Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of the SCA 2022 first quarter results. With me here today, I have Ulf Larsson, President and CEO of SCA, and Toby Lawton, CFO of SCA. With that, Ulf, I give the word to you.

Thank you for that, Anders. Good morning also from my side and welcome to the presentation of SCA's results for the first quarter 2022. It is impossible to summarize this quarter without mentioning the Russian invasion of Ukraine. First and above all, this is, of course, a humanitarian disaster. Anyway, our product markets have and will be influenced in different ways. Short term, I mean, then we see a very positive climate for the business. Long term, it is, of course, a question mark. I mean what will happen with inflation, what will happen with interest rates and related to that what will happen with future consumption and so on. I can also state that we have no operations or direct exposure from sales or purchasing in Russia, Belarus or Ukraine. We have delivered another strong quarter. Our EBITDA was 2.6 billion SEK on EBITDA level, which is corresponding to an EBITDA margin of 52%. One big and I think very important reason to that is our unique control over the value chain. And here I'm thinking about wood, energy and also logistics. And Tobbe will come back and show you some interesting data around this. On top, of course, we have had a fantastic quarter with increasing prices, stable prices for all areas. Then comparing EBITDA level for the first quarter this year with the outcome for Q1 2021, we can see an improvement of 92%. Sales increased 20% versus Q1 last year. and that is despite that we finally now have closed down our publication paper business. The main reason for the sale increase is of course higher prices in all products and markets. Last but not least important, I would like to conclude this summary of the first quarter by stating that the two big investment projects in Obola Nordkviken both are progressing according to time and budget. And we are just now getting closer to the startup. Turning over to some financial KPIs, and as already mentioned, 2.6 billion on EBITDA level, which is corresponding to an EBITDA margin of 52%. Our industrial return on capital employed, calculated as the average for the last 12 months, is 40%. and for the quarter 42%. The leverage is stable on one despite our large ongoing investment program and I'm happy to say that we continue to finance all our investments including strategic projects with our operating cash flow. So I will then make some comments for each segment starting with forest and due to the Russian invasion of Ukraine between 8 and 10 million cubic meters on yearly basis of mainly pulpwood ships will no longer come to Europe. And that in combination with the fact that the Finnish strike is now over will generally put an increase in pressure on the wood supply in our region. As we, SEA, we harvest 50% of what we need from our own forests. And by the main part of the remaining volume from private forest owners in the region, we are not heavily impacted by this situation. And during the first quarter, we have also had a stable supply to our industries. And as you can see in the graph on the bottom left, prices have also started to come up now, not least for saw logs, but also for pulpwood. EBITDA increased by 35% when comparing quarter on quarter and the main reason for that is continued increasing prices for forest land and by that also higher revaluation effect of biological assets. Turning over to wood and also business area wood is impacted by the Russian invasion. Normally, we see about 10 million cubic meters coming over to Europe from Russia, Belarus, and Ukraine. This flow is now, for different reasons, stopped. In the short term, that will, of course, create very positive momentum for producers. Price levels for solid wood products peaked in Q3 2021 at the historically high level, which you also can see in the graph on the bottom left. Average prices dropped by just under 15% between Q3 and Q4. We had a seasonal low demand during the winter period, and that pushed prices down by another 12% during the first quarter. Anyway, we now, and I think I also said that last quarter, now we expect prices to increase by at least 20% during the second quarter. We feel that we have really strong markets in Scandinavia, in UK, Japan, and also in the Mediterranean area. China is a little bit weaker, and we believe that's mainly due to the lockdowns that we see now due to COVID. As for SEA, we have had good production during the first quarter, and we've also had good delivery levels for the season. And as you can see from the graph, sales increased by 36% when comparing with the same quarter last year. And this is mainly due to increased prices, but also, as I said, due to higher volumes. The profit level in SA Wood is still on a very good level. EBITDA was up as much as 105%. And if we compare quarter on quarter, And we reached well over 600 million SEK for the first quarter. Today's stock level of solid wood products in Sweden and Finland is in relation to the average for the past five years, described at the top left on this slide. And as you here can see, we are now back on, let's say, a normalized level. And as you also can see in the diagram to the bottom left, the production is also more or less at normal level and and the situation just now is that in scandinavia we are now running production at full capacity just in order to meet the good demand and when looking at the diagram to the top right we can see that we price ssl peaked in the third quarter 2021 we had decreasing prices for two quarters but as i said we expect now prices come up by at least 20% during the second quarter. Okay, pulp. I mean, we have no direct effect of the Russian invasion in terms of stock deliveries of pulp from Russia over to Europe, but we have seen indirectly that war causes logistical disturbances. We see also lack of chemicals in the system, and that will, of course, have consequences have an impact in pulp sales were up during the first quarter by 21 percent compared to the same quarter last year and that is mainly due to significantly higher prices and every day also increased by 59 during the same period and also here our ongoing project to build a ctmp line at the weekend the total capacity