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10/29/2021
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
Yes, well, I don't really have too much to add. I mean, it was for us a super strong quarter. It's the best quarter ever. 53% profit margin for the total company, heavily contributed by the decision to leave publication paper. And I think we'll leave it there and open up for questions.
Thank you, Ulf. Thank you, Tobbe. And today we are moving into the Q&A session. But first, we do have some questions or one or two here in the studio in Stockholm. So we start with that and then we will hand over to our operator Maria. Please go ahead.
Thank you very much. It's Linus Lars with SEB. I'd like to start on the pulp division. You gave some color, but maybe first on volumes. You were somewhat constrained by the pending or the planned maintenance chat in the fourth quarter. but looking at volumes in the fourth compared to the third quarter, given that planned maintenance chat, are you expecting stronger volumes or how will that work out?
We try to smooth out the effect of the volumes in delivery volumes. So we do have, of course, significantly lower production when we take a maintenance stop, but we smooth that out and we've had So we've taken a bit of that effect in Q3, but we would expect it also to come in Q4. So I think it will be tough to have a positive volume development Q4 versus Q3. But it's not the full effect of the production stop.
Thanks. And also on price, Ulf, you described the discrepancy we see now between Chinese and European prices, and one would at least under normal circumstances expect that to translate into redirection of volumes into Europe because prices are obviously higher. Are you seeing that and are you seeing price concessions taking place in Europe in the fourth quarter?
I mean, first, as I said, I mean, we have some kind of energy crisis in China and we also have substantially higher cost for going from China over to Europe and vice versa. So, I mean, I think we see less of paper and other products in Europe. So that creates some kind of stronger market for pulp, at least for us in Europe. We are not too present in China. I mean, we do the main part in Europe and then some of it in in u.s uh so i mean as i said i mean we've felt a really good demand from from europe in in the last quarter and of course long term i think the prices still they they will come together in one way or another so so but i mean we don't know we have had the same price now for four quarters in a row and and the negotiations are ongoing just now
Thanks. And then just one question on the star performer in the quarter. Wood, I think you had return on capital employed of 122% in the quarter. And Ulf, you again make a forecast for the quarter. wood price in the fourth quarter. But could you describe a bit more what you're seeing among your customers right now? I mean, what's their behavior? Is there a destocking cycle we're entering into? What's real underlying demand? What's the 2022 outlook, do you think?
It's very hard to say. I mean, as you saw, I mean, stock level has now normalized when it comes to we have statistics from Sweden, Finland and at sawmills. I mean, we have a normalized stock level, more or less. Production is also reasonably normal because I think so much they can really produce more you have a limited availability of saw logs and also i mean you have a limited capacity so that is what we see there underlying the consumption is good but as you all know in q4 and q1 normally we have a seasonally lower demand and i mean that is what is just now creating some kind of adjustment of the price level but I mean from a record level we moved down 15 to 20 percent so it will still be a very strong profitability in the sawmill business for the coming at least for the coming quarter thanks thank you and with that we will hand over to the operator Maria please go ahead thank you to those who wish to ask a question via the telephone lines please press star and one in your telephone keypad
Your first question comes from the line of Robin Sandaverta. Please ask your question.
Thank you very much, and good morning. First off, I would like to ask about the container board market. Prices are quite significantly up year to date, and you said one additional increase in October. Now what do you see in that market going into the winter? Is this now sort of the peak price in October or is there potential for further increases in the winter in Europe?
i definitely think that we will see further price increases in container board and i mean the underlying demand is still very good and that is one thing but the other thing is when we i mean to some extent we are dependent on the test liner market and and i mean test liner producers today they see really high energy cost level and they also see a very high cost level for OCC as I said from I think it's November last year and up till today the price increases went from 70 euro per ton up to 170 euro per ton and it is a problem for test liner producers to get availability of OCC in the market. So I think it's a really strong market, and I forecast that we will see further price increases in this segment.
All right, thanks. That is clear. In terms of the wood division, you commented on demand and prices. Thank you for that. What is the outlook when it comes to costs now in Q4 and in 2022?
I think it differs a lot depending on where you are in Sweden. I mean, for us as being the biggest private forest owner in Europe, I mean, we have a high degree of self-sufficiency when it comes to saw logs. So that is very positive for us, of course. nevertheless we buy some volumes from the let's say open market and and i mean in that case and for that part we see some slightly increasing prices during the fourth quarter and that might continue also into the first quarter it's not it's nothing substantial but still the direction is is north here of course good
Good. Thank you. And then for Toby, could you comment about the CAPEX for this year and potentially for next year? What is sort of your estimate on that?
