Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of SCA's third quarter results for 2024. With me here today, I have President and CEO Ulf Larsson and CFO Andreas Everts to go through the results and take your questions.

Over to you, Ulf. Thank you, Anders. And also from my side, good morning and a warm welcome to the presentation of our result for the third quarter 2024. We can state that markets for all fiber-based products in all areas are stronger in Q3-24 in comparison with the same quarter last year. We have had generally higher prices and stronger delivery volumes. In energy, we have seen a negative market development in Europe for liquid biofuels, also affecting tallow prices when compared Q3-24 with the same period last year. This is of course not least due to reduced mandate for liquid biofuels in Sweden since 1st of January this year. Also this quarter, we note a high demand for wood, raw materials and by that continued increasing prices. We have in addition also increased volumes from our own forest, which in comparison with Q3 23 has strengthened the result in business area forest. Sales increased by 22% and EVTA by 42%, Q3 versus the third quarter 23. Higher prices and increased volumes explain the improvements. So this slide will give you an overview of KPIs for the third quarter 24. As you can see, our EBITDA reached 2 billion SEC, which corresponds to an EBITDA margin of 38%. Our industrial return on capital employed came out at 12% for the third quarter, counted for the last 12 months. The leverage is at 1.6, and net debt to equity was 11%. We have now finalized our big strategic investments in Obola, Ortvik, and Gothenburg. just now they are under ramp up but coming years they will contribute in a positive way so i will now make some comments for each segment starting with forest high harvesting levels from our own forest have contributed to stable supply of woodrow materials to our industries during this period We have seen a continuous long-term trend of increasing prices for both pulpwood and saw logs as can be seen in the graph on the bottom left. When one compared Q3 24 with Q3 23, sales were up 12%. EBITDA was up 7%. And that is mainly due to higher prices and slightly higher harvesting levels in our own forest. Turning over to business area wood. 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. Stock levels are at normal levels among producers and mainly on the low side, I would say, at customers. I estimated that price for solid wood products in the third quarter would be close to unchanged, which also happened. Our deliveries last quarter were high due to intense sales activities and strong long-term relations with our customers. This consequently also gave a decreased stock level of sown goods for SCA. The cost for saw logs has increased from the second to the third quarter, and we expect them to continue to increase going into the fourth quarter. Sales were up 23% and EBITDA was up 79% in the third quarter, 24% in comparison with the same period last year. The reasons behind this were mainly higher prices and higher volumes. The EBITDA margin consequently increased from 13% to 19%. 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 top left on this slide. As mentioned earlier, we note that the inventory in general is on a normal level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has also been on normal levels accumulated so far 2024. In the diagram to the top right, we can see the prices increased during the first half year, but has the last quarter leveled out. Going into the fourth quarter, I estimate that prices will continue to be close to unchanged in local currencies, and that is due to balanced stock levels and high and further increasing raw material costs. In the construction sector, we can conclude that the starts of new building is continued to be low. Looking forward, we believe that consumption in the repair and remodeling sector will be early to respond in a positive way to lower interest rates. Over to PALP. The ramp up of our new CTMP mill is running according to plan. Production optimization work continues. Our new CTMP products are well received in the market. Consequently, CTMP products represents an increase in share of our pulp sales. As you might remember, we have had an unplanned production stop at Östrand pulp mill in the second quarter due to a leakage in our recovery boiler. Total negative impact communicated was 60 million SEK in the second quarter and a similar amount in the third quarter. When we compare Q3-24 with Q3-23, sales were up 27%, and EBITDA was up more than 200%, and that is mainly due to higher prices. The yearly maintenance stop at Ørstan had a negative impact of 35 million SEK in the third quarter, and we expect an additional negative impact of 225 million SEK in the fourth quarter. After a rather weak 2023, demand for pulp improved in Europe and the U.S. during the first half of 2024. MBSK prices peaked in Europe in July at $16.20 per ton after increasing for 10 consecutive months. We then saw decreasing prices and weak demand in August and September. In the U.S., MBSK prices have had a similar development as in Europe but with a small delay. After a rather slow summer in China, with weak demand and decreasing prices, we reached the bottom in the end of August, and now we approximately see 5% higher prices today, and I would say an improving demand. Looking at CTMP, prices peaked in Europe during the third quarter, while being rather flat in Asia at the low level. In October, MBSK prices continued down in Europe to $15.40 per ton and $17.35 per ton in the U.S., while stabilizing in China at net price around $7.50 per ton. Prices now seem to increase further in China, but still we have a delta in prices between Europe and China of approximately $90 to $100 per ton. Inventories of both softwood and hardwood pulp as well as the CMP pulp are on a rather high level, as you also can see in the diagram. Moving over to container board. The ramp up of the new Kraftliner paper machine in Obara is progressing. During the quarter, we have taken extra stops to adjust the machine line. We also continue to see high operational costs, which are absolutely expected in this phase of the ramp up. As earlier communicated, we plan to reach full capacity in Ebola in 2026. Sales and EBITDA were up 15 and 26% respectively in Q3 in comparison with the same period last year. And we can note higher prices and volumes on the positive side while high raw material and other costs had a negative impact on this comparison. During the third quarter, we performed a planned maintenance stop in Munchsund. The stop went well, but had a planned negative impact on the result in Q3 of close to 90 million SEK. We see continuous growth in box demand in comparison to last year, and we are now almost back to historical growth trend levels. We also believe that decreasing interest rates and GDP growth should support the continued growth in box demand over time. On the other side, we also note the negative growth in the European manufacturing industry, which at the moment drives the demand in a negative direction. Nevertheless, the European demand of craft liner has improved in Q3 compared to the same period last year, and we expect full year demand growth for container board to stay positive. Supply and demand balance will be impacted negatively by additional supply coming on stream, with the vast majority coming in test liner. European prices for brown craft line have increased in Q3 by 40 euro per ton and white craft line has increased by 30 euro per ton. Craft line inventories have been maintained on an average level in Q3 with a seasonal increase in August as well as stock build up ahead of planned maintenance shots during Q3 and Q4. The availability of OCC is well balanced and consequently we have seen OCC prices sliding sideways and started also to decrease in the later part of Q3. So, finally, renewable energy. In business era renewable energy, we have had a weaker quarter with lower market prices for tall oil and liquid biofuels in comparison with the same period last year. Biopremiums and prices have decreased to substantially lower levels compared to 23. Main reasons are lower blending mandates in Sweden and increased imports from China, creating an imbalance in supply-demand in the renewable fuels market. Ramping up, Gothenburg Biorefinery together with SD-WAN 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 bio-premiums. Due to higher prices for solid biofuels, sales were up 6% in Q3 this year in comparison with the same period last year. The EBITDA level decreased by 36%, mainly due to low market price for tall oil and the bio-premise in liquid biofuels, and also due to higher raw material costs for solid biofuels. The market for solid biofuels remains stable. Higher volumes are expected in the coming quarter due to positive seasonal effects. SAA continues to grow in leasing out land for wind power and has reached 9.7 terawatt hours of wind power on SAA land by the end of Q3, and that is equal to 20% of installed capacity of wind power in Sweden. And finally, I can mention also that the execution of the windmill, our windmill project, Fasikan, is progressing according to plan. So, by that, I hand over to you, Andreas.

