1
Arctic Paper Capital Group
Management Board’s Report
2022
Management Board’s Report 2022 Arctic Paper S.A. 2
Translatorʼs Explanatory Note: the following document is a free translation of the report of the above-mentioned Company. In the event
of any discrepancy in interpreting the terminology in Polish version is binding.
Table of contents
Letter from the President of the Management Board of Arctic Paper S.A. .......................................................... 4
INTRODUCTION................................ ................................................................................................................... 5
Information on the report.................................................................................................................................... 6
Definitions and abbreviations ............................................................................................................................. 7
Forward looking statements ................................................................ ............................................................. 12
Forward looking statements relating to risk factors ................................................................ ......................... 12
Selected consolidated financial data ................................ ................................................................................ 14
REPORT OF THE MANAGEMENT BOARD ................................ .......................................................................... 15
Description of the business of the the Arctic Paper S.A. Group ................................ ..................................... 16
General information ................................ ................................................................ ................................ ................................ 16
Capital Group structure ................................................................ ................................................................ .......................... 18
Changes in the capital structure of the Arctic Paper Group ................................ ................................................................ ....... 18
Modifications to the core management principles ................................ ..................................................................................... 18
Shareholding structure ................................ ................................ ................................................................ ........................... 18
Market environment ................................ ................................................................ ................................ ................................ 19
Development directions and strategy ................................ ....................................................................................................... 21
Sales structure ................................ ................................................................ ................................................................ ....... 22
Sales markets ................................................................................................................................................................ ........ 22
Buyers ................................................................................................ ................................................................ ................... 22
Vendors & Suppliers ................................................................ ................................................................ ............................... 23
Information on the seasonal or cyclical nature of business ................................................................ ....................................... 24
Research and development................................ ..................................................................................................................... 24
Labour matters ................................ ................................ ................................................................ ....................................... 24
Environment........................................................................................................................................................................... 24
Summary of consolidated financial results ................................ ...................................................................... 28
Selected items of the consolidated profit and loss statement ................................................................ .................................... 28
Selected items of the consolidated statement of financial position ................................ ............................................................ 31
Selected items of the consolidated cash flow statement ................................ ........................................................................... 34
Relevant information and factors affecting the financial results and the assessment of the financial standing
................................................................ .......................................................................................................... 35
Key factors affecting the performance results .......................................................................................................................... 35
Unusual events and factors ................................ ................................ ................................................................ .................... 36
Impact of changes in Arctic Paper Group’s structure on the financial result ............................................................................... 36
Other material information ...................................................................................................................................................... 36
Factors influencing the development of the Arctic Paper Group ...................................................................... 38
Information on market trends ................................ ................................................................ .................................................. 38
Factors influencing the financial results in the perspective of the next year ............................................................................... 39
Management Board’s Report 2022 Arctic Paper S.A. 3
Risk factors ................................ ........................................................................................................................................... 40
Supplementary information .............................................................................................................................. 43
The Management Board position on the possibility to achieve the projected financial results published earlier ........................... 43
Principles of preparation of annual consolidated financial statements ....................................................................................... 43
Dividend information .............................................................................................................................................................. 43
Changes to the bodies of Arctic Paper S.A. ................................................................ ............................................................. 43
Changes to the share capital of Arctic Paper S.A. ................................ .................................................................................... 44
Remuneration paid to Members of the Management Board and the Supervisory Board .............................................................. 44
Agreements with Members of the Management Board guaranteeing financial compensation ...................................................... 44
Changes in holdings of the Issuer’s shares or rights to shares by persons managing and supervising Arctic Paper S.A. ............. 44
Management of financial resources ................................ ................................................................ ................................ ......... 45
Capital investments ................................ ................................................................ ................................ ................................ 45
Information on financial instruments ........................................................................................................................................ 45
Information of sureties, guarantees and pledges ...................................................................................................................... 45
Material off-balance sheet items ................................ ................................................................ ................................ ............. 46
Assessment of the feasibility of investment plans .................................................................................................................... 46
Information on material court and arbitration proceedings and proceedings pending before public administrative authorities ....... 46
Information on transactions with related parties executed on non-market terms and conditions .................................................. 46
Information on agreements resulting in changes to the proportions of share holdings ................................ ................................ 46
Information on purchase of treasury shares ............................................................................................................................. 46
Information on remuneration of the entity authorised to audit the financial statements ............................................................... 46
Headcount ................................................................ ................................................................ ................................ ............. 47
Statement on the application of the Corporate Governance Rules ................................ ................................... 48
Corporate Governance Rules ................................ ................................ ................................................................ .................. 48
Information on the extent the Issuer waived the provisions of the Corporate Governance Rules ................................................. 48
Internal control and risk management systems with reference to the development processes of financial statements .................. 49
Shareholders that directly or indirectly hold significant packages of shares ............................................................................... 50
Securities with special control rights ................................................................................................................................ ....... 50
Information on major restrictions on transfer of title to the Issuer’s securities and al l restrictions concerning the exercising of
voting rights ................................................................................................................................................................ ........... 50
Description of the functioning of the General Meeting .............................................................................................................. 51
Operation of the Issuer’s managing and supervising bodies and its committees as well as information on the composition of
those bodies ................................................................................................................................................................ .......... 52
Information compliant with the requirements of Swedish regulations con cerning corporate governance. ...... 61
General Meeting of Shareholders ................................ ................................ ............................................................................ 61
Appointment of governing bodies of the company .................................................................................................................... 61
Tasks of the bodies of the Company ................................ ................................ ....................................................................... 61
Size and composition of the Company’s bodies ................................................................ ................................ ....................... 61
Chairpersons of the bodies of the Company ............................................................................................................................ 62
Procedures of the bodies of the Company ................................ ................................ ............................................................... 62
Remuneration of members of the bodies of the Company and management staff ................................................................ ....... 62
Information on corporate governance ...................................................................................................................................... 62
Information by the Management Board of Arctic Paper S.A. on selection of the audit firm .............................. 63
Statements of the Management Board ................................................................ .............................................. 64
Accuracy and reliability of the presented reports ................................ ...................................................................................... 64
Management Board’s Report 2022 Arctic Paper S.A. 4
Letter from the President of the Management Board of Arctic
Paper S.A.
Dear Sirs,
I am pleased to report that last year was another year in which the Arctic Paper group achieved very good results. It was a t ime
of very dynamic change, with many factors having a significant impact on our business. We have modified our activities on an
ongoing basis to suit the business environment.
The war in Ukraine has affected our activities to some extent. We have ceased trade with countries involved in this conflict. We
were forced to find new sources of supply of raw materials. In previous years, w e sold less than 1.5% of our total paper volume to
these countries. The high demand in Europe allowed us to redirect this volume to other countries in Western Europe. On the
humanitarian aspect, we joined in helping Ukrainian children by donating funds to buy medicine, clothing and food. As a paper
manufacturer, we have donated more than 150,000 notebooks to Ukrainian schools.
The post-pandemic recovery in the European economy has favoured an increase in our sales. We have experienced high demand
for all our products. At the same time, there were inflationary factors, which increased production costs. This was particularly
noticeable in the energy market, but cost increases also extended to other components such as services and transport. The
prosperity of the paper industry has allowed us to successfully implement successive price increases on finished products to
compensate for rising production costs. It is worth emphasising that our strategy is based on achieving our profitability tar gets
and not on maximising the tonnage of paper sold. As a result, we performed very well throughout the year.
Throughout the year, we recorded high demand for pulp. The strong market momentum associated with the recovery of the global
economy after the pandemic, as well as th e continued trend of replacing plastic packaging with products made from natural raw
materials, such as cellulose, enabled increased revenues in this segment.
The European energy market was very jittery and concerns about energy availability caused ver y high price fluctuations. Thanks
to solutions already introduced in the past, such as generating some energy directly in factories or purchasing energy based on
multi-annual contracts, we were less exposed to drastic increases in energy prices. We are pur suing investment projects to
significantly increase energy self-sufficiency – both in the paper and pulp segments.
The consistent implementation of the 4P strategy and the results achieved as a result confirm that Arctic Paper is a reliable and
solid partner for its customers and meets the expectations of its shareholders.
I would like to thank the entire Arctic Paper Group team for their consistency in achieving the tasks set before them.
Sincerely yours,
Michał Jarczyński
President of the Management Board of Arctic Paper S.A.
INTRODUCTION
Management Board’s Report 2022 Arctic Paper S.A. 6
Information on the report
This Management Board’s Report, which is a component of the Consolidated Annual Report for 2022, has been prepared in
accordance with the Regulation of the Minister of Finance of 29 March 2018 on current and periodic information provided by
issuers of securities and the conditions for recognising as equivalent information required by the laws of a non -member state
(Journal of Laws of 2018, No. 757).
Certain selected information contained in this report comes from the Arctic Paper Group management accounting system and
statistics systems.
This Management Board’s Report presents data in PLN and all values, unless otherwise indicated, are given in thousands of PLN.
