Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of the third quarter SCA results. With me here today, I have President and CEO, Ulf Larsson, and CFO Andreas Evert. Over to you, Ulf.

Thank you for that, Anders, and also from my side to this presentation. When I summarize the second quarter, I can state that we, for the fifth quarter in a row, reached an EBITDA margin of 50%. We have a continued strong cash flow in the company, and by that we also finance all investments, not just our strategic investments, but also our current CAPEX through our operating cash flow. Last quarter I said that the big Obola project was on budget and ahead of time. That goes also now for the big PALP project, the CTMP expansion in Ortviken. That one is also on budget, but one quarter ahead of time. So we will start to ramp up this line in the fourth quarter. The new paper machine in Obola is now running 24-7 and we have started to deliver paper to our customers and we have also seen well boxes produced from this paper with good quality, which is, I would say, a real success. Sales was in line with Q3 last year. Volume wise, we've had a weaker market in solid wood products as we guided for already in Q2. We have also seen some negative impact from the ramp up in Obola, but that is more a lagging effect due to the fact that we are ahead of the time schedule. Otherwise we have seen a positive currency and price mix effect. EBITDA is down 7% in comparison with Q3 last year and that is due to already mentioned lower prices on wood products, somewhat lower delivery volumes and of course we are also hit by cost inflation and mainly in distribution and also we have seen price increases when it comes to wood raw materials. On the positive side we can note pulp prices and craft iron prices which both have reached record high prices during the third quarter and also we have had lower energy costs this quarter in comparison with last year. This morning we have sent out the press release saying that we will from 1st of January next year present renewable energy as a separate segment. And the reason behind this is that we are already today a leading producer of renewable energy. And we will continue to grow this segment. And you know that we have already today 20% of installed wind power capacity on SCA land. But from now on, we will start to invest our own money into wind power. And we also have a couple of ongoing projects within the field of liquid biofuels. So some KPIs. We did close to 2.5 billion on EBITDA level, which gave us an healthy EBITDA margin of 50%. The return on capital employed for our industrial operations, calculated as the average for the last 12 months, was 44%. And the leverage this quarter landed on 0.8 despite our large ongoing investment program. And as I said, we finance all our investment, not only these big strategic projects, but all our investments with our operating cash flow. Then I will say some words about each segment, starting with the forest. And in forest, we have seen increasing wood prices, especially when we compare the situation we have just now with what we had one year ago, as you can see in the bottom left in the graph. We have also seen increasing prices sequentially. So when we compare Q3 with Q2, especially for pulpwood, We have had a price increase of 50 SEK per cubic meter in softwood and 70 SEK per cubic meter in hardwood. We don't import too much wood as we have a high degree of self-sufficient in this area. But nevertheless, if we compare the price level today with what we had one year ago, for softwood we have gone from 40 Euro per ton up to more like 90 to 100 Euro per cubic meter. in birch from 50 up to 125 and we look into energy wood we've gone from 25 to 90 euro per cubic meter otherwise sales was up due to higher prices and same thing with ebitda we had a positive revaluation effect of our biological assets around 70 million sec and we have also this quarter harvested around 90 000 cubic meter more in comparison with last year and as said i mean we have also seen cost inflation mainly in the forest side due to higher fuel prices which have had of course negative impact in transportation but also for harvesting Wood. Well, I said already last quarter that we have a lower global demand in our wood business and by that also reduced deliveries. And the reason behind this is, of course, that we have uncertainty in the market due to cost inflation, due to higher interest rates and so on. And we have seen that not least the demand in DIY and building merchants has not been, that has been especially weak while new construction still is on an okay level. But of course, before new projects will be started, there will be people hesitating for that of course. On the other side we have also during this period now seen start to see curtailments and by that also decrease in production. The estimation from my side during the second quarter was