and recycled paper.

“The first half of 2010, was a more challenging period for Arctic Paper, as we predicted at the end of last year. The financial results for the period were under great pressure from unfavourable market factors, such as the rise in the price of pulp, our main raw material, and adverse movements in exchange rates,” said Michael Jarczyński, CEO of Arctic Paper S.A.

“We have now taken a series of measures in order to improve our performance including further price increases for our products, improving product and customer mix and implementing plans to improve profitability at all of our plants. We are currently running at 90% of our production capacity and, with demand continuing at satisfactory levels, we can expect the plants to run at full capacity.

"A reduction in the costs of raw materials is also anticipated and this should make a significant contribution to improved results by the end of the current year.”

About Arctic Paper
Arctic Paper is a European manufacturer of bulky book paper and graphic fine paper. The group produces high quality coated, uncoated wood-free and uncoated wood-containing papers.

The Group’s product portfolio consists of the brands Amber, Arctic, G-Print, Munken, Pamo and L-Print. Production is carried out at Arctic Paper Kostrzyn, Poland; Arctic Paper Munkedals and Arctic Paper Grycksbo, Sweden, and Arctic Paper Mochenwangen, Germany.

The total production capacity of the Group’s four paper mills is 810,000 metric tonnes of paper per year. The company currently employs 1,650 people across Europe and has sales offices in 15 European countries.

SOURCE: Arctic Paper S.A.




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