Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of the SCA half-yearly report for 2024. With me here today, I have President and CEO Ulf Larsson and CFO Andreas Evert. And with that, over to you, Ulf.

Thank you, Anders. Good morning also from my side. A warm welcome to the presentation of the result for the second quarter 2024. And when I summarize the second quarter, I can state that the markets for all fiber-based products in all areas are sequentially stronger with higher prices in Q2 in comparison with Q1. We can also note that we have a delay effect in pricing for container board and pulp with one to two months. In renewable energy, we have seen a negative market development in Europe for liquid biofuels, also affecting tall oil prices. So when we compare Q2-24 with the same period last year, this is of course not the least due to reduced mandate for biofuels in Sweden since 1st of January this year. And due to a seasonal effect, we also see 40% lower deliveries of wood pellets in the second quarter versus the first one this year. Also this quarter, we note a high demand on wood, raw materials, and by that continued increase in prices. We have in SEA also increased volumes from our own forest, which in comparison with the second quarter 23 has strengthened the result in business area forest. Sales increased with 15% and EBITDA with 11%, Q2 24 versus the second quarter 23. Higher prices, increased volume and a positive currency effect explains the improvement. This slide will give you an overview of KPIs for the second quarter 24. Our EBITDA reached, as you can see, 1.9 billion SEK during the second quarter, which corresponds to an EBITDA margin of 36%. Our industrial return on capital employed came out on 4% for the second quarter, counted for the last 12 months. The leverage is at 1.8 and net debt to equity was 11%. And we have now finalized our big strategic investments in Obola, Ortviken and Gothenburg. And just now they are under ramp up, but coming years they will of course contribute in a positive way. Then I will make some comments for each segment, starting with the forest. High harvesting level from our own forest has contributed to stable supply of wood-raw materials to our industries during this period. In general, we see a remaining high demand of wood-raw materials in the market during the second quarter, and by that also continued increasing prices for both pulpwood and saw logs, as can be seen in the graph in the bottom left. When one compared the second quarter 24 with Q2 23, sales was up 15% and EBITDA was up 8%, mainly due to higher prices and a higher harvesting level in our own forest. Regarding forest valuation, the market has since the beginning of the year been slow and we've had very few transactions in the area where SEA owns forest land. For that reason, forest valuation remains unchanged. Then I turn over to business area wood and in general we still have a continued slow underlying market for solid wood products. Despite the generally low demand we see some early signs of improvement in the repair and remodeling segment which is good for SEA as that segment is where we are mainly present in. Stock levels are on normal levels at producers and mainly at the low side at customers. I estimated that price in the second quarter should increase with 10%, which also happened. Deliveries and prices increased due to a seasonally higher demand in the second quarter, but the cost for solos also increased during the same period. Sales was up 11%, EBITDA was up 46% in the second quarter in comparison with the same period last year. The reasons behind this were mainly higher prices and higher volumes, and the EBITDA margin consequently increased to close to 20%. 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. As mentioned earlier, we note that the inventory is on a normal level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been slightly below normal levels accumulated so far 2024. In the diagram to the top right we can see that prices started to increase during the first quarter 24 and has also continued to increase going into the second quarter. Coming into the third quarter I estimate close to unchanged prices due to balanced stock levels and also due to high and further increasing raw material costs. In the construction sector we can conclude that the starts of new building are low. On the other side, the repair and remodeling sector, as mentioned before, is performing better and that will also respond positively to coming lower interest rates. Over to PALP. The ramp up of our new CTMP mill is running according to plan. Production optimization work continues. Our CTMP products have been very well received in the market. Consequently, CTMP products represents now an increasing share of our pulp sales. Sales and EBITDA were up 22% and 34% respectively when comparing the second quarter this year with the second quarter 2023. We can note higher prices and volumes on the positive side, while higher raw material costs have had a negative impact in this comparison. During the second quarter we have had an unplanned production stop at Östrand pulp mill due to a leakage in the recovery boiler. The total negative impact was approximately 60 million sec in second quarter and a similar amount will be recorded also in the third quarter. The pulp mill is now back in stable production again. After a rather weak 2023, demand for pulp improved in Europe and US during the first half of this year. Export volumes to China normalized during the first half of 2024 after, as you remember, very high volumes in the fourth quarter of 2023. The Finnish strike in March substantially reduced supply of MBSK in the beginning of the second quarter. In Europe, prices on all grades of pulp continued up in the second quarter, with MBSK index pricing increasing from 1,400 USD per tonne in March to over 1,600 USD per tonne in June. In the US, MBSK prices have had similar development as in Europe, but with a small delay. Looking at the CTMP prices they have been increasing in Europe but at a slower pace and we have seen more of a flat price development for CTMP in Asia. In July we see prices stabilizing in general but with some regional differences. Inventories of both softwood pulp and hardwood pulp are on average level as you can see in the graphs. As mentioned before, pulpwood prices continue upwards, supported by limited supply. So, moving over to container board. The ramp up of the new Kraftliner machine in Obola is progressing. During the quarter we have taken extra stops to adjust the machine line. We also continue to see high operational costs, which is absolutely expected in this phase of the ramp-up. And as we have earlier communicated, we plan to reach full capacity in Ebola by 2026. Sales and EBITDA was up by 11% and 6% respectively in the second quarter in comparison with the same period last year. And we can note higher prices and volumes on the positive side, while higher raw material and other costs had a negative impact in this comparison. We see a healthy growth in box demand in comparison to last year, and we are now back to historical growth trend levels. As you can see, top right. As inflation and the interest rates goes down, we foresee retail spending to strengthen, leading to continued growth in box demand. European demand of KraftLine has improved in the second quarter compared to last year, following, of course, the box demand. We expect positive demand development of container board in coming quarters. Supply and demand balance will be impacted by additional supply coming on stream, with the vast majority coming in test liner. European prices for brown craft liner have increased in the second quarter with 100 euro per tonne and white craft liner has increased by 80 euro per tonne. Both price increases divided into two steps. We, SEA, we have recently announced another price increase from 1st of August by 60 euro per tonne for both brown and white top craft liner. Container board inventories have been kept on an average level in Q2, driven by improvement demand. Several Kraft Kleine producers are now planning for annual maintenance shutdowns in the autumn, which will put some pressure also on the supply side during the autumn. The supply of OCC will probably become limited in the autumn driven by the low historical supply of boxes and consequently we have also seen OCC prices increasing during the second quarter with 70 to 80 euro per tonne. So finally over to renewable energy and in business area renewable energy we have had a week a quarter with lower market prices for tall oil and liquid biofuels in comparison with the same period last year. Bio-premiums and prices have decreased to substantially lower levels compared to last year. And the main reason is, of course, blending mandates in Sweden and increased imports also from China, creating an imbalance in supply-demand in the renewable fuels markets. Ramping up Gothenburg biorefinery together with ST1 in this market environment put a short-term pressure on the segment. We expect market volatility in renewable fuels to remain relatively high as Europe ramps up the blending mandates both in HVO and SAF. Long-term, our outlook is positive, but in the short-term, we expect continued low refining margins and biopremiums. The EBITDA level decreased by 53%, mainly due to lower market prices for tall oil and biopremiums in liquid biofuels. The market for solid biofuel remains stable. SCA continues to grow in leasing out land for wind power and has now reached 9.7 terawatt hours of wind power on SCA land by the end of the second quarter, and that is equal to 20% of installed capacity of wind power in Sweden. Finally, I can also mention that the execution of our windmill project Fasikan is progressing according to plan, and by that I hand over to Andreas.