Thank you, and good morning, everybody. I'll start with the income statement for the third quarter. Net sales increased 22% to 5.2 billion during the higher prices and higher volumes. EBITDA increased 42% to 2 billion during mainly the higher prices, which is partly offset by higher costs for wood raw materials. The EBITDA margin was 38%. EBIT increased just below 1.5 billion, and financial items totaled minus 131 million. With an effective tax rate around 20%, big net profit just below 1.1 billion, or 1.52 SEC per share. On the next slide, we have the financial development by segment. I'll start with the forest segment to the left. Net sales decreased to 2.1 billion compared to the previous quarter due to lower deliveries to SCA's industries. EBITDA decreased to 777 million due to seasonally lower harvest from SCA's own forest. Compared to last year, we have increased our harvesting of our own forest, which has helped to mitigate the impact of higher costs for wood-drawn materials. In wood, prices were marginally lower compared to the previous quarter. Net sales totaled 1.5 billion, or positively impacted by high delivery volumes. EBITDA was aligned with the previous quarter and amounted to 288 million, corresponding to a margin of 19%. In pulp, net sales decreased somewhat to 2.1 billion due to lower delivery volumes, which are offset by higher prices. EBITDA increased to $562 million, corresponding to a margin of 27%. At the end of the quarter, we start a planned maintenance stop, which had a negative impact of $35 million, and expected to impact the fourth quarter with $225 million. In container board, craftile prices increased during the quarter. Net sales totaled $1.6 billion, and EBITDA increased to $380 million, corresponding to a margin of 20%. In the quarter, with a planned maintenance stop in Mungsund with a negative impact of 87 million. In renewable energy, the market gift for liquid biofuels and tile load continues to be weak. EBITDA increased somewhat to 99 million, corresponding to a margin of 23%, driven partly by lower ramp-up costs in the new biorefinery. On the next slide, we have the sales between Q3 last year and Q3 this year. Prices increased 19%, with higher prices in pulp, container board, and wood. Volume increased 4%, driven by the new paper machine Nobola, and higher volumes in wood. And lastly, currency had a negative impact of 1%, bringing net sales to 5.2 billion. Moving on to Bittar Bridge. And starting to the left, price mix had a positive impact of 768 million, and higher volumes had a positive impact of 58 million. Higher costs for mainly wood-grown materials had a negative impact of 46 million, with a negative impact of energy of 128 million, and a negative impact of currency of 26 million. In total, EBITDA increased to 2 billion, corresponding to a margin of 38%. Look at the cash flow. We had an operating cash flow of $708 million in the quarter and $1.9 billion in the first nine months. This means we're continuing to fund our strategic investments with operating cash flow. Look at the balance sheet. The value of the forest assets totaled $108 billion. Working capital increased to $5.7 billion, driven by higher prices, higher volumes, and higher costs for wood, raw material. Capital employment increased to $116 billion, and net debt stood at $11.6 billion. And we're now almost finalized our large ongoing investment projects in Obola, Ortviken, Bolsta, and Gothenburg. Equity totaled $105 billion, and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf.