that we should see reduced prices by around 25% in the third quarter in comparison with the second quarter. That was for SEA more like 20% due to the fact that we agreed on prices in the second quarter, but deliveries came in the third quarter, so some kind of lagging effect, but also a positive currency effect. My best guess for the fourth quarter now is that we will see another price decrease of 25%, which is equal to 600 to 700 sec per cubic meter. And by that, my best guess is that we have reached the bottom. so if we start on the top left we note that the stock level in sweden and finland is on a high level in relation to the average for the past 10 years in the bottom left we can on the other hand see that production has started to decrease and on the top right hand we can see the price development and this one is only updated until september i would say so as mentioned we will see another substantial price decrease in the fourth quarter but again by that i believe that we have seen the bottom in in solid wood products So turning over to PALP and as mentioned already, the CTMP project at Ortviken is on budget and ahead of time. So we will start up and we ramp up the new line during the fourth quarter, which is one quarter ahead of time. Very positive, of course. Sales was up as much as 25% during this quarter due to high prices and also due to a positive currency effect. EBITDA up for the same reason, but as mentioned earlier, we see now that we have a higher cost for wood raw materials. During the third quarter, we also started up a planned maintenance stop at Östrand, which had a negative EBIT impact of around 25 million SEK during the third quarter. If we start on the top left side, we can note that we reached record high prices in pulp during the third quarter. So the official European PIX price was around 1500 USD per ton for deliveries in September. Prices has started to normalize a little bit and we see that PIX prices for deliveries in October will stay at around 1480 USD per ton. When we look at the inventory level, we can see that for hardwood, it's more on the normal level, while it has increased a bit for softwood pulp. We can definitely now see less disturbances in the supply chain. And by that also, I think that we see increasing inventories. The stock of orders for SCA in this market is, to be honest, very good. again a lot of uncertainty from energy crisis in europe and also we see some effect from continued lockdowns in in china so in container board the obola craftlining machine is now up and running and it is now producing sellable products as already said the first products as the paper first paper has already reached customers and and We have produced well boxes with good quality, which is really nice. On the other side, the fine tuning will of course continue for a number of quarters now. But nevertheless, we will deliver as much volume in the fourth quarter as we've done in the third quarter. So that is a positive thing. We also in Container Board had a planned maintenance stop during the third quarter and that was in Munchsund and the negative EBIT impact of that was around 60 million SEK. Some words about the market in Container Board and also here we reached record high Kraftliner prices in the third quarter. Prices decreased in October-November for unbleached craft by €30 per tonne, while on the other side white top craft liner remained on the same level. Why? Well, one reason is that the OCC price has collapsed. In June we had a price of €185 per tonne for OCC. The price today is around 75 euro per tonne and we believe that we can come down another 25 euro per tonne, so reaching 45 to 50 euro per tonne in OCC. The price difference between Kraftliner and Testliner today is around 120 euro per tonne, which is on the narrow side, I would say. Demand, not the least in the retail business, has come down. But on the other side, we also know that production has started to decrease now. Nevertheless, we have somewhat increasing inventory level for Kraftliner as it is today. So last but not least, we have decided to start to report renewable energy as a new segment from 1st of January next year. And we believe that we are well positioned to capture growth in renewable energy. We think that we can contribute to the transition towards a fossil free Europe. And we also see that we will have a significant increase in demand for green electricity and renewable biofuels going forward. Already today, we are a leading producer of renewable energy. We have 20% of installed capacity of wind power on SEA land. We will start to invest our own money into wind power. We already today produce 12 terawatt hours of bioenergy and by that we are one of the biggest producers in Europe. And last year we also produced 1.4 terawatt hours of green electricity, which is around 1% of the total consumption in Sweden. So by that I hand over to you Andreas.