Thank you, and good morning, everybody. I'll start off with income statement for the second quarter. Net sales increased 15% just below 5.3 billion, driven by both higher prices and higher volumes. EBITDA increased 11% just below 1.9 billion, driven by higher prices, which was partly offset by higher costs for wood, raw materials. The EBITDA margin was 36%. Debit margin was 26%, and financial items totaled minus 144 million, with an effective tax rate around 20%, bringing net profit to 960 million, or 1.37 sec per share. On the next slide, we have the financial development by segment. And starting with the forest segment to the left, net sales increased to 2.2 billion, driven by higher prices for wardrobe materials. Adjusting for the capital gain of 128 million in the previous quarter, EBITDA increased slightly to 883 million, and seasonal higher harvest from SCA's own forest was partly offset by seasonal higher costs for forest management and fertilization. In wood, prices increased by 10% compared to the previous quarter, while the cost for soil logs continued to increase. Net sales increased to 1.5 billion, driven by both higher volumes and higher prices. EBITDA increased to 294 million, corresponding to a margin of 20%. In pulp, prices continued to increase throughout the quarter. Net sales increased to 2.1 billion, and EBITDA increased to 509 million, corresponding to a margin of 24%. In the quarter, we had a negative impact from a planned maintenance stop of 29 million. We also had leakage in the recovery boiler, which had a negative impact of approximately 60 million in Q2, and will impact Q3 with a similar amount. In container board, craft liner prices increased during the quarter. Net sales decreased to 1.6 billion compared to the previous quarter driven by lower volumes. EBITDA increased to 231 million, corresponding to a margin of 15%. Higher prices were partly offset by higher costs for wood, raw materials and higher OCC prices. And ramp up costs were in line with the previous quarter at around 65 to 70 million. In renewable energy, EBITDA decreased to 85 million, driven by seasonal lower deliveries of solid biofuels, lower prices for liquid biofuels and talloils, ramp-up costs, as well as higher costs for sawdust. And the higher cost for sawdust, we get back as a positive in our wood segment due to our integrated value chain. On the next slide, we have the sales bridge between Q2 last year and Q2 this year. Prices increased 7%, with higher prices in primarily pulp and wood. Volumes increased 5%, driven by the new paper machine in Obola and the new sit and pee mill at Ortviken, as well as higher volumes in wood. And lastly, currency had a positive impact of 3%, bringing net sales to just below 5.3 billion. Moving on to Iberta Bridge, and starting to the left, price mix had a positive impact of $287 million, and higher volumes had a positive impact of $15 million. Higher costs for mainly wardrobe materials had a negative impact of $76 million, with a negative impact of energy of $99 million, and a positive impact from currency of $130 million. In total, EBITDA increased to just below 1.9 billion, corresponding to a margin of 36%. Look at the cash flow. We had an operating cash flow of 526 million a quarter and 1.2 billion for the first half year, which means that we're continuing to fund our strategic investments with operating cash flow. Look at the balance sheet. The value of the forest assets was 108 billion. The beginning of the year was a slow market with very few transactions, and we have therefore left the three-year average price used in the forest valuation unchanged. Working capital increased to $5 billion, driven by higher prices, higher volumes, and higher costs for wood, raw material. Capital employed totaled $160 billion, and net debt increased to $11.8 billion due to the dividend. And we have now almost finalized our large ongoing investment projects in Obola, Ortviken, Bolsta, and Gothenburg. Equity totaled $104 billion, and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf.

