BICO Group AB (publ)

Good morning and welcome to this presentation of SCA's third quarter results. With me here today I have President and CEO Ulf Larsson and CFO Tobbe Lotun. Please Ulf, go ahead.

Thank you so much Anders and also from my side, good morning and a very warm welcome to this presentation. Yeah, when I summarize the first quarter, I can state that we deliver our strongest quarter ever. We made 2.7 billion SEK on EBITDA level and a profit EBITDA margin of 53%. We have seen a very strong market during the quarter, underlying strong demand and in all product areas more or less and not the least important we took the decision to leave publication paper last year and that has also been very contributable to our good profit this quarter. On top of that, we have had a stable cost level and also good production. During this quarter, we have performed two maintenance stops and we have also started up a third one. And I will come back to this later on. But the impact during this quarter has been around 170 million SEK in comparison with 60 million SEK third quarter last year. Our net sales went up and the main reason for that is of course the price and mix. On the other side, as already mentioned, we took the decision to leave publication paper last year and we also took the decision to divest our supply operation in wood for UK. During this quarter we have also announced that we will invest 700 million SEK in a joint venture together with SD-WAN. So we will take a stake in their biorefinery in Gothenburg. Total capacity in this biorefinery is 200 000 cubic meters and 40% out of that can reach the quality of biojet and just to give you some kind of relation that is approximately 50% of what's needed for the Swedish domestic air flight. In this agreement we have also said that SCA shall annually deliver 60 000 tons of tall oil into this JV. Finally, I'm happy also to say that we continue to run our two big strategic investment projects in Kraftliner, Obola, and CTMP, Ortviken, according to plan when it comes to time and budget. So if we take a closer look at some KPIs, as already mentioned, we delivered 2.7 billion SEC, which gave us a strong EBITDA margin of 53%. And if you look to the right hand side, you can see that that is substantially higher than previous quarters. Our industrial return on capital employed calculated as an average for the past 12 months reached 25 percent during the third quarter and if we just look at the third quarter our industrial return on capital employed was 46 percent. Our net debt in relation to our EBITDA went down to one and that is of course due to a strong cash flow and I'm pleased to say that we continue to finance our big strategic investments through our operating cash flow. Then I walk over to our segments and starting with the forest. And I can just state that we have had another quarter of stable supply of wood to our industries. And if you look to the bottom left, you can see that the price development for pulpwood is rather flat. We had a positive effect when we decided and when we took the decision to leave publication paper, but since then it's been quite flat. When it comes to solo prices we have seen gradually increasing prices during the third quarter. We will see it also in the fourth and maybe also in the first quarter next year. Our EBITDA is in line with the last quarter. It's positively impacted by higher revaluation of biological assets that gave around 70 million SEK for the month. On the negative side we can note that we have had a lower harvesting level from our own forest during this quarter in comparison with last year and the reason for that was that we had a strong harvesting level in last year and just now also we have a very strong external supply to our industry. If we then turn over to wood, we can also here state that we have a high level of global demand. We have seen strong markets in Japan, UK and also Scandinavia. Slightly less good demand in China, also in Middle East, North Africa and also maybe in US. Nevertheless if you look in the bottom left you can see that we have had a significant price increase during a couple of quarters now and we have reached definitely a top record level when it comes to prices for solid wood products. I said last quarter that I thought that we should in Q3 reach 50% better prices in Q3 in comparison with Q2 and that was exactly the outcome during this period. Then I will come back to our forecast for coming quarter. Sales was up 37% due to higher prices and also due to the fact that even if we took the decision to divest our supply unit in the UK, EBITDA was also substantially up and we have the EBITDA margin of 54%, which I think is highly competitive. Here are some graphs and if we start top left you can see the stock level in relation to the average for the past five years in Sweden and Finland and we can now see that we have come back to some kind of normal situation when it comes to the stock level. Bottom left you can see the production and also here we can see that we are more or less on a normalized level and top right you can see the price development and as I said prices in the third quarter in comparison with the second one this year is 50% higher. We've reached some kind of record level. And I think now when we have a combination of a balanced stock, a normal production, and then a seasonal lower consumption in Q4 and the first quarter, I believe that we will reduce prices now in the fourth quarter by 15 to 20% from a very, very high level. So if we then turn over to pulp, we have had during the third quarter a good demand in Europe. We have also had a OK demand in US and slightly weaker in China. nevertheless we also here are on a record level when it comes to pulp prices the official picks listing price now is 1340 us dollar per ton we reached the bottom q1 2020 