Thank you all and welcome everybody. I'll start off with the income statement for the third quarter and net sales declined 1% to 5 billion, where lower prices in wood was offset by higher prices in container board and pulp. EBITDA totaled 2.5 billion, corresponding to an EBITDA margin of around 50%. And this is, as Ulf mentioned, our fifth straight quarter with an EBITDA margin of around 50%. The EBITDA margin was 42%. We had an effective tax rate of around 20%, bringing net profit for the period just below 1.7 billion, or 2.3 sec per share. On the next slide, we have the the development by segment. And if we start with forest to the left, net sales were in line with the previous quarter at around 1.6 billion, where higher prices were offset by lower delivery volumes to our sawmill. EBITDA declined slightly to 623 million, which was due to seasonal lower harvest from our own forest. In wood, we've had several strong quarters since the beginning of 2021. In Q3, prices declined 20%, as Ulf mentioned, bringing net sales to 1.4 billion and EBITDA to 382 million, corresponding to a margin of around 27%. In pulp, we have had the steadily increasing prices throughout the year, and in Q3 we had record high prices. Sales totaled 1.9 billion, and EBITDA was unchanged at 865 million, corresponding to a record high EBITDA margin of 46%. And we started the maintenance stop in the end of the quarter, which had a slight negative impact on volumes. In Container Board, the prices have increased since the end of Q4 2020. In Q3, volumes were negatively impacted by the maintenance stop in Mungsund and the startup of the new paper machine in Obola. Net sales total 1.7 billion. We had an EBITDA of 733 million, corresponding to a margin of 43%. And as Ulf mentioned, the maintenance job had a negative impact of 43%. On the next slide, we have the sales bridge between Q3 this year and Q3 last year. And we start to the left. Prices increased 1%, where higher prices in pulp and container board were offset by lower prices in wood. Volumes had a negative impact of 6%, again because of a weaker wood market and the startup of PM2 in Obola. We had a positive impact from currency of 5% and a negative impact from exit publication paper of 1%. If we move on to the EBITDA bridge, again starting to the left, higher prices in pulp and container board was offset by lower prices in wood. volumes had a negative impact of 130 million again because of lower volumes in wood and the startup of pm2 in obla high cost of wood draw material and chemicals had a negative impact of 186 million we had a positive impact in energy which really shows our high self-sufficiency post our exit publication paper we had a positive impact from currency of 190 million And with a negative impact from higher fuel costs and startup costs of Ortviken, we now have the full CTP organization in place. In total, EBITDA declined 7% to just below 2.5 billion and again an EBITDA margin of 50%. On the next slide, we have the EBITDA bridge for the first nine months. And price mix had the biggest effect of 2.5 billion, where prices increased in all areas. And this was only partly offset by lower volumes and higher wood costs. Again, energy had a positive impact and a positive impact from currency and a negative impact from higher distribution costs. And in total, EBITDA increased 30% to 8.2 billion, corresponding to a margin of almost 52%. We continue to have a strong cash flow, almost 1.9 billion in the quarter and 5 billion for the first nine months. And this means we're continuing to fund our strategic capex with operating cash flow. Looking at the balance sheet, the forest assets increased to 90 billion. Working capital increased to 3.5 billion, mainly due to higher prices, but it was unchanged in terms of days. Capital employed increased to 98 billion. Net debt stood at 8.3 billion or 0.8 times EBITDA. This is a decrease of around 1.3 billion compared to the previous quarter. with equity of 89 billion and net debt to equity at 9%. And as Ulf mentioned, we will start to report renewable energy as a separate segment from the beginning of next year. On this slide, you have the pro forma effects for the first nine months on each segment. And if we start with forest to the left, unprocessed biofuels and wind power releases will, from the beginning of next year, be reported in renewable energy. and the proforma effect on forest for the first nine months was around 65 million, of which the majority came from the wind leases. In wood, pellets will be reported in renewable energy, and the proforma effect was 75 million, and currently we have high pellet prices. Pulp and Container Board sell tall oil to Renewable Energy for a fossil based price. And then Renewable Energy is responsible to maximize the green premium. This had an effect of 60 million in pulp and 45 million in Container Board. And in total, Renewable Energy had an EBITDA of around 240 million pro forma for the first nine months. And we will come back with more financial details in conjunction with our Q4 report. Thank you. And with that, I'll hand back to you, Ulf.

