Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of SEA's full year results for 2021. With me here today I have President and CEO Ulf Larsson and CFO Toby Lawton to go through the results and take your questions.

Over to you Ulf and Toby. Thank you Anders and also from my side a good morning and a warm welcome to this presentation. I will begin by summarizing 2021, where we delivered the best ever result for SEA. We had an EBITDA of 9.1 billion SEK and by that an EBITDA margin of 48%. When we're comparing our EBITDA level for the full year 2021 with the outcome for 2020, we can see an improvement of more than 100%. As well as a strong market with increasing prices in all business areas, we also delivered a good productivity level and also focused cost control, both of which contributed positively, of course. We can also see that the strong profit development was helped by a well-timed decision to exit the publication paper. Our turnover during 2021 increased by 2% compared with the previous year, despite the closures of the publication paper business in the first quarter of 2021, and also despite the divestment of our wood distribution operations in the UK fourth quarter of 2020. And the reason for that is, as already mentioned, increasing prices, better mix, and also a very good production level. During the year, we have also seen a continuing good trend in the market values for forest land and prices in our core area has increased by over 10%. During the year, we have had a net growth in our forests of more than 4 million cubic meters and we have also purchased a net of about 10,000 hectares of forest land, mainly in the Baltics. In total, the value of our forest asset have increased by almost 10 billion SEK from 75 up to 84 billion. And finally, last but not least important, I'd like to conclude this summary of the full year 21 by stating that our two major investment projects in Åbole and Ortviken are progressing on time and budget. So turning over to some financial KPIs. And as already said, we had a very strong year delivering 0.1 billion SEC on EBITDA 11. As also already said, best year ever. Our EBITDA margin reached 48% for the full year, which is substantially higher than previous year when we did 24%. Our industrial return on capital employed came out on 33% for the full year, while our leverage decreased further down to 0.9, and that is despite our large ongoing investment program. And I'm happy to say again that we continue to finance all our investments, including strategic projects with our operating cash flow. The board proposes an ordinary dividend of 2.25 SEC per share, an increase of 0.25 SEC or a little bit more than 12% compared to last year. And on top of that, one time extra dividend of one SEC per share due to the exceptional result in 2021. And finally, our earnings per share increased by almost three times in comparison with last year and reached 8.69 SEC per share. From now on, I will focus on the fourth quarter 2021. And as you can see here, our EBITDA level for the fourth quarter was 2.8 billion SEK, which is again more than double as much as the fourth quarter 2020. And that gave us a historically strong EBITDA margin of 59% for the quarter, which you also can see in the graph on the right-hand side. Our industrial return on capital employed reached 40% during the quarter and the leverage is as already mentioned 0.9. So I will now make some comments for each segment starting with forest. And we had another quarter of stable supply of wood to our industries. Sales was down due to low delivery volumes and we have also closed down our publication paper business and we also had a long maintenance stop in Östrand impacting the fourth quarter 21. EBITDA increased by 24% when comparing quarter on quarter and the main reason for that is continued increasing prices for forest land and by that the higher evaluation of effect of biological assets. As you can see in the graph on the bottom left, prices for saw logs have also increased. When we compare pulp wood prices quarter on quarter, we can note that they are on a rather stable level and this is mainly due to our exit from publication paper and by that reduced share of imported wood. Then we turn over to wood and the price levels for some wood products peaked in Q3 2021. They peaked at the historically high level, which you also can see in the graph on the bottom left. Average prices have dropped by just under 15% between Q3 and Q4. The seasonal low demand during the winter period means that prices are expected to drop further by another 15% during the first quarter. But then I think that they will turn upwards again in the second quarter 2022. And I'll come back to that. In general, we can see a lower level of supply during the autumn, mainly from Canada and Central Europe. Demand is still good. And we can see that in most markets, inventory levels is going down also for customers now. As for SEA, we had a good production during the fourth quarter and good delivery levels for the season. And that led to relatively low stock levels for us. As you can see from the graph, sales increased by 25% when we compare with the same quarter last year. And this is mainly due to increased prices, which also offset the effect of the sale of Wood Supply