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.

Yeah, I mean, when we summarize the first quarter again, it is a really strong quarter. We have a strong market out there. We have a positive trend, increasing prices in more or less all remaining product areas. We can also see that the first quarter has been good in the perspective of production and cost control. Our EBITDA was up 32% versus the first quarter 2020. Sales was, of course, impacted by the decision to exit publication paper. And we have now 25th of February closed down the last remaining quarter. lwc paper machine and and we also as you know took the decision to divest our our wood supply in unit in in uk and last but not least important are two big investment projects in in obola craftliner and ortvik and ctmp is running on time and on budget

That concludes the first part of this presentation, and we are now ready to open up for questions from the audience. So please, operator, go ahead.

Thank you. We now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. We are taking our first question from the line of Linus Larsen at CEB.

Thank you, and a good day to everyone. Starting with the wood division, which is doing very well. Markets are very strong. And just if you could, Ulf, repeat what I think you said, but did you say that you expect the price development in the second quarter versus the first quarter to be at the same pace of the improvement that we saw in the first versus the fourth quarter? And also in this context, how do you see volume development and solar cost developments in the second quarter?

Yeah, I can just confirm what you say, Linus. I mean, we will have more or less the same positive price development in the second quarter versus the first quarter as we had when we compared the first quarter with the fourth quarter. So that is our view as it is just now. um the second question was production volume and i mean as you can understand just now we try to produce as much as we can we do so and all other producers they do the same and of course it's it is also let's say the favorable time of the year seasonally it's good to produced during the spring when it comes to the cost for saw logs I think it differs between different areas in the region and for us being the biggest private forest owner in Europe I think we have rather good cost control when it comes to our log supplies so I feel for the coming quarter it will be I would say reasonably flat for us

Great. Thank you. And maybe a bit of housekeeping, but with regards to the changes at Ortviken, you repeat that in the second quarter on the other line, the DA drag on from Ortviken will be 20 to 30 million kroner. That's an EBITDA. How much was it in the in the first quarter?

You can... So the EBITDA effect in the first quarter from Autoweken was around minus 50. And then we expect an effect going forward of around 20 to 30 million a quarter of what we call transformation cost keeping the Autoweken site running until we start up the CTMP. So that's on EBITDA level.

Yeah, great. Yeah, no, that's great. And then maybe to continue, and maybe that was what you were about to say, on the depreciation side, again, on the other line.

Yeah, so we had 100 million effect on depreciation, basically, and half of that, around half of that is the depreciation on the AutoEcon site that is... And around half of that, or a little bit more than half of that, is a one-time effect, which is that we've actually reduced some of the write-downs we took last year because we now have good prospects to be able to sell some of the assets. So we take back a bit of that write-down. So that's a one-off effect that you won't see then in Q2 and onwards.

Right. But on the other line specifically, I mean, it looks as if depreciation on other was 38 million in the first quarter what would that be in the second quarter all together I mean all weekend and everything included yeah um so I mean the depreciation will be so that that is predominantly from this one-time effect so that right So back to a very narrow depreciation from Q2 onwards.

It should be back to a low level from Q2 onwards.

Gotcha.

I can check that and come back to you.

Okay, cool. No, that's very good. And then just finally, if I may, on pulp, a very, very fast response to the strong pulp markets in your P&L. Could you say something about your mix here? Maybe especially in terms of geography, how much is China, for instance, as a percentage of sales?

I mean, again, we do very small volumes for China. For a while now, the prices have been slightly higher in China. But on the other hand, we have our, let's say, core customer base in Europe and also in U.S.,

So we have limited volumes to Asia. Very limited, yeah.

Great. That's all for me. Thank you very much. Thank you.

We're taking our next question from the line of Robin Santavirta at Carnegie.

Thank you very much and good day, everybody. Related to the pulp business, it seems as the ASP increase is fairly low, as expected, as probably there's a quite significant lag to this price statistics. But the costs are clearly lower, at least compared to what I expected in pulp. I think, Kulfi, you said something about that. How should you – what are the key reasons? Could you just repeat that? And how should we look at the course going forward in pulp? Has basically Ersta now reached a new efficiency level, or is this lower pulp wood cost? So what are the key items, and how should we look upon the next few quarters? Thanks.