So, and if we then try to summarize the situation, I can state that we are well positioned for the future. We have a very strong project portfolio that will start to contribute from next year. Craftliner already there, CTMP start up late this quarter, Bolstad sawmill, a new grading mill, but also CT scanner, which will be up and running in the fourth quarter. And then we had a biorefinery that will be up and running at the end of next year. As mentioned many times, and as you also can see in the figures, we have a very positive effect of the high degree of self-sufficiency in wood and also energy. but not the least, I would say, in logistics. We have had major disturbances in the supply chain, not only in Europe, but also in other areas. But due to the fact that we have our own logistical company, we have been in a good position here. We are a well-invested and structured asset base, not least since we left the publication paper business. And with that, we also have a very competitive cost position. The forest is growing, bad days and good days, which is good. And last but not least, we have a super strong balance sheet. So, and by that, I think that we can open up for questions.

Thank you very much, ladies and gentlemen. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our first question from Robin of Carnegie. We can start in the room.

I think we start in the room. Linus, please go ahead.

Thank you. A couple of questions on your project pipeline. And just to start off with a very near term with Obola and Otviken. Anything to keep in mind for the fourth quarter, just for the very short term in terms of startup impacts on those projects?

I guess I'll start with... Just that in Q4, Q3, the volumes will be similar to Q3 in terms of Obola. In CTMP, we will continue to have some ramp-up costs in line with Q3. And then for next year, Obola volume, we previously guided over around 500,000 tons.

Great, thanks.

Because the limitation will be the... We are building up also the OCC line, which is needed in order to increase the total capacity. So that will start now, from now on.

Great. And then on the wind business and you're looking to allocate capital, what can you say about the pace of that? I mean, will we see CapEx already in 2023, 2024? You know, what's the pace of CapEx and what are the returns? What's returning capital employed expected for that investment program, if we call it that?

will develop our wind business in different ways i mean one option is to develop our own projects and then we are dependent on environmental permissions and things like that and we don't know when they will come we have a couple of projects in in progress we will also acquire some projects and then you have to agree on the price and so on so we but i mean you you will start to see something i think latest next year but we will not guide for how much, because that is, of course, depending on what kind of deals we can do.

Sorry, you mean there will be investments already in 2023?

Yeah, I believe that.

Either M&A or organically? Yeah. Okay, thanks. And then on the announcement of the potential SOML investment, I mean, is the Rauma sawmill a reference here? I mean, the Metzi Group, 750,000 ton, that mill that just started up, I mean, it was initially supposed to cost 2 billion. I think it was close to 3 billion krona capex in the end. I mean, is that the range, the ballpark range of capex that we should be expecting here?

We have just taken the decision to run these feasibility studies. I mean, we will answer these questions in this feasibility study. But if you're building up a new sawmill today, I think you have to look at that size and also by that also that amount of money. But I mean, we don't know yet. Just now we're starting up the feasibility study.

Of course, and then just overall on CapEx, what's your guidance for the full year 2022 and 2023?

In current CapEx will be a few hundred million more than last year's, about 1.5 billion in current CapEx. And in strategic CapEx, it will depend, of course, on timing of some of our CapEx in Obola, in CityMP, but in the range of three, three and a half billion. And then for next year, I think we'll have about one billion left on those ongoing strategic projects.

Okay. And then it will depend on, you know, potential further decisions. Okay, great. Thank you very much.

But what is good is that we have, I mean, we have now more or less financed all these big projects. So now we can, we have an option. We can choose to invest more or we can just stop here if necessary. if it's getting worse, so to say.

Thanks, Josefin. Good morning. Just two quick follow-ups from my side. It's Christian Kopfer from Handelsbank, by the way. Firstly, on biofuels, you mentioned, Ulf, You look into a number of opportunities there. I just want to see how you view that market now with the new administration in place. Seems like they are a little bit more skeptical, to be frank, on biofuels. So what's your outlook? Has it been weakened a little bit, perhaps?

I mean, not really. If we look into the project that we're running in Gothenburg, 40% will be biojet, for example. When we look into the project that we are just on the planning phase, but in Östrand, up to 80% can be biojet. So I think we have a global market. I mean, short term, of course, you can have some kind of impact on Swedish prices, but globally, not really anything major. We also often... have the questions about what kind of impact will it have in the wind power business. And from my perspective, I mean, long term, we definitely need nuclear power. And so I think that is a good decision to start up that progress. But on the other hand, in order to get enough of electricity supply short term, the only option is wind. So I think you need both wind and nuclear.

Right, I agree on that. So finally for me on sawn wood prices, I'm a little bit surprised to see that you stick your neck out here and call the bottom. What makes you feel so confident? Is it because profitability in the sawmill industry in Europe will be so bad, or is it that you expect demand to come back again?

Low prices. I mean, the bottom, when you reach break-even, then it's the bottom. because then capacity will start to close down. And I mean, for us, we are a low-cost producer, so we will continue to run our mills, but we have already now seen some producers starting to take curtailments and so on, and still we have a decent margin. But the price development now, I mean, it will be another substantial decrease in the fourth quarter. but it cannot really go further down without fastly decreasing prices for saw logs. And I don't think that will happen so fast.

Okay, fine. Thanks. Morning, it's Johannes Krancilis here, D&B. A couple of follow-ups for me, but on the expansions, Craftliner, CTMP, could you help us a little bit on how to look at this for next year, any sort of incremental volumes, the delta, or any kind of earnings impact there, please?