Thank you, Andreas. Again, when I summarize, I think we can now see a stronger market for more or less all fiber-based products. We have a tough market for liquid biofuels. increasing wood-row material costs. By that, we are, in the relative game, benefited from the big share that we can take from our own forest. And sequentially, this is a better result than first quarter, and also when we compared this quarter with the second quarter last year. So with that, I think that we can open up for questions.

Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You'll be advised when to ask your question. We will take our first question from Charlie Muir Sant, BNP Paribas. Your line is open. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions. I've got three, if I may. First one, on the forest valuations, I understand very much like the half year last year, you weren't in a position you felt to revalue given the limited number of transactions, but you did give a chart at the half year last year, at least showing where the half year pricing was coming out. I just wondered if there was enough data for you to at least share that where prices have moved for forest land over the last six months. Secondly, on the pulp segment, I note that there's been some price cuts now by some of the radiator pine producers, not yet northern pine, but I just wondered if you're starting to see any kind of pushback from customers on the kind of recent rally in prices there. And then lastly, on renewable energy, I wondered if you could break out at all, you know, quarter on quarter, how much of the decline in profits is due to the fall in the price of tan oil and biofuels versus some of the seasonal and other effects? Thank you.

So we try to take them one by one. We can start with the pulp question. I mean, as you know, we have had a strong development in the pulp market during this year. Fourth quarter of 2023, I mean, we had record deliveries to China. Then the Chinese market started to slow down a little bit or normalize in the beginning of this year. But at the same time, we felt a stronger market in Europe and U.S. Recently, we have seen that spot prices in China has come down. And now we have a delta of 100, 150 U.S. dollar per ton. And as I said, I think earlier, I mean... that might create some kind of stabilization in the market. I mean, Chinese prices must come up a little bit or European, U.S. prices might come down a little bit. So that might be the case. Price-wise, we are on the peak or top level at least. But at the same time, when we compare margins with 2022, I mean, raw material costs has increased quite substantially. So that's the reason why the margin is a little bit lower. But still, we have a rather good demand out there, not least in the U.S. and in Europe. And as I think Andrea said, I mean, we have also a delay in price effect with one to two months. So that was the second one. The third one was renewable energy, Andreas.

