Svenska Cellulosa Aktiebolaget SCA (publ)

Good morning and welcome to this presentation of SEA's 2025 first quarter results. 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 first quarter 2025. During the first quarter, SEA again showed that we can deliver good profitability even in the continued challenging environment. SEA's high degree of self-sufficiency in wood raw materials mitigated a big part of the higher cost related to wood supply and we reached 1.65 billion SEK on EBITDA level and by that an EBITDA margin of 32% for the quarter. During the first quarter, SEA had strong delivery volumes, not least in the wood segment due to productivity improvements. In other segments, the volume increase has been supported by the ramp-up of strategic investments, and these investments will contribute to increased productivity and cash flow generation during upcoming years. Prices in SEA's industrial segments were generally higher in Q1 2025 than in Q1 2024, and I expect these price increases that they will further contribute to earnings in the second quarter. Global uncertainty has increased with the US tariffs. This also affects the global demand and business climate, and I will give some comments on each segment as we go through the presentation. Turning over to some financial KPIs for the first quarter of 2025. As already said, our EBITDA reached 1.65 billion SEK during the first quarter, which corresponds to a 32% EBITDA margin. Our Industrial Return on Capital Employed came out at 8% for the first quarter, counted as the average for the last 12 months. The leverage was at 1.5 and we have now finalized our big strategic investments in Obola, Utviken and Gothenburg, which will, as already said, contribute positively coming years. Then I will make some comments for each segment, starting with forest. Stable harvesting levels from our own forest have contributed to a stable supply of wood, raw materials to our industries during the 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 Q125 with Q124 sales were up 15% and that was mainly due to higher prices for pulpwood and saw logs as well as higher delivery volumes to our own industries. When excluding the effect of capital gains for Hemvallen in Q124, approximately 130 million SEK, EBITDA was up 4%, mainly due to higher prices for pulpwood and saw logs, but also due to higher delivery volumes to our own industries. Turning over to business area wood. In general, we still have a slow underlying market for solid wood products. Despite the generally low demand, we continue to see some signs of improvement in the repair and remodeling segment where SEA is present. The uncertainties in the general economic development have, however, increased due to the tariff discussion between the US and other countries. So far, no tariffs are added to Swedish export of solid wood products to US. Stock levels are slightly higher among producers, but mainly on the low side at customers. As estimated, the price for solid wood products increased with low single digits in the first quarter of 2025 in comparison with the fourth quarter of 2024. Our deliveries last quarter were strong, but our production was also at the high level, resulting in a, for SEA, close to unchanged stock level of zone goods. As expected, the cost for SOLOGS has increased from the fourth to the first quarter and we also expect them to continue to increase going into the second quarter. Sales were up 37% and EBITDA was up 113% in the first quarter of 2025 in comparison with the same period last year. That has been driven mainly by higher prices but also by higher delivery volumes. Debit day margin consequently increased from 10 to 16 percent. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last five years. As mentioned earlier, we note that the inventory is at a slightly higher level than normal among producers. That is mainly related to the pine. As can be seen in the diagram to the bottom left, the Swedish and Finnish showmiss production has been on normal levels in the start of 2025. In the diagram to the top right, we can see small price increases during the start of the year and with a somewhat stronger development for sprues. Going into the second quarter of 2025, I estimate that the price will continue to increase by close to 10%, driven mainly by cost increase for Zoologs, but held back due to the currency development. In the construction sector, we can conclude that the starts of new building continue to be low, while consumption in repair and remodeling sector will be early to respond in a positive way to lower interest rates. so over to pulp when one compared q125 with the first quarter 24 sales were up nine percent mainly due to higher delivery volumes ebta was flat compared to last year mainly due to higher cost for wood draw material and low prices for ctmp mitigated by higher prices for mbsk Global demand for pulp was at a healthy level during the first quarter and we saw increasing prices on all markets. However, the weakening of the US dollar have had a negative impact on the price in local currencies. MBSK prices reached the bottom in Europe in January at US dollar 1480. Today we are around 1600 US dollar per ton after three consecutive months of increasing prices. In the US, MBSK prices have had a similar development to Europe. In China, MBSK prices reached the bottom in the summer of 24 at $710 per ton net. We then saw increasing prices up until March this year when the price reached $810 per ton. And so far in April, the market is in, let's say, wait and see mode. Regarding tariffs, all pulp supplies exported to the US, except for Canadian producers, are currently subject to 10% tariffs. Canada and Europe are the main suppliers of MBSK pulp for the US market and SEA are at risk of losing market shares if having higher tariffs than Canadian suppliers over time. Looking at CTMP, prices have been unchanged in Asia at low levels, but increasing slowly in Europe during the first quarter. Inventories of softwood and hardwood pulp are on normal levels, as you can see in the diagram. CTMP inventories, on the contrary, still are on the high side. Moving over to container board. Sales were up 2% in Q1 in comparison with the same period last year. We can note higher prices on the positive side, while lower volumes had a negative impact. EBITDA was up 70% due to higher prices, which was partly mitigated by higher costs for wood raw material and negative currency effects. We've seen box demand developing positively during last year and into 2025, and by that we are now almost back to historical growth trend levels. We've seen an improved retail demand supported by increasing consumer confidence, which should support the continued growth in box demand over time. On the other side, we continue to see negative growth in the European manufacturing industry, which for the moment drives the demand in the segment in a negative direction. The European demand for container board has moved sideways in Q1 compared to the same period last year. Due to the current turbulent macro environment, it's difficult to predict the long-term impact on demand. With regards to tariffs, we expect the direct impact on our business in container world to be relatively small. The potential impact mainly comes from the effect of tariffs on the overall business environment. Craft dining inventories are slightly above average level in Q1, but trending downwards. The availability of OCC has in the later part of Q1 tightened, although prices have remained stable. Moving into Q2, we will see the prices of OCC substantially moving upwards, mainly driven by availability. European prices for brown craft liner increased in Q1 by 40 euro per tonne, and white craft liner has during the same period decreased by 10 euro per tonne. SEA will increase white craft liner prices in April by 40 euro per tonne and we now feel a more solid underlying demand in combination with strong cost pressure and due to that we have recently announced another price increase of 60 euro per tonne in both brown and white craft liner from 1st of May. So finally renewable energy. In business era renewable energy, we have had a weaker quarter compared to the same period last year. The market for solid biofuels remained stable. Higher prices for sawdust in our pellet business were met by higher prices. In line with previous quarters, the green premiums for tall oil and liquid biofuels are substantially lower in comparison with the same period last year. As mentioned before, main reasons are lower blending mandates in Sweden and increased imports from China, creating an imbalance in supply-demand in the renewable fuels market. We expect market volatility in renewable fuels to remain 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 small recovery in biofuel prices we saw at the end of Q4 impacted Q1 positively. However, with the current geopolitical landscape and decline in oil prices, we expect the market to be challenging going forward. Electricity prices were low during the quarter, which impacted our wind business negatively. SCA continues to grow. in land lease for wind power and has reached 9.7 terawatt hours of wind power on SAI land by the end of Q1. That is equal to 20 percent of installed capacity of wind power in Sweden. And finally I can mention that execution of our windmill project Fasikan is progressing according to plan. And by that I hand over to Andreas. Thank you.