UK during the fourth quarter 2020. The profit level is still very good in SA Wood. EBITDA was up as much as 274% when we compare Q4 2021 with the same quarter 2020. And I can also just mention that SA Wood made nearly 3 billion SEK on EBITDA level during 2021 with a really strong EBITDA margin of 42% for the full year. Then some words about wood market development. And 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 note that the inventory volumes are more or less back on a normal level. At the same time, the underlying consumption continues to be good, as I said, especially in the new residential building segment. As can be seen in the diagram to the bottom left, the Swedish and Finnish SOMIs production is also now on a normal level. Production in Scandinavia is now running at full capacity to meet stable and good demand. But as mentioned, production in Canada and Central Europe is somewhat limited. And that creates also maybe a rather stable balance in this market. So when looking at the diagram to the top right, we can see that the price peaked in the third quarter 2021, but the prices still are on a historically high level. And as I said, they are expected to rise again in the second quarter. Then we walk over to pulp and I will come back to Q4, but I'd like to start by mentioning that pulp business deliver its best result ever during 21. The EBITDA for the year was over 2 billion SEK, and that gave us an EBITDA margin for the year of 37%. And this increase in EBITDA is, of course, driven by higher prices, but also by lower costs. Sales during the quarter were up by 17% compared to the same quarter last year, and that is mainly due to significantly higher prices, and despite that, Also a long maintenance stop, which was also slightly longer than originally planned. EBITDA increased by over 300% compared with the previous year. And finally, I can mention here that our ongoing project to build the CTMP line at Utvikens industrial site, the one with a total capacity of 300,000 tons, is progressing on time and budget. The pulp market is stable, particularly in Europe, with a good demand and prices that have bottomed out on a relatively high level for the time being. And we peaked price-wise at the beginning of the fourth quarter of 2021. The official peak price at that time was 1340 USD per tonne. Since that point, prices have come down to 1260 USD per tonne in Europe. But the SAA has now announced the price increase up to 1300 US dollar per ton. And we should remember also that we have to face a slightly higher discount rate from 1st of January 2021 compared with 2020. Sorry, from 1st of January 2022 compared to 2021. So the demand in China and US has picked up again and we can now after substantial increase dip in prices, mainly in Asia, see more or less equalized prices between Asia, Europe and also U.S. On the negative side, we've seen sharply increasing transport costs, not least for deliveries between continents. And we can definitely say that the supply is heavily impacted by global logistical challenges. Inventors for hardwood pulp are on a normal level, while the level for softwood pulp is still a little bit in the higher end. And as you can see that you can also see in these two graphs here, but mainly relates to increased inventories in transit because of the logistical challenges. So then we move over to business area container board and I like to start by stating that our expansion project in Obola is progressing well on time and budget. Sales and EBITDA for the container board business are up 27% and 142% respectively in the fourth quarter 2021 when comparing with the same period last year. And this is again mainly due to increasing prices where we now have reached all-time high prices and that you can also see in the graph in the bottom left. And just to comment something about OCC prices, they have almost tripled now since the bottom in November 2020, and that affects the result negatively to some extent, but it also supports the price development for test liner, and thereby also indirectly, of course, for craft liner. The Global Kraftliner deliveries from Europe continue to increase also in the fourth quarter this year and we can see a stable long-term growth of European deliveries and we can also conclude that the demand for boxes has continued to be strong also during the fourth quarter. When it comes to inventories for Kraftliner, they are on an average level. We can see a seasonal increase in December, but that was expected. Since the prices bottomed out in the fourth quarter 2020, the price for unbleached craft liner has so far risen by approximately €350 per tonne, while white top craft liner has increased by €185 per tonne during the same period. And that includes also the December increase. And the latest price increase came in December, and that one resulted in a further increase of €50 per tonne for unbleached craft and 35 euro per tonne for white top. And this price increases will, as usual, successively take effect during the first quarter. I can also finally mention that with this present price levels, the delta between craft and test line prices is approximately 150 euro per tonne, and that is historically a rather normal level. So I think by that, Tobbe, I hand over to you.