We can start with the volume, and as Andreas said, what we have communicated is that today we will... I think that the production in Obola will be around 440,000 tons this year, and that will increase up to around 500,000 tons next year, which is quite unique because normally in these big expansion projects, you have a rather long term where you have to stop the production and then start up again. But this will be really strong cash positive during the whole project period, which is a real strength. In CTMP, I mean, yeah, I don't know if you have said anything about the volume for next year.

No, but I mean, just give some guidance. I mean, we're currently producing 100,000, a capacity of 100,000 tons. We said maybe 150,000 to 200,000 tons in total next year.

A little bit depending on the market, because I mean, one potential market will be Asia. And we still see an impact from lockdowns and things like that. So, I mean, again, it is a big uncertainty in the market in general that will have an impact, of course.

And I also have a question on your sawmill business and what you see Q4 and beyond that. I mean, in this tough market, are you able to find... sort of new markets that can replace the weak do-it-yourself market at home, so to speak, on offshore markets?

Again, I think we are positioned as a very low-cost producer. So I'm not really afraid of us being forced to take retainments, at least not for a longer period. For a while, during Christmas and so on, we might close down for a while. But, I mean, we can continue to run. But... Just now, we have a rather similar situation all over globally, I would say. The U.S. is still a little bit stronger, but we have also seen a decrease in demand in the U.S. Asia is rather slow. And again, I think that is also very much related to the increasing interest rates here. So we saw the estimation for new building in Sweden next year was down 24% and so on. And we see that kind of figures all over the world just now. Thank you. So then we maybe open up the line.

Thank you. We'll now take our first question from Robin of Carnegie. Your line is open. Please go ahead.

Yes, thank you very much. So it's Robin Santavirta from Carnegie. Now, first, just to check with Andreas on the Obola volumes. Did you say 500,000 tons expected next year?

Yes.

And that would then be up, I guess, from something like 440,000 tons this year? Yes. What is the reason, I guess, Do you have a lot more capacity to produce up and essentially installed at the end of this year? So what is the reason you cannot produce more next year? And when should we expect the full capacity of the expansion to be in production and in play?

The full capacity will be reached in 2026, as we previously guided. And you have a ramp-up curve. And also, we cannot increase capacity beyond a certain point before we increase the fiber volume. We have the recovery fiber line, which will be ready in Q2 next year. And after that, we can start to increase production. So we need more fiber.

So by that you will also see a higher production rate in the second half of next year than in the beginning of next year, which might be important.

All right, I understand. And I guess it's the fiber related to the RCP or OCC. Yes, OCC. Good. Then in terms of the container board business, what are you seeing at the moment in Europe when it comes to demand and the customer inventory levels. And I related to that, I can see the natural gas pricing in Europe, at least the financial instrument, the forward next day has come down to a very, very low level compared to historical average levels. Is that now impacting then the test line and sort of production in Europe increasing? What are you seeing when it comes to sort of supply demand.

I mean of course you will have an impact from the energy price when it comes to the production of test liner and by that you will also see an impact on the craft liner pricing related to the pricing of test liner and as I said I mean the delta just now is 120 euro per ton and that is on the narrow side maybe the A normal figure should be 150 or something like that. But the reason now for, I mean, we are on record high prices for Craftliner. We have also record high profitability. We decreased the prices for deliveries in October, November by 30 euro per ton for Unbleached Craft. And the reason for that was, of course, that we... The announced price increase in test liner didn't come through. And why not? Yes, because the OCC prices went down. And as I said, from 185 euro per tonne in June down to 75 euro per tonne where we are just now. And we feel that it might be so that we will face another smaller price decrease in OCC. It might be so. Then, of course, energy price on the other side, that will also have a big impact on what kind of production rate we will see in test liners. So it is some kind of combination here. And it's hard to predict. As it is just now, it's an okay market for us. And the demand is, the stock of orders is, for SEA, it's on a good level, I would say.

I understand. Thank you very much for the details. And then the final question I have is related to fiber cost in Q4 and in the winters compared to Q3. What is the outlook for you guys?

I think we will more or less, at least now for a while, we will stay on this level, I would say. And I mean, for us, again, we have 50% of what we need in our own forest. We don't import too much, but we have seen, as I explained, we have seen that import prices have increased quite substantially since last year, but also since the last quarter and so on. But I think we will remain more or less on the same level now for a couple of quarters.

