Svenska Cellulosa Aktiebolaget SCA (publ)

Welcome to this presentation of SCA's second quarter results for 2021. With me here today, I have our president and CEO, Ulf Larsson, and CFO, Toby Lawton. Please go ahead, Mr. Larsson.

Thank you, Anders. Good morning, everyone. And also from my side, a warm welcome to the presentation of our result for the second quarter 2021. When I summarize this quarter, I like to start by saying that in terms of result, the second quarter this year is the best quarter since the split in 2017. And we delivered an EBITDA margin of 47%. A strong market, strong demand, gradually increasing prices within all product areas of SAA have, of course, contributed to this. but the decision to wind up the publication paper business completely is perhaps even more important. In addition to price and mix, we have also had a good production level and a stable cost during the quarter. When comparing our EBITDA level for the second quarter 2021 with the outcome for Q2 2020, we note an improvement of 126%, and this is, as mentioned earlier, mainly due to increase in prices for wood, pulp, and craft liner, but also good production level, stable costs, as well as our decision to exit publication paper. On the other hand, the currency development counteracts the positive earnings development during the period and give a negative effect of more than 200 million SEK. Our turnover during the second quarter increased by 3% compared with the second quarter 2020. despite the closure of the publication paper business together with the divestment of our wood distribution operations in UK. Toby will come back to this, but we also see that we have an upward trend for forest value in general and by that also for SA forest. But Toby will come back to that later on, so. Last but not least important, I would like to conclude the summary of the second quarter by stating that our two major investment and growth projects in Obola and Ortviken are progressing on time and budget. Turning over to some financial KPIs, we have had a very strong second quarter as mentioned. We delivered 2.26 billion SEK on EBITDA level. And as I already also mentioned, This represents the best quarter since the split 2017. Our EBITDA margin reached 47% for the quarter, which is, if you look to the right-hand side, you can see that this is substantially higher than previous quarters. When it comes to our industrial return on capital employed, in our case calculated as a 12-months rolling average. That one amounted to 14%. But if we then look into the level for the second quarter, it was 31%. Our leverage decreased to 1.4 despite our ongoing investment program and despite the fact that we paid a dividend during the second quarter. And I'm really happy to say that we continue to finance our strategic investments with our operating cash flow. So I would now like to make some comments for each segment, starting with forest. And here we can state that we've had another quarter of stable supply of wood to our industries. Sales was up due to high volumes, whereas we have noted a decrease in pulp wood prices, mainly due to our exit from publication paper, and by that of a reduced share of imported wood. And when it comes to saw log prices, they are stable, and you can see the price development on the left-hand side in the graph in the bottom. EBITDA increased by 51% when comparing quarter on quarter, and this is partly due to higher share of harvested volume from our own forest, and partly due to revaluation effect of the biological assets equivalent to approximately 100 million SEC for the quarter. Wood. There is still a level of high global demand in the wood area. However, right now we see declining CLS prices in the US and a certain restraint in China, while other markets, not least Europe, are still on a very, very strong level. The demand for wood products are still supported basically by the economic recovery post-COVID, with increased industrial construction and house buildings, as well as the increased sustainability focus. When I presented the Q1 report, I estimated the price increase for the second quarter versus the first quarter to be between 15 and 20 percent. And what we know just now is that the actual outcome for SCA was a bit over 20 percent for the second quarter. At present, we forecast that the prices will continue to increase sharply, and I personally believe that the price increase for the third quarter compared to the second will be up to 50%. Sales was flat when comparing quarter on quarter. The rise in prices is counteracted by the divestment of wood supply UK. And when it comes to EBITDA, it was up as much as 339%, mainly due to higher prices, but also due to a very good production and a stable cost level. Today's stock level of solid wood products in Sweden and Finland is in relation to the average for the last five years described at the top left on this slide. And we can note that the inventory volume are still at a very low level, 13% lower than the corresponding period last year. At the same time, the underlying consumption continues to be good. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production slightly exceeds the five years average, and the production is now running at full capacity to meet the increased demand. When comparing the production rate year to date, 2021 with the corresponding period last year, we can see that the production level is approximately 10% higher this year, a volume that is completely assimilated by the market. So when looking at the diagram to the top right, we note the steep increase in prices for solid wood products. And our estimate, and as I also mentioned earlier, the price development will be even stronger now during the third quarter. And best guess, up to 50% for the third quarter in comparison to what we've had in the second quarter. The pulp market is also still strong with a good demand and increasing prices during the second quarter, as you can see in the diagram to the bottom left. When we peaked price-wise in the