We start with the seasonal impact between Q1 and Q2. We have approximately 40-45% lower pellets volumes in Q2 compared to to Q1. And we also have higher sawdust prices compared to Q1 with about 25%. And that, of course, impacts renewable energy negatively, but impacts wood positively. So I would say that the seasonally effect and the higher sawdust, I mean that lowered the profits in solid biofuels with just above 50% compared to the first quarter. And then in terms of the liquid biofuels, the prices for liquid biofuels and tall oil has gone down and that also has an impact of around 50% compared to the first quarter.

And then finally, the price on forest land. And I mean, in fact, we haven't seen any official statistics yet, neither from Svefa or from Ludvig. We know that it has been a slow market for a while. And I think the reason for that is, of course, that for a while we saw increasing interest rates and also normal. I mean, when the The ground is covered by snow. You don't do too many transactions. Last year was maybe an exception. So it is a slower market today. I believe that the market has stabilized. I mean, we do on our own, we do some transactions every year, and we feel that the market price is maybe a little bit lower than last year. but it's hard to compare because it depends where in the geographic geography you are and and i mean what kind of estate it is now we know that we will see decreasing interest rates for a while i think that will have an impact on the on the market we also know that raw material prices has increased substantially and and as we feel it just now they will continue to to increase but the That is what we can say just now. Do you like to add something, Andreas?

No, you usually have a very slow market at the beginning of the year, as in northern Sweden. You don't do any forest transactions when it's covered in snow, and then it picks up during the summer and autumn, so we'll have to wait and see how the prices develop now when the seasonal activity picks up.

Thank you. And so just to clarify what you said about renewable energy, you said a 50% in solid and 50% in liquid, are you talking about half of the quarter-on-quarter decline in profit is attributable to each, or are you saying that those subdivisions saw their own profits for 50% quarter-on-quarter?

Subdivisions, the subdivision of solid biofuels, for example, they saw the profit in Q2 compared to Q1 drop with just above 50% and similar amount for liquid biofuels. On the solid biofuels, it's more of a seasonal effect and higher sawdust prices, while on the liquid biofuels, that's market-related development.

Very clear. Thank you.

We will take our next question from Lars Gelberg. Stefan, your line is open. Please go ahead.

Thank you. Good morning. Thanks for taking my questions. I have three questions. Starting with the bigger picture, capital allocation, as you've now exited your big CapEx programs, how should we think about the priorities over the next two to three years? Second is on CTMP within your pulp mill.

Excuse me, I think we take one by one. It's easier. So if we start with CapEx, sorry to interrupt you, but I mean, just now we are so focused on ramping up all big projects that we have started up a couple of years ago. You mentioned Obola and also Ortvik and the... gottenberg biorefinery in addition we also have that process with with the grading mill in in bolsta and the city scanner and so on i mean we have performed quite a lot of big projects and and for the moment being we are 100 focused on ramping up what we have and we will be very cautious with new investments now for for a while

Yeah, I understand that. I was just more thinking about generally capital allocation priorities as the cash starts coming in. Would that be primarily debt reduction at the first stage and then at some other stage other consideration in terms of capital returns and or potential new projects?

Yeah, so as Ulf said, now we will focus on finalising our big projects, both in Obola, Ortvik and in Gothenburg. And then we're committed to having a stable and increasing dividend over time. And then long term, we also have some interesting potential projects going forward. So I think we will... Focus now on ramping up, and we want to have stable increasing dividend. We want to keep an investment-grade credit rating.

So on the CT&P side, just wanted to understand what markets you serve and what the uptake has been of the new Pope.

Yeah, that's a good question. I mean, we have had good development in Europe and that is our main market and that is our main target. And you know that in the old mill at Östrand we produced around 80,000 tons of CTP and that was more or less all allocated for the European market. Now we have more or less doubled capacity. We are in a ramping up curve. But our main focus is still Europe. And we like to place as much volume as we can in Europe. And we have been successful in that perspective. It's also a question of price. I mean, the price development in Europe for CTMP has been progressing, while the market in Asia more or less have been standing still. So, I mean, it's also a stronger price development. Not as strong or good as in MBSK, but still it has been a positive price development in Europe for CTMP. so for us just now it's more important to i mean work with yield when it comes to chemicals wood consumption energy and so on then try to push the the volume we already had the volume we have the capacity we know that but but just now it's more profitable for us to to look into to other details and from an energy perspective this is predominantly hygiene oriented or

Hygiene and packaging. Can you just share the mix?

