Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of SEA's first quarter report for 2021. With me here today, I have President and CEO Ulf Larsson and Chief Financial Officer Toby Lawton, who will present the first quarter results followed by a Q&A session. Ulf, please, the floor is yours.

Thank you, Anders. And also from my side, a good morning and a warm welcome to the presentation of our first quarter 2021. Strong market has characterized the first quarter of 2021, and we have seen high demand and gradually increasing prices within all of SA product areas. And this far into the second quarter, we can also note that this strong trend, I must say, is continuing. When comparing our EBITDA level for the first quarter with the outcome for the first quarter in 2020, We note an improvement of 32%, and this is mainly due to increasing prices in all areas for wood, for pulp, for craft liner, while the currency development contracts the positive earnings development during the period. In August last year, we informed that negotiations to close the, at that time, remaining three paper machines at Ortviken would take place. The closure has progressed sequentially and according to plan during the first quarter of 2021 and the last LWC machine closed down at the end of February. This change has together with the sale of our wood distribution operations in UK decreased our sales substantially during the first quarter 2021 compared to the first quarter 2020. On the other hand, price and volume have contributed positively in this comparison. In connection to our announcement of the decision to close down the publication paper business and also in line with our stated strategy, we will invest 1.45 billion SEK in increased CTMP pulp production. This investment is located at the Utviken site in order to obtain a capital efficient investment. by using existing equipment in the new project. And the investment cost will be around 5,000 SEK per ton, which is approximately one third of Greenfield investment. This project is running on time and budget. Last but not least, I can also mention that ongoing investment to build the world's largest craft liner machine in Obola is also progressing on time and budget. despite challenging times. I can also say that we have had no significant impact on production or distribution from COVID-19 and of course we continue to take measures to minimize the risk to our operations and people as far as possible. We have made a very strong start this year and we delivered 1.36 billion SEK on EBITDA level during the first quarter. As already mentioned, this represents an improvement of 32% compared to the corresponding quarter 2020. Our EBITDA margin was strengthened by the closure of the publication paper business and the sale of the wood distribution operation toward the building materials sector in the UK and reached 33% during the first quarter. If we take a look at our industrial return on capital employed, calculated as a 12-month rolling average, that one amounted to 8%, while the level for the first quarter was 16%. Thanks to a strong focus on cash flow and also a reduced net debt of over 600 million SEK compared to previous quarter, our leverage arrived at 1.5 despite the ongoing investment program. So I'm proud to say that we continue to finance our strategic investments with our operating cash flow. So I now would like to make some comments for each segment, starting with Forrest. And we have had a stable supply of raw material to our industries during this quarter. Sales was slightly lower when comparing quarter on quarter, mainly due to lower pulp wood prices because of lower share of imported volumes and also somewhat lower volumes also due to the closure of the publication paper business. EBITDA, however, was very much in line with last year, having optimized the raw material mix following the closure of publication paper. In wood, we have had a continued high demand in all markets during the first quarter, and thereby also steeply increasing prices, again driven mainly by the U.S., When I presented the Q4 report, I estimated the price increase for the first quarter versus Q4 to be above 10%. And the actual outcome for us was more like 16%. And at present, we forecast a similar price increase at least for the second quarter in comparison with the first. Sales was down 12% during the first quarter 2021. And the reason for that was the divestment of SCA Wood Supply UK in Q4. And as you know, this business was largely built on trading, had a yearly turnover of approximately 1.4 billion SEC and the normal EBITDA level of 25 million SEC. As mentioned before, we will continue to sell solid wood products to our industrial customers in the UK also after this divestment. UK will continue to be one of our core markets for solid wood products. EBITDA was as you can see up as much as 226%, mainly due to higher prices. Today's stock level of solid wood products in Sweden and Finland is in relation to the average the last five years