Thanks. Can I just check with you, you called the price low by 25% Q on Q in sort of sawn timber. And you're quite low cost. And when I do the numbers, I end up with quite low profitability for the wood segment than in Q4 with sort of unchanged cost Q on Q. Surely that must push some of the higher cost producers into negative numbers. Is that how we should expect it? And then perhaps at the reduced production volumes.

That is how it works in the market economy. And that's why I'm quite sure that we have now reached the bottom for solid wood products. And then the question is, when will it start to take off again? I mean, I think that is dependent on interest rates and what kind of uncertainty you have and due to, I mean, related to the war and a lot of things. But already now i mean as i said i mean already now and as you also saw in the statistics from sweden and finland we have already now seen that producers they have started to take curtailments and so on i believe that during christmas many producers will will take curtailments i think that we also will we will not produce 100 during christmas we will talk with our um and they will take out a couple of days and so on. So, I mean, that is normal.

Yeah, but the economy is not going in a better direction come Q1, nor the seasonality. But let's see where that will take you. Thank you very much for good answers.

Thank you. We'll now move on to our next question from Martin of ABG. Your line is open. Please go ahead.

Yes, just to double check. So in Q4, are these two new projects on CTMP and Craftliner having a negative ramp-up cost at first, or is that not really the case and it's rather a positive contribution?

In Q3, I'll start with Obola. we had some impact on volume because when we switch from one machine to the other, I mean, you lose a couple of hours of production each time. So we were negatively impacted by by the startup. And in Q4, we will have similar volumes to Q3 in terms of Obola. In Ortviken, we had some startup costs to CTMP, where we now have the full organization in place at our mills for training, et cetera, and doing all the preparations. And we will have that also in Q4. And then end of Q4, we would start up production of CTMP.

Okay, and the last question. Could you explain why you do a JV on sawmills with Holman? Because I guess you're big enough both to do that kind of an investment. Is that to keep the wood price low in the area and not compete, or what's the rationale?

The reason for that is, I mean, it is today a rather high investment cost if you should invest in a new sawmill. And to reach, let's say, an optimal capacity... then we can use the wood from our own forest models. I mean, already today we produce around 300,000 cubic meters per year in Rundvik, and that mill will be closed. So, I mean, we just transferred that volume into a new mill. And by that, of course, we will reduce the investment cost. And if we don't build up a new mill, then we will, of course, invest in in the old one, but that will not be as efficient as what we believe a new mill can be. But again, you need to get access to raw material. 75% of the cost for a sawmill is related to saw logs. But this investment will increase the value of SEAs, and this potential investment will increase the value of the forest for SEA, but also for Holmen, but also for all private forest owners in that region.

Thank you.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll now move on to our next question from Oscar of Danske Bank. Your line is open. Please go ahead.

Yes, good morning. This is Oscar Lindstrom at Danske Bank. Three questions. The first one on the forest land values. In this The Swedish forest land market has been very strong during the first half of the year. What are you seeing now in the second half of the year and looking into next year? What's your feeling around forest land pricing? Should I go on with the second question?

We can start with that one. We believe that the price level for forest land will remain more or less on the same level. That is what we see in the market just now.

All right. And could you say something about sort of where demand is coming from? What type of assets are most attractive?

All type of assets, to be honest. I mean, we feel that there is a big interest, still a big interest for forest land. And I mean, we are... We are doing a couple of transactions every month. And it is, let's say, rather stable on historically high level, I would say. So, I mean, the interest is big for forest land. It's a real asset. And we cannot really see an impact from increasing interest rates because some people think that will have an impact. We haven't seen it yet, at least.

And why do you think we don't see that?

Because I think it is an attractive asset, as I say. I mean, we see a number of people coming in here and all kind of investors coming into forests.

All right. So it's just a rather scarce asset class.

Yeah, we don't produce any new land, so that's maybe the reason. Yeah.

A second question on capital allocation. I mean, you have a very strong balance sheet and two of your major CapEx projects have now ended. I mean, do you see any attractive M&A opportunities given lower prices at least in the public market, or will you continue to focus on organic growth like the potential project you announced today and other things you have in the pipeline?