Yeah, and I mean, just to summarize, as I said, we have had a strong quarter when we compare with the same period last year. We have in all areas for fiber-based products increased prices, high delivery volumes. We benefit from a high degree of self-sufficiency when it comes to raw material supply, and also by the fact that we also increase the harvesting capacity. level on our own forest. EBITDA 2 billion, 38% EBITDA margin, and generally a good quarter. So by that, Andreas, I think that we can open up for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, it is star 1 to ask a question over the phone. And our first question comes from Linus Larsson from SEB. Please go ahead.

Thank you very much, and good morning to everyone. Maybe starting off with what your order books are looking like if you go through your various segments and what that is telling us about the market. And also in relation to that, what is the limiting factor for you? Is that the order situation or is it rather... internal limits like the recovery or the boiler leak that you had previously this year and maybe other company-specific factors. So the order situation and also your own limitations, please.

I mean, we can start with... We don't give forecasts, as you know, but I mean, if you go through the different segments, starting with solid wood products, we feel that the market is rather balanced. I mean, fundamentally, the underlying demand is not super good, but we believe that we will have a sideways movement in the fourth quarter. And as I said, I think that we will have unchanged prices also for the fourth quarter. The mix might change a little bit. Currency might change. But nevertheless, and then I believe that when we see interest rates coming down, that we can have a pretty positive development in at least the second quarter next year when we're entering into the summer period. Pulp, it's obvious that we saw the peak in summer at $16.20 per tonne. And then we have been forced to decrease prices a bit. On the other hand, we now see that the Chinese market has picked up a little bit. And again, the delta is between 90 and 100 US dollar per ton. And sooner or later, they have to meet. I don't think that the bottom will be on too low level, actually. Container board, we have increased prices since April by 140 euro per ton. We have a reasonable stable market, maybe a little bit weaker now than we had in the summer. We saw that test liner prices came down by 40 euro per ton for deliveries in November, and I guess that is related to decreasing OCC prices. For Kraftliner, we have, as I said, continued high prices for raw materials, and we believe that the price level for raw materials might even increase also in the fourth quarter. So that will of course have some kind of impact also on the end market. Renewable energy, again, wind. might be a better business in the fourth quarter due to higher electricity prices. We don't know. Liquid biofuels will be on the low level still for a while due to mentioned reasons, while the market for solid biofuels is very good, really. I don't feel that we have, when it comes to limitations, as you know, we have had some planned maintenance stops, and we have some big ones also in the fourth quarter. So that is more or less the limitation. Otherwise, we can deliver what we produce as it is just now. Something to add, Andreas?

Maybe just a follow-up on that, specifically on wood products. You had a very strong volume quarter at 14% year-on-year, the strongest shipment since 2019. Is that a level that you can maintain, or how do you see that going forward?