Thank you, Ulf, and good morning, everybody. I'll start off with the income statement for the first quarter. Net sales increased 13% to just below 5.2 billion, driven by higher volumes and higher prices. EBITDA increased 3% to 1.65 billion, driven mainly by higher prices, which was partly offset by higher costs for wood, raw materials. The EBITDA margin was 32%. EBIT increased to 1.1 billion, and financial items totaled minus 114 million. An effective tax rate around 20%, bringing net profit to 800 million, or 1.14 SEC per share. On the next slide, we have the financial development by segment. Starting with the forest segment to the left, net sales increased to 2.5 billion, driven by higher prices and higher deliveries to SCA's industries. EBITDA decreased to 879 million due to seasonal low harvest from SCA's own forest compared to the previous quarter. Our prices for wood, raw materials continue to increase. In wood, prices were slightly higher compared to the previous quarter. Net sales increased to 1.5 billion and were positively impacted by higher delivery volumes. EBITDA was in line with the previous quarter and amounted to 236 million, corresponding to a margin of 16%. Higher prices and higher volumes were set by higher costs for wood raw materials. In pulp, net sales decreased to 1.9 billion compared to the previous quarter, while EBITDA increased to 320 million, corresponding to a margin of 17%. Lower costs for planned maintenance stops were offset by lower prices and negative currency effects. In Container Bar, net sales increased to just below 1.7 billion, and EBITDA was in line with the previous quarter and amounted to 239 million, corresponding to a margin of 14%. Lower prices and negative currency effects were received by lower costs for planned maintenance stops and higher delivery volumes. The market for renewable energy continued to be weak. EBITDA increased compared to previous quarter amounted to 134 million, corresponding to a margin of 22%. The increase was driven by seasonally higher deliveries of solid biofuels and higher results in liquid biofuels, while electricity prices continued to be low. On the next slide, we have the sales spread between Q1 last year and Q1 this year. Prices increased 6%, with higher prices in wood, container board, and MBSK. Volumes increased by 8%, driven by higher volumes in wood and pulp. And lastly, the currency had a negative impact of 1%, bringing net sales to just below 5.2 billion. Moving on to the EBITDA Average, and starting to the left, price mix had a positive impact of 325 million, and higher volumes had a positive impact of 64 million. Higher costs for mainly wood, raw materials had a negative impact of 147 million, with a marginally positive impact from energy, and a marginally negative impact from currency. Last year, we also had a capital gain of 128 million from the sale of Henvollen. In total, EBITDA increased to 1.65 billion, corresponding to a margin of 32%. Look at the cash flow. We had an operating cash flow of 485 million in the quarter. And as you know, other operating cash flow relates mostly to working capital currency hedges, and should therefore be seen together with changes in working capital. Look at the balance sheet. The value of the forest assets totaled 107 billion. Working capital increased to 5.6 billion, mainly driven by higher volumes, currency and VAT receivables. Capital employed increased to $116 billion, net debt stood at $11 billion, and equity totaled $105 billion, corresponding to net debt to equity of 11%. Thank you. With that, I'll hand back to Julf.