will be 300 000 tons That one is progressing on time and budget. The net contribution to the market will be 200,000 tons when we are up and running in Ortvik and when we close down the old line at Östrand. We feel that the pulp market is very tight for the moment being. We see a good demand and we also see clear limitations on the supply side. That is, as I said, due to logistical challenges. but also lack of chemicals, et cetera. Today, we have more or less the same price level in all regions in Europe, in US, maybe a little bit higher in China. We also feel that we have a very tight spot market for the time being. As you remember, we picked price-wise in the beginning of the fourth quarter 21, and the official picks price at that time was 1,340 US dollar per ton, Prices decreased down to 1260, has now risen again, and the official European Picks price today is 1346, if I remember right. And I believe that we will see another price increase in short. SEA has announced 1400 for deliveries during May, and we have also announced 1450 for deliveries during June. Inventories for hardwood pulp are on the normal level, while the level for softwood pulp still is a little bit higher than average, as you can see in the graph, but mainly relates to increased inventories in transit because of logistical challenges. So, to summarize, the pulp market is tight. Then, finally, moving over to container board. Typically, we have 300,000 tons of container board coming over from Russia to Europe, 25,000 tons per month. Due to the Russian invasion, that flow has now stopped. The sales and EBITDA for the container board business are up 36% and 144% respectively in the first quarter when comparing with the same period last year. This is mainly due to increasing prices, where we now have reached all-time high prices, as you also can see in the graph in the bottom left. During the same period, also see prices have almost tripled, and the effect of that is, of course, negative. But together with rampant prices for energy, it supports the price development for test liner, and that indirectly supports price development for craft liner. And finally, I'd also like to underline that our expansion project in Obola is progressing well, and we are on time, we are on budget, and we have managed challenges related to COVID, to the Russian invasion and so on. Craftliner deliveries from Europe continue to be on a high level in the first quarter this year, and here we see a very stable long-term growth. We can also state that the demand for boxes has continued to be solid on a high level during the first quarter. Inventories for cropliner are on a higher level than last year with a seasonal increase in December. Nevertheless, we see that they are trending down now during the first quarter. We note also here lack of shipping capacity in the system and That, of course, causes some problems for deliveries outside Europe. That is a minor problem for SEA, as we are very much focused on Europe as a market for Kraftliner. The ban of Russian deliveries of Kraftliner to Europe is expected to gradually tighten the market further, but has also short-term increased the Russian producer stock of Kraftliner in Europe, and that is also what we can see in the statistics. We have seen stable prices during the first quarter and since the prices bottomed out in the fourth quarter 2020, the price for unbleached craft liner has increased by €350 per tonne and for white top craft liner by €185 per tonne during the same period. The CA has now announced another price increase for both unbleached and white craft liner from April and we expect these price increases to be successfully implemented during the second quarter. So by that, I hand over to you, Tobbe. Thank you.

Thank you, Ulf. Good morning, everybody. I will start off with a new slide, which we have, which shows about a bit of detail on our integrated value chain. and why we have, through the integrated value chain, a good level of control of both our cost base and our supply chain in SCA, and especially relative to others in the sector. And if I start off on the left-hand side of this slide, we have our wood sourcing where we annually source around 11 million cubic metres of wood per year, and around half of this, 50%, comes both from our own forest and the wood chips from our own sawmills. And then the majority of the rest comes from local private forest owners located in the SCA region where we have a big network of harvesting operations. And we usually have also contracted volumes two or three years in advance. So we have a high level of control of our wood raw material sourcing, which is by far the biggest raw material for SCA, of course. And the second box here is the electricity usage where we are almost neutral in terms of electricity. The biggest part, we have our own production which is used externally at the bottom. Then we have a significant chunk of electricity which we generate and sell to the grid which offsets our exposure also from the electricity we then buy back from the grid in other mills. And then we have a significant offset effect also from our wind leases where we have leasing contracts for wind power which are partly linked to electricity prices. Altogether our 1.7 terawatt hours of electricity usage is pretty much offset from our own production making us neutral on electricity. By far the biggest energy category for SCA is solid biofuels where we have 12 terawatt hours of exposure and we are a net seller here and this is biofuels produced primarily from bark and sawdust which goes to make pellets. and other biomass residual products from the forest. The biggest chunk is that which we produce ourselves and use internally in our operations. We have then a significant sales externally of primarily pellets and we also sell district heating also in the areas where we have our mills to heat the local communities around the mill. Fourthly, we have our own logistics company where we We have around 40% of our total logistics sourcing is run through our own system, basically in the terminals that we have and the ships and vessels that we have and long-term agreements securing other ships. And that's pretty much the most critical 40% for the logistics operation as well, having a reliable delivery performance to our European markets primarily. So we secure 