I don't think we will maintain it in the fourth quarter. I mean, in the second, but mainly in the third quarter, we benefit from the exposure that we have to the building materials markets. I mean, so that will, of course, be hard to... replicating in the fourth quarter. We will have a seasonal lower delivery.

But volume-wise, you're saying that you could repeat that Q3 shipments number in the fourth quarter?

No, no, we will have a seasonal lower delivery volumes in Q4.

Oh, sorry. Got it.

I mean, just now we're in the third quarter, but also in the second quarter we have strong deliveries to the DIY market and that kind of thing. customers. That will not be in the fourth and the first quarter.

Got it. That's clear. And then a quarter ago you gave an indication on your perception of the transaction market when it comes to forest land. What's the update on that in regards to your book value and how forest land plots have traded in your relevant geographies year to date?

I mean, we have had no new reports since summer. And I mean, you had the figures from both Ludvig and from Svefa. We have no new statistics today as it is. And I think we have it in two months maybe. And we have to wait and see what's the developments. On the other hand, we see that interest rates, they are not coming down. We see that the price development for both saw logs and pulp logs continue to increase. So in the long run, I guess that will be some kind of indication of the value of forest land.

Right. Thank you.

Our next question comes from Robin Santavirta from Carnegie. Please go ahead.

Thank you very much, and good morning, everybody. First of all, I have a question on the container board segment. Looking at the performance, it's obviously decent or even good compared to some of your peers, but if we compare to historical levels, the production costs or volume-weighted production costs are are quite significantly higher than a few years ago, and the volumes obviously have not increased in relation to the capacity increase. I know you say full capacity 2026, but the question I have is what should we expect going into 2026 in terms of volume and in terms of production efficiency and cost per ton?

I can start with the cost and then we can follow up with the volume. But in terms of cost, I think that the biggest increase has, of course, been wood, raw material that has increased and also OCC. And in terms of ramp-up costs, in Q1 and Q2, we were at around 65, 70 million, I think I guided on. In Q3, we were a bit lower at maybe 45 million ramp-up costs.

Yeah, and I mean, again, it takes something to ramp up a big mill like Obola, and we are working on that, and we are happy with the progress. We don't give forecasts for 2025. I mean, as we've said, the goal is to reach 725,000 ton in 2027 and 2026. So, I mean, that is what we are working for just now.

But it's easy to have gains from the further the ramp-up comes to the closing date, or is it we need to wait until it's fully ramped up before we see the efficiency and scale gains from the new mill?

It's hard to say, but typically if you look at Östrand or if you look at other big projects, I mean, it takes a couple of years before you can see the full effect. And, I mean, you have in one side cost. You have – I mean, you have – if you see problems in the production, you have to stop and you have to do it right and you have to rebuild and so on. I mean, that's absolutely enormous. I think maybe the – maybe we – I don't know if we are too positive or if U.S. analysts are a little bit too positive when it comes to ramping up big meals. It takes lots of efforts.

I understand. Second question I have is related to the – Wood segment, looking at the cost per ton here, it's actually the opposite setup compared to container borer, but almost the same levels as a few years ago. We know log prices have increased quite significantly in Sweden and also in your area. And now we have, of course, per volume or per cube. down to quarters sequentially. What is going on here on the cost line? Why are not costs increasing more than you report?

I think if you look at the wood business, that is that the cost for pulpwood has increased more than saw logs. And when you produce a solid wood product, you get pulpwood as a rest product, which is ships, as we say, which we sell to to our mills. So we've had higher ships, price for ships, and also higher price for sawdust, which we make pellets of. And that has been able to offset the cost increase of the saw log compared to last year.

And also I think that we have had a positive improvement when it comes to yield. Yeah, so that is also partly in, for example, in Bålsta, that is related to the CT scanner that we have there, which we have seen very positive results from that one. But yield in general in all mills, I would say, have had a very positive development.

Good, thanks. And finally, Ulf, do you dare to take a view on the cross-liner price, I guess? Historically, Tesla and Kraft Liner move in tandem, very correlated. Now the cost trends are quite opposite. Should we expect Kraft Liner prices to decline as well end of this year, or is unchanged the best guess in your view?

As we speak, we are just now negotiating with our customers, so I don't think it's a good idea to give you a forecast on that front.

All right. I understand. Thank you. Thank you. Our next question comes from Charlie from BNP Paribas. Please go ahead.