described at the top left on this slide. And you can note that the inventory volumes are at a very low level. At the same time, the underlying consumption continues to be good. The availability of containers for overseas transports is limited and thereby causes some disturbances and also some extra costs in the freight flow. As can be seen in diagram to the bottom left, the Swedish and Finnish sawmills production rather exceeds the last five years average. And that production is now running at full capacity to meet the increased demand. Also, the pulp market is still strong with a good demand and gradually increasing prices, this time driven by China. And as you can see in the diagram to the bottom left, which shows our price development net mill in Swedish kronor, the currency effect and the effect of the time lag is apparent. When we peaked price-wise at the turn of 2018-2019, we had a PIX price in Europe of 1230 USD per tonne. And as you also can see, we touched bottom during the first quarter 2020, when the PIX price had dropped to 820 USD per tonne. After a rather flat price development during the major part of 2020, the pulp prices started to increase significantly. and today we have an official PIX listing of 1120 USD per tonne. Now we know that announcements have been firstly made for a further price increase up to 1220 USD per tonne and secondly for another price rise to 1300 USD per tonne. And that will be gradually implemented through the second and also third quarter. So I believe next month we are back on the same PIX level as we had first quarter 2019. But then both increasing discount level and also currency have a negative effect, of course. Nevertheless, we note that the net price in China is approximately 100 USD per ton higher than in Europe, even after allowing for a rise to 1220 USD per ton in Europe. Sales and EBITDA were up substantially in the first quarter 2021 compared to the fourth quarter 2020. This relates to higher prices, but also to lower costs. We've had good and stable production that also leads to better yield in terms of lower consumption of wood, lower consumption of chemicals, higher energy generation and so on. Our ongoing project to build a CTMP line at Ortvikens industrial site with a total capacity of 300,000 ton is progressing on time and budget. And when the CTMP plant at Ortvikens is ready, the production of CTMP at Östrand will be closed down. So the net increase, in other words, will be about 200 000 tons of CTMP. And we believe this site or mill line will start up in the beginning of 2023. Inventories have now come down to a normal or low level in both softwood pulp as well as in hardwood pulp. The supply situation is affected by lack of capacity in the logistic chain, especially to Asia. This lack no doubt drives pulp price, but also results in increased distribution cost on the other side. As mentioned earlier, the higher net prices mainly in China, but also in US indicate continued rising pulp prices in Europe, even after the prices have softened a little bit in China. When we move to our business area container board, I would like to start by stating, as I did also in the beginning, that our expansion project in Obola is progressing well and on time and budget. Startup will be in the first half of 2023. The sales and EBITDA are up 4 and 7% respectively, Q1 2021 versus Q1 2020. And this is mainly due to increasing prices, but also due to, yeah, mainly due to increasing prices. And even if you, in the bottom left on the diagram, can note the lag effect in combination with a negative currency impact when it comes to our registered net mill prices. The prices for OCC, which have more than doubled since November 2020, negatively affect the result. but at the same time as they also support the price development for test liner and thereby also indirectly for craft liner. The craft liner deliveries from Europe globally continue to increase also in the beginning of this year and we can conclude that the demand for boxes has been very strong also during the first quarter of 2021, and is now back on a level above the trend line before the outbreak of the pandemic. This has led to inventories being on a very, very low level for Kraft Liner. Since the bottom position in terms of price queue for 2020, the price for Unbleached Kraft has so far risen by approximately 100 euro per tonne. As of April 1st, the price for brown qualities will increase with an additional 50 euro per ton for brown and with 30 euro per ton for white top craft liner. These price increases will successively take effect during the second quarter. As a view on first, several marketplaces have already announced a new price increase of 50 euro per tonne for both brown and white craft liner, taking impact successively during the third quarter. With this present situation, the delta between craft and test liner prices is approximately 150 euro per tonne, which historically is rather normal level. So, by that I... I'm happy to hand over to Toby.