Thank you. Ulf, and good morning, everybody. I will start by talking about the forest assets. And here on this slide, you can see the higher transaction prices we have for forest assets in our area. And if I start with the graphs on the right-hand side, you can see from the first graph that the market price of forest land in our region has increased from 291 last year to 324 this year. And that's an increase of 33%. sec per cubic meter, so more than 10% increase in transaction prices measured in northern Sweden. When we also add on the effect of the standing volume where we have a net growth in our forest of 4 million cubic meters this year, some 1.6% net growth in the forest land, net after harvesting, then we have an increase in the total forest asset of just under 10 billion sec from 74.9 billion sec to 84.5 billion And then of that increase of just under 10 billion, 9.6 billion, as you see on the left-hand side, we then report 1.8 billion, just under 1.8 billion in the P&L as a biological asset valuation change. And the remainder is mainly the change in land assets, which does not impact the P&L. So a significant increase in the value of the forest this year. If I take to the income statement, and there's a lot of figures here, but if I focus on the right-hand side, the full year numbers and the column for 2021, as I've mentioned, you can see the increase in net sales of 2% this year, despite the divestment of Wood Supply UK and the restructuring of publication paper, exit of publication paper, which impacted by more than 4 billion SEC in net sales. We then have an EBITDA of 9.1 billion SEC with a margin for the full year of over 48%. And that means when we go down to operating profit or EBIT, we have 7.6 billion SEC of EBIT or 40.6% EBIT margin. Then financial items, pretty stable. Net debt is also pretty stable. So it's a stable level, just over 100 million SEC in financial items, which we manage well. And then tax, here we have 1.4 billion of tax charge, which is an effective tax rate of just under 20%. I'm giving a net profit for the full year of 6.1 billion SEK. And then just to mention in the fourth quarter, then just under 2 billion SEK of net profit just in the fourth quarter. So earnings per share then 8.69, also as Ulf has previously mentioned, but the best ever earnings per share. And then when it comes to the proposed dividend, just a short recap, but we have a proposed ordinary dividend of 2.25, which is a 25 euro increase from last year. And then on top of that, an extra dividend this year of one sec. And you can put that in relation to the earnings per share, as I mentioned, of 8.69 for the full year. I'll then show some bridge of the full year result in terms of net sales. First, you can see the significant impact of improved price and mix in all segments of 28%, a small volume increase overall, and then a negative currency impact. So we were impacted negatively by the currency for the full year. And then we have the impacts of both divesting wood supply UK at the end of 2020 and then exiting publication paper, which we ended, exited publication paper at the beginning of this year in the end. When it comes to EBITDA bridge, you also see the significant impact of the higher prices, which add some 5.4 billion SEC in terms of full year result effect, a small effect from volume, We have, you can see, a positive effect on raw material, despite, I think, a quite inflationary environment in other areas, in other segments, sectors, and that's partly also driven by better productivity and better raw material sourcing through the productivity improvement. A positive on energy because we are balanced or a net seller, slight net seller in electricity. And then, as I mentioned, a negative currency effect And then a negative effect in other, partly here you see the inflationary effect, or mainly for us it's seen in logistics costs, where we have an increased logistics cost this year, and also some temporary costs related to the transition from publication paper and towards then growing in, particularly here in pulp, in Otviken. And then when it comes to contribution by segment, I'll start on the left-hand side here, the full year as well. You can see the forest division, the result has improved versus the previous year. A significant effect we have to remember here is driven by the revaluation of the biological assets, which comes in the forest division. The turnover you can see has come down a bit versus last year, and that's the effect of exiting publication paper and the lower wood supply through publication paper. In the wood division, we have grown the top line a bit despite selling Wood Supply UK, and you can see a fantastic result in the wood division of just under 3 