Rottneros produces mechanical and chemical pulp, which is used in a wide range of applications, i.e. packaging (27%), paper (26%), filters (18%), special applications (13%), electrotechnical applications (10%) and tissue (6%). Most of the group’s products are sold on the European market, which accounts for ~75% of its revenues. Through its Agenda 500 strategic plan, Rottneros has invested ~SEK 700m to increase its capacity from an annual production of 345,000 tonnes pulp in 2014 to a long-term capacity of 460,000-500,000 tonnes. In 2016, Rottneros also initiated the development of a new business area, Rottneros Packaging.
As a raw material, pulp is an attractive alternative to plastic due its environmentally friendly qualities. This should support long-term growth for pulp application areas such as fibre-based packaging. Following its large investments in increased production capacity, Rottneros is likely to shift its focus to efficiency improvements. This could result in higher profit margins and improved RoCE. Rottneros recently entered packaging, which has the potential to be a future growth area for the company. In addition, it is considering going into the highly profitable lignin business, which could give both higher sales and improved profit margins.
The vast majority of Rottneros profits comes from the sale of pulp, which is a highly commoditized product. As a result, demand for the group’s products is cyclical and depends on the global economic cycle. It also means that the group’s earnings are highly sensitive to changes in the market price of pulp, as well the prices of its input factors: pulp wood, electricity and chemicals. Another factor affecting the global demand for pulp negatively is the structural decline of several of pulp’s application areas such as paper for printing, newspapers and magazines. The group’s earnings are also sensitive to currency fluctuations, particularly in USD/SEK and EUR/SEK.