Arctic Paper S.A., the second-largest European producer of bulky book paper and one of Europe’s leading producers of high-quality graphic paper, generated revenues of PLN 479.4 million in the 1st quarter of 2010. Operating profit was PLN 12.7 million and net profit PLN 670,000.

The 1st quarter of 2010 witnessed major changes in the paper industry. There was a reversal in trends that compared to last year now effects Arctic Paper*s results.. Arctic Paper has taken a number of measures designed to minimize the mid-term impact of unfavourable factors on the group’s activity, including introduction of price increases for the group’s products and plans for improving profitability at its paper mills.

On 1 of March 2010 the group carried out the acquisition anticipated in its IPO prospectus, by acquiring the Grycksbo paper mill. The acquisition significantly reinforced the group’s position on many markets and provides an opportunity to achieve synergy effects, for example in the area of logistics. Thanks to the acquisition, the group’s production capacity has grown by nearly half. Integration of the Grycksbo paper mill into the organisational structure of Arctic Paper is proceeding according to plan.

FINANCIAL RESULTS – DETAILS
The Arctic Paper Group’s financial results for the 1st quarter of 2010 are presented in the table below:

The prices for raw materials used for production by Arctic Paper rose in the 1st quarter of 2010 compared to 2009. The main factor having an unfavourable impact on margins and financial results was an increase in pulp market prices. The earthquake in Chile was an extraordinary event that further destabilised supply and demand on the pulp market. As a result of the earthquake, the main pulp mills in Chile, a country representing about 9% of worldwide production of pulp, were put out of operation. This caused further growth in pulp prices, which was particularly visible from end of last year. During the 1st quarter of 2010 as a whole, indicative prices of pulp rose by over 13% and hence increased by over 40% since Q1 2009. In Sweden the price of electricity showed a substantial increase and the shortage of power in the early months of 2010 caused the electricity price to momentarily peek over Euro 500/MWh.

The base currency for pulp prices is the US dollar, which during the 1st quarter of 2010 strengthened against the Euro (the dominant currency of the group’s revenues) by nearly 7%. Rates of Polish zloty and Swedish kronor against the Euro also had an unfavourable impact on results. SEK gained nearly 5%, and PLN gained nearly 6%, against EUR.

Increases in paper prices, introduced by Arctic Paper in certain markets, made it possible to offset in part the increased prices of raw materials and unfavourable exchange rate differences, but unfortunately not in full.

SALES VOLUME
Cumulative sales volume in the 1st quarter of 2010 was 166,000 metric tonnes, compared to 144,000 tonnes in the 1st quarter of 2009, an increase of 22,000 tonnes or 15.6%. LFL* sales volume in the 1st quarter of 2010 was 145,000 tonnes, almost 2,000 tonnes, or 1.2%, higher than in the 1st quarter of 2009.

FINALISATION OF GRYCKSBO ACQUISITION
The most important event in the 1st quarter of 2010 was finalisation of the acquisition of the paper mill in Grycksbo, Sweden, which occurred on 1 March 2010. As a result of this acquisition, the group strengthened its position on many markets and raised its annual production capacity to over 800,000 metric tonnes. The range of products produced by the group’s own mills was extended to include coated papers sold under the Arctic and G-Print brands. It is noteworthy that the Grycksbo paper mill does not require significant investments, and the integration process should be somewhat quicker than in the case of the previous acquisition.

“The financial results for the 1st quarter of 2010 came under great pressure from unfavourable market factors, such as the increase in prices of raw materials and energy and in exchange rates,” said Michał Jarczyński, CEO of Arctic Paper S.A. “We have taken a number of steps to minimise the effect of these risks on our results in future quarters. Among other changes, we implemented price increases for our products and plans for improving the profitability of the group’s paper mills. Our plan to expand the power generation capacity of our mills remains in place, and should make our business less sensitive to high and fluctuating energy prices.”

Jarczyński added: “In addition to factors unfavourable to our industry, we also observe positive developments. One of the most significant of these is a strong order intake to European mills for coated and uncoated papers. We intend to exploit the associated opportunities and maintain full use of production capacity in the upcoming quarters.”

Further information is available from:
Hans Karlander,
Sales and Marketing Director, Arctic Paper S.A.
+46 31 63 17 08
hans.karlander@arcticpaper.com

*Like-for-like—analogous with respect to business results. With respect to the group’s financial results, after excluding the effects of the acquisition of Grycksbo Paper Holding AB on 1 March 2010.