on 820 us dollar per ton with a different discount rate with a different currency but nevertheless uh we have uh in sa higher volumes during this quarter in comparison with last year due to stronger production and our ebta was up as much as 380 percent due to higher prices due to higher volumes on the other hand we had a negative currency effect of about 90 million sec for the quarter when we compare year on year Here we have also started up a planned maintenance stop. It's a quite long stop, 22-23 days in Östrand and we had a negative effect in the third quarter of 20 million SEK and the main part, major part will come in the fourth quarter. Here are some words about the pulp market development. And as I said, we've seen decreasing prices in China. And if we compare now China with Europe, one can say that in Europe we have a net price of 900 US dollar per ton, US slightly weaker, 800 US dollar per ton, and then China around 700 US dollar per ton. So it's quite a substantial spread as it is today. We have seen that in China now we have an energy crisis and it's also very expensive to move products from China over to Europe and I think that's one reason why we feel that the European market is still strong and we see somewhat weaker market in China. For SCA, we are almost 100% focused on the European and the US market. As you also can see, inventories are today on a normal level for hardwood and on the slightly high side for softwood. On the other hand, we know that now we will see a couple of rather long maintenance stops during the autumn, and I think that will change the situation somewhat in the coming months. And as you also all know, supply is impacted by global logistical challenges. But for us, focused on Europe, we have managed that quite well. Turning over to container board and here we have performed two big planned maintenance stops one in Obola and as you know we have our ongoing big investment project in Obola so I can say now the mill is prepared for the startup of the new Kraftliner machine in the beginning of 2023. So everything has went very well there and we had a 12 days stop in Munchsund, a planned stop. All in all the negative impact during the quarter has been for these two stops around 150 million SEK. sales was up substantially during this quarter when we compare year on year and that is due to higher prices volume of course lower due to this maintenance stops and ebta also substantially up but again negatively impacted by by a lower volume of course If we then take a look at the container board market development, we can see that we continue to have a steady growth of European deliveries. And if you look at the bottom left, you can see that inventory days, they are below average. And also here we will see a couple of big maintenance stops coming in during the autumn. and prices has since the bottom november last year increased by 250 euro per ton we have had another price increase announced from first of october and that one will come through 50 another 50 euro per ton for unbleached craft um we see that it's still a very good demand for container board underlying consumption is good we know that the prices for OCC in Europe has went from 70 up to 170 euro per ton and also at the same time we see that the energy prices is rising so I mean that is good conditions for further price increases also for craft line the delta between craft and test line today is 150 euro per ton which is quite on a normal level On the top right, you can see also that we have still a strong box demand and that, I mean, this demand continue well above trend since we had this drop during the first phase of the pandemic. So by that, Tobbe, I hand over to you. Thank you.

thank you Ulf good morning everybody I will start as usual with a bit on the income statement and here you can see on the net sales line we've had a growth in net sales of 17 versus Q3 last year and this is also to remember that last year we had around 1 billion of sales from publication paper per quarter so we've We've obviously taken away the publication paper business, but the strong top line development driven also by the strong pricing environment has more than compensated. And then bottom line, we have an EBITDA of 2,684,000,000 this quarter, so a very Strong profit development, EBITDA margin 52.9%, so record level. Coming further down the income statement, you can see financial items very stable at 24 million this quarter. And then tax at 453 million, which is an effective tax rate of just under 20%. Earnings per share, you can see also strong development earnings per share, driven by the net profit for the period at more than 1.8 billion in the quarter of net profit, and then 2.59%. sec per share and that means that year to date we're also 5.85 sec per share earnings per share so a good development also earnings per share and net profit if i just give a bit more detail by segment and here you see the different segments and if i start on the left hand side with forest and the top left You can see the net sales is down a bit this quarter versus last quarter. That's a bit due to the maintenance stops that we had during the quarter and at the end of the quarter for pulp as well, which reduces the deliveries of wood into the industries during the quarter from forest. The bottom line here on the bottom left is driven then mainly by the share of our own forest. That's where the profit is driven by. And we have a seasonal pattern here that we normally have less harvesting from our own forest during quarter three, which we had also this year. So that's the reason for the seasonal pattern, the drop versus quarter two in the forest division. In the wood division, you can see a strong growth in net sales, obviously driven mainly by the strong price development that Ulf has already mentioned. And that really drops through to