Thank you, Ulf, and good morning, everybody. I will start with the income statement here, and you can see on the top line, the net sales, you can see we had 4.2 billion sec of net sales this quarter, which is a 13% reduction versus the first quarter last year. We had underlying net sales growth of 8%, but of course there was a significant impact from both the exit of publication paper and the divestment of Wood Supply UK. which reduced net sales. Those two, however, had very little impact on EBITDA, of course, and we had a strong growth in EBITDA from just over 1 billion to 1.36 billion SEC this first quarter this year, and then an EBITDA margin now of nearly 33%, so a significant increase in margin, which is also due to the exit from those businesses structurally improves the EBITDA margin going forward. On the EBIT line, you see that we actually increased EBIT by more than we increased EBITDA. So it's about 100 million lower, of course, in depreciation. About half of that 100 million is due to taking away the depreciation of mainly Autovik and the publication paper. And the other half is actually we have made a reduction to the write-downs we took in Q4 last year. So that's a one-off item, so around 50 million there. And the EBIT margin then comes out at 25% with an EBIT just over 1 billion SEC for the quarter. Financial items are very much in line with last year, 28 million SEK, tax 216 million SEK, and the average tax rate just over 21%, very close to the normal Swedish corporation tax rate. And altogether, that means we delivered a net profit this quarter of 800 million, 802 million SEK, and earnings per share 1.14%. If I come to the segments and just the development over recent quarters, starting with the forest on the left-hand side, you can see the top line has come down a bit, and that's basically due to the exit of publication paper. So we have less wood being supplied to the industries. On the bottom line, we have a lower EBITDA than Q4, and that's really driven by the seasonal impact, which we have our seasonal pattern where we harvest less owned forest in Q1 versus Q4. So that's the biggest impact. You can see we're pretty much flat versus Q1 last year, and that's despite actually a decline. pulpwood priced being a bit lower than it was last year mainly because as Ulf mentioned as well we optimized the sourcing mix with also taking away the volume requirement for publication paper when it comes to wood you can see here the sales has come down because we've exited the wood supply UK which was relatively large in sales terms but mainly a trading company so we had 1.4 billion sales on an annual basis and that's what you see impacting the top line, but it's counteracted by strongly increasing prices. So that's impacting the sales and the prices, of course, are what's driving the EBITDA bottom line and the margin. So we now had 310 million SEC EBITDA in the first quarter and an EBITDA margin of 25%. In pulp, we had a pretty clean quarter, good production in Q1. We have an impact of increased prices on the top line. And of course, the increased prices and the good production drive better yield and cost performance. And therefore, we had a 30% EBITDA margin and 385 million SEC in terms of EBITDA in pulp. And then finally, when it comes to container board slash paper, Q1 now is just the container board business. So the history included publication paper. And you can see the drop in sales is because we've now taken... Exit publication paper, so the sales dropped substantially, but of course, limited impact on EBITDA. And you can see the EBITDA Q1 is just container board here as well, 321 million SEC. And the margin improvement is also because of the exit publication paper to 25%. We have figures which show just container board, the two container board mills, Obler and Muxund, on their own in the report. So if you want to see the development of just container board, you can find that also. When it comes to the net sales bridge, you can see here we had a significant increase from price increases in all areas, all product areas, so 7%. We had higher volumes and mainly also the pulp division, 4%. Currency was negative this quarter. Swedish crown stronger than it was in Q1 last year. And then we have the two effects from the divestment of Wood Supply UK, 7% and 14% from the exit publication paper. When it comes to the bridge for EBITDA, you can see the big impact from higher prices, which is really driving the EBITDA improvement. We then had a positive effect, a small positive effect from the volumes as well. Raw material pretty much neutral. Energy a positive, partly due to better energy production, also predominantly in Erstrand. And then currency, again, was negative, and also a negative impact here from exit publication paper we actually had in the first quarter last year was before the pandemic hit so we had a small positive result in the first quarter last year and in the first quarter this year of course we were closing down the machines and we had the the impact of bearing the cost for publication paper during the the final stages of the exit When it comes to cash flow, you can see our EBITDA, 1.36 billion. We take away the revaluation impact, and we had an operating cash surplus just over 1 billion. Working capital normally increases in the first quarter, and it did this quarter as well. The increased prices had some impact on working capital, but it's very much in line with the sales level, so stable in line with the sales level. We had restructuring costs now from the closure of publication paper, so 123 million second restructuring costs, just over 200 million current capex, and then an operating cash flow of 475 million, which then means we're more or less funding our strategic capital expenditures, as I've mentioned, from operating cash flow. We also had a strong deleveraging effect this quarter, down to just over 7 billion SEK in net debt. This is due to also the strong operating cash flow in Q1, nearly 500 million. And of course, at the same time, we're funding the significant strategic investments that are ongoing predominantly in Obola and the CTMP in Ortviken. So now we're down to 1.5 times net debt to EBITDA. So a strong deleveraging effect. And then finally, on the balance sheet, nothing strange here, but you can see the forest assets are at just over 75 billion. We haven't updated the pricing, the market price statistics for the forest assets in the quarter one. We'll come back to that in quarter two. Working capital, as I said, stable in relation to sales, 18% of... working capital to sales ratio and then total capital employed just over 80 billion at the end of March and net debt as I mentioned before just over 7 billion debt to EBITDA 1.5 times versus at the end of last year where we also had a good cash flow in the last quarter we came down to 1.7 times but we're now 1.5 times and then equity 73 billion. So with that, I can hand back to Ulf for a summary.