Management Board’s Report 2022 Arctic Paper S.A. 7
Definitions and abbreviations
Unless the context requires otherwise, the following definitions and abbreviations are used in the whole document:
Abbreviations applied to business entities, institutions and authorities of the Company
Arctic Paper, Company, Issuer, Parent Entity, AP
Arctic Paper Spółka Akcyjna with its registered office in Kostrzyn
nad Odrą, Poland
Capital Group, Group, Arctic Paper Group, AP Group Capital Group comprised of Arctic Paper Spółka Akcyjna and its
subsidiaries as well as joint ventures
Arctic Paper Kostrzyn, AP Kostrzyn, APK
Arctic Paper Kostrzyn Spółka Akcyjna with its
registered office in
Kostrzyn nad Odrą, Poland
Arctic Paper Munkedals, AP Munkedals, APM
Arctic Paper Munkedals AB with its registered office in Munkedal
Municipality, Västra Götaland County, Sweden
Arctic Paper Mochenwangen, AP Mochenwangen, APMW
Arctic
Paper Mochenwangen GmbH with its registered office in
Mochenwangen, Germany
Arctic Paper Grycksbo, AP Grycksbo, APG
Arctic Paper Grycksbo AB with its registered office in Kungsvagen,
Grycksbo, Sweden
Paper Mills
Arctic Paper Kostrzyn, Arctic Paper Munkedals, Arctic Paper
Grycksbo
Arctic Paper Investment AB, API AB
Arctic Paper Investment AB with its registered office in Göteborg,
Sweden
Arctic Paper Investment GmbH, API GmbH
Arctic Paper Investment GmbH with i
ts registered office in
Wolpertswende, Germany
Arctic Paper Verwaltungs
Arctic Paper Verwaltungs GmbH with its registered office in
Wolpertswende, Germany
Arctic Paper Immobilienverwaltungs
Arctic Paper Immobilienverwaltungs GmbH & Co.
KG with its
regis
tered office in Wolpertswende, Germany
Kostrzyn Group
Arctic Paper Kostrzyn Spółka Akcyjna with its registered office in
Kostrzyn nad Odrą and EC Kostrzyn Sp. z o.o. with its registered
office in Kostrzyn nad Odrą
Mochenwangen Group
Arctic Paper Investment GmbH, Arctic Paper Mochenwangen
GmbH, Arctic Paper Verwaltungs GmbH, Arctic Paper
Immobilienverwaltungs GmbH & Co.KG
Grycksbo Group
Arctic Paper Grycksbo AB and Arctic Paper Investment AB
Sales Offices
Arctic Paper
Papierhandels GmbH with its registered office in
Vienna (Austria)
Arctic Paper Benelux SA with its registered office in Oud
-Haverlee
(Belgium)
Arctic Paper Danmark A/S with its registered office in Greve
(Denmark)
Management Board’s Report 2022 Arctic Paper S.A. 8
Arctic Paper France SA with its
registered office in Paris (France)
Arctic Paper Deutschland GmbH with its registered office in
Hamburg, (Germany)
Arctic Paper Italia Srl with its registered office in Milan (Italy)
Arctic Paper Baltic States SIA with its registered office in Riga
(
Latvia)
Arctic Paper Norge AS with its registered office in Oslo (Norway)
Arctic Paper Polska Sp. z o.o. with its registered office in Warsaw
(Poland)
Arctic Paper España SL with its registered office in Barcelona
(Spain)
Arctic Paper
Finance AB with its registered office in Munkedal
(Sweden)
Arctic Paper Schweiz AG with its registered office in Derendingen
(Switzerland)
Arctic Paper UK Ltd with its registered office in London (UK)
Arctic Power Sp. z o.o.
(formerly Arctic Paper Ea
st Sp. z o.o.)
Arctic Power Sp. z o.o. with its registered office in Kostrzyn nad
Odrą (Poland)
Kostrzyn Packaging Spółka z o.o.
Arctic Paper East Sp. z o.o. with its registered office in Kostrzyn
nad Odrą (Poland)
Arctic Paper Finance AB
Arctic
Paper Finance AB with its registered office in Göteborg,
Sweden
Rottneros, Rottneros AB
Rottneros AB with its registered office in Sunne (Sweden)
Rottneros Group, Rottneros AB Group Rottneros AB with its registered office in Söderhamn, Sweden;
Rottneros Bruk AB with its registered office in Rottneros, Sweden;
Utansjo Bruk AB with its registered office in Söderhamn, Sweden,
Vallviks Bruk AB with its registered office in Vallvik, Sweden;
Rottneros Packaging AB with its registered office in Sunne,
Sweden; SIA Rottneros Baltic with its registered office in Kuldiga,
Latvia; since 1 January 2020 – Nykvist Skogs AB with its registered
office in Gräsmark, Sweden
Pulp Mills Rottneros Bruk AB with its registered office in Rottneros, Sweden;
Vallviks Bruk
AB with its registered office in Vallvik, Sweden
Rottneros Purchasing Office
SIA Rottneros Baltic with its registered office in Kuldiga, Latvia
Office Kalltorp Kalltorp Kraft Handelsbolaget with its registered office in
Trollhattan, Sweden
Nemus Holding
AB
Nemus Holding AB with its registered office in Göteborg, Sweden
Thomas Onstad The Issuer’s core shareholder, holding directly and indirectly over
50% of shares in Arctic Paper S.A.; a member of the Issuer’s
Supervisory Board
Management Board’s Report 2022 Arctic Paper S.A. 9
Management Board, Issuer’s Management Board,
Company’s Management Board, Group’s Management
Board
Management Board of Arctic Paper S.A.
Supervisory Board, Issuer’s Supervisory Board,
Company’s Supervisory Board, Group’s Supervisory
Board, SB
Supervisory Board of Arctic Paper S.A.
AGM, GM, Issuer’s General Meeting, Company’s General
Meeting
Annual General Meeting of Arctic Paper S.A.
EGM, Extraordinary General Meeting, Issuer’s
Extraordinary General Meeting, Company’s Extraordinary
General Meeting
Extraordinary General Meeting of Arctic Paper S.A.
Articles of Association, Issuer’s Articles of Association,
Company’s Articles of Association
Articles of Association of Arctic Paper S.A.
SEZ
Kostrzyńsko
-
Słubicka Special Economic Zone
District Court
District Court in Zielona Góra
Warsaw Stock Exchange, WSE
Giełda Papierów Wartościowych w Warszawie Spółka Akcyjna
KDPW, Depository Krajowy Depozyt Papierów Wartościowych Spółka Akcyjna with its
registered office in Warsaw
PFSA
Polish
Financial Supervision Authority
SFSA
Swedish Financial Supervisory Authority, equivalent to PFSA
NASDAQ in Stockholm, Nasdaq
Stock Exchange in Stockholm, Sweden
CEPI
Confederation of European Paper Industries
EURO
-
GRAPH
The European
Association of Graphic Paper Producers
Eurostat
European Statistical Office
GUS
Central Statistical Office of Poland
NBSK
Northern Bleached Softwood Kraft
BHKP
Bleached Hardwood Kraft Pulp
Definitions of selected terms and financial indicators and abbreviations of currencies
Sales profit margin Ratio of gross profit/(loss) on sales to sales revenues from
continuing operations
EBIT Profit on continuing operating activities (Earnings Before Interest
and Taxes)
EBIT profitability, operating profitability, operating profit
margin
Ratio of operating profit/(loss) to sales revenues from continuing
operations
EBITDA Operating profit from continuing operations plus depreciation and
amortisation and impairment allowances (
Earnings Before Interest,
Management Board’s Report 2022 Arctic Paper S.A. 10
Taxes, Depreciation and Amortisation)
EBITDA profitability, EBITDA margin Ratio of operating profit plus depreciation and amortisation and
impairment allowances to sales income from continuing operations
Gross profit margin Ratio of gross profit/(loss) to sales revenues from continuing
operations
Sales profitability ratio, net profit margin
Ratio of net profit/(loss) to sales revenues
Return on equity, ROE
Ratio of net profit/(loss) to equity income
Return on assets, ROA
Ratio of net profit/(loss) to total assets
EPS Earnings Per Share, ratio of net profit to the weighted average
number of shares
BVPS Book Value Per Share, Ratio of book value of equity to the number
of shares
Debt
-
to
-
equity ratio
Ratio of total liabilit
ies to equity
Equity to fixed assets ratio
Ratio of equity to fixed assets
Interest
-
bearing debt
-
to
-
equity ratio
Ratio of interest
-
bearing debt and other financial liabilities to equity
Net debt-to-EBITDA ratio Ratio of interest-bearing debt minus cash to EBITDA from
continuing operations
EBITDA
-
to
-
interest coverage ratio
Ratio of EBITDA to interest expense from continuing operations
Current ratio
Ratio of current assets to short
-
term liabilities
Quick ratio Ratio of current assets minus inventor y and short-
term accruals and
deferred income to short
-
term liabilities
Cash solvency ratio
Ratio of total cash and similar assets to current liabilities
DSI Days Sales of Inventory, ratio of inventory to cost of sales
multiplied by the number of days in the period
DSO Days Sales Outstanding, ratio of trade receivables to sales income
from continuing operations multiplied by the number of days in the
period
DPO Days Payable Outstanding, Ratio of trade payables to cost of sales
from continuing operations multiplied by the number of days in the
period
Operating cycle
DSI + DSO
Cash conversion cycle
Operating cycle
–
DPO
FY
Financial year
Q1
1st
quarter of the financial year
Q2
2nd quarter of the financial year
Q3
3rd quarter of the financial year
Management Board’s Report 2022 Arctic Paper S.A. 11
Q4
4th quarter of the financial year
H1
First half of the financial year
H2
Second half of the financial year
YTD
Year
-
to
-
date
Like
-
for
-
like, LFL
Analogous, with respect to operating result.
p.p. Percentage point, difference between two amounts of one item
given in percentage
PLN, zł, złoty
Monetary unit of the Republic of Poland
gr grosz – 1/100 of one zloty (the monetary unit of the Republic of
Poland)
Euro, EUR
Monetary unit of the European Union
GBP
Pound sterling, monetary unit of the United Kingdom
SEK
Swedish Krona
–
monetary unit of the Kingdom of Sweden
USD United States dollar, the legal tender in the United States of
America
IAS
International Accounting Standards
IFRS
International Financial Reporting Standards
IFRS EU International Financial Reporting Standards endorsed by the
European Union
GDP
Gross Domestic Product
Other definitions and abbreviations
Series A Shares
50,000 Shares of Arctic Paper S.A. A series ordinary shares of PLN 1 each.