Hygiene and packaging.

And a final question for me. Container board, obviously, sequentially somewhat better demand in the market, yet your deliveries are down. Is that due to any disruption internally or any other considerations?

I mean, the market is up in container board, as you could see in the graph. And I mean, the box demand is back on the trend level. And I mean, by that, the demand of Kraft Liner will follow. We also feel that, I mean, it is just now a lack of OCC in the market. So that will push test liner prices upwards. And that will, of course, also help Kraft Liner prices upwards. We increased prices by 100 euro per tonne in the second quarter. We haven't seen any effect of the second step there. And we have also announced another step from 1st of August by another 60 euro per tonne. And that is not yet accepted in the market, but we know that test line producers, they have come through with price increases in the further steps.

On a sequential basis. You stepped down from 250,000 tons and changed to 24 in Q2. Any reason for that downtick?

No, I mean, as I said, we still, we are in the ramp-up phase. I mean, we take two steps forward and one back and then we stop and we justify the line and we do what we need in order to ramp up this mill in the best way. So, I mean, that is what is happening in the ramp-up phase.

Sure. Thank you.

We will take our next question from Cole Halton. Jeffrey, your line is open. Please go ahead.

Morning. Thanks for taking my question. I'd just like to get some more color on what you're seeing on repair and remodel, just some insights in what the customer inventory levels are like. and what green shoots you're seeing in the repair and remodel. And then the longer term question on softwood pulp through the cycle, the supply demand dynamics for softwood pulp is tighter than hardwood. And I know there's new supply coming on stream in hardwood, but do you expect the premium of softwood pulp to kind of extend through this cycle and the volatility to be lower in softwood pulp then on the hardwood side. I'd just like to hear your thoughts of how you see that price premium through the cycle. Thank you.

If we start with solid wood products, I mean, as you say, I mean, we have seen some improvements in the repair and remodeling sector, while new housing starts, I mean, are on a very slow level. And that is also what you can expect. At the same time, as you could see on the graphs, I mean, the stock level is normal at producers. And we believe in many cases among customers, the stock level is on the low side. And I mean, I think normally the first step is to improve the repair and remodeling sector. And then the second step will be new house constructions. And I think that will come. And I mean, that will also be dependent on what kind of development will we see now when it comes to interest rates and things like that. But it's not easy to... When you have stopped that market, as you did for a while, I mean, then it takes some time before you can start up again. But... I believe, I'm not sure, but at least more than 50% of the total volume is going to the repair and remodeling sector. And as I said, we feel... normal market in that market. And again, I said also earlier that I believe that we will see more or less flat prices going into the third quarter. But at the same time, I mean, we will also see that raw material costs will continue to increase. So by that, the margin might be a little bit squeezed, depending on where you are and what kind of region you have your operations within. Then the second one was supply-demand in pulp and premium softwood pulp and so on. It's hard to say. I mean, we know that we have no new... After KME now, we have no new capacity on stream, no capacity announced. We have seen lots of closures in the softwood pulp market, and I feel that we have a very strong balance in softwood pulp going forward now. And at the same time, I mean, some kind of impact you have from the short fiber market market in pulp but I guess my guess should be that we will see at least the premium that we have today for MBSK at least because in some areas you need softwood pulp when you need the strength when you need the long fiber I mean then you need softwood Thank you

We will take our next question from Oscar Lindstrom. Thanks, Ben. Your line is open. Please go ahead.

Good morning, gentlemen. Yeah, three sets of questions from my side as well. First one is just on sawn timber. Did you provide any guidance now for Q3 pricing quarter-on-quarter? That's my first question.

Yeah, and... As I said, I believe that the price will be more or less flat comparing the third quarter with the second quarter. But the margin might in some areas be squeezed as raw material prices will continue to increase.

Right. And on hope. Quite good volumes despite this leakage in the recovery boiler. I'm not sure if that impacted the volumes. Will that impact volumes in Q3, or how should we sort of expect the impact of that other than on earnings?