I mean, you don't know what kind of options that will appear during coming years. It is always good to have a strong balance sheet. But I mean, our main focus is still on... We will continue to buy forest land. We long-term believe in forest land, so that we will do. And as you know, we have our ongoing program in the Baltics, and soon we have done 70% out of that. We will start to invest in renewable energy, as mentioned. But I mean, acquisitions and things like that, I mean, that you don't know before you see what's going to happen. But we have no really big investments planned for the moment being. We are just now 100% focused on finalizing all big projects that we are running for the moment being.

My third and final question is on the biorefinery project in Östrand. And what's the status of that one? I mean, it's been in your pipeline for a long time and progressing a little bit, I guess. But what's the status and your thinking on that project?

I mean, we took the decision just recently to invest 50 million euro for building land. The environmental permission is in place. But again, we have said that commercially we need to find land the right technique in order to optimize these projects. I mean, we are not in a hurry. Just now we are running the biorefinery project in Gothenburg and that one will be up and running late next year. And we have a couple of different other projects. I mean, that one will come sooner or later, but we will not rush into it.

And do you foresee that being a joint venture or something that you pursue on your own?

I mean, already today we have a joint venture together with SD1 and they are also in this biorefinery project in Östrand. So, I mean, that we already know and that we have announced. But I mean, as we don't know what we will invest into, we cannot really decide whether it should be a joint venture or not. So, I mean, we have to wait and see and see what kind of conditions we have when we are ready for a decision.

All right. Thank you.

Thank you. We'll move on to our next question from Andrew Jones of UBS. Your line is open. Please go ahead.

Hi, Jones. A couple of questions for me. Firstly, just on the market for wood. I mean, basically, can you remind us what your split is between where you're selling a lot of the sawn log product and in the relevant markets? What does that cost curve look like? I mean, how... What does the bottom end look like compared to the top end? How steep is it? And what sort of proportion of capacity have you seen idled relative to the fall in demand year over year? And what amount would you potentially see coming out in the coming months if prices indeed fall 25% as you're expecting in the fourth quarter? I have a second question, so if you could answer that first.

I think that was many questions, but I think the only answer we can have is, I mean, I did show you the slide that was showing the production rate in Sweden and Finland. And as you saw in that slide, the production has started now to decrease in comparison with the average for the past 10 years. And that will continue. I mean, we did some calculation here. Meaning that if we will reduce prices with another 25%, and that will come not only for us, but for all producers, then a lot of capacity will be closed down. And then again, when will it pick up again? Depends, of course, on the pricing. And it is a combination between log costs and... price for solid wood products 70 a little bit more than 70 percent of the cost in a sawmill is related to the log cost and you have very local conditions for for that part so it's impossible to say but i mean we will we will see i think we will see substantial curtailments taken now when the price is coming down and we have started to see it already And we can see the announcements that you see, official announcements, but we feel it in the market now that by that the balance will be better, of course.

Yeah. And just to follow up on the point that my colleague raised about the about the land transaction values. It looks like if you take your balance sheet value, it's about 120 sec per share. There's not much value in the rest of the business according to that figure. Clearly, the market is saying that the land is worth less than it's put on your balance sheet at. what is the market not understanding? Because it seems as though long life, low yielding assets, interest rates must have an effect on that. I mean, clearly there is demand and transaction values are holding up, but what is keeping them up? And is it the potential for alternative land use, be it wind or something else? And if that's the case, could you quantify potentially what the uplift of the land value could be if it got permitted for wind? What's the bull case versus this interest rate argument that people are bringing out of the land?

Firstly, I mean, we see a lot of interest in forest land. I mean, a lot of visitors think it's a good hedge towards inflation. And I mean, we did a study, I think it's an annual report. I mean, if you look at forest assets from 1950s, to today, they've averaged about 10% in yield. But you have to look at the price increase, you have to look at the cash flow, but also the net growth. We only harvest around 60% of our net growth, so we get more and more standing volume each year. I think that's Many people find that attractive and we see a lot of interest in forest land. We've also done, I mean, there's fairly limited correlation between interest rates and the forest value if you look on the past 50, 60 years.

Okay. And for alternative values, I mean, if you... I mean, if you converted some land and you just sited a wind farm on it, I mean, in terms of the value per hectare, I mean, what's the sort of comparison or how much could that potentially rise if you were to lease it for use as a wind site?