Yeah, I can say we expect current capex still to be in line with our guidance of 1.2, 1.3 billion sec for the full year. And strategic capex also to be still in line with our guidance that we expect 3 to 4 billion of strategic capex for the full year. That means we expect quite a big strategic capex in the fourth quarter, primarily related to Obola as well.
Sure, thanks. And 2022 is that around similar numbers to be expected.
yeah we expect slightly less in 2022 because i mean we'll see where we actually come out this year for obala um but we we expect this year is basically the heaviest year of of the investment in obala and then it should come down a bit uh next year but obviously if we yeah if if we don't take as much in the fourth quarter this year that will roll roll forward into next year so it depends a bit on on how things land in the fourth quarter i understand that's all thank you very much
Thank you. The next question comes from the line of Oscar Lindstrom. Please ask your question.
Good morning, gentlemen. I have three questions. And the first one is kind of a general question. We now have, or you have, record price levels for both pulp and sawn timber, and we're probably heading there for contained aboard. As you said, I mean, these are the best earnings that you've ever seen. you ever had. I mean, in your opinion, and I suppose this is for you all, you know, how much of this is a temporary boom driven by, you know, very special market conditions after COVID and money supply increases and all that? And, you know, how much of it is underlying structural change? I know it's a wide question, but please answer it as you want.
Yeah, it's very hard to answer on that one, but I mean, fundamentally, I think we are in the portfolio we have now when we have when we have get rid of the publication paper business i mean we are in growth areas and we are also favored by the sustainability trend i mean to move from plastic over to paper from concrete over to solid wood constructions and from fossil fuels to liquid biofuels and that has also been the or we have been striving to reach that position so we are very happy about that so fundamentally i think over over time you will have a steady growth in in these segments I mean structurally it's so hard to say I feel that we can if I give you some view for the fourth quarter I feel that we are I mean we have a strong order book we are very well booked we will see we will have some i've already said that we will have some small adjustment in solid wood products but we will continue on a record level when it comes to profitability container board will be even stronger than it is just now and pulp we don't know yet i mean we are as you say on a on a good level but again we feel a reasonably strong
strong demand in Europe but long term we will not see the spread from 700 up to 900 but what will happen I mean I cannot really say yeah that's fair enough a second question which is maybe a little bit easier but not that much is on capital allocation you already have a very strong balance sheet and you've got also very strong cash flow at the moment. Where can you spend the money that's attractive? What significant earnings growth opportunities do you have? Is there a possibility to expand capacity in your existing facilities? Is there enough wood supply for that in Sweden? Or would you need to look at byproducts more or expansion abroad more? Where do you see the most attractive capital allocation opportunities at the moment?
First, just to remember, we are just now in the middle of a very big project in Obola, 8 billion SEK. The project is perfectly on time and we are very satisfied with the development that we see there but i mean we have to finalize that one the second one is the new ctmp line in ortviken we are also in the middle of that project running according to plan but it should be finalized we are also in the middle of a big project in bolsta sawmill that is 800 million sec that shall also be finalized We also, during this third quarter, took the decision to invest 700 million SEK into liquid biofuels. So, I mean, I think we do a lot of things here. But I mean, going forward, of course, I mean, we can further increase capacity at Östrand. We've said it before. And when we have fine-tuned the production line in Östrand, then we will take that decision. But I mean, it's too early to say when. We see lots of opportunities in... I mean, we continuously buy forest. We have our program in the Baltics. We have done 50,000 hectares there. We have said that we should reach 100,000 hectares in five years. If we can buy more forest, we will do that. We will also look into new investments in energy. and wind power is one thing and i think we will maybe start to invest some more money ourselves into wind power but we also have a lot of ongoing pre-projects and things like that in in the area of liquid biofuels i mean we have a lot of things to to do here but first and most important is to really deliver on the projects that we now have started yeah sounds wise
Just a final question from my side, and this is more concrete, is on the pulp. You talked about long maintenance stops this fall. I believe you were not only referring to your own stop, but to the market in general, that that would potentially, or maybe you said it will change the situation in coming months. Could you expand a little bit on that? It sounded as if you were
expecting the pulp market to tighten a bit yeah i mean as i said i mean for us in in in the third quarter we have had a rather if not tight market but a balanced market europe has been quite balanced and and that's the reason also why we have kept prices unchanged for four months in a row we know that i mean we will ourselves we will perform a 22 23 days stop in in austin which is quite substantial and and which is planned and which we have to do for regulatory reasons and things like that we know that many others they have to do exactly the same thing and i think again also this year that some maintenance stops, they have been postponed from the spring over to the autumn due to the risk for the pandemic. So I think that will have an impact on the stock level for softwood.