Yeah, of course. I mean, we have said, I mean, we had a negative impact of 60 million sec in the second quarter. We have said that we will have more or less the same negative impact in the third quarter. And, I mean, we have lost a couple of days in the pulp mill, and they are gone. So by that, we will be forced to reduce the volume. And then... Of course, in the autumn, we will see a regulatory maintenance stop, so that will also impact the volume. And I think that that's not only in the CA, that will come in other mills than our mills. I think it will be, I mean, you can speculate what will happen in the pulp market, but I think you will see, again, a rather tight market for pulp after the summer.

Yeah. Also on pulp, sorry, just to follow up on that, how much was your CTMP volume in the quarter? I know you're ramping up from 80-90 to 200, but what was the actual CTMP sales in the quarter?

We have not provided that detail, but we are ramping up towards our 300,000 tons in annual capacity. We're not there yet, but we have seen a good increase in volume from the CTP mill.

And just a final question, perhaps following up on the on-capital allocation. You've now invested quite a bit into your industrial assets, and as you said, you've more or less completed those investments and are now ramping up these new or rebuilt facilities. Thinking about forest land, because that's something that you've set out as one of your aims to buy more forest land. This would seem to be a good time for somebody like you to actually buy more forest land, because as you said, probably the market is still fairly subdued compared to where it was a couple of years ago. What are your opportunities for buying more forest land? Would that be in Sweden, or do you really prefer the Baltics? I know there was a... You know, forest lands were sold there earlier this year, which I believe you did not end up buying. You know, what's your thinking here on that, forest land acquisitions?

Okay. Yeah, I mean, if we can buy forest land in Sweden, we will do that. But you know that we have a legislation in Sweden that says that we have a limitation. But if we see some possibilities, if we can... Yeah, if a legal entity is for sale, I mean, then we would be interested, of course. Otherwise, we are a little bit cautious now. Now we like to focus on ramping up what we have started. We are also, I mean, we try to take care of the balance sheet, and by that we will be a little bit cautious when it comes to acquisitions of forest land in other areas than in Sweden. So that's the case just now.

Okay, great. Well, thank you. Those were my questions.

We will take our next question from Gaurav J. Barclays. Your line is open.

Please go ahead. Hi, good morning. Thank you for taking my questions and three questions from me as well. So first is that there was a comment made earlier that, you know, the forest valuation, it seems it has, it is down on a very wide basis and the few transactions you have seen Could you indicate how much is it down? Is it like down 2% or 5% or higher than that?

I'm not sure if I... Had you right. But you were asking about the price development when it comes to forest land, I suppose. And I mean, we see some percents down. I mean, as I said, we are always present in the market. And normally we sell some land in the western part, far away from the industry. And then we try to buy back closer to the industry. I mean, again, that is due to the legislation that we have that we cannot really buy forest land from a private forest owner without selling the same amount to another one. So, I mean, we create some space and we try to move the forest, so to say, a little bit further closer to the industry. And typically, the value of the land closer to the industry is a little bit higher than it is in the West. But as I said, I mean, we see it's hard to compare because it depends on where you are and how dense forest you have and what kind of forest you have, age distribution and things like that. But the market is, first of all, it's a little bit slower now. You have few transactions and the price is a little bit lower. And I don't know if I like to estimate, but say 5% or something like that in the transactions that we've done. But again, as said, we haven't seen no official statistics. And I suppose that will come from Svefa and Ludvig. And then I think that figure will be more representative soon.

That's very helpful. Thank you so much. And secondly, we have had this discussion that wood costs and Nordics are now structurally higher. And you have commented also again that they should continue to go up. But is there a limit to how high they go in your view? Because clearly it makes the downstream industries uncompetitive. So where do you think they level out?

Yeah, we see, I mean, if you look at our margins, I think we still have very good margins in our wood division, also in pulp and container more, so we feel that that There is room for the wood prices to continue a bit further, and that's what we see going into the next quarter. We see that the cost for wood-drawn materials will continue to increase a bit. Long-term, it's hard to say, but we believe that forest will be a strategic resource going forward. and that the demand globally will be higher than the supply. So I think we like the forest and we think that will be a scarce resource in the future.

I mean, we clearly now see the effect of the Russian invasion of Ukraine. And I mean, 10 million cubic meters is not coming over from Russia to Finland, Sweden and so on. We also see the effect of reduced harvesting level in the northern part of Sweden from the state-owned forest, Sveaskog. We have some big investments also in the northern part that will put an extra pressure in the raw material market. And I think we definitely will have a scarce situation also going forward. And by that, I suppose that the price level will remain or it might be also even higher. the prices might be even higher, which in the long run, of course, will support the value of the forest land in combination with lower interest rates. So I think that is the long perspective.