Good morning, guys. Thank you very much for taking my questions. Just on the capital expenditure, this year so far, I think you've spent about $900 million on current CapEx and only $500 million on strategic CapEx, which seems... Quite way off your previously indicated might be the full year spend, I think, unless I've got my records out of date. I just wondered if you'd give us an update on where you think the full year CapEx will land and also any early thoughts you can share with us for next year.

Yes, if we start with current CapEx, and firstly, we do a lot of the CapEx expenditure at Q4 when we have our large maintenance stops. But our guidance, I think, for this year in current CapEx is maybe just below 1.3 billion SEC. But you have to remember that we sold here in Wallen for 200 million at the beginning of the year, and we will have some spill-off over to next year. So underlying, I would say, is more like 1.6, but we expect somewhere below 1.3 in current CapEx. And the strategic, around 1 billion. this year and next year next year it's harder to say but if underlying is one just about 1.6 uh this year but we'll have some spill up over to next year so that's maybe roughly one just about 1.7 in in in current and in in strategic we have the biggest project we have is our windmill foster camp And that will have next year a payment around 950 to 1 billion. And on top of that, we have some payments left in obolas reached certain milestones and many potential forest acquisitions in the Baltics. Many thanks.

Our next question comes from Patrick Mann from Bank of America.

Please go ahead. Hi, thank you very much. I just wanted to ask just one question that's from me. We've had a fairly significant build of working capital so far yesterday. Should we expect that to unwind in the fourth quarter perhaps as the maintenance happens as well? Or how should we think about working capital for the full year?

Thank you. For working capital, as I said, I think the main driver is that we have increasing prices for all our business areas. You're also ramping up volumes in our new investments. And on top of that, you have a higher wood cost, which drives the cost for both the inventory and our wood-drawn material. It depends on how prices will go, but assuming that prices stay fairly the same, I don't think we don't expect any release in working capital.

Okay, so nothing volume-driven. Thank you. Got it.

Thank you. We'll then move to our next question from Martin Melby from ABG. Please go ahead. Good morning.

How large are these wood cost increases for you in the fourth quarter in your region? Because we've seen these announcements from Soda twice on small logs and once on topwoods.

I mean, we don't know in the market price development in the fourth quarter, but we know that the industry will be hit by higher raw material costs due to the, let's say, internal price setting that we have. We try all the time to find the market price for our indices to pay to the forest side. So I think by that, we know that at least the sawmills, they will see price increases for raw materials in the fourth quarter. And I guess to some extent also the pulp mix, pulp and paper. But in the market, we haven't really seen anything else now. And my view is a little bit that we feel that we have a small surplus of pulp wood in the market, at least in the northern part of Sweden just now.

Yes, we will see a larger increase on soil logs compared to pulp wood in the fourth quarter.

And the 50 and 100 on pulpwood and saw logs that Södra announced, is that a good guide for you? Sorry, if it's a good... Is that a good indication for you in the fourth quarter?

No, not really. I mean, we have, yeah, by coincidence it can be, but I mean, we have no connection really with the market for saw logs in Södra's area and region and what we have in the northern part of Sweden. Yeah, ours will be slightly lower than that, yeah. But no connection. No, no connection. Operationally, it's more coincidence.

Okay, thank you. Our next question comes from Lars Gelberg from Stifel. Please go ahead.

Thank you. I have two questions. First, on the leakage, during the stoppage now you're planning for Q4, should we assume that that issue will be behind us? And then the bigger topic, I suppose, you talked to increased harvesting levels that have supported your wood cost as a group and caused results in the forest division. How sustainable are these sort of levels now running at? And is there risk that you need to reduce harvesting and as a result that could see higher wood costs in, you know, next year or in the nature?

If we start with the sun, I think, well, for now, that is over. We had a leakage in one of our economizers, and I think we changed the other one a couple of years ago, and this one is more or less close to 20 years old. And that will be repaired now. We also plan to replace it next year or the year after. But I think it's over for now, at least. When it comes to harvesting level in the forest, I mean, the clear goal for us is to never be forced to reduce the harvesting volume from our own forest. I mean, we step by step will be able to increase the harvesting level on our own forest because we take care of the forest in that way. And that is also a long term goal. plan for how to harvest the forest. I mean, step by step, we plan to increase the harvesting level on our own forest. As you know, we harvest less than 70% of the growth in our forest. So that means that we step by step will be able to increase the harvesting level going forward.

There's no particular spike in Q3. It's sort of within the norm.

But you have seasonal variations. I mean, I guess Q3 is strong on our own forest and then other quarters we might harvest more on private land as we buy a couple of million cubic meters from small private forest owners in the region.