Generally, one can say that when we are producing well, then of course the yield is better when it comes to wood consumption, chemical consumption, and as I said, also energy generation. So in general, you have a lot of positive effects when the production is on a stable level, where we are just now. to be honest. When it comes to, I can just give a comment on wood cost. I mean, the decision to close down Ortviken also gave us a positive position in the Wood market, I mean, we have more or less reduced imported volumes down to zero for a while now. We will need some more wood again when we start up Obola, but also when we start up the CTP production in the first half of 2023. But until then, we have a lower wood consumption, which has also contributed in a positive way, of course. I don't know if you'd like to add something, Tobias.

I could just add that. I mean, the cost position is predominantly due to the good production and better yield. Then we do sell some tall oil, which has a pretty good price in the first quarter and a good energy balance as well in the first quarter. So they help, of course, but it's predominantly the production and the yield.

I understand. Thanks. And then a second question related to the container board business. Could you just repeat the order of price increases that you have – launched, number one, and number two, you mentioned OCC. Could you just remind us of the fiber relation of OCC in Container Board you have?

I mean, if we start with OCC, we have, as I said, more than doubled the price since November 2020. At that time, I think we were on 70 euro per ton. And today we see... prices around 150 or 160 euro per tonne for OCC. And that, of course, have a negative effect because we also use some small volumes of OCC in our production there. On the other side, if I got you right, I mean, we have now announced the price increase from April 1st for brown qualities of 50 euro per tonne and also for white top of 30 euro per tonne. And then another price increase is announced from 1st of June, 50 euro per tonne for both brown and white top. And that will, as you know, I mean, that will successively be implemented in the second and the third quarter.

I understand. Thanks. And just finally, Well, if you have been a quite good predictor of the sawn timber and the wood market and you gave your sort of view for Q2, how should we look upon H2 now? And do you believe that these high prices we have globally and in the Americas especially, is this simply a cyclical trend?

strength or are there more sort of fundamental elements or structural elements supporting prices which could keep the prices higher for longer I mean solid wood products will continue to be cyclical no doubt about that but I mean what we see now is one effect of people due to the pandemic they cannot travel as much as they did in the past for the moment being and I mean some people are moving out from urban areas and And we see a lot of investments in houses and both in terms of new construction, but maybe even more in repair and maintenance. And I mean, the biggest driver you have in the US market, but we see the same trend also in Scandinavia and in all other regions. In addition to that, and that is my guess, is that we have supporting things from the governments all over the world now to get the economy to work again. And that will also support... the market for a while I mean infrastructure projects they need often a lot of wood so I think we will have a strong consumption now for a while but I don't think we have reached so fast a new level underlying we still have a very positive trend for solid wood products but just now we are boosted of the let's say this effect from the pandemic I understand thank you very much

We're taking our next question from the line of Christian Kopfer at Nordea.

Thanks, operator. Good morning, everyone. Just a few follow-ups for Buyside. Firstly, on the pulp market, I will not ask you for any pulp price projections, because you will not answer them anyways. I'm just wondering a little bit, because we are now not very far from the price that we saw, and you also commented on it, Ulf, I think, the price that we saw in 2018. So do you think there is something fundamentally different this time around? Because after the previous peak, okay, they were stable for a number of months, but then we saw a dramatic price fall. So the question is, do you see any different fundamentals this time around than what we saw in 2018?

Well, not really. I think also pulp will continue to be a cyclical business. Again, the question of supply and demand. I mean, we know that no new additional capacity of size will will be apparent before the mets investment will come on stream and and until then i think that i mean the market might be quite balanced if you look at the excuse me if you look at the inventory level both for hardwood and softwood they are now on a let's say normal normal level we have had some disturbances in the logistical system and that might also have had some kind of short-term effect on the pulp market. But

I think also when you compare to the history, you have to remember that the rebates increase 1% or 2% every year. So that has an impact. And the currency impact, I think Ulf mentioned earlier as well. So for many producers, the currency impact has been negative versus that peak in 2018. So it's... Important to remember.

And I think that's what you could see also in the diagram that I did show a while ago. I mean, even if we have had quite steep price increases now for a while, but when you look at net mill prices... I mean, they are definitely impacted by the currency effect, but also you have a lagging effect and that you have to take into consideration. And also, as you said, also the increasing discount levels.

Right. But on the discounts, first, did you see increased discounts in the first quarter? I couldn't really see them when I'm trying to calculate them backwards. And secondly... What is driving the increased discounts?