end of 2018, we had a peaks price of 1230 USD per tonne. We then reached the bottom during the first quarter 2020, as you can see. At that time, the peaks price had dropped to 820 USD per tonne. Then we had a rather flat price development during the major part of 2020, and the pulp prices started to increase significantly, and today we have an official PIX listing in Europe at 1340 USD per tonne, but of course with a less favourable currency relation and also with a higher discount rate compared with 2018. We feel that the demand in Europe continues to be strong, however the price levels in China and The U.S. are now starting to fall a bit. And we can note that today the net price in China is approximately $50 per ton lower than in Europe. And also in the U.S., the net price is somewhat lower in comparison with Europe for the moment. As you might know, we have also seen sharply increasing overseas transport costs, which impact the profitability on these markets negatively. Sales were up 43% and EBITDA 230% in the second quarter compared to the second quarter 2020. And this relates to higher prices and lower costs. For us, good and stable production volume also led to better yield in terms of lower consumption of wood and chemicals, higher energy generation and so on. And finally, I can also mention that our ongoing project to build the CNTP line, CTMP line at Ortvikens industrial site with a total capacity of 300,000 ton is progressing according to time and budget. Inventories have now come down to normal levels, both for softwood pulp and for hardwood pulp, as you can see in these graphs. The lack of capacity in the logistical chain, especially to Asia, but also to U.S., still affects the supply situation, which results in increased distribution costs, but also some disturbances in supply. During the coming autumn, a number of planned maintenance shutdowns will be carried out, and for SEA, this means that Östrand will stop for a full 20 days at the turn of the month, September and October. When we move on to business air container board, I would like to start by stating that our expansion and growth project in Obola is progressing very well, and we are on time and budget. The sales and EBITDA for the container board business are up 19% and 75% respectively in Q2 2021 when comparing with last year. And this is mainly due to increasing prices, but again, also due to good production level, stable costs also contribute positively. We have also seen that prices for OCC have more than doubled since November 2020, and that will, of course, affect the result negatively. But at the same time, they also support the price development for test liner and thereby indirectly for craft liners. All in all, this development is positive for SEA. The global Kraftliner deliveries from Europe continue to increase also in the second quarter this year. And we can conclude that the demand for boxes has been very strong also during the second quarter and is now on a level above the trend line before the outbreak of the pandemic. And this has led to inventories being on a very low level for Kraftliner, as you can see in the graph bottom left. Since the bottom position in terms of price Q4 2020, the price for unbleached craft has so far risen by approximately 200 euro per ton. And as of August 1st, SEA have announced a 50 euro per ton increase for craft liner grades. And these price increases will successively take effect during the third quarter and giving full effect during the fourth quarter. So with the present situation, the delta between craft and test liner prices is approximately 150 euro per ton. And that is historically a rather normal level, I would say. So by that, I hand over to you, Tobbe.

Thank you, Ulf. Good morning, everybody. I will start off here with the income statement. And on the top line here with net sales, you can see that we have a net sales in the quarter of 4.8 billion. We have actually lost around 1 billion in net sales from both the exit of publication paper and the divestment of Wood Supply UK since the second quarter last year. But you can see here that that's more than compensated then by around 1.2 billion sec of additional sales from the effects of price and mix, from the effects of the increased volume and then net of currency effects. So that 1.2 billion underlying growth in top line has fallen down to the EBITDA in the next line and that shows that it falls down to basically a 1.2 1.3 billion increase in EBITDA shows the good stable cost development that we have as well and so the EBITDA has increased from 1 billion in Q2 last year to 2.26 billion in Q2 this year with an EBITDA margin then of 47 percent which is of course a very good level um Then coming down, that falls through the same increase to EBIT. Financial items very stable on 26 million for the quarter, stable in terms of interest rate and net debt, which I will come back to. Then we have a profit before tax of 1.85 billion and tax 372 million, which represents an effective tax rate of just under 21% in line with the Swedish tax rate. which means we have also a strong net profit for the period of just under 1.5 billion SEC in the quarter and an earnings per share in the quarter, therefore, of just over two SEC per share. If I move on to give a little bit description per segment and starting on the left-hand side with the forest, top left with the net sales, you can see we're trending slightly lower level of net sales than we were a year ago. And that's basically the effect of reduced wood supply due to the exit of publication paper. So reduced wood supply to Ortviken, which we don't have anymore in publication paper. And then on the bottom line, you can see a strong quarter from forest. That's basically due to the fact that we are optimizing wood sourcing through exit publication paper. But the largest reason is also that we harvested a significant amount of own forest this quarter and we have a seasonal pattern with harvesting of own forest. So next quarter, quarter three, we normally don't