So Q4 will have seasonally high harvest from our own forest. And last year we were just below 5 million and this year We'll be slightly above 5 million, maybe 5.1, and then we have the long-term target to gradually increase to 5.3, 5.4 million.

Very good. Thank you.

And our next question comes from Johannes Grunsellius from DNP Markets. Please go ahead.

Yes. Hi, everyone. It's Johannes here. A question on the wood product division. I mean, the margins are really impressive if you compare it to a lot of your peers in the industry. Is there any sort of impact here that the cost side in the wood products are a bit delayed, and that could kind of explain a bit of the high margins? And if you can also a bit elaborate on the mix in terms of geographies, Are there any, like, really strong spots in your business and how you see that in the fourth quarter, if possible?

I mean, as Andreas said, I mean, we will see increasing raw material costs for the wood division in the fourth quarter, and that is due to lagging effect. I mean, as I said, we have an internal model for price setting, and that means that they will pay a slightly higher price in the fourth quarter in comparison to the third quarter. Market-wise, I mean, we will have more or less the same price in the fourth quarter as we've had in the third quarter, I would say. And, yeah, if we have special spots, yeah, if we have, we wouldn't tell. So, of course, we try to do our best. And I think also they do a good job. I mean, we haven't done very much investments in our sawmill business for a number of years now. And I think this is the time when we harvest a lot from what we've done in the past. In addition, the new grading mill in Bolsta has started up very, very well. I mean, we have the design capacity of 7,000 pieces per hour, and we exceed that by 10%, 15% as it is just now. So that has been a very positive startup. But I think they are doing a good job. Efficiency, productivity, I mean, the average size of our mills, of between 400,000 and 500,000 cubic meters per year. So, I mean, they have a good size, and they are doing a good job.

Okay.

Got you.

I have also another question, and back to the previous question a bit on growth for your forest harvesting. If I look at 2025, if we do that, is it fair to assume a kind of a mid-single growth number on the forest outtake there?

you can comment on that now we i mean we as i said we last year we had just below five million this year we have slightly above five around 5.1 and then we'll continue to increase somewhat somewhat next year but then i mean we harvest from from both our own forest and and private individuals And there we optimize to reduce the logistical costs. It's hard to say exactly what it's gonna be, but we assume it's gonna be slightly higher than this year. Okay, okay, thank you.

And our next question comes from Cole Hawthorne from Jefferies. Go ahead.

Morning, thanks for taking the question. It's just a follow up earlier on the differential between cross liner and test liner. You've got higher costs on the wood side for cross liner, but how do you see the importers from the US on their pricing dynamics? Because the dollar is stronger. So I would imagine that their margins are slightly lower with that stronger dollar. They would also be less willing to kind of concede on price. Anything that you're seeing from the U.S. exporters into Europe would be helpful. And then I was just hoping you could give what you're seeing potentially from your customers into the fourth quarter. Are you seeing any difference in order patterns for seasonal products? Christmas demand boosts, etc. I know it's going to be more challenging for you considering you don't have a box network, but anything that you give there would be helpful. Thank you.

If we start with import, I would say that we see no big changes. You have a couple of hundred thousand tons of craft liner coming over from US to Europe and mainly down to South Europe and that has been rather stable and I cannot really say that we see and decreased or increased volume. So I think we have to count on more or less the same level. And the second question was maybe related to consumption. I mean, we see, as I said, I mean, we believe that 2024 will be a better year when it comes to consumption in comparison with 2023. We feel, of course, that we have had a little bit of a slower market for a while now, more related to the industry, heavy industry, not least in Germany and Central Europe. And that is also maybe what we can hear when we listen to reports from big car manufacturers and things like that. But all in all, we think that 2024 will be a better year in comparison with 2023. Do you have any something to add?

And then maybe if I could follow up on the wood product segment, are there any regions where demand has been a bit stronger or the repair and remodel has been supportive or new construction has also been better. I'm thinking, you know, maybe the UK was slightly better market than the rest. And, you know, following up on that, is there any difference in profitability levels that the team is flagging between, you know, your asset base and maybe some of the Central East and European soil bills? Because you seem to be performing exceptionally well versus the rest of the market. Thank you.