Series B Shares
44,253,500 Shares of Arctic Paper S.A. B series ordinary shares of PLN 1 each.
Series C Shares
8,100,000
Shares of Arctic Paper S.A. C series ordinary shares of PLN 1 each.
Series E Shares
3,000,000 Shares of Arctic Paper S.A. E series ordinary shares of PLN 1 each.
Series F Shares
13, 884,283 Shares of Arctic Paper S.A. F series of the nominal value of PLN
1 each
Shares, Issuer’s Shares
Series A, Series B, Series C, Series E, and Series F Shares jointly
Management Board’s Report 2022 Arctic Paper S.A. 12
Forward looking statements
The information contained in this report which does not relate to historical facts relates to forward looking statements. Suc h
statements may, in particular, concern the Group’s strategy, business development, market projections, planned investment
outlays, and future revenues. Such statements may be identified by the use of expressions pertaining to the future such as, e .g.,
“believe”, “think”, “expect”, “may”, “will”, “should”, “is expected”, “is assumed”, and any negations and grammatical forms of these
expressions or similar terms. The statements contained in this report concerning matters which are not historical facts shoul d be
treated only as projections subject to risk and uncertainty. Forward -looking statements are inevita bly based on certain estimates
and assumptions which, although our management finds them rational, are naturally subject to known and unknown risks and
uncertainties and other factors that could cause the actual results to differ materially from the histor ical results or the projections.
For this reason, we cannot assure that any of the events provided for in the forward -looking statements will occur or, if they
occur, about their impact on the Group’s operating activities or financial situation. When evalu ating the information presented in
this report, one should not rely on such forward-looking statements, which are stated only as at the date they are expressed.
Unless legal regulations contain detailed requirements in this respect, the Group shall not be obliged to update or verify those
forward-looking statements in order to provide for new developments or circumstances. Furthermore, the Group is not obliged to
verify or to confirm the analysts’ expectations or estimates, except for those required by law.
Forward looking statements relating to risk factors
In this report we described the risk factors that the Management Board of our Group considers specific to the sector we opera te
in; however, the list may not be exhaustive. Other factors may arise that have not been identified by us and that could have
material and adverse impact on the business, financial condition, results on operations or prospects of the Arctic Paper Group. In
such circumstances, the price of the shares of the Company listed at the Warsaw Stock Exchange S.A. or at NASDAQ in
Stockholm may decrease, investors may lose their invested funds in whole or in part and the potential dividend disbursement by
the Company may be limited.
We ask you to perform a careful analysis of the information disclosed in “Risk factors” of this report – the section contains a
description of risk factors and uncertainties related to the business of the Arctic Paper Group.
Selected consolidated
financial data
Management Board’s Report 2022 Arctic Paper S.A. 14
Selected consolidated financial data
Period
from 01.01.2022
to 31.12.2022
Period
from 01.01.2021
to 31.12.2021
Period
from 01.01.2022
to 31.12.2022
Period
from 01.01.2021
to 31.12.2021
PLN thousand
PLN thousand
EUR thousand
EUR thousand
Continuing operations
Sales revenues 4 894 276
3 412 576
1 043 934
745 511
Profit/(loss) on operations 842 979
244 570
179 805
53 429
Gross profit/(loss) 927 577
223 115
197 849
48 742
Net profit/(loss) for the period 756 822
175 907
161 428
38 429
Net profit/(loss) attributable to the shareholders of the Parent Entity
631 001
127 154
134 591
27 778
Net cash flows from operating activities
607 38
3
238 193
129 553
52 036
Net cash flows from investing activities
(155 879)
(159 513)
(33 249)
(34 847)
Net cash flows from financing activities
(124 58
8
)
(162 068)
(26 574)
(35 405)
Change in cash and cash equivalents
326 91
6
(83 388)
69 730
(18 217)
Weighted average number of ordinary shares
69 287 783
69 287 783
69 287 783
69 287 783
Diluted weighted average number of ordinary shares
69 287 783
69 287
783
69 287 783
69 287 783
EPS (in PLN/EUR)
9,11
1,84
1,94
0,40
Diluted EPS (in PLN/EUR)
9,11
1,84
1,94
0,40
Mean PLN/EUR exchange rate*
4,6883
4,5775
As at
31 December
2022
As at
31 December
2021
As at
31 December
2022
As at
31 December
2021
PLN thousand
PLN thousand
EUR thousand
EUR thousand
Assets
3
254
485
2
389
266
693
935
519
473
Long
-
term liabilities
395
39
7
424
205
84
308
92
231
Short
-
term liabilities
806
90
6
722
065
172
052
156
991
Equity
2
052
182
1
242
996
437
575
270
252
Share capital
69
288
69
288
14
774
15
065
Number of ordinary shares
69
287
783
69
287
783
69
287
783
69
287
783
Diluted number of ordinary shares
69
287
783
69
287
783
69
287
783
69
287
783
Book value
per share (in PLN/EUR)
29
,
62
17
,
94
6
,
32
3
,
90
Diluted book value per share (in PLN/EUR)
29
,
62
17
,
94
6
,
32
3
,
90
Declared or paid dividend (in PLN/EUR)
27
715
113
20
786
335
5
909
532
4
519
358
Declared or paid dividend per share (in PLN/EUR) 0,40
0,30
0,09
0,07
PLN/EUR exchange rate at the end of the period**
-
-
4
,
6899
4
,
5994
* – Profit and loss and cash flow statement items have been translated at the mean arithmetic exchange rates published by the National Bank of Poland, prevailing in the period that
the presented data refers to.
** – Balance sheet items and book value per share have been converted at the average exchange rate announced by the National Bank of Poland (NBP) as at the balance sheet
date.
REPORT OF THE
MANAGEMENT BOARD
from operations of the
Arctic Paper Capital Group
for 2022
Management Board’s Report 2022 Arctic Paper S.A. 16
Description of the business of the
the Arctic Paper S.A. Group
General information
The Arctic Paper Group is a paper and pulp producer. We offer voluminous book paper and a wide range of products in this
segment, as well as high-grade graphic paper. The Group produces numerous types of uncoated and coated wood -free paper as
well as wood-containing uncoated paper for printing houses, paper distributors, book and magazine publishing houses and the
advertising industry. In connection with acquisition of the Rottneros Group in December 2012, the Group’s assortment was
expanded with the production of pulp. As at 31 December 2022, the Arctic Paper Group employs over 1,500 people in its Paper
Mills, companies involved in sale of paper and in pulp producing companies, procurement office and a company producing food
packaging. Our Paper Mills are located in Poland and Sweden, and have total production capacity of over 685,000 tonnes of
paper per year. Our Pulp Mills located in Sweden hav e aggregated production capacities of over 400,000 tonnes of pulp annually.
As at 31 December 2022, the Group had 13 Sales Offices ensuring access to all European markets, including Central and Eastern
Europe. Our consolidated sales revenues for 12 months of 2022 amounted to PLN 4,894 million.
Arctic Paper S.A. is a holding company set up in April 2008. The Parent Entity is entered in the register of entrepreneurs of the
National Court Register maintained by the District Court in Zielona Góra, 8th Commerci al Division of the National Court Register,
under KRS number 0000306944. The Parent Entity holds statistical number REGON 080262255. The Company has a foreign
branch in Göteborg, Sweden.
Business activity
The principal business of the Arctic Paper Group is production and sales of paper and pulp. The Group’s additional business,
partly subordinate to paper and pulp production, covers:
— Generation of electricity,
— Transmission of electricity,
— Electricity distribution,
— Heat production,
— Heat distribution,
— Logistics services,
— Paper and pulp distribution.
Our production facilities
As on 31 December 2022, as well as on the day hereof, the Group owned the following Paper Mills:
— the Paper Mill in Kostrzyn nad Odrą (Poland) has the production capacity of about 315,000 tonnes per year and mainly
produces uncoated wood-free paper for general printing use such as printing books, brochures and forms, and for
producing envelopes and other paper products;
— the Paper Mill in Munkedal (Sweden) has the production capacity of about 160,000 tonnes and mainly produces fine
uncoated wood-free paper used primarily for printing books and high -quality brochures;
— the Paper Mill in Grycksbo (Sweden) has the production capacity of about 210,000 tonnes per year and produces
coated wood-free paper used for printing maps, books, magazines, posters and printing of advertising materials.