And also globally in Canada, I've seen that the harvesting level has gradually decreased. So they reward us as a scarce resource. In the western side.

Okay. And my third question is on the pulp segment. So, you know, there is this sort of view that pulp prices probably are lower in 2H versus 1H, and we can debate whether that's correct or not. But assuming that pulp prices are lower and the wood costs are higher and then the plant maintenance stops are also much higher in 2H than 1H, is it fair to say that Q2 pulp EBITDA was the high point of EBITDA for this year and sequentially the pulp EBITDA will go down?

We don't give any guidance, but the cost for pulpwood will increase slightly in Q3 compared to Q2. But as Ulf mentioned before, you also have a lag in the price development. So you have one to two months lags in both pulp and container board. So you have some lag effect, but you also have some higher cost. And then we'll see how the price is developing into Q3.

Thank you so much.

We will take our next question from Johannes Grunselli, DNV Markets. Your line is open. Please go ahead.

Hello, everyone. It's Johannes here. I have one question, and that's regarding Opel and the ramp-up to Sudolp here. I think it's what you said before, fully up and running, 2026. I mean, could you give us a feeling for profit contribution? Well, in Q2 from Opel, and how would you think about it over the next few quarters? Will it be sort of very back-end loaded in 2025, or when do you think the most of the profits will be seen?

I can start to mention on, I mean, we have still startup costs in the ramp-up. In the last quarter, they were around, in Q1, they were around 70 million. In the second quarter, we estimate around 65 to 70 million, and we expect similar ramp-up costs going into the third quarter.

Okay. So basically you have a loss. I mean, it's an isolated cost of Ebola because of the ramp up position of 65, 70 now.

Yeah. And that's because, I mean, you ramp up and then we need to fix something. So you reduce the speed or shut it down and you ramp up again. and then you have high chemical consumptions, you also have lower volume, things like that.

I think it's very normal. I mean, when we look back to Östrand, I mean, I think we had three years of extra costs, and it takes some time to fine-tune the operations. So I think that is what you can expect when you ramp up a brand-new mill.

Yeah. When do you think you can sort of reach break-even in the current, given sort of current market prices?

We're still profitable. I mean, in Bedav, we still get the contribution from Obla.

We have never been negative.

No, no, no. Okay, okay. But could you sort of indicate what kind of more commercial volumes you will have, 25 versus 24 or something like that?

That's too early to say.

Okay, fair enough. Maybe I can also ask you another question, and that's about, I mean, we talked a lot about wood costs being up, I suppose, a few percent quarter-by-quarter in the third quarter. What about other costs? Do you see any sort of meaningful deltas there?

No, I think wood cost will increase slightly, as I said. For chemicals, I think they will be fairly stable. Distribution cost, I think, will be slightly lower. We also had three big roller ships on the yard for maintenance this quarter, so I expect distribution cost to be slightly lower. OCC... has increased a lot, and it, of course, could increase further. But the main cost of an increase would cost slightly up in Q3 compared to Q2, and the rest are fairly stable. Yes. Okay. Thank you.

Thanks. We will take our next question from James Perry, Citi. Your line is open. Please go ahead.

Hi, thanks for the presentation. I think most of the questions have been asked, but just one quick one on CapEx. Would you be able to update us on the strategic CapEx remaining for the current projects and the level of CapEx expected 24 and even 25, if you can?

Very rough. I mean, if we start with strategic capex, we expect just below 1 billion plus some forest acquisition. So with some forest acquisition in the Baltics, just above 1 billion. For 2025, then we'll have just below $1 billion left on our Fosican investment. And then in terms of current capex for this year, we expect around $1.3 billion.

Okay, thanks. Any comments on 2025 or too early to say, really? Okay.

On current CapEx or on strategic, as I said, we have Fasica and left is around 1 billion. On current CapEx in 2025, it's a bit early to say, but I mean, now this year we'll be at around 1.3, but then we sold Henvolden for around 200 million. So if I adjust for that, we'll be around 1.6 billion in current CapEx next year.

Okay, thank you.

As a reminder, please press star one to ask for a question. We'll take our next question from Andrew Jones, UBS. Your line is open. Please go ahead.