the bottom line as well, where we had an EBITDA in the wood division of more than 1 billion SEC, 1 billion 180 million. this quarter, which is an EBITDA margin of 54%, so very strong delivery from the wood division. The pulp division top line we have is slightly down 1522, a little bit lowering the deliveries ahead of the maintenance stop to keep a stable delivery also during the maintenance stop, but bottom line Also a strong increase in margin up to 42% EBITDA margin and 659 million in EBITDA. And then on the container board division in the sales, well, you can really see, of course, the effect from exiting publication paper, which came from between Q4 and Q1 this year, and then basically pretty flat in top line. We've had price increases, but again, here it's smoothing out the effect from the maintenance stop, so slightly less volume compensating. And then in the bottom line, you can see also the EBITDA margin has been impacted by those maintenance stops, which had around 150 million sec of impact in the container board division. But despite those, EBITDA margin 27%. If we come just to the bridge on net sales, you can really see the impact of prices, the 44% impact on basically higher prices in all product areas, all segments, so 44% in total. We've had a bit positive impact from volumes, 3%, mainly from the pulp division. with the higher volumes versus quarter three last year. Currency, slightly negative, minus 3%, and then we have the impact, which is in total 27% from publication paper and also the divestment of the wood supply division in the UK, which we made in the autumn last year as well. Overall, a 17% increase in top line. And then when it comes to EBITDA and you can really see the strong drop through from the price here, 1.9 billion impact from price and mix, a small contribution from volume as well. Raw material, a slight negative. This is partly due to that we source a little bit less from our own forest this quarter, but also a bit the OCC prices, which we have a limited exposure to. Energy is a positive impact. have increased sales of energy, mainly from Erstrand this quarter. Negative currency impact, as I mentioned, and then other is mainly the maintenance stops impact, which we've mentioned already, which has a negative impact of 149. And I think when we see this bridge, I think just one reflection is that the decision to exit publication paper We're certainly happy that we took that decision last year because without that, we wouldn't have seen anything like the same positive impact on price and the same stable cost development. So I think that really supports the strong delivery through to bottom line here. um when it comes to cash flow um i'll start on the left hand column here the quarter um and we have even if we take the ebitda and we take away the impact mainly from the revaluation of the biological assets in the ebitda that means we have an operating cash surplus of more than 2.2 billion SEC this quarter, I'm happy with a strong or tight working capital management despite the price increase environment, which impacts on the working capital, of course. We've managed to hold working capital a bit lower this quarter with a positive impact of 61 million. Restructuring costs, which is really related to the closure of publication paper, we had 65 million in the quarter. And then after taking off the current capex of 365 million, we have an operating cash flow of 1.872 billion SEC. So again, a strong operating cash flow delivery. And then when you look to the next line on strategic capital expenditures, you can see that once again, both in the quarter, but then also in the year-to-date numbers, you can see that we're funding basically the growth of the company and the strategic capital expenditures from our operating cash flow with some margin. And here, of course, the strategic capital expenditures are The largest project is the Obola expansion, but we also have the growth in the investment in the CTMP expansion in Otviken as well. All being funded from self-generated cash flow. A few words on the balance sheet. We have the top line, the forest assets, which are now valued to 77.5 billion SEK. This is valued at basically the market price according to market statistics, which is 300 sec per cubic meter. Working capital. Here you can see we have just under 3.2 billion of working capital. And even though that's increased since the end of last year, you can see the working capital to sales ratio has come down. And that's what I was talking about with the tighter management of working capital. Then when including the other capital employed and deferred tax, we have a total capital employed of 84 billion, just under, and net debt very stable at 7.6 billion. So we've delivered then a deleveraging down to 1.0 net debt to EBITDA through the strong cash flow. I'll just come back on that in a moment. And then equity 76 billion, just over 76 billion. And then finally, just a few words on the operating cash flow. And we've now had actually more than four quarters, but we show four quarters here of strong operating cash flow delivery, more than one billion per quarter on average. And this quarter, especially getting closer to two billion SEC in operating cash flow. So really strong development in the financial position of the company. And you can see that really from The deleveraging line, we've gone down now to 1.0 net debt to EBITDA. So a very strong development in the balance sheet. And I think the right-hand side of this picture is also very nice to be able to show. And this is the new paper machine hall and paper machine under construction in obala and that's that's what all this cash flow is helping us to to finance from own cash flow and at the same time deleverage the company so it's a good performance and with that i will yeah hand back to ulf for a summary and q a