harvest and we won't harvest as much own forest. So we won't see a strong effect from that in quarter three. Then moving across to the wood segment here, you can see that we have a significant increase in sales this quarter, despite the fact that we sold Wood Supply UK in quarter four. Q2 is also a seasonally strong quarter for the wood business, but obviously the very strong pricing development has a big impact here, and especially when you come to the bottom line EBITDA, where the margins really come from the very strong price development and also good production with a 36% EBITDA margin for wood in the quarter. On the pulp business, you see the effect of both increased prices but also increased volumes with increased yields. with production and delivery volumes this quarter. And the good performance, you can see also on the bottom line here with an increase in EBITDA margin to 38% in the quarter. We've now had two quarters, just to mention quarter one and quarter two, which are clean with good production with no maintenance stops. And as I've mentioned, we will have a maintenance stop at the end of Q3 and mainly in Q4. And then in container board paper, you see the impact we had publication paper up until the end of Q4. So from Q1, it's a clean container board net sales and a container board EBITDA. And so the bottom line you can now see is a clean container board margin from quarter one. We have a positive price development in container board, which has led to the improved EBITDA picture. And here we've also had two clean quarters with no maintenance stops and also with good deliveries during quarter one and quarter two. And then we will have maintenance stops in quarter in both Obola and Mugsund in the quarter three, which will have an impact. If I move on to the bridge of net sales, here you can see the significant impact, basically, of price, which is 25% quarter on the same quarter last year, 7% impact from volumes, and here in all areas, actually, but just to mention the biggest impact in pulp, where the continued... The Erstrand ramp up is now at a good volume level, both in terms of deliveries and production, as I said. And then the two big impacts on the right-hand side here from the divestment of Wood Supply UK and exit publication paper. On the EBITDA bridge, again, you can see the big impact from price mix of 1.28 billion, the improvement in volume of nearly 200 million. And then the other largest part here is the effect of currency, which is negative versus last year due to a stronger SEC of 200 million impact. Moving on to cash flow, and if I focus on the right-hand side here where you can see the half-year cash flow, you can also see the quarterly figures on the left-hand side, but the operating cash flow for the half-year is 1.6 billion SEK, and this is including effects. We have an increase in working capital in the half year and the quarter. So in the half year, it's 691 million, and that really is the impact of increased prices in working capital. So we've absorbed that effect in that operating cash flow. We've also had the restructuring costs from the exit publication paper, which we funded in the half year, but we still come out with a strong operating cash flow. of 1.6 billion, which basically means, as Ulf mentioned, we're funding the strategic capital investments from operating cash flow. Just coming on to the balance sheet, and maybe I start here. On the bottom line, you can see the market price applied on forest assets. And this is the three-year average market price that we take from independent sources of market transaction prices. in now including the data for the first half of 2021. And that means that the price level is now 300 sec per cubic meter compared to 291 sec per cubic meter at the end of December. So the increasing trend continues and it's that price increase that leads to on the top line here then the value of the forest assets has increased from 74.9 billion at the end of last year to a value now 76.6 billion. Working capital in absolute value, as you can see, has increased, as I mentioned, due to the higher prices and seasonal higher sales in Q2 from some businesses, from wood business in particular. But when you look at relative to net sales, we've come down from 18% to 17%. So good development relative to sales. Moving down, we have deferred tax, and then we have other capital employed, which has increased significantly. mainly due to the ongoing construction of the new mill in Obola. Net debt has increased versus the end of last year slightly from 7.7 to 8.2 billion. We also paid the dividend, of course, this quarter, but we've delevered primarily due to improved EBITDA, but a deleverage down to 1.4 times debt to EBITDA. And then net equity has increased from 72 billion to 74.5. Just to mention on the operating cash flow, we've had a strong period of delivery on operating cash flow. As you can see here, over three and a half billion of operating cash flow delivered in the last 12 months, and not least in this first quarter, despite the fact that we've also increased working capital due to the higher prices. We funded the restructuring in Autviken, and we've had the strategic capex of all Despite funding all those, we've managed to deliver and reduce leverage down to 1.4 times. So it's a strong delivery in terms of cash flow. And finally, just to also highlight, we issued a green bond in the quarter, the first green bond we have issued. And we issued 1.5 billion SEC at a seven-year maturity, which – which we're very happy to increase and have a long maturity on SCA's average debt with 4.8 years on average. So we have a very secure financing position. The green bond is well aligned with SCA sustainability platform and especially helping to support the positive contribution to the climate that SCA brings. And then finally, the rating on the green bond is also the best possible rating of dark green. I think that's an interesting development in the quarter. And with that, I will hand back to Ulf for summary and Q&A.