You have them in the P&L. We have an increase in discounts for the first quarter, definitely so. And what is driving, I mean, that is more to ask the people that are buying our pulp. Maybe it's good to have a higher official price to show the market.

But it's been that trend for many years, both in Europe and US, and you have an increase of 1% to 2% in rebate levels this year versus last year.

But again, if you like to look at the real price, it's just to look at China prices. But just now, as I mentioned also, today we have a delta between European prices and China prices of a little bit more than 100 US dollar per ton. And I think that is some kind of sign that the pulp price will continue up for a while.

Okay. And then finally for me on container board, craft liner, brown craft liner is obviously coming up dramatically or significantly. White top is not coming up at all that much. What do you think is the key reason behind white top lagging brown so much?

It's more a question of volatility. If you look at the price over time for white top, it's much more stable. That's the reason, I think.

Trying to figure out, Ulf, could one reason be that customers, for ESG reasons, for environmental reasons, would demand unbleached products more because it's more healthy to the environment?

Our craft liner, our white top is not coated. There tends to be a lagging effect also. The white top is more stable, but over time follows, but takes more time. Then there's been such demand for the brown craft liner that I think production has been focused on the strong demand for brown craft liner, which has really been driving the pricing dynamic.

We haven't really seen a trend shift in the demand, but maybe you're better to judge that.

Okay, thank you very much.

We are taking our next question from the line of Oskar Lindström at Danske.

Yes, good morning. I have two questions. Both of them are to you, Ulf. The first one, do you have any picture of what's happening in the China pulp market right now in your view? I mean, how much of the most recent spike-up has been inventory refilling or sort of that type of effect? That's my first question. My second question is more long-term. So, I mean, we're seeing a very strong cyclical price improvement in a number of markets. And you talked about some of the factors on the demand side driving this, increased housing construction, government subsidies, and things like that. Do you also see factors on the supply side contributing to this? And to what extent do you believe that those are structural, i.e. long-term changes. I'm thinking about things like harvesting levels, closure of old mills, et cetera, which has happened for a period. One of your industry peers has talked about what they see as a global fiber shortage, if I remember correctly. So those were my two questions, China pulp and supply side disruptions.

If we start with the pulp side, I mean, yeah, it's hard to say. I mean, we have seen, as you have done, the China price softening a little bit when it comes to the Shanghai futures and things like that. But what we feel in the market is that there is still a strong demand for And we can also see when we look into reports coming up now that the underlying consumption is still on a very good level. So I think for a while China will be demanding quite a lot of pulp. And as long as you have a delta between China prices and China spot prices and what we have in Europe and US, that will drive the price also in Europe and US. And that is also exactly what we see us now. How long will it last? I mean, that's tough to say or predict. When it comes to trends, when it comes to fiber supply, yes, I mean, long term, I think that... We see some different things here. I mean, if we look into North America, we know that the pine beetle disease 20 years ago, I mean, that has had an effect of the fiber supply in that region. um we've seen the pine beetle disease in in central europe short term that is of course for some place positive long term that is of course negative and i mean i think according to global trends when it comes to see the forest industry as a part of the solution to protect the climate I think that we have an underlying positive trend for our industry and not the least for companies like SCA sitting on a big part of forest land and virgin fiber in their own hand so that is maybe my feeling I'd like to add something to all of your

No, no. Thank you. Good summary.

All right.

Thank you. We're taking our next question from the line of Martin Melby at ABG.

Good morning. Could you try to simplify the quarter-by-quarter price changes on pulp and container board for Q2 that is realistic the way you see it now?

Yeah, as you know, we don't give forecasts. I think we have a time lag, and that's both for container board and for pulp. It's typically around two to three months, and then you see... I think Ulf has mentioned the announced price increases in things like PIX prices for Kraftliner. So, yeah, going up from today's level to, you know, $1,220 per tonne. And then there's now been announced $1,300 per tonne. So that's the PIX, or the announcements on pulp. And then for Kraftliner, we also see the increases Ulf mentioned ahead of us. But we don't, yeah. We don't give a specific forecast.

On the swarming business, after the merchant business is out, is all the sales in that division now eligible for a price increase? Or is there some business which is stable?