Thank you, Andreas. And just to summarize, I think that we have done a solid quarter, slightly better than last year and also slightly better than Q4 last year. We have implemented price increases in more or less all product areas from the first quarter and they will be successively implemented during the second quarter. We have seen substantially higher raw material costs, but again, our high degree of self-sufficiency in SEA can mitigate the negative effect of that in a rather strong way. We see higher delivery volumes in more or less all areas, and not least is that due to our ongoing ramp-ups in strategic investments. So I think by that, Andreas, we open up for questions. Operator can we please open up for questions? technical problem and we try to solve that as fast as possible.

Ladies and gentlemen, if you wish to ask a question, please signal by pressing star one. And our current question is from Ioannis Massoupolos from Morgan Stanley. Please go ahead with your question.

Ioannis Massoupolos Yes, thanks very much. Can you hear me okay? Yes, we can. Perfect. Thanks very much for the presentation. First question from my side. You show solid European box demand at the start of the year. which has supported your container board price hikes. What are you seeing in recent weeks as tariff frictions escalated? Is there any visible slowdown in parts of the market, or is it still too early to say? And then the second question is on the currency, where we've seen the Swedish kronor having strengthened quite materially. Can you provide us a quantum of net exposure you have to USD and euro to get a sense on overall sensitivities? And also, are you looking to continue hedging the FX crosses at these levels? Thank you.

Thanks. And if I start with tariffs, I mean, it is too early to say. And I think the driver behind the price increase that will come now is the cost increase that we see, not least now in OCC. And we know that test line producers, they are already in the market and have they have been there since a while and asking for compensation for OCC prices and I mean also on container both side we have seen an increased cost pressure due to increasing cost for not the least for wood raw materials so I mean that's the main reason behind the demand has been Okay, during the start of this year, and it is far too early to say what kind of impact tariffs and other things will have on the demand. But as I said earlier, I mean, generally, it's not good with unsecurity, and that we see in all markets just now due to for different reasons. And I think, Andreas, you can say some words about currency.