As on 31 December 2022, as well as on the day hereof, the Group owned the following Pulp Mills:
— The pulp mill in Rottneros (Sweden) has production capac ity of about 160,000 tonnes annually and produces mainly
two types of mechanical pulp: groundwood and chemo thermo mechanical pulp (CTMP);
— the Pulp Mill in Vallvik (Sweden) has the annual production capacity of about 240,000 tonnes and produces two types
of long-fibre sulphate pulp: fully bleached sulphate pulp and unbleached sulphate pulp. The most of Vallvik Pulp Mill
Management Board’s Report 2022 Arctic Paper S.A. 17
production is known as NBSK pulp. The unbleached sulphate pulp produced by the Pulp Mill is characterised by very
high purity and is primarily used to produce transformers and in cable industry.
Our products
The product assortment of the Arctic Paper Group covers:
— Uncoated wood-free paper, in particular:
› white offset paper that we produce and distribute primarily under the Amber brand which is one of the most versatile types of
paper destined for various applications;
› woodfree bulky book paper that we produce under the Munken brand, used primarily for book printing;
› high quality graphic paper with a particularly smooth or rough surface, use d for printing various advertising and marketing
materials, which we produce under the Munken Design brand;
— Coated wood-free paper, in particular:
› coated woodfree paper, manufactured under the G and Arctic Volume brands, used primarily for printing of boo ks,
magazines, catalogues, maps, personalised direct mail correspondence.
— Uncoated wood-containing paper, in particular:
› premium wood containing bulky book paper that we produce and distributed under the Munken brand, was developed
specially for multi-colour and B/W printing of books;
— Packaging papers
› kraft paper, which is manufactured under the brand name Munken Kraft
› one side coated packaging papers produced under the brand name G -Flexmatt
Both grades are ideal for a wide range of packaging applications, such as shopping bags, bags for loose food, packaging or
laminates used in the food or non -food industry.
— Unbleached sulphate pulp;
› fully bleached sulphate pulp and unbleached sulphate pulp used primarily to produce printing and writing pape r, cardboard,
toilet paper and white packaging paper.
— Mechanical fibre pulp:
› chemi-thermo mechanical pulp (CTMP) and groundwood which are used mainly for production of printing and writing papers;
Management Board’s Report 2022 Arctic Paper S.A. 18
Capital Group structure
The Arctic Paper Capital Group comprises Arctic Paper S.A., as the Parent Entity, and its subsidiaries, as well as joint vent ures.
Since 23 October 2009, Arctic Paper S.A. has been listed on the primary market of the Warsaw Stock Exchange and since 20
December 2012 in the NASDAQ stock exchange in Stockholm. The Group operates through its Paper Mills and Pulp Mills and its
subsidiary producing packaging as well as its sales Offices and Procurement Offices.
Detailed information on the organisation of the Arc tic Paper Capital Group with identification of the consolidated entities is
provided in the section ‘Accounting principles (policies)’ and in note to the consolidated financial statements (note 1 and 2 ).
Changes in the capital structure of the Arctic Paper Group
In 2022, no material changes in the capital structure of the Arctic Paper Group occurred.
Modifications to the core management principles
In 2022, there were no material modifications to the core management principles.
Shareholding structure
Nemus Holding AB, a company under Swedish law (a company owned indirectly by Mr Thomas Onstad), is the majority
shareholder of Arctic Paper S.A., holding (as at 31 December 2022) 40,381,449 shares of our Company, which constitutes
58.28% of its share capital and corresponds to 58.28% of the total number of votes at General Meetings. Thus Nemus Holding AB
is the Parent Entity of the Issuer.
Additionally, Mr Thomas Onstad, an indirect shareholder of Nemus Holding AB, holds directly 6,223,658 shares representing
8.98% of the total number of shares in the Company, and via another entity – 600,000 shares accounting for 0.87% of the total
number of shares of the Issuer. Mr Thomas Onstad’s total direct and indirect holding in the capital of Arctic Paper S.A. as a t 31
December 2022 was 68.13% and has not changed until the date of approval of that report.
as at 28.03.2023
Shareholder
Number of shares
Share in the
share capital
[%]
Number of votes
Share in the total
number of votes
[%]
Thomas Onstad
47 205 107
68,13%
47 205 107
68,13%
-
indirectly via
40 981 449
59,15%
40 981 449
59,15%
Nemus Holding AB
40 381 449
58,28%
40 381 449
58,28%
other entity
600 000
0,87%
600 000
0,87%
-
directly
6 223 658
8,98%
6 223 658
8,98%
Other
22 082 676
31,87%
22 082 676
31,87%
Total
69 287 783
100,00%
69 287 783
100,00%
Treasury shares
-
0,00%
-
0,00%
Total
69 287 783
100,00%
69 287 783
100,00%
The data in the above tables are shown as at the date of approval of this report, which has not changed as compared to 31
December 2022 and the date of publication of the quarterly report for Q3 2022 , i.e. 7 November 2022.
Management Board’s Report 2022 Arctic Paper S.A. 19
Market environment
Segments of the graphic paper market
The graphic paper market is split into three core segments:
— coated and uncoated fine paper,
— coated and uncoated wood paper,
— magazine paper.
The Group operates solely in the segment of high quality graphic papers. We are not present in the newsprint and p hotocopy
paper segments.
Below is a description of segments in the graphic market:
— fine paper is wood-free paper where minimum 90% of fibre mass is pulp fibres obtained with chemical methods :
› uncoated wood-free paper made of pulp. It may be subject to additional processing like surface sizing, calendering, surface
or mass dyeing.
› Two core categories of the paper include graphic paper (used e.g. to print books, handbooks and catalogues) and of fice
copying paper.
› coated wood-free paper made of pulp is subject to coating with pigment and glue mixtures (kaolin, calcium carbonate). The
coating may be performed on paper machines (online) or outside paper machines (offline). Coating of paper improves its
smoothness and transparency of the background, improves the quality of colour reproduction.
Management Board’s Report 2022 Arctic Paper S.A. 20
— Wood-containing paper is most often manufactured of mechanical pulp or recycled -paper pulp, without or with small
quantities of filler. It contains lignin which increases the opacity of the paper but accelerates ageing.
› uncoated wood-containing paper is manufactured of mechanical pulp, used to print magazines with rotogravure and offset
techniques (newsprint) and to print single -colour publications. Products of the Group in that segment are usually used to
print paperbacks.
› coated wood-containing paper is manufactured of mechanical pulp, it is double coated. It is used to print multi -colour
magazines and catalogues.
In that product group there is e.g.: SC (Super Calandered), MFC (Machine Finished Coated), LWC (Light Weight Coated),
ULWC (Ultra-Light Weight Coated) MWC (Medium Weight Coated). The paper in the form of rolls is used for heat -set
printing.
Additional information on the market environment is provided further in this report in the section: Information on market trends.
Packaging paper market segments in which Arctic Paper operates:
The packaging paper market, where Arctic Paper operates, is divided into two basic segments:
— Kraft paper, which is divided into bleached, unbleached and recycled fibre papers
— packaging papers coated on one side
The Group operates exclusively in the segment of machine-whitened kraft paper and single-side coated matt surface packaging.
We are not present in the other segments.
Management Board’s Report 2022 Arctic Paper S.A. 21
Segments of the pulp market
Since December 2012, along with the acquisition of Rottneros AB, our assortment has been expanded by:
— fully bleached sulphate pulp and unbleached sulphate pulp used primarily to produce printing and writing paper,
cardboard, toilet paper and white packaging paper.
— chemi-thermo mechanical pulp (CTMP) and groundwood which are used mainly for production of printing and writ ing
papers.
Development directions and strategy
2022 is the first year of implementation of the previously adopted “Strategy of the Arctic Paper Group for the years 2022 -2030”,
approved by the Supervisory Board of the Company on October 4th, 2021. The Company’s strategic directions are reflected in its
4 pillars: packaging, energy, graphic paper and pulp.
With its strong position as a premium paper producer and owner of the recognisable Graphic Paper and Pulp brands, as part of
its Four Pillars(4P) strategy, the Group will invest in two new business areas where sustainability and renewable resources –
packaging and energy – play a key role.
The Group’s main strategic objectives for years 2022-2030 perspective are:
revenue growth by 25 per cent,
an increase in EBITDA of around 70 per cent,
an increase in EBITDA margin to 15 per cent.
The total investment between 2022 and 2030 in all four pillars is planned at over PLN 1.5 billion, of which around 40 per cen t of
this amount will be allocated to new busin ess areas. The Group assumes that it will achieve carbon neutrality by 2035 at the
latest.
Management Board’s Report 2022 Arctic Paper S.A. 22
Sales structure
In 2022 and in 2021, the sales structure by main product lines was as follows:
thousand tons
2022
share %
2021
share %
Paper 617
61%
648
62%
Amber
296
29%
310
30%
G
-
Print
91
9%
95
9%
Munken
108
11%
107
10%
Arctic
110
11%
115
11%
AP Tech
11
1%
17
2%
Other
0
0%
4
0%
Pulp 389
39%
392
38%
NBSK and derivatives
220
22%
212
20%
Groundwood
56
6%
69
7%
CTMP
113
11%
111
11%
Total paper and pulp
1 006
100%
1 040
100%
PLN
‘000 2022
share %
2021
share %
Paper 3 579 803
73%
2 408 330
71%
Amber
1 683 656
34%
1 093 092
32%
G
-
Print
497 935
10%
321 211
9%
Munken
729 265
15%
520 685
15%
Arctic
604 141
12%
398 475
12%
AP Tech
64 141
1%
62 104
2%
Other
664
0%
12 762
0%
Pulp 1 314 473
27%
1 004 245
29%
NBSK and derivatives
781 383
16%
603 627
18%
Groundwood
150 994
3%
132 177
4%
CTMP
285 793
6%
202 163
6%
Other
96 303
2%
66 278
2%
Total paper and pulp
4 894 276
100%
3 412 576
100%
In 2022 there were no material changes to the sales structure of paper and pulp by the Group or in the revenue structure from
sales of paper and pulp by the Group by its products. In 2022, there is a quantitative decrease and a quantitative increase i n
paper sales and pulp sales by value.