No, we still have a supply business in Scandinavia, which is... So you can't, in that sense, it's not the total sales of the wood business that has a 16% price increase. That's really the underlying price increase on the wood. And then we have a portion, which is the supply business, which we still have in Scandinavia, which doesn't have a profit increase to the same extent. It's more a trading operation.

But if you compare, let's say, the supply solution we have in Scandinavia in comparison with UK, the integration is... much higher in Scandinavia in comparison with what we had in UK. And that was also the reason why we took the decision to divest UK. But I mean, in Scandinavia, we have much more than 50% in terms of integration, which is very positive.

So some 30% or so of sales, 30-40% represents the supply segment.

Thank you. And last question, maybe I missed it at the start, but do you have a comment regarding the last document regarding taxonomy?

Yeah, I think it's now clear that, I can stop, but forest management is, I think, clearly included in the taxonomy, which is, of course, positive. I think when it comes to the rest of our activities, we think there's a good case for it to be included even under the the way things are written now, but it's a very unclear situation still. So we think it's impossible to start to talk about percentage numbers given the lack of clarity as it is today, and that needs to be improved going forward in order to come with any kind of reliable guidance going forward. But I think that's about all we can say as of today.

Thank you.

We are taking our next question from the line of Justin Jordan, edXM.

Thank you. Good morning, everyone. I just want to return to the woods division. I guess, you know, clearly we've seen very strong wood demand in North America driving up, I suppose, North American prices first. And if I'm simplifying it, please correct me. But that strong demand from North America and pricing is dragging up European prices. Ultimately, as you've been very clear with this cyclical industry, how quickly can the industry respond through increasing harvesting levels or how sustainable are these price increases that we've seen for the rest of 2021 or perhaps multiple years beyond? Can you just help us understand just how ultimately it's a supply-demand market and clearly supply will increase over time, but how quickly can that happen, basically?

Yeah, I can try to start there. I mean, when it comes to production, it's rather easy to increase the production when we have a strong market, and that is also what we have seen. I cannot really say that I follow the North American market, but if I take a look at the statistics for Scandinavia, and I mean, you have a big volume coming from this region, we can see that the production is slightly higher than than the average for as i said the last five years but i don't think that you have too much possibilities to increase capacity further i think we are running at full capacity more or less just now i think some Some smaller sommers, they will maybe try to speed up during the summer, which is not normally maybe done from smaller players. We normally produce during summer also in all markets. So I think... And how long this situation will last, I mean, that is impossible really to say. We know now that the second quarter, as I said, I mean, that one will be stronger than the first one. And typically, you don't see too much of weakness in the third quarter if it follows the normal pattern, I would say.

Okay, thank you. Just one quick follow-up on a different topic. We called out clearly rising OCC prices earlier, but I guess ultimately... That feeds through to rising Tesla prices and that clearly pushes up grant planner prices, which helps you. Can you just remind us what the OCC consumption is within SEA? Because I appreciate it's cost inflation, but I would have thought it's probably not huge in material and context.

Overall, OCC is a raw material. I think you can find the data in our annual report on how much OCC we consume. I don't have the figure in my head. Overall, while it's a cost increase for us, if OCC prices go up, they push test liner prices up and that has a positive impact on craft liner prices. In the long run, it's a positive to SCA with increasing OCC prices within reason.

And as you said, I mean, test liner prices, they would push craft liner prices. And in this market today, we have a delta between test liner and craft liner of 150 euro per ton approximately. And that is on a quite normal level. So that seems to be quite stable.

Yeah, it's a good time to build a long container board. Thank you, Ed.

We're now taking our next question from the line of Johannes Grunzelius at Kepler.

Yes, hello everyone. This is Johannes here. Just a bit of a follow-up on the container board market and your analysis of that. Would you say that the very strong demand increase in Q1 and what we have seen over the last few quarters, I mean, is it both driven by increased e-commerce use from those channels Or is it more driven by a comeback of industrial M-segments? Interesting if you can sort of comment on the spectacular demand development here.

I think the main reason is the e-commerce, maybe. I mean, still the pandemic... makes us continue to buy things, but we like to have them distributed to our homes. And I mean, then you also consume more packaging materials. But I think also in the first wave of the pandemic, we saw that more industrial companies capacity were closed down i would say i think from from in the second phase and now in the third phase all the companies they try to continue to run their business in i mean as as good as they can so so but i think the main difference is the increasing e-commerce

Yes, and I mean what you see now there is no signs of any slowdown spot for the coming months or I mean is it sort of same strength here compared to the last few months?