Yeah, if you look at our net exposure, and that is our sales minus our purchases in different currency, we have a table in our annual report which shows the exact net exposure from last year, but it's around 600 million US dollar and 400 million euros and 100 million British pounds. And in pulp, it's mostly dollar exposure since the prices are set in dollars, while in wood and container board, it's mostly euro, sec and some British pounds.

Thanks very much for that. And so just to clarify on the hedging strategy, are you looking to continue hedging at the current levels?

We have a statistical model that we follow. So we lie within a range for the next couple of quarters, and it decreases. And that depends on how much the currency goes down or goes up. Then we are either a bit higher in that range or a bit lower in that range. But we follow that model.

Great. Thanks very much. Thank you. We will now move to our next question from Robin Santavirta from Carnegie. Please go ahead.

Yes, thank you very much. First of all, two questions. First one related to pulpwood and log availability in the area you operate on. What is the current status there, and how do you expect the pulpwood and log prices to develop now in Q2? And then the second question I have, if you can answer this, it's regarding the U.S. tariffs and related to what are you seeing at the moment in terms of your exports of pop into the U.S.? What is the demand? What is the pricing strategy you are taking? How has the current trade tensions impacted overall business sentiment for you guys in Europe so far?

I can start with the rest of the prices. So we had on pulpwood and soil logs, prices from Q4 to Q1 increased around 5 to 6%. And then going forward to the second quarter, we expect industry will pay around 3% more for pulpwood and around 5% more for soil logs.

Yeah, and that is... I must say I feel that the market is much more balanced for the moment being in pulp wood nowadays in our region and as mentioned before we have a lagging effect and Andreas described that part. but i feel that it is a more balanced market for at least pulpwood supply just now when it comes to saw logs i guess still we will see increasing prices also in the market they are on a very very high historical level just now we will have the lagging effect and and but still it seems to be a rather good demand for for saw logs and as mentioned also in the earlier We will see during the second quarter a price increase of 10%. In SEA and I guess other places they will see somewhat similar. So that will of course also give some extra space to pay more for the Zoologs.

Sorry to interrupt, can I ask if that's 10% in Swedish krona or is it in Euro, USD and so forth?

That's the average for all currencies.

All right, thanks.

As it is just now. it can be something completely different at the end of this quarter, but as it is just now. When it comes to the export to U.S., I mean, as I said, we have a different situation in different areas when it comes to our solid wood products. I mean, we have no tariffs at all as it is just now, and you know that Canadian solid wood products, they face, I guess it's 14% tariff level so i mean in that perspective we are favored still in us in pulp i mean the tariff today is 10 and from from canada over to us it's zero so i mean that business has changed of course it hasn't really yet had any impact on on our flow and and i guess we are in a little bit of a wait and see mode just now But if this situation, if that remains, then of course we have to reposition some of the volumes from US to other markets and then mainly Asia, I guess. In container board, we are not really impacted by, we don't do too much business in US in container board.

I understand. And just on Europe, I mean, there's a lot of uncertainty that you also said. Has that already now impacted order intake in any of your segments in the European business?

No, that is too early. I guess we have a rather strong order book for the second quarter. So far, so good. But I mean, again, I mean, this discussion we have just now, that is, of course, not good for the general development and the general growth. I mean, it will in one way or another have some kind of impact on the global business environment. And that will also hit, of course, the forest industry.

I understand. Thank you very much. Thanks.

Thank you. As a reminder, to ask a question, please signal by pressing star one. And our next question is from Oscar Lindstrom from Danske Bank. Please go ahead.

Good morning. Three sets of questions for me. The first one is on hope. What kind of potential do you see to raise prices for MBSK in Europe, you know, given... u.s tariffs and and potential need to re you know take some volumes out of that market and i think you also described the uh the mood in china as sort of wait and see at the moment so that's my first question we take them one by one i think that's easier for me at least uh

Again, I think it's too early to say. I mean, we know that we now will see around 1,600. The index price in Europe for MBSK will be around 1,600. And as far as I know, I think the index price in U.S. went up 30 US dollars per ton, something like that. And again, as we said, I mean, in Asia, it is... wait-and-see mode, of course, as it is just now. And I don't like to speculate in further price development in Europe or U.S. at this point, at least.