Sales markets
In 2022 the share of Group sales outside Poland was 8 8% compared to 2021 (89%). This year, similarly to previous years, sales
were focused on European markets. The share of those markets in the overall value of sales was 91% in 2022 (2021: 88%).
The geographical structure of sales revenues by the main markets in 202 2 and in 2021 is presented in note 10.1 to the
consolidated financial statements.
Buyers
The base of our customers covers both direct and indirect buyers. Direct buyers purchase the Group’s products at our Paper
Mills. Indirect buyers do not buy the Group’s products on their own and they resort to the services of advertising companies or
Management Board’s Report 2022 Arctic Paper S.A. 23
paper wholesalers, nevertheless, they constitute an important target group of marketing activities of Arctic Paper since it is
indirect buyers that recommend the use of the Group’s papers to direct buyers. The groups of direct and indirect buyers of
products include:
— printing houses – they are direct buyers straight from the Group’s Paper Mills,
— wholesalers – they are direct buyers of paper manufactured by the Group for further re -sale,
— publishers – they are direct and indirect buyers of paper manufactured by th e Group straight from the Group for their
publishing business and instruct or recommend the use of our paper to printing houses to which they commission the
printing of books and other publications,
— advertising agencies – they are mainly indirect buyers that do not buy our products directly; however, they play an
important role in commissioning and recommending our products to printing houses, in particular high quality paper to
print annual reports of companies, brochures, leaflets and packaging,
— final buyers – those are direct and indirect buyers that buy our products directly; they also play an important role in
commissioning and recommending our products to printing houses to which they commission printing services.
Pulp Mill products are mainly bought by customers that produce paper for printing, paper hygienic products and cardboard as well
as electrical devices and filters. Pulp is supplied to entities that do not have the capacity to produce pulp by themselves a nd to
buyers that produce certain types of pulp and look for suppliers of other types of pulp.
In our opinion, we are not materially dependent on any single specific buyer. The Group’s consolidated revenues for 2022 show
that the share of the largest buyer did not exceed 10% of total sales reven ues.
Vendors & Suppliers
In its business, the Group relies on the following goods and services:
— Pulp for Paper Mills,
— Wood for Pulp Mills,
— Chemicals,
— Electricity,
— Transport services.
Pulp
Pulp is the core material used by the Group to produce paper. The Gr oup acquires pulp on the basis of revolving annual contracts
concluded under framework agreements or one-off transactions.
Wood
Wood is the core material used by the Pulp Mills to produce pulp. The Rottneros Group has a procurement department placing
orders with sawmills in Sweden as well as its subsidiary company – SIA Rottneros Baltic, purchasing wood for the Pulp Mill in
Vallvik in Eastern Europe, primarily in Latvia and Russia.
Chemicals
The core chemicals used to produce papers are fillers (mainly cal cium carbonate), starch (of maize, potatoes, tapioca), optical
bleaching agents and other chemicals. Chemicals are also used to produce cellulose.
Electricity
In its production processes, the Group uses electricity and heat energy. The entire demand for el ectricity and heat energy for the
Paper Mill in Kostrzyn is covered with its own heat and power plant using natural gas. The gas is supplied pursuant to a cont ract
with a Polish supplier (PGNiG) at annual indexed prices in line with changes to the sectoral indicators published by GUS [Central
Statistical Office of Poland] subject to negotiations of the indexation formula when the contractual change levels are exceed ed.
Gas is acquired from deposits located close to Kostrzyn nad Odrą and delivered to the Pap er Mill with a local pipeline.
Management Board’s Report 2022 Arctic Paper S.A. 24
In autumn 2022, a new boiler designed to generate steam from waste fuelswas commissioned at the Arctic Paper Munkedals mill .
The boiler is designed to handle any solid fuel. The paper mill is also powered by electricity from an internal hydroelectric power
station, mains electricity and steam from a natural gas boiler.
Energy for the Paper Mill Arctic Paper Grycksbo is obtained from biomass and electricity is partly acquired from external
suppliers.
The Rottneros Pulp Mill covers its entire demand for electricity with purchases from external suppliers.
The Vallvik Pulp Mill provides for about 75% of its demand for electricity with its own resources. The remaining demand for
electricity is covered with purchases from external suppliers.
Transport services
The Group does not operate its own means of transportation and resorts to specialised external entities for distribution of i ts
products from Paper Mills and warehouses to buyers.
Entities in the Group are not dependent on those providers. The Group’s consolidated revenues for 2021 show that the share of
the largest service provider did not exceed 10% of total sales revenues.
Information on the seasonal or cyclical nature of business
The demand for the Group’s products is subject to slight variations throughout the year. Reduced demand for paper occurs each
year during summer holidays and around Christmas when some printing houses, in particular in Western Europe are closed.
Global graphic paper markets are also subject to structural decline due to digitalisation in society, but thanks to its efficient sales
process and strong brands, Arctic Paper manages its market shares and overall paper decline better than its competitors.
Research and development
In the Arctic Paper Group, development work is primarily carried out to streamline and modernise production processes, improv e
cost and energy efficiency and improve the quality of the products offered. In the period covered with this report, the Paper Mills
and Pulp Mills carried out development works to improve production processes, in particular to shorten the idle time of paper
machines as well as works aimed at improving the paper/pulp quality and extending the assortment and to improve quality
properties of the products.
An important goal of development works last year was the development of new products, especially packaging and barrier papers .
In the area of packaging papers, the work focused on obtaining a product with increased resistance to wate r and fats. The global
trend of replacing plastic packaging with cellulose and paper packaging is expected, especially in the food packaging segment .
Labour matters
Matters concerning the Group’s employees are described in detail in the document “ Non-financial information of the Arctic Paper
S.A. Capital Group” published separately. – Social Responsibility Report 2022”.
Environment
Our Group complies with environmental standards set forth in numerous applicable regulations and in administrative decisions.
The standards are aimed at ensuring protection of soil, air and water against pollution as well as noise and electromagnetic
fields. Below, we provide a description of how environmental regulations affect the operations of our Pap er Mills and Pulp Mills:
Kostrzyn Paper Mill
Pursuant to a decision of the Governor of the Lubuskie Province of 8 December 2005, Kostrzyn obtained an integrated permit to
operate a paper production installation with a fuel combustion installation at the fa cility in Kostrzyn nad Odrą. In the case of
Management Board’s Report 2022 Arctic Paper S.A. 25
Kostrzyn, the need for such permit was due to its paper production capacity in excess of 20 tonnes per day. This permit has b een
updated many times, adjusting the plant to the applicable legal requirements. The l ast update took place on 20 October 2022 by
the decision of the Marshal of the Lubuskie Province.
The condition for receiving the integrated permit is that the installation meets the environmental protection requirements
resulting, among others, from best available techniques (BAT). In particular, the election must not exceed the applicable emission
standards.
In order to comply with the requirements specified in the environmental permit and other environmental standards related to
waste management, Kostrzyn has entered into a number of contracts covering collection and management of production waste.
In May 2008, an industrial wastewater treatment plant was opened at the Kostrzyn nad Odrą site. Pursuant to a decision of the
Governor of the Lubuskie Province of 14 August 2007, Kostrzyn obtained a water law permit to discharge rainwater and melt
water and to construct a discharge dock to the River of Warta (valid until 1 August 2017). In 2017, a new water law permit wa s
obtained to discharge rain and melt water, valid until 25 June 2027.
AP Kostrzyn participates in the EU Emissions Trading System (ETS) for greenhouse gases. A permit to emit greenhouse gases
was obtained by AP Kostrzyn pursuant to a decision of the Governor of the Lubuskie Province of 9 November 2016 for the paper
production installation with the production capacity in excess of 20 tonnes per day located in the facility in Kostrzyn nad O drą (as
amended on 26.02.2019, 14.04.2020 and 24.03.2022). The permit was granted for an indefinite period of t ime. In connection with
the permit, Kostrzyn is obliged to monitor the volumes of CO2 emissions and to file annual report on the emissions.
With environmental protection in mind, investments have been made at the Arctic Paper Kostrzyn mill in modern and e fficient
energy solutions. The CHP plant, which was modernised in 2007 and 2009 and runs on natural gas, a much cleaner fuel than oil
and coal, has significantly reduced CO2 emissions into the environment.
The fight against global warming is one of the gre atest challenges for the future. Arctic Paper Kostrzyn contributes to positive
change and the search for long-term sustainable alternatives to today’s energy solutions. In 2019, solar cell testing began at our
paper mill in Kostrzyn. The first stage was a pilot PV installation in late 2019 / early 2020. The next stage was the expansion of
the above PV installation completed in H1 2021 and the commissioning of another unit at the beginning of H2 2021. The results of
the above allowed the selection of appropr iate technological and operational aspects, the determination of the impact of the PV
installation on the electricity grid and the knowledge of the estimated efficiency under our climatic conditions. Currently, Arctic
Paper Kostrzn SA is carrying out docu mentation work for the construction of further modules of the photovoltaic installation.