Maybe I could just add, but when you look at that graph that Ulf showed of the softwood inventories, I think you've seen last couple of years have had more stops concentrated in the fourth quarter and you see i mean it's the trend also previous years that the stock has gone up over the summer ahead of the stops and then come down obviously in q4 when the stops have taken place so i think we're seeing the same trend this year that we've seen in previous years and do you believe that you know the market can can handle this or or is that something that you think might cause a
at least a short-term squeeze in the market we don't believe we just sell okay that's great yeah
But I think we and others, I mean, as I said to Lina's question earlier, we smooth out our delivery so that, you know, if you like, we take an impact in Q3 and Q4 and Q1, basically, from the lower production volumes in Q4. And others do the same. So it doesn't create a sort of short-term impact. impact in the same way. It's a more smooth effect. But of course, it's volume that's not there in the market.
All right. Well, thank you. Good answers to some general questions. Thank you very much. Those were my questions.
Thank you.
All right. Thank you. The next question comes from the line of Cole Hartung. Please ask your question.
Good morning. Thanks for taking my question. I've got three questions my side. I'll take them one at a time. The first one is around the container board market, and I'm hoping you can give a little bit of color, potentially what you're seeing from the competitors on the recycled side. I mean, Ulf, you talked about, you know, high energy prices, OCC availability causing a bit of problems for some of those recycled producers. Are you hearing of any of the smaller players taking downtime because, of energy, just not making it worthwhile for them to produce tightening the market there. And if there's any color you can give on the recycled container board inventory levels, I know you've given very helpful data on the craft liner is the first question. The second question... Can we start with the first one?
Otherwise, we will not remember. I mean, we are not into details when it comes to the test liner market, but again, I mean, what they've done so far, I think, is to drive the price. And that's the reason why I think we will see another price announcement coming up here and as I said I mean the Delta between craft line and test line prices there are still 150 euro baton which is quite the normal normal level but if they won't come through with the further price increases then I think that you will see curtailments taken so so that's my view on that and it's not easy today to get access to recycled fiber I think in the in in Central Europe and in these regions like to add something Toby
Only to say, the test line of suppliers are struggling with both the OCC prices, but also a number are exposed to gas and energy prices, so they need price increases.
And I think another thing for us it's I think important to underline that because we have had some questions about the impact from increasing energy prices but I mean we are totally neutral since we closed down our publication paper business we produce as much as we consume which is just now a very favorable position so we are not impacted at all by the energy price. It will change slightly when we have Obola in production and the CTMP plant in production. But as I said, then we will continue to invest in energy production. So we like that balance.
Thank you. And then if I take the second question, if I look at your business medium term, I mean, you've now completed the Ostrand expansion, you've got Obola and some other projects out there. Is there any color you can give on the EBITDA level you're going to be at or margin level you're going to be at on a medium-term basis. I mean, if I think about normalized pricing levels, I have SEA on potentially a $7 billion SEC EBITDA business, you know, 25 medium-term. And that is, you know, 20% to 30% above your your 2019 EBITDA levels. I mean, that's a good medium-term growth outlook. Is there any color you can give on how you're thinking medium-term on a normalized pricing environment?
I could give a... I mean, I think we don't give forecast code, but maybe the color I can give a little bit is we have said, obviously, the Obola project drives a bottom-line improvement, and we've talked about the 800 to 1 billion EBITDA impact from the Obola project. You know, we're on a trend pricing level, of course, yeah of course prices vary but on a trend pricing level from the CTMP we expect around a 300 million impact so those are both positive impacts in terms of bottom line development that we you know we expect to have an impact and also closing if you look at kind of on a margin basis we've also talked about closing publication paper and the exit of the the uk would supply business drives a margin improvement maybe not a uh obviously a bottom line but a margin improvement of around five percent so so i think all those things we expect to have an impact um but we don't give forecasts um of course i don't know yeah thank you and then just the final question is on um how are you thinking about uh
the forest business medium term. There have been some questions around kind of voluntary carbon credits and whether Europe would ever be able to get voluntary rather than being official EU ETS scheme carbon credits. Is there any discussion you're having around voluntary carbon credits on the forest business? Just some color there would be helpful. Thank you.
I mean you have a lot of discussions around the forest and the European Union and I mean we saw that it was presented the new forest strategy from the Union during summer it's not the legislation it is a strategy and now we are looking forward to see what's will come now during the autumn here when when suggestions for legislations and things like that but I mean we feel confident in this situation and we are the biggest private forest owner in europe we have a high degree of self-sufficiency of when it comes to raw material supply to our industries so we are in a good position um so i mean i don't think we should have too much view on it i think personally that and when we also see a lot of politicians now they say that forest and forestry, that is a national competence and from Sweden, from Finland, from France, Germany and other countries, I think it will be a balanced solution here at the end.
Thank you.