It's a very high value if you can get a permit to to build a wind farm. Today it takes eight years to get a permit and 90% is a no. So the wind projects have a very high value. We see that also if you can sell a complete project where you have the permit, you get a lot of money for that. So you definitely see increased value from wind power.

And do you see the new government improving permitting materially?

I think that will come in one way or another. I mean, that is also what they have said, that they will shorten the time in all areas, not just for wind, but in all areas.

Okay. Thank you.

Thank you. We'll now move on to our last question. Everton from Cole Hertham of Jefferies. Your line is open. Please go ahead.

Morning. Thanks for taking my questions. I've just got two. I'll take them one at a time. Firstly, on wood products, stepping away from the near term, I'd just be interested in hearing your view on what happens if we have a longer-term housing slump and how does that play off versus kind of structurally 10% less supply out of Russia into Europe, regulations, I suppose, building with wood, replacing steel and cement, being more favorable. How do you see that kind of balancing the market going forward, kind of longer term, and then I'll follow up with one on container wood. Thank you.

I mean, long term, you will have a positive balance for solid wood products for many reasons. I mean, already today you see that we cannot really supply, we haven't been able to supply the market with what they needed for a couple of years now. And also for sustainability reasons, I mean, political reasons within the union and so on really supporting the consumption of solid wood products instead of concrete and and other building materials i think that will be long term this will be a positive business it is volatile which can be good and which can be bad but i think we are ssa we are well positioned to to to some extent, to benefit from this volatility. So not only in solid wood products, but also in other areas. But long-term, this will be a good business.

And then, just following up on the container board market, I know you've given some commentary and some data on the inventory data for Craftliner. But that data, I imagine, is only for August, and there's been quite a bit of industry downtime recently. Can you give us your view of where your system inventory levels are at the moment or how you think the industry might be now after taking a fair amount of downtime over August and September? And then following on from that, it was asked earlier on the call about costs coming down in OCC and gas prices. How do you see this developing? Because while short-term gas prices might be a little bit lower, If we look into next year, the forwards are still elevated. Should we see the prices coming down a little bit with costs and test liner and impacting craft liner into next year, or should it just be more of a gradual impact through the first half? Thank you.

Again, as I said, for SEA, we have a rather normal stock of orders, so we are not stressed by by any limitation in that side. We are also not so focused on the ramp up of the new paper machine. The other question I mean again, it is of course a combination and relation between test liner and craft liner prices. Test liner prices are depending on the price for OCC and I have described the development that we have seen there. And it is also dependent on the price development for energy and that you know as good as me that we have seen lower prices. And due to the fact that we now have filled up some inventories, at least for a part of this year, we don't know what kind of winter we will have. We don't know how long the war will remain. We don't know the situation next year and so on. But we know that the delta just now between test liner and craft liner is 120 euro per ton. And the reason for that is, of course, that we don't like to see any substitution from craft liner down to test liner. And we haven't seen that yet. And we will, I think we will, we and other producers, typically we will follow the delta and we will also keep the, let's say the difference on a decent level in order to avoid substitution. But I mean, I cannot judge the development for gas and for OCC prices better than you can.

I suppose maybe asked another way, does a short-term decline in gas prices necessarily impact pricing that much? If we look out kind of a couple of months, prices will be higher. I imagine container board prices wouldn't necessarily fall as much on a short-term basis just because you've got potentially next-day gas prices being lower.

I mean, theoretically, yes. I mean, if you have a lower gas price and if you have a lower OCC price, then, of course, the profit would be, the cash cost will be better. They will be in a better position as a test line producer. I mean, just now we have been in a very special place in Scandinavia with the energy supply that we, the structure we have in the energy supply here in this region. And that you can also see in the result that we have. And I mean, sooner or later, prices will start to normalize. We saw some adaption maybe in the last month where the price for unbleached craft went down 30 euro per ton. Now it's stable again in the market. It was unchanged for white top craft liner and So it's hard to say. We feel that the demand is still on the good side, even if we see that the demand in the retail sector mainly has come down a bit, but still on a good level if you compare with the situation before the pandemic and so on.

Thank you.

Thank you. Once again, ladies and gentlemen, If you'd like to ask a question, please press star 1 on your telephone keypad. Thank you.

Anders?

I see there are no questions in queue. I will hand it back to you. Thank you very much.

Thank you, operator, and thank you for participating, and welcome back when we present the fourth quarter results early next year. Thank you for watching.