I mean, what we can see now is that we have a better flow in China, for example, but from a very, very low level. We see a tougher market in Japan for a while, but from a higher price level. I would say for us, Scandinavia is the most important region. And in Scandinavia, we have had a rather good balance, not only in Q3, but also in Q2. And one thing is also... the fact that I think that production has been balanced. I mean, when we see these increases in raw material costs, that will also have an impact on the production volume in the system here. So I feel that Scandinavia has been maybe the best market for us, at least for a while now.

Thank you. We're now going to move to our next question from Grav Jain from Barclays. Please go ahead.

Hi, good morning. Pallav Mittal on behalf of Gaurav Jain. Just one question. So the spread between hardware and software pulse has clearly widened. Are you seeing incremental substitution to hardware because of this dynamic?

Did you get that? I'm not sure if I... I heard that the spread between hardware and software is widening. And... Are you seeing any substitution? No, I think customers try to substitute as much as they can always because sod wood is cheaper than soft wood. But as it is just now, I think you have a limitation in supply of soft wood. And you need long fiber pulp as... due to the strength. You need strength in different products, and then you need a certain amount of softwood pulp. For example, in tissue, you need approximately 30% of softwood pulp. But I think we have a limitation. I mean, the outlook for long-term outlook for softwood pulp is rather positive because I think the demand will be higher than possibilities to supply for different reasons. So when we look at the market a little bit more long-term, we are very positive in softwood pulp. And also you see some kind of consolidation in the hardwood pulp business. I mean, you have a number of really big producers now, and also they take curtailments. When they see that we have an unbalanced market, they take curtailments and so on. So I mean, that will also help to stabilize the, the overall pulp market, I think.

Thank you. And our next question comes from Oscar Lindstrom from Danske Bank. Please go ahead.

Yes, good morning. A lot of good questions already. I have really just two questions. The first one is on pulp, a little bit following up on the previous one here. I mean, With lower prices, high wood costs, and even shortages of wood, we've seen production curtailments on the pulp side, primarily in Finland so far this year. Are you expecting any further production curtailments or perhaps more capacity closures, either here in the Nordics or in Canada in the coming six months, say? Yeah.

Yeah, that's my first question. That's your first question. Well, that's hard for us to say. I mean, it's always a question of what kind of cash. I mean, first, access to raw materials. That is the most important thing. And the second thing is cash cost. And as you say, I mean, we have seen Canadian plants closed recently. Exactly. And I mean, the balance, but we have also seen additional capacity coming on stream. But I think the balance is rather good, not the least going forward here. So maybe a little bit more unbalanced when it comes to CTMP, where we are present also today. Europe is still a good market for us, but Asia is very challenging. And then, of course, if we see that the marginal cost for raw materials and energy combined, if that gives us an unprofitable business, then, of course, we will take the payments. We will not lose money.

No.

All right. Thank you. The second question is on the forest side. And we fairly recently had the Swedish church come out with a new report on proposed forest management policy for their forest lands, which I presume they're likely to take on. And at least I presume also this might affect some others in sort of changing their forest management policy. And in general, it seems to be more restrictive, i.e. lower harvesting levels. What do you see about the sort of environment for managing forests and we've seen you increase your harvesting levels but much of the rest of Sweden seems to be going in the opposite direction so if you could say something a little bit about sort of how that policy environment is developing for you I mean for us that's very clear I mean we will continue to manage our forest in best way and I think the best thing to do both for

The business, but also for the climate, is to be very active. I mean, if we can increase the growth, then, of course, we will tie up carbon dioxide in the forest, but also we will replace fossil-based materials and fuels as a substitution effect. I mean, that is 100% sure best for the climate and for the business. So we will do that. Then, I mean... Other companies, they might have a different starting point for us. As I said, I mean, the total growth, the gross growth in NCA is 10 million cubic meters per year. And I mean, we harvest some of it. We have some windfalls and other diseases. And we also do pre-commercial things and things like that. But we don't harvest more than 70% of the potential. And I think that is a fantastic opportunity. That is our future cash flow, of course. I don't like to comment on what's happening in the church. I wouldn't handle it that way. That's my personal view, but we cannot really comment on what the church is doing here.

So you don't see the policy environment in general. I was only taking the church as an example, but you don't see the policy environment. sort of restricting your harvesting growth in the coming years?

I mean, if we like to have the green transition, the only thing we can do is to use the potential that we have in the forest in the best way. I mean, that is maybe the most important thing in order to make this green transition happen. So that's my point, really.

Thank you very much. Those were my two questions.

Thank you. We'll now move to our next question from James Ferry from Citi. Please go ahead.