Thank you. And the next question comes from the line of Joannes Gromsalius. Please ask your question.
Hi, everyone. It's Johannes here. Most of my questions have been answered, but I can ask you maybe on the cost inflation side, how you look at things for the fourth quarter and next year. You have this very useful picture on page 16 in your presentation deck, minus 75 million, that's the year-over-year impact from raw material. I mean, how do you sense that this will develop, this component in the coming quarters?
Yeah, I think we have maybe relative others. We have a more limited sort of impact to input prices in that our wood we partly source from our or largely source from our own forest where energy we have a balanced or a net seller. So and we have relatively maybe fewer chemicals or other input chemicals is a fairly small share of our input costs. So we don't today see a big impact from input cost inflation. Of course, the biggest one for us is when we source wood from third parties. We've seen fairly stable this year, but as Ulf mentioned earlier, at least on the the round saw logs, we do expect to see some, not huge, but some price increases during Q4 to Q1 in particular. But as I say, not huge. So that's probably what we have visibility of currently going forward.
Yeah, that's helpful. Maybe I can also do, you know, ask you about the wood products that's been quite discussed already but but still do you sense that there is a risk on the volume side here since it seems to be quite much of a wait and see mood in the market where where price has gone gone ahead or you you're confident that you will you know sell sell out all your production there
I mean, as always, it's a question about supply and demand. I mean, for the fourth quarter, as I said, I mean, we are more or less sold out. We are on a... We have a strong order book and... yeah and and the price is more or less set in the market i mean otherwise i wouldn't have said that we will reduce prices about 15 to 20 percent something by that then and then then we have the flow there and and i feel that there is a good demand as i said in it differs a little bit between different markets now, but Japan, UK, Scandinavia is still very strong. I mean, we have seen US recovered a bit, still rather slow in China and also in the MENA region. And I think again, China is maybe hit by this energy crisis and they've been forced to close down some industry and things like that. But all in all, it is stable underlying demand for wood products.
Okay, that's very useful comments. Can I just finally ask you, on wood product, how much, roughly speaking, are you exporting out of the Nordics? I mean, overseas market, if you could give us some good, you know, rough numbers there.
Out from Europe, you mean?
Yeah, yeah.
Let's say 25-30% or something like that. it differs it differs between i mean if it's a good demand in japan china us then it's a little bit more but i would say in in that region yeah got you okay thanks a lot thank you and the last question comes from the line of michael doppel please ask your question thank you i have three
short questions. First on the capital allocation side of things and regarding the biofuels project that you have ongoing, what kind of a revenue and earnings contribution would you expect from this to flow through into your P&L and when could that happen?
yeah i mean we don't it's well it's the the investment is uh around in total around 700 million we expect into the biofuels uh joint venture project with sd1 so that's the the investment um we don't give a forecast of the profitability of all investments but we expect this to have a a good return and good payback but it will come it won't come before um 2023 is the first year that we uh expect operations to be running so it um it won't come the profitability will come obviously when when the operations are up and running so um but i think that's about all all i can give for the time being okay and and on that same same topic
What kind of capital return requirements do you have in general when you are considering growth projects?
Maybe I can start again, but we don't have one number that we say in every project must have a 15% return tick under 15% cross. It's not that simple. I think we look across a profile of the risk involved in the project. how long-term the business is and the forecast is. If you take the energy project we just mentioned, for example, there we would have a higher demand on return because we want to have a quicker payback on those types of projects when it's a long-term asset a forest asset then then we don't have uh the same view on on return and we don't have the same view on risk either so it's it depends but i think i think we we need to get a good a good return based on the profile of risk okay good and then just finally coming back to the container board markets you said that the demand continues to be good
Is there any particular end-use segments you could point to? I mean, for example, do you continue to see e-commerce being strong? Is it the industrial part of the end-use that is driving it? Or any color on that front would be great.
I mean, we know that e-commerce has increased substantially during the pandemic, and I think that will... It's a changed pattern, so that will remain also going forward, I think. And I mean, if you compare with the first, second phase of the pandemic, industry is up and running nowadays, even if they are... Some of them struggle with the supply chains, but still it's... it's a good pace in the in the industry just now so I think it's a combination on in different areas so it's I mean container board and and packaging just now seems to be very strong and and and also in combination as I said I mean you have in some areas problems to get access to OCC and and you have increasing energy prices and things like that so that that will also push push prices I think for a while Add something to Björn. No, I think.
Good. Thank you very much. Those were my questions.
Thank you. Thank you very much. And Maria, we don't have any further questions, do we?
There are no further questions at this time. Please continue.
Thank you. And then that concludes our presentation of the third quarter results. And welcome back for the presentation of the fourth quarter results. Thank you very much.