Yeah. All right. Fair enough. My second question is on container boards. I think your volumes were down 7% year-on-year. Does this reflect sort of a weaker market mix change or volatile ramp up of the Ebola machine?

think we had uh it's more seasonal effect and we had uh rather we have a rather low stock level in container board and and i mean the ramp up just now is going well i would say according to plan and we had a production record in in march and and we are doing slightly better now in april so we are pretty happy with the with the ramp up all right good uh and then finally on on fx i know the question's been asked before but

So given the hedging, I mean, you should be facing the full impact of the stronger SEK that we've seen so far towards the end of the year. And that is, I mean, going to impact your competitive position vis-a-vis, you know, competitors based outside of Sweden. Do you see a need or a potential to cut costs or make structural changes to mitigate this Or is it all just going to have to come down on your bottom line in the end?

I think we always have a need to cut costs and be more productive and efficient.

And I guess... First, would it be possible to certify grease for nuclear weapons? Now someone is disturbing the line here.

So, okay, Oskar, are you still with us? yeah yes good okay we have someone else we're on the line so maybe we don't know so i think we always have a need to to work with our cost as a reminder to ask a question please single by pressing star one we always have a need to work with our cost efficiency and do what we can in order to to control the cost level and and we i cannot really see that we have a we always try to focus on what we can have an impact on. I mean, we cannot do too much about tariffs and currencies and other things, but we can be as efficient as we can, of course. And so we are 100% focused on productivity, cost efficiency and so on. We have no special programs that will be announced coming quarters here.

And also the continued ramp-up of our big strategic investment that will help to improve our cost positions as we gradually ramp-up and trim those operations.

And we have a question from Louis Merrick from BNP Paribas. Please go ahead.

Hi, thanks for taking the question. We'll just go back to the capital movements in the end for a sec. In terms of phasing and timing as to when that should come through the P&L, should we expect that to come through quite immediately or should there be a bit of a lag?

If we look at the FX, we have a table in our quarterly report on how much we have hedged for each quarter. But for the dollar, we have hedged around 70% of the net exposure in both Q2 and Q3, then 50% in Q4. I think it's 20% in Q1 in 2026. For euros, it's around... 70% in Q2, around 50% in Q3, and then around 20% in Q4. But you have the exact figures in our report. But I'll run those.

Okay, appreciate that. Also, on the elimination, it's quite a big jump this quarter. Just wondering what drove that and how that might evolve moving forward.

You mean in others? Correct. Yes, in others. Firstly, we usually have a seasonal a bit higher costs in the first quarter. Then we also had some higher eliminations of profit in stock in the first quarter because of higher wood, raw material costs. That's a one-time time effect when the prices of wood, raw material goes up.

And just one last one from me. Just given the current environment, the recent experience of lower car prices, what's your appetite for the wind projects going forward?

I mean, if like a wind, we are with the current Fasica we're building now, we will be self-sufficient in the wind power and we never want to become a net seller of electricity. So we won't do any further purchases or construction of wind power because we just want to be self-sufficient or almost self-sufficient, but never become a net exposure.

But we can develop projects and then we can sell them, and that's a part of our business.

Thank you. I'll turn it over.

Thank you. As a reminder, to ask a question, please signal by pressing star 1. We'll pause for a moment to allow you to signal.

Not really hear a question.

As a reminder, to ask a question, please signal by pressing star 1. We will now take a question from Victoria Adesina from Barclays. Please go ahead.

Hi there, yeah, Victoria. Just three questions for me. So on the price increases, given, you know, the drivers behind those, I was wondering if you could share some insights into how customers have been reacting to this, just given that the current geopolitical backdrop is, you know, sort of risk of things being slowed down.

Customer reaction from the price increases.

Well, customers, they always like low prices, so that is natural. But I guess everyone see that we will, I mean... The main driver behind price increases just now is not the fantastic demand. Maybe with an exception in solid wood products as we have a seasonal effect just now during Q2 and maybe also during Q3. But otherwise, I mean, it is the cost pressure that force us to go for further price increases as it is just now.

Okay, both clear. And a question on the segments and tariffs. Is that the most exposed or will be the most impacted?