No, I mean as I said we Typically, we don't forecast, but I mean, as you saw on the graph that I did show you, we are now not only back on the level we were before the pandemic when it comes to box consumption, we are much over the trend line. And so far, we cannot, I mean, and again, if you look at the inventory level of Kraft Liner, it's on a very, very low level. I mean, if you look at pulp, there we are more on a, let's say, normal level when it comes to craft liner. And I would say that we are on a very low level.

Yes. And I mean, since the inventories are trending down, this suggests that operating rates are actual, right, for the container body industry in Europe? Is that your analysis? Yes.

I think everyone's producing as fast as... I mean, as full as they can in this market with low inventories. And then I would just add one. I mean, I think the US market is also strong, which has impacted some of the US... I mean, the US traditional exports to some parts of Europe, but that level has reduced somewhat because basically they're focusing on the domestic market where they obviously have a better profitability. So that... That increases demand and pressure on inventories in Europe as well.

Yes. Right. Then on the year-over-year comparison, the building blocks you are showing on page 16, it clearly shows that you didn't have that or basically no cost inflation. Am I right here? And what do you foresee for the coming quarters in terms of cost inflation?

You could say, I mean, we have, in our business, wood is by far the biggest raw material. And aside from wood, we have a little bit OCC, which is going up. As you say, we have logistics where we do see some increases. But they're counteracted in the first quarter, at least, by the fact that we've seen pulpwood prices have come down a bit. But we do see that pressure, if you like, going forward on logistics and OCC. Yeah.

Yeah, good. Then the final question. Could you remind us about the CapEx for this year and possibly also 2022? Maybe I missed this information before, but could you remind us about that one?

Yeah, well, we guide to 1.2 to 1.3 billion of current CapEx in the year, and we have 3 to 4 billion of strategic CapEx this year. So that's the guidance we give.

Yeah, same as before then?

Same as before, yeah. No change.

Okay, thank you very much.

We are taking our next question. From the line of Cole Hathorne at Jefferies.

Morning. Thanks very much for taking my question. Just wanting to build on some of the comments you made on container board inventory levels. They are very low at the moment, and the U.S. as well. How long do you think the industry is going to take to get those inventory levels back to kind of a normalized level. Normally, over the Easter period, you imagine the mills keep operating and box plants slow down to build a bit there. But in the second quarter, we've also got maintenance downtime, which I imagine can't be postponed, particularly after the shifts last year. So are we going to be in a position where inventory levels are remaining lower for longer? That's the first question. And then the second question, on this container board division, you've given good detail of your historic disclosure. And back in 2019, 2018, when pricing was higher or similar level, we were well over 30% EBITDA margins. Would you mind just giving a discussion of what type of EBITDA margin this business could be medium term? Thank you.

Yeah, we start with the capacity. I mean, I think that all producers just now, they run for full capacity, no doubt about that. And I mean, as you said yourself, we cannot really postpone our maintenance stops. I mean, many things are regulatory, so they need to be done. And it might even be so this year that some of the maintenance stops are being moved from from the spring to the autumn because we all hope and believe that the effect from the pandemic might be less serious in in in the autumn as people continue to take the vaccine and so on and we've done that ourselves i mean our big planned maintenance and investment stop we will take during the autumn it was originally planned for for for the spring and i think that maybe some other place place they do the same So I mean by that I think that it's more a question just now of the consumption and if the consumption continue on the same level as we have just now if we will continue to have let's say lack of recycled fiber in the system then I think that the balance will be rather strong for a while. So it's more the general economy that can impact the market situation just now and We will not say anything about future margins.

You can look at the... Yeah, I think I could just mention, we have, as I think you mentioned, we have a slide in the appendix to this presentation where we show some data on just containable standard. And that's pretty much over one cycle. So, yeah, I think you see there the difference between peak pricing and bottom pricing in terms of profitability of a craft line of business.

Thanks very much.

There are no further questions on the line. Please continue.

Thank you, operator, and thank you, Ulf, and thank you, Toby, and all listening in. This concludes this presentation of the first quarter results, and I would like to take this opportunity to welcome you back on July 23rd for the presentation of the second quarter results. Thank you very much.