billion sec in EBITDA or 42% EBITDA margin. So a very good result. And then in pulp, you can see the top line has grown with improved pricing and volumes, and then also a strong result on the bottom line, just over 2 billion sec or 37% EBITDA margin, which is a good result. EBITDA margin level in the pulp division. And then container board paper, you see on the top line the effect of the exit from publication paper that the net sales has come down to 5.4 billion SEC. And then on the bottom line, we have an improved result versus last year showing the improved pricing in container board up to 32% EBITDA margin and just under 1.8 billion SEC EBITDA. And then if I just switch briefly to the fourth quarter and just show the same bridge, it's a pretty similar picture, actually, that we had improved prices in the fourth quarter versus the fourth quarter last year of some 37%, again, in all product areas. And then smaller effects from a bit lower volume, mainly due to timing of maintenance stops here. Currency, again, negative. And then the effects of the divestment of wood supply UK and UK. exit of publication paper. When it comes to EBITDA, it's also a similar picture here and with a strong price increase versus quarter four last year. Then the small effects from the volume, raw material and energy, similar to for the full year, negative currency again, and a small impact from other as well. And logistics cost is the main item to mention here as well. And then just to do the same with the quarterly picture, And I'll focus here on the bottom graphs in the picture. And for the forest division, you can see an EBITDA of just over 900 million in the quarter. Again, remember here we have the revaluation of the forest asset, and in the fourth quarter we had a one-off higher item from the revaluation because we increased the annual revaluation in the fourth quarter. So otherwise we would have been more or less in line with the peaks in Q4-20 and Q2-21. Wood division, EBITDA of 850 million come down a little bit versus the high point in Q3, which is due to, as Ulf mentioned, the price impact coming down a little bit, but still a fantastic result and 46% EBITDA margin. In the pulp sector, we had a maintenance stop in the fourth quarter, so that's really what impacted both the top line coming down a bit and the bottom line, but 33% EBITDA margin in the fourth quarter. And then in container board, we had the maintenance stop here had a main effect in quarter three. So then you can see the significant uplift in the result in quarter four, also with an impact of the improving pricing in container board in quarter four versus quarter three as well with 44% EBITDA margin. A little bit on cash flow and I'll just hear our focus as well on the full year. First, we had an EBITDA of 9.1 billion as we previously talked about And we take away the effect mainly of the revaluation of biological assets and some other smaller non-cash items. We have an operating cash surplus of 7.2 billion. Then we have a small negative effect from change in working capital but still I think very tightly managed working capital given the increasing price environment which would normally drive an increase in working capital bigger than you see here. So some 300 million outflow in working capital, restructuring costs related to the exit from publication paper of just under 400 million, entirely according to plan, according to the provision taken last year. And then current capex of just over 1.2 billion SEC, meaning we've delivered an operating cash flow for the full year of 5.2 billion SEC. And given our strategic capital expenditures that we're investing in the growth of SEA and primarily Obola and CTMP and all tweaking of 3.7 billion SEC. We are financing all of those growth expenditures through operating cash flow again this year. And finally, just on the balance sheet to show you the balance sheet of SCA at the end of 2021, you can see the top line here is the forest assets where the value has increased, as I said, by just under 10 billion. And we now have a value of nearly 85 billion SEC in the forest assets of SCA. The working capital has 2.8 billion, slight increase versus last year, but less as a proportion of sales, which reflects the tight management, as I mentioned. And then when we include the deferred tax and the other capital employed, mainly related to the industrial businesses, then we come to a total capital employed of nearly 91 billion SIC. Net debt has been stable versus previous year, a small increase, but 7.752%. billion SEC in net debt and leading to a net debt to EBITDA at a very good level 0.9 times and then equity then of 83 billion SEC. All right and with that I will hand back to Ulf for some more comments.