Good morning. Thanks for the presentation. I'd just like to ask about the forest markets in the Baltics. Obviously, we had the negative spot price data in Sweden, but are trends similar in the Baltics? And if so, would you see a lower price environment as attractive to accelerate your acquisitions there? Or are you more focused on acquiring in line with your downstream requirements and strategic locations?

Yeah, to start with, we also see a small, I would say, decrease when it comes to price for forest land. So I think that is more or less the general trend. I think that has also followed interest rate development. And so that might change quite fast. Just now we are... a little bit more cautious when it comes to forest land acquisitions in the Baltics and that is also why we are a little bit focusing on the balance sheet just now to consolidate and I mean that is, it's always a balance I think you will have good options in the Baltics coming years now and we will continue to buy forest land but always it's a question of timing of course Okay, thank you

Thank you. We'll now move to our next question from Andrew Jones from UBS. Please go ahead.

Hi, Jens. Just a quick one. So on Stora's recent announcement they want to sell 12% of their forest, a couple of questions around that. One, you've always wanted to buy more forest. Is that a possibility that you'd consider? Two, in terms of pricing and how that market shakes up, you've talked about corporate premiums in the past, in your last CMD. I'm curious how you would think about the pricing of that package in the current market. And, you know, in the context of that, would you consider something similar if it's something clearly what Stora are doing is trying to shine a bit of a light on the forest value that they don't feel like they get a fair valuation for in their share price? Is that something that you might consider? Then I've got a couple of operational numbers questions, but I'll let you answer that first.

Yeah, I tried. I start and I hope I answer the right questions. But are we interested in Stora's forest land? I mean, hypothetically, we could be interested in that one, but if so, we should have the opportunity to control it. I mean, we are not interested in buying land and to supply someone else with the wood from that land. But if we could buy a piece of land in Sweden and we could use it for our own best, then we would be interested, yes. The second thing was that about the price level and premiums. Let us wait and see. I think we don't know really in this transaction, we don't know what land they will sell, in what area they are supposed to sell forest land. I think it's the only important thing to look at is you have different price levels if you are in the West, far away from the industry. if you have a slow growth area or if you are close to the industry and higher growth and so on. So, I mean, you have lots of factors that will have an impact on the final price when you do a transaction like that. But like for like, my view is still that it should be a premium on legal entities as you can – you're much more flexible when it comes to the jordförvärvslagen. And the third one was if we are considering selling forest land and we are not, so that's no.

Okay, that's great. And just on the operational stuff, I think I heard Andreas say that you were looking at 5.1 million cubes of harvesting in the forest division this year. That would imply year over year a decline of like probably about 6%. on the fourth quarter last year. Is that your expectation, or could we exceed that a bit this year? And secondly, just on the wood division, I don't know if you gave this at the start. I had some connection issues. But in the pricing, somewhat pricing into the fourth quarter, are you expecting prices to decline seasonally?

I'll start with the first one on the harvesting. As I said, last year we had just below 5 million. This year we expect above 5 million, and our best estimate is currently at around 5.1. And we looked at more on a yearly basis because, as I said before, we harvest both from our forest and then from private individuals. And over a year we try to optimize that to to reduce the logistical costs around 5.1, but it's hard to say the exact figure.

And then maybe the price for solid wood products in Q4. And yes, I said that I believe that we have seen more or less unchanged prices from Q2 to Q3. And I believe that we will see more or less unchanged prices also between Q4 and Q3. Then you might see differences in, I mean, where you deliver the volumes. So you can have some mix effect. You can have some currency effect. But the underlying price will be more or less flat from Q3 over to Q4. Thank you very much.

And we have a follow-up question from Charlie from BNP Paribas. Please go ahead.

Yeah, thank you. Just a technical question. On the other operations, the loss there of 34 million kroner in the quarter was unusually low both year on year and certainly versus the most quarters. in the last three years. I just wondered if there was anything particularly driving that and whether we should consider a normalization going forward or whether that's the new run rate.

No, in Q3 we more typically have lower costs because of the summer period. You also have an effect between the quarters between the profit in stocks, a negative effect the last quarter and a positive effect this quarter. But if you look at aggregate, the three quarters, and they take that divided by three, then you get a running rate on others.

All right, thanks. Thank you. And if there are currently no further questions at this time, would they like to hand the call back over to our speakers for closing remarks? Anders?

And that concludes our first quarter report presentation. And I wish you all welcome back in January for our fourth quarter report. Thank you.