40% of the logistics through our own operations. And then when it comes to transportation fuel, we also, in all our operations from the forest and out to delivery to end customers, we have around 100,000 tons of transportation fuel. And around 45% of this is offset through tall oil, which we produce and sell today, which is a product which has a price closely correlated to the price of transportation fuel. And this is the part also which we expect to grow through our joint venture investment with SD1. to convert tall oil to HPO as well. So altogether, I think that demonstrates this high level of self-sufficiency means we have relatively less exposure from cost pressure, and we're also very much able to have a reliable delivery performance to our customers, even in a tough environment like we have today. All right. If I move on, show first the income statement here, and here you can see On net sales, we grew net sales 20% in the quarter from just over 4 billion to just over 5 billion this year. And last year we did have, it was the last quarter where we had net sales of publication paper of any size. So we had around 400 million of publication paper sales in Q1 last year and of course nothing this year. EBITDA margin has increased from 32.8% in Q1 last year, which I think we felt was a pretty good level in Q1 last year, but now Now we've had three quarters in a row with an EBITDA margin over 50% and 52% this quarter. Then EBIT margin 44% this quarter after we take off depreciation and financial items very stable on a good level, 15 million SEC in the first quarter of net financial cost. Effective tax rate around 20%. So we have a tax charge of 448 million and then net profit for the period is just under 1.8 billion, which means we have an earnings per share this quarter of 2.51. If I move on and give a little bit more flavor per segment, starting off on the top left in the forest segment, the top line in forest grew this quarter. We've had price increases as showed in pulpwood and especially in timber. but also we've had a growth in volume because we haven't had any major maintenance stops in the first quarter. We had a significant maintenance stop in first round in the fourth quarter. In terms of EBITDA in forest, you can see a drop from the fourth quarter. The biggest effect here is the revaluation of biological assets. We had a one-time effect from increasing the level for the whole year, 2021, which we took in Q4, which means around 250 million of the difference is related to biological assets. We also do have a seasonally lower harvesting of own forest in Q1. And then we have a positive effect from the higher price environment in forest as well. And going into Q2, you would normally expect to see a higher seasonal effect from own forest coming through in Q2 where we harvest more of our own forest. In the wood division, you can see we've had three quarters with price declines, which explains the drop in net sales value from Q3 last year to Q4 last year, and then also into Q1 this year. And that also is the explanation for the lower EBITDA level versus the peak of Q3 last year. But I think you can see it's still, price levels are still on a historically high level and a good level. And EBITDA margin is the same with 37% EBITDA margin for the wood division. In pulp, you can see the net sales increased, primarily due to the higher volumes and the maintenance stop we had in Q4, and you can also see the effect on the EBITDA, where the EBITDA increased, and now we have a margin of 39% in Q1. And then finally, container board, and you can see the growth in net sales in container board, two quarters in a row, which is largely driven by the price, where we've seen price Net price increases two quarters in a row now, steady improvement, and that's also driven the improvement in the bottom line where we now have an EBITDA in the first quarter of some $782 million and an EBITDA margin of 40%, 45%. And if I just then show some of the bridges from Q1 last year to Q1 this year, of course you can see on net sales it's by far the biggest impact is The price impact of some plus 30%, which is in all areas, wood, pulp, and container board. We have slightly lower volumes. We did have some high delivery levels in Q1 last year, slightly higher than we had in Q1 this year. And then we have a 9% impact from exit publication paper, and that we should not see going forward now so much in future quarters because it was much lower after Q1 last year. Then I think this is a very interesting slide where you see the impact on EBITDA and you see really the big impact from price mix of some 1.3 billion, but a very limited impact on the cost side, which is related to the high level of control over the supply chain and value chain as I showed on the first slide. So really all of that price mix effect comes through in improved EBITDA. So very limited effects from volume, raw material cost, energy cost currency or other items. And this is also helped by the fact in 2021 that we took significant cost out of the business following the closure of publication paper as well. When it comes to cash flow, we have a strong cash flow again this quarter, 1.1 billion sec of operating cash flow, which again, as I've mentioned, means we're funding our strategic investments entirely from operating cash flow. We are investing in working capital as the prices increase. So we see an outflow in working capital, which is an effect of the increased pricing environment. But despite that, we still demonstrate, as I said, a strong operating cash flow. And if I finally flick on to the balance sheet, you see here the forest assets now in the balance sheet at 85 billion SEK. Working capital, again, as I say, increased due to the pricing environment. It's not increased in terms of number of days, just due to the price impact. And then total capital employed on just under 93 billion. Net debt increased here up to 10.2 billion, as you see, and that's due to the payment of the dividend. We had a 2.3 billion payment of the dividend at the end of the quarter, and that's the reason that the net debt has increased. And that means that net debt to EBITDA is now increased slightly to one times EBITDA. And then net equity is just 82.6 billion and 12% net debt to equity. So yeah, with that, I think I'll finish off and back to you, Ulf.