Last close As at 05/08/2026
PLN6.24
▲ −0.12 (−1.89%)
Market capitalisation
PLN433m
Research: Industrials
Arctic Paper’s FY23 results highlight the resilience of its business model in a year of cyclical weakness. Management successfully focused on margins, which were broadly protected through the implementation of cost containment measures and adjusting capacity to match demand. The FY23 EBITDA margin stood at 13%, substantially higher than the historical average of 10%. The cash flow and balance sheet remained strong with net cash of PLN348m, an increase from the FY22 level (PLN276m).
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Arctic Paper |
FY23 focused on margin management
Paper and pulp |
Spotlight - Update
16 April 2024 |
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Arctic Paper is a research client of Edison Investment Research Limited |
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Arctic Paper’s FY23 results highlight the resilience of its business model in a year of cyclical weakness. Management successfully focused on margins, which were broadly protected through the implementation of cost containment measures and adjusting capacity to match demand. The FY23 EBITDA margin stood at 13%, substantially higher than the historical average of 10%. The cash flow and balance sheet remained strong with net cash of PLN348m, an increase from the FY22 level (PLN276m).
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Consensus estimates
Source: LSEG |
Signs of recovery from cyclical lows
FY23 saw sequential declines in both demand and the price of paper and pulp in Europe, directly affecting Arctic’s financial performance versus a record comparator year. Revenue declined 28% y-o-y to PLN3.5bn (the paper segment saw a 31% fall as customers continued to reduce inventory). EBITDA was PLN475.3m, 51% lower than FY22 (PLN974.0m) with a corresponding margin of 13.4% (FY22: 20%), albeit notably higher than the long-run historical average of 10%. Paper EBITDA margins stood at 15.3% (FY22: 19.1%). Despite the macroeconomic headwinds, Arctic maintained a robust balance sheet with period-end net cash of PLN347.5m and equity/assets of 66%. The outlook appears more positive, with a visible recovery in pulp prices (paper prices follow with a slight time lag). The NBSK pulp list price reached $1,300/tonne in January 2024 versus a cyclical low of $1,145 in Q323.
Continued transition to reflect market trends
Arctic’s strong balance sheet enables it to continue its diversification into the higher-margin energy and packaging markets and capture the higher end of the value chain. The company is progressing with its capex programme, investing in various sustainable projects, which include upgrading the Grycksbo biofuel boiler and steam turbine, expanding chemical thermomechanical pulp capacity, building a tall oil plant and securing patent rights for its biodegradable packaging paper manufacturing technology. In line with its 4P strategy, this should enable the business to become less commoditised, reducing earnings volatility and improving margins.
Valuation: Large discount to peers
Based on consensus FY25e P/E of 6.1x and EV/EBITDA of 3.2x, Arctic Paper trades at discounts of 49% and 55%, respectively, to European paper and packaging peers. Successful delivery of the 4P strategy, with increased exposure to higher-margin renewable energy and packaging markets, should see the discount progressively diminish.
Resilient FY23 faced with increasing challenges
FY23 presented numerous obstacles for the European paper and pulp industry, involving an economic downturn, which resulted in lower demand for graphic paper and pulp, in addition to decreasing customer inventories. While FY23 saw revenue decline by 27.5% to PLN3.5bn against the very strong record comparator year, it represented a 4% increase compared to FY21. The gross profit and EBITDA margins stood at 21.0% and 13.4%, compared to 28.8% and 19.9%, respectively, in FY22, with the decline attributable to high fixed costs matched with decreased paper and pulp sales. Despite this, the EBITDA margin substantially exceeded the long-run historical average of 10%, through the implementation of cost containment measures and adjusting mill capacity to match demand.
Arctic Paper’s strategy has allowed for a period of cyclical weakness as it repositions the business and the company’s balance sheet remains robust, with FY23 net cash of PLN347.5m, which will enable Arctic to proceed with its extensive capex programme and new investments in line with its long-term 4P strategy to diversify into the renewable energy and packaging markets.