Hi, gents. I've got a few remaining questions and some follow-ups. Just on the saw and wood side, I was encouraged by the fact that you were going to sort of flat price squats on quarter when seasonally it's usually weaker. Will we see that negative seasonality through seasonally? lower volumes and can you give us any expectations around that? I'll wait for an answer to that before I ask the next one.

Yeah, I'm not sure if I had you right, but yes, we believe in a flat price development. Of course, seasonally you will see somewhat lower volumes in the third quarter in comparison with the second, but not too much maybe. But then it's always a question about margin, and again, I mean, more than 70% of the cost is related to raw material in the sawmills. I mean, if raw material prices... Prices for Solox, if they continue up, then, of course, we might see a squeezed margin in the third quarter. But otherwise, we feel that the market is quite okay. And, I mean, we have 20% profit margin in the second quarter, which I think historically is a rather good level.

And do you think we've seen the lows in that market? I mean, could we see further price declines in the fourth quarter, or do you think that underlying demand improvements enough to support prices at these levels or higher.

Sorry, if we can see a third. What did you say?

So just saying that, do you think we've seen the worst of the pricing on the wood side? Do you think like by the fourth quarter prices could fall again? Or do you think that underlying demand is improving enough that basically this is the sort of life?

It's hard to say. I mean, if you look at the price now and compare it with the history, we are on a high level. But at the same time, when you look into raw material prices, log prices, they are also on a historically high level. So again, it's always a question about the margin. So if we will see a continued pressure in the raw material market, then I guess that prices will remain on a rather high level. And it might be so that we have big differences now, not the least in Sweden. I mean, we can see big differences when it comes to result for solid wood products producers nowadays. And that must, in one way or another, also be related to the raw material market, I guess.

Yeah. And just on renewable energy, you talked for a lot of moving parts for 2Q. What are the moving parts going into 3Q? What are your expectations there? Do you expect any improvement or something fairly comparable? What are the moving parts in that number for 3Q?

Yes, if you look at solid biofuels, Q3 is also a seasonally slow market. Since you have July and August, you don't use that much heat. And in terms of liquid biofuels, we don't see any improvements going into the third quarter.

I think that will come in maybe in 2025 when you have – an increased mandate for both HVO and SAF in the European market. But I think when we came into this market, I mean, and you had a reduced mandate in Sweden, that Sweden was a big part of the HVO consumption in Europe. So that had a big impact and many places they had rather big inventories. And when the mandate came down, then of course they just stopped. They didn't buy anything for a while. So now we feel that it has started to move again. But again, as you say, Andreas, I totally agree. I mean, we will not see anything before 2025 when we see the effect of the new mandates.

understood and then i just one on working capital you had a big build in the first half of the year do you expect that to reverse in the second i think that build up relates i mean we see high volumes from the ramp up of our both obola city and then also we see some higher prices and higher costs for for wood raw material i think that's what has driven working capital

And do you expect it to reverse in any way or fairly stable in the second half?

No, I would think if prices continue to and volumes continue to increase, of course, that will drive working capital. So we don't expect a release in the second half of the year.

Okay. And just finally, the lack of forest transactions. There's obviously some scrutiny about your methodology for valuing the forest earlier in the year from some investors. Is the fact that the market is so thin that it's hard to actually appraise it, does that make you question that approach or think about alternative ways in which you could actually value the forest land?

We think the best approach is to look at the transactions in the market, and that's why we use a three-year average to get a good amount of transactions. And then we have this seasonal effect, as I mentioned, in northern Sweden, that you don't do any forest transactions when it's covered in snow. And the forest is covered in snow quite late into the spring, so the market really picks off in springtime.

the summer and and in autumn so we'll have to wait and see how the prices develop now when the market picks up yeah okay and five percent lower are you talking year on year or are you talking since the end of 2024 in terms of the transactions that you've seen and that's compared to 2023 compared to the average of the whole year yes

I also think you have some uncertainty related to the development of interest rates now. I think people, they are – I mean, you had lots of transactions for a while, and it was a boom in the market for a while, and – I mean, I guess that it is related to the business cycle we have in all other areas. That will also be in the market for forest land. So I also think the people now, they sit down and they wait and see what will happen with the interest rate and how many times will it shrink this year and next year and so on. So that will also have an impact.

Yeah, I agree. OK, thank you very much.

Thank you. And that concludes the presentation of the half year report. Welcome back on October 25 for the third quarter report. Thank you.