The Paper Mill in Kostrzyn nad Odrą holds compliance certificates with the following standards: ISO 45001, ISO 14001, ISO 900 1.
It publishes an annual publicly available environmental report, providing an assessment of the environmental impact of its
activities. In addition, the paper produced here has been certified to meet the FSC® chain of custody and PEFC ™ wood-based
product supply chain certifications. The certific ates are to document that the pulp used to produce the paper comes from forests
used in a sustainable manner. The FSC (Forest Stewardship Council) certificate is a major certificate granted to paper produc ing
companies. In 2006, the first FSC certificate w as granted to the paper manufactured at AP Kostrzyn. At present, the Kostrzyn nad
Odrą mill uses FSC-certified pulp and PEFC-certified pulp (Programme for the Endorsement of Forest Certification) for the
production of Amber and Munken Kraft paper.
Munkedals Paper Mill
The business of Munkedals is subject to environmental management systems EMAS and ISO 14001. EMAS (Eco -Management
and Audit Scheme) is a voluntary system applied by the European Union which applies to enterprises outstanding for their
constantly improved environmental protection level within their business. Companies registered with EMAS comply with
environmental protection regulations, maintain an environmental management system and publish information on environmental
protection in their business in the form of a separate verified statement on compliance with environmental protection regulations.
ISO, International Standards Organisation, has been developing various standards. ISO 14000 is a group of one of the best
known environmental management standards (i.e. activities undertaken by entrepreneurs in order to reduce the harmful impact of
their activities on the environment and ensure continuous improvement of the level of environmental protection).
Management Board’s Report 2022 Arctic Paper S.A. 26
Certain properties owned by Munkedals are located in the Natura 2000 area. Areas in the Natura 2000 constitute wild nature
reservations established on the basis of a decision of the District Council of Munkedal (Sweden) in 2005. The objective to
establish the Natura 2000 network was to pres erve the natural habitats and vegetation and animal species most endangered with
extinction all over Europe. The extent of the coverage and the restrictions concerning business operations are set forth in t he
Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora (Habitat Directive) and in the
Council Directive 79/409/EEC on the conservation of wild birds (Birds Directive) of 2 April 1979 and the applicable domestic
regulations. The protection level of habitats and b irds in Natura 2000 areas is subject to the occurrence of specific species and/or
habitats that are protected.
On 24 June 2020, the entire range produced at the Munkedals factory was certified by the Cradle to Cradle Products Innovation
Institute (C2CPII). The entire production process of the paper mill in Munkedal has been audited and has reached the bronze
level which is the overall level of product certification. The Cradle to Cradle Certified ™ program is an internationally recognised
standard for safe and sustainable development. It assesses the environmental impact of products throughout their entire life
cycle. Cradle to Cradle design means not only minimizing negative impacts on the environment, but above all leaving a positiv e
footprint.
Grycksbo Paper Mill
Paper production in the Paper Mill Arctic Paper Grycksbo AB has been carried out in compliance with the environmental permit of
March 2007. The permit was issued by the Swedish Environmental Protection Tribunal for the production of up to 310,000 tonnes
annually. Additionally, the Paper Mill holds a CO2 emission permit issued by the regional authorities of the province of Dal arna.
Since 1997 Arctic Paper Grycksbo AB has held an ISO 14001 certificate and our environmental activities are reported i n
compliance with EMAS. The core objective of EMAS is to encourage its member companies to enhance their efforts to protect the
natural environment in a systematic and consistent manner, to an extent even beyond legislative requirements. This is achieve d
by establishing a programme composed of specific action plans and assessment of all effects for the environment resulting from
the activities pursued. Companies are obliged to prepare annual reports on the results of their pro -environmental activities.
Independent inspectors ensure that companies comply with their obligations.
Arctic Paper Grycksbo AB participates in the EU Emissions Trading System (ETS) for greenhouse gases. 2010 was the first year
when zero CO2 emissions from fossil fuels were declared. T hat was made possible as a result of a reconstruction of the boiler
combined with an investment in equipment to handle biofuels, electrical filters for flue gas particles and reconstruction to turbine
generating electricity from renewable sources.
In numbers, the switch to biofuels means annual reduction of CO2 emissions from fossil fuels by about 70,000 tonnes. The
reconstructed turbine provides for 20% of demand for electricity by the Paper Mill with renewable energy sources that it
generates itself which in turn results in reduction of CO2 emissions by another 4,000 tonnes. In 2022, the paper mill invested in a
0.5MWh solar power plant.
The Paper Mill has implemented an energy management system in compliance with ISO 50001 (Energy Management System).
Our products are verified within the “Chain of Custody” in compliance with FSC (Forest Stewardship Council) and in compliance
with PEFC (Programme for the Endorsement of Forest Certification) as well as they meet the requirements of the standards of
Nordic Ecolable (the Nordic Swan).
The paper mill received Cradle to Cradlecertification in April 2021.
Pulp Mills
Environmental issues are central to Rottneros’ corporate culture and are part of the DNA of the entire Group. Products from t he
forest are part of the climate solution, and improving environmental performance is a daily job. The Group’s long -term goal is to
eliminate fossil fuels altogether.
Rottneros is in the business of being part of the solution to global warming. A growing forest absorbs CO2 and is thus stored in
the products made from it. In many places, intensive research is being conducted to develop new products that replace fossil raw
materials with bio-based raw materials.
Management Board’s Report 2022 Arctic Paper S.A. 27
Rottneros does not own any forest, but contributes to sustainable fo restry in many ways. Both of the Group’s sites have
environmental management systems and are certified to ISO 14001. The environmental management system includes well
established procedures for inspection, sampling and dealing with deviations.
Suppliers and raw materials are carefully selected. The Rottneros Group is FSC® and PEFCTM certified and in 2022 purchased
raw materials only from FSC® certified suppliers.
The company’s efficient use of raw materials in production provides environmental and economic benefits. The Rottneros plant
uses 95-98% of the raw material. At the Vallvik plant, approximately 44 -47% of the raw material becomes pulp. Waste products
from production are mainly used as energy.
To reduce the environmental impact of transport, the raw material is purchased locally. The Vallvik mill buys approximately 50%
and Rottneros approximately 75% of its pulp from sources within a 100 kilometre radius. Through proper planning and
coordination, we reduce transport distances within the Group and tran sport from other companies.
Rottneros’ production processes involve various risks that affect the environment. The Rottneros plant has a mechanical
production process, and the biggest environmental risks are energy consumption and water emissions. Energy c onsumption is
significant, and the focus has been on reducing dependence on fossil fuels through the design of more efficient equipment and
product reformulation.
At the Vallvik site, where cellulose is produced using chemical processes, chemical treatment and emissions to water and air
pose the greatest environmental risk. In order to protect the environment and prevent any violations of applicable emission
regulations and requirements, the Group has a continuous sampling system with alarm functions linked to plant control systems.
In addition, random hand samples are taken.
The Group’s long-term goal is to become free of fossil fuels. The plan is for production to be completely free of fossil fuels by
2030. The only challenge that remains is replacing the fossil fuels used to start production, especially at the Vallvik plant,
combined with production interruptions and planned maintenance shutdowns. Another challenge that still remains is to ensure
that the electricity purchased comes from fossil fuel-free sources.
Eliminating indirect CO2 emissions that occur outside the gates of operations is another long -term challenge to complete freedom
from fossil fuels. This aspect mainly concerns vehicles used to transport deliveries to and from factories.
It is Group policy that all employees in relevant positions must have the necessary environmental knowledge. The Group’s senior
environmental staff are constantly undergoing further training.
The Vallvik plant has been certified to environmental management standard s since 2000. Rottneros Bruk also updated its energy
management system in 2020 and obtained ISO 50001 certification. A key element of this effort has been the establishment of an
energy management group that actively works on energy -related issues. The group conducted an analysis to identify everything
that causes electricity consumption at the site.
Management Board’s Report 2022 Arctic Paper S.A. 28
Summary of consolidated financial results
Selected items of the consolidated profit and loss statement
PLN’000
2022
2021
Change %
2022/2021
Continuing operations
Sales revenues 4 894 276
3 412 576
43,4
of which:
Sales of paper 3 579 803
2 408 330
48,6
Sales of pulp 1 314 473
1 004 246
30,9
Profit on sales
1 410 757
707 929
99,3
% of sales revenues 28,82
20,74
8,1 p.p.
Selling and distribution costs
(445 197)
(381 287)
16,8
Administrative expenses
(138 766)
(103 080)
34,6
Other operating income
85 778
73 749
16,3
Other operating expenses
(69 593)
(52 741)
32,0
EBIT 842 979
244 570
244,7
% of sales revenues 17,22
7,17
10,1 p.p.
EBITDA
973 973
327 756
197,2
% of sales revenues 19,90
9,60
10,3 p.p.
Financial income
92 767
3 435
2 600,6
Financial expenses
(8 169)
(24 890)
(67,2)
Gross profit (loss)
927 57
7
223 115
315,7
Income tax
(170 755)
(47 208)
261,7
Net profit/ (loss)
756 822
175 907
330,2
% of sales revenues 15,46
5,15
10,3 p.p.
Net profit / (loss) for the reporting period attributable
to the shareholders of the Parent Entity
631 001
127 154
396,2
Revenues
In 2022, consolidated sales revenues reached PLN 4,894,276 thousand compared to PLN 3,412,576 thousand in the previous
year and increased by 43.4% (PLN 1,481,700 thousand). Revenues from paper sales increased by 48.6% (PLN 1,171,473
thousand) and revenues from pulp sales increased by 30.9% (PLN 310,227 thousand) compared to 2021.
The volume of paper sales in 2022 was 617 thousand tonnes (2021: 648 thousand tonnes) and was 31 thousand tonnes lower
than in the previous year. This means a decrease in sales vo lume by 4.8%.
The volume of pulp sales in 2022 was 389,000 tonnes (2021: 392 thousand tonnes) and was 3 thousand tonnes lower than in the
previous year. This means a decrease in sales volume by 0.8%.
Profit on sales, costs of sales, selling and distributio n costs, and administrative expenses
Profit on sales in 2022 was by 99.3% higher than in the previous year. Sales profit margin in the current year stood at 28.82 %
compared to 20.74% (+8.1 p.p.) in the previous year.
Management Board’s Report 2022 Arctic Paper S.A. 29
The increase in profit on sales in 2022 compared to 2021 was primarily due to an increase in revenues from paper and pulp sales
mainly due to an increase in PLN -denominated selling prices for paper as well as an increase in selling prices for pulp. The
increase in profit on sales was also a res ult of the lower growth rate of production costs.
In 2022, the cost of sales amounted to PLN 445,197 thousand and increased by 16.8% compared to 2021. The selling and
distribution costs comprise particularly transportation costs.
In 2022, general and administrative expenses reached PLN 138,766 thousand compared to PLN 103,080 thousand in 2021, an
increase of 34.6%. The main reason of the increase were higher costs related to consulting services rendered to the Group by
third parties.
Other operating income and expenses
Other operating income in 2022 amounted to PLN 85,778 thousand, an increase of PLN 12,029 thousand compared with the
previous year.
Other operating expenses in 2022, reached PLN 69,593 thousand, an increase of PLN 16,852 thousand on the previous year.
A major part of the other operating income and expenses includes revenues and costs of sales of sold energy and other
materials. In addition, a higher profit on the sale of CO2 emission rights contributed to the increase in othe r operating income in
2022.
Financial income and financial expenses
In 2022, the financial revenue was 92,767. These were PLN 89,332 thousand higher than the revenue generated in 2021, mainly
due to a positive result on RROS energy contracts not meeting he dge accounting rules.
Finance costs in 2022 amounted to PLN 8,169 thousand compared to PLN 24,890 thousand incurred in 2021. The lower finance
costs in 2022 were primarily due to lower interest costs.
Income tax
Income tax in 2022 amounted to PLN -170,756 thousand, while in 2021 it amounted to PLN -47,208 thousand. The effective tax
rate to gross profit in 2022 was 18% (2021: 21%).
Profitability analysis
When describing the financial situation of the Capital Group, the Company uses alternative performanc e measures. In the opinion
of the Management Board, these selected ratios are a source of additional (in addition to the data provided by the Company in
the financial statements) valuable information on the financial and operating situation, as well as fac ilitate the analysis and
assessment of the Group's financial results over the individual reporting periods.
The company presents alternative performance measures because they are standard measures and ratios commonly used in
financial analysis, however, these ratios may be calculated and presented differently by different companies. Therefore, the
Issuer provides precise definitions used by the Group in the reporting process. The selection of alternative performance
measures was preceded by a thorough anal ysis of their usefulness in terms of providing shareholders, analysts and investors
with useful information on the financial situation and financial performance, which in the Company's opinion allows for an op timal
assessment of the financial results achieved.
The ratios presented by the Company were calculated according to the formulas described at the beginning of this report in th e
section "Definitions and explanations of abbreviations".
EBITDA in 2022 was PLN 973,973 thousand, while in 2021 it was PLN 327,756 thousand. The increase in EBITDA in 2022 is
primarily due to higher revenues from the sale of paper and pulp and the lower growth rate of production costs relative to th e
increase in revenues from the sale of products. In the reporting period, the EBITDA margin was 19.90% versus 9.60% in 2021.
Management Board’s Report 2022 Arctic Paper S.A. 30
Operating profit for 2022 amounted to PLN 842,979 thousand and for 2021 to PLN 244,570 thousand. The operational profit
margin in 2022 was +17.22% versus +7.17% in 2021. The higher operating profit in 2022 was due to higher EBITDA.
Net profit in 2022 amounted to PLN 756,822 thousand and in 2021 to PLN 175,907 thousand. Net profit margin in 2022 amounted
to +15.46% as compared to +5.15% in 2021.
PLN'000
2 022
2 021
Change %
2022/2021
Profit /(loss) on sales 1 410 757
707 929
99,3
% of sales revenues
28,82
20,74
8,1 p.p.
EBITDA
973 973
327 756
197,2
% of sales revenues 19,90
9,60
10,3 p.p.
EBIT
842 979
244 570
244,7
% of sales revenues
17,22
7,17
10,1 p.p.
Net profit /(loss)
756 822
175 907
330,2
% of sales revenues
15,46
5,15
10,3 p.p.
Return on equity / ROE (%)
36,9
14,2
22,7 p.p.
Return on assets / ROA (%)
23,3
7,4
15,9 p.p.
In 2022, return on equity was +36.9%, while in 2021 it was +14.2%.
In 2022, return on assets was +23.3%, while in 2021 it was +7.4%.
The growth of return on equity and return on assets in 2022 was mainly due to increased net profit generated in 2022 ver sus
2021.
Management Board’s Report 2022 Arctic Paper S.A. 31
Selected items of the consolidated statement of financial position
PLN’000
31.12.2022
31.12.2021
Change
30.06.2022
-
31.12.2021
Fixed assets
1 371 867
1 301 750
70 117
Inventories
601 205
402 868
198 337
Receivables
504 024
410 939
93 085
trade receivables 503 391
402 530
100 861
Other
current assets
295 459
105 782
189 677
Cash and cash equivalents
481 930
167 927
314 003
Total assets
3 254 485
2 389 266
865 219
Equity
2 052 182
1 242 996
809 186
Short
-
term liabilities
806 906
722 065
84 841
of which:
trade and other payables 551 211
506 812
44 399
interest-bearing debt 43 443
96 659
(53 216)
other non-financial liabilities 212 253
118 594
93 658
Long
-
term liabilities
395 39
7
424 205
(28 809)
of which:
interest-bearing debt 162 324
190 363
(28 039)
other non-financial liabilities 233 073
233 842
(770)
Total equity and liabilities
3 254 484
2 389 266
865 219
As at 31 December 2022, total assets amounted to PLN 3,254,485 thousand as compared to PLN 2,389,266 thousand at the end
of 2021.
Fixed assets
At the end of December 2022, non -current assets amounted to PLN 1,371,867 thousand and accounted for 42.2% of total assets,
compared to PLN 1,301,750 thousand at the end of 2021 (54.5% of total assets).
The increase in the value of non -current assets was mainly due to an increase in the positive valuation of power purchase
forwards.
Current assets
As at the end of December 2022, current assets amounted to PLN 1,882,618 thousand as compared to PLN 1,087,516 thousand
at the end of December 2021. Within curre nt assets, inventories increased by PLN 198,337 thousand, receivables increased by
PLN 93,085 thousand, other current assets increased by PLN 189,677 thousand, and cash and cash equivalents by PLN 314,003
thousand. Current assets represented 57.8% of total assets as at the end of December 2022 (45.5% as at the end of 2021) and
included inventories – 18.5% (16.9% as at the end of 2021), receivables – 15.5% (17.2% as at the end of 2021), other current
assets – 9.1% (4.4% as at the end of 2021) and cash and ca sh equivalents – 14.8% (7.0% as at the end of 2021). The increase in
other current assets was mainly due to an increase in the positive valuation of forwards mainly for the purchase of electrici ty. The
increase in cash was mainly due to an increase in cash flow from operating activities.
Equity
Equity at the end of 2022 amounted to PLN 2,052,182 thousand compared to PLN 1,242,996 thousand at the end of 2021. As at
the end of December 2022, equity accounted for 63.1% of total equity and liabilities (52.0% as at 31 December 2021).
The increase in equity was primarily due to the net profit for 2022 and an increase in the positive valuation of financial
instruments treated as hedges of future cash flows offset in part by the dividend to AP SA Shareholders and dividend paid to
other shareholders by Rottneros AB.
Management Board’s Report 2022 Arctic Paper S.A. 32
Short-term liabilities
As at the end of December 2022, current liabilities amounted to PLN 806,907 thousand (24.8% of the balance sheet total),
compared to PLN 722,065 thousand (30.2% of the balance sheet total) at the end of 2021.
Short-term liabilities increased by PLN 84,842 thousand in 2022 mainly due to an increase in trade and other payables, employee
liabilities and income tax liabilities offset in part by a decrease in mainly short -term loans.
Long-term liabilities
As at the end of December 2022, long -term liabilities amounted to PLN 395,396 thousand (12.1% of the balance sheet total),
compared to PLN 424,205 thousand (17.8% of the balance sheet total) at the end of 2021. In the analysed year, a decrease of
long-term liabilities occurred by PLN 28,809 thousand.
The decrease in long-term liabilities was mainly due to a decrease in provisions for employee benefits mainly due to the
repayment of these liabilities by AP Munkedals and AP Grycksbo and a decrease in loans.
Debt analysis
2022
2021
Change %
2022/2021
Debt to equity ratio (%)
58,6
92,2
(33,6) p.p.
Equity to fixed assets ratio (%)
149,6
95,5
5
4
,
1
p.p.
Interest-bearing debt-to-equity ratio (%)
10,0
23,1
(13,1) p.p.
Net debt to EBITDA ratio for the last 12 months (x)
(0,28)
0,36
(0,65)
EBITDA to interest expense ratio (x)
146,6
17,4
129,1
As at the end of December 2022, the equity debt ratio was 58.6% and was lower by 33.6 p.p. versus the end of December 2021.
The decrease in the ratio was mainly due to an increase in equity.
The ratio of fixed assets to equity stood at 149.6% at the end of 2022, 54.1 p.p. higher than at the end of December 2021 as a
result of higher growth in equity than in non-current assets.
The interest-bearing debt to equity ratio was 10.0% at the end of 2022 and was by 13.1 p.p. lower versus the ratio calculated at
the end of December 2021, both due to a decrease of interest -bearing debt than an increase of equity.
The net debt to EBITDA ratio for the last 12 months of 2022 was -0.28x, 0.65 lower than the rati o for 2021 due to both a decrease
in net debt calculated as interest-bearing liabilities less cash and an increase in EBITDA.
The ratio of interest expense coverage to EBITDA for the last 12 months of 2022 was 146.6x, and was 129.1 higher than the lev el
of this ratio for 2021 as a result of the increase in EBITDA and the decrease in interest expense.
Management Board’s Report 2022 Arctic Paper S.A. 33
Liquidity analysis
2022
2021
Change %
2022/2021
Current ratio
2,3x
1,5x
0,8
Quick ratio
1,6x
0,9x
0,
7
Cash solvency ratio
0,6x
0,2x
0,4
DSI (days)
62,1
53,6
8,5
DSO (days)
37,0
42,5
(5,4)
DPO (days)
57,0
67,5
(10,5)
Operational cycle (days)
99,2
96,1
3,1
Cash conversion cycle (days)
42,2
28,6
13,6
The current and quick liquidity ratios were 2.3x and 1. 6x, respectively, at the end of December 2022 and increased by 0.8 and 0. 7
compared to 31 December 2021 mainly due to a higher growth rate of current assets than current liabilities.
The cash solvency ratio was 0.2x at the end of December 2021, lower than the level of this ratio at the end of December 2021 (by
0.4) mainly due to the decrease in cash.
The cash conversion cycle for 2022 (4 2.2 days) lengthened by 13.6 days compared to 2021 (28.6 days) mainly due to an increase
in inventory turnover with a decrease in payables turnover.
Management Board’s Report 2022 Arctic Paper S.A. 34
Selected items of the consolidated cash flow statement
PLN ‘000
2022
2021
Change %
2022/2021
Cash flows from operating activities
607 383
238 193
155,0
of which:
Gross profit/(loss) 927 577
223 115
315,7
Depreciation/amortisation and impairment allowance 130 994
114 672
14,2
Changes to working capital (298 100)
(33 166)
798,8
Other adjustments (153 087)
(66 428)
130,5
Cash flows from investing activities
(155 879)
(159 513)
(2,3)
Cash flows from financing activities
(124 588)
(162 068)
(23,1)
Total cash flows
326 916
(83 388)
(492,0)
Cash flows from operating activities
Net cash flow from operating activities reached PLN 607,381 thousand in 2022, compared with PLN 238,193 thousand in 2021.
The higher cash flow from operating activities in 2022 was due to the increase in gross profit.
Cash flows from investing activities
In 2022, cash flows from investing activities amounted to PLN -155,879 thousand compared with PLN -159,513 thousand in 2021
and mainly comprised expenditure on the acquisition of property, plant and equipment.
Cash flows from financing activities
Cash flow from financing activities in 2022 reached PLN -124,587 thousand compared with PLN -162,068 thousand in 2021. The
decrease in negative cash flows from financing activities in 2022 was mainly due to the fact that the bonds were repaid in 20 21.
Management Board’s Report 2022 Arctic Paper S.A. 35
Relevant information and factors affecting the financial results and
the assessment of the financial standing
Key factors affecting the performance results
The Group’s operating activities have been and will continue to be historically influenced by the following key factors:
— macroeconomic and other economic factors,
— demand growth for products based on natural fibres,
— reduced demand for certain paper types,
— fluctuations of paper prices,
— pulp price fluctuations for Paper Mills, timber for Pulp Mills and energy prices,
— FX rates fluctuation.
Macroeconomic and other economic factors
We believe that a number of macro-economic and other economic factors have a material impact on the demand for high -quality
paper, and they may also influence the demand for the Group’s products and the Group’s operating results. Those factors
include:
— GDP growth;
— net income – as a metric of income and affluence of the population,
— production capacity – the surplus of supply in the high quality paper segment over demand and decreasing sales
margins on paper,
— paper consumption,
— technology development.
Demand growth for products based on natural fibres
The trend observed in developed societies concerning a reduction of man’s adverse impact on the environment, in particular
reduction of use of disposable, plastic packaging that may not be recycled, offers new opportunities for the development of t he
pulp & paper sector. In many companies, work has been under way to develop new methods of packaging and production of
packaging with natural materials, including pulp, so that it can be recycled. Arctic Paper is also involved in such research. In the
near future, the product segment is expected to increase its percentage share in the volumes and revenues of the Arctic Paper
Group.
Reduced demand for certain paper types
Development of new technologies, in particular in the areas of information and communication, results in decreasing demand f or
certain paper types – in particular, this affects newsprint and to a lesser extent – graphic papers. However, despite the
increasing popularity of e-books, the volume of book paper produced and sold by Arctic Paper has been stable in the recent
years, less sensitive to changing market conditions. Nevertheless, in its strategy Arctic Paper has set a direction of activity so
that within several years, the segment of non-graphic papers (that is technical or packaging paper) accounts for 1/5 of its
consolidated revenues.
Paper prices
Paper prices undergo cyclic changes and fluctuations, they depend on global changes in demand and overall macroeconomic and
other economic factors such as indicated above. Prices of paper are also influenced by a number of facto rs related to the supply,
primarily changes in production capacities at the worldwide and European level.
Costs of raw materials, energy and transportation
The main elements of the Group’s operating expenses include raw materials, energy and transportatio n. The costs of raw
materials include mainly the costs of pulp for Paper Mills, timber for Pulp Mills and chemical agents used for paper and pulp
Management Board’s Report 2022 Arctic Paper S.A. 36
production. Our energy costs historically include mostly the costs of electricity, gas and rights to CO2 emiss ions. The costs of
transportation include the costs of transportation services provided to the Group mainly by external entities.
Taking into account the share of those costs in total operating expenses of the Group and the limited possibility of controll ing
these costs by the Group Companies, their fluctuations may have a major impact on the Group’s profitability.
A part of pulp supplies to our Paper Mills is made from our own Pulp Mills. The remaining part of pulp manufactured at our Pu lp
Mills is sold to external customers.
Currency rate fluctuations
The Group’s operating results are significantly influenced by currency rate fluctuations. In particular, the Group’s revenues and
costs are expressed in different foreign currencies and are not matched, therefore, the appreciation of the currencies in whi ch we
incur costs towards the currencies in which we generate revenues, will have an adverse effect on the Group’s results. Our
products are primarily sold to euro zone countries, Scandinavia, Poland and the UK, thus our revenues are largely denominated
in EUR, GBP, SEK and PLN while revenues from the pulp mills are primarily denominated in USD. The Group’s operating
expenses are primarily expressed in USD (pulp costs for Paper Mills), EUR (costs related to pulp for Paper Mills, energy,
transportation, chemicals), PLN (the majority of other costs incurred by the Paper Mill in Kostrzyn nad Odrą) and SEK (the
majority of other costs incurred by the Munkedal and Grycksbo Paper Mills as well as the Rottneros and Vallvik Pulp Mills).
Exchange rates also have an important impact on results reported in our financial statements because of changes in exchange
rates of the currencies in which we generate revenues and incur costs, and the currency in which we report our financial resu lts
(PLN).
Unusual events and factors
In 2022, there were no unusual events or factors.
Impact of changes in Arctic Paper Group’s structure on the financial result
In 2022, there were no material changes in the Arctic Paper Group’s structure that would have material influence on the finan cial
result generated.
Other material information
Joint investment by Arctic Paper and Rottneros - conclusion of a joint-venture agreement
On February 17th, 2023 the Company and Rottneros AB (“Rottneros”) concluded an agreement to establish a joint-venture
("Joint-Venture Agreement") and a joint-venture agreement under the name of Kostrzyn Packaging Sp. z o. o. ("Joint Venture").
The initial share capital of the Joint -Venture will amount to PLN 460,000.00 and will be divided into 46 equal and i ndivisible
shares with a nominal value of PLN 10,000.00 each. The company and Rottneros will each hold 50% of its share capital.
The subject of the Joint-Venture's business will be: (i) production of packaging from molded cellulose fibre, (ii) sale of fini shed
packaging, (iii) conducting development research and technical analysis of manufactured products.
The source of financing the Joint -Venture's activities will be shareholders' own contributions and bank loans.
Under the decision of the Ministry of Tran sport and Development, the Joint -Venture, under the Polish Investment Zone program,
will benefit from support in the form of an income tax exemption up to PLN 97.2 million of eligible costs.