Exhibit 1: Income statement summary (continuing operations)
PLNm |
FY21 |
FY22 |
FY23 |
% change: FY23/FY22 |
Group sales |
3,412.6 |
4,894.3 |
3,549.2 |
-27.5% |
Gross profit |
707.9 |
1410.8 |
745.7 |
-47.1% |
Gross margin |
20.7% |
28.8% |
21.0% |
- |
Group EBITDA |
327.8 |
974.0 |
475.3 |
-51.2% |
Group EBITDA margin |
9.6% |
19.9% |
13.4% |
- |
EBIT |
244.6 |
843.0 |
357.1 |
-57.6% |
EBIT margin |
7.2% |
17.2% |
10.1% |
- |
Profit before tax |
223.1 |
927.6 |
340.9 |
-63.2% |
Net income |
127.2% |
756.8 |
272.4 |
-64.0% |
EPS (PLN) |
1.8 |
9.1 |
3.6 |
-60.8% |
Source: Arctic Paper reports
Despite paper revenue declining modestly in Q423 (PLN581.2m) compared to the previous quarter (PLN590.3m), divisional EBITDA rose by 26.6% to PLN119.8m, yielding a margin of 15.3% – substantially higher than its historical average. This was more than offset by a weak performance in the pulp segment with an EBITDA loss of SEK76m, contributing to a group EBITDA decline of 23% q-o-q to PLN96.3m in Q423. The pulp segment suffered notably due to a continuation of subdued pulp prices, higher variable costs and the annual maintenance shutdown in Vallvik.
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Exhibit 2: Revenue (PLNm) and EBITDA margins (%), FY18–23 |
Exhibit 3: Pulp and paper EBITDA margins (%), Q220–Q423 |
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Source: Arctic Paper reports |
Source: Arctic Paper reports |
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Exhibit 2: Revenue (PLNm) and EBITDA margins (%), FY18–23 |
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Source: Arctic Paper reports |
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Exhibit 3: Pulp and paper EBITDA margins (%), Q220–Q423 |
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Source: Arctic Paper reports |
Paper capacity utilisation picked up sequentially from its all-time low of 55% in Q223 (which equates to a total sales volume of 97kt) to 70% (total sales volume of 113kt). The company will continue adjusting its capacity to meet profitable customer demand in line with its strategy and long-term market outlook.
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Exhibit 4: Total sales volume (kt) and production capacity (%) of paper, Q419–Q423 |
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Source: Arctic Paper reports |
Balance sheet strength enables revenue stream diversification
Despite strong macroeconomic headwinds during 2023, Arctic Paper has showcased its ability to maintain a robust balance sheet, with year-end net cash of PLN347.5m (increase of 25.8% y-o-y) and equity/assets of 66%. This puts the company in a favourable position to continue with its extensive capex programme, investing to diversify the business and expand into the higher-margin and growing renewable energy and packaging markets, in line with its 4P strategy; the green economy and sustainability remain at the heart of Arctic’s strategy. If the strategy is successful, the business should become less commoditised, reducing earnings and cash flow volatility and improving margins.
Outlook: Continuing to transition the business model
FY24 should see continued capex in line with the 4P strategy, focused on diversifying the business model into higher-margin renewable energy and packaging markets. Projects set to unfold in the year include the new JV with Rottneros in moulded fibre tray production in Kostrzyn and increased energy generation from internal production processes (targeting 100% by 2030). This also presents a new revenue stream through selling in-house energy to third parties. By 2026, the capacity of Arctic’s renewable energy sources is targeted to reach 25MW, and 80MW by 2030.
In addition, the company announced in FY23 that it is investing SEK285m (c €24m) in the expansion and upgrade of its biofuel installation at the Grycksbo paper mill. Not only is this expected to reduce energy costs by c SEK50m on an annual basis, but the installation will also produce 50kt of wood pellets (made of residuals from sawmills) at an estimated value of SEK100m per year to be sold on the market. Plans have been made to further increase production to more than 100kt later down the line. This project is estimated to be completed in H125.
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Exhibit 5: Expected capex 2024–30 |
Exhibit 6: Targeted EBITDA split in 2030 |
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Source: Arctic Paper reports |
Source: Arctic Paper reports |
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Exhibit 5: Expected capex 2024–30 |
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Source: Arctic Paper reports |
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Exhibit 6: Targeted EBITDA split in 2030 |
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Source: Arctic Paper reports |
The outlook for FY24 appears increasingly positive, with a visible recovery in pulp prices (paper prices follow with a slight time lag). The NBSK pulp list price reached $1,300/tonne in January 2024 compared to its cyclical low price of $1,145/tonne in Q323. Customer destocking is transient and pulp revenue and EBITDA levels should improve as the business cycle continues to take a more favourable turn.
The company’s expansion into the higher value-add packaging business should boost consolidated margins (versus c 10% historical average) and improve earnings visibility through the economic and commodity cycles, allowing it to capture the higher end of the value chain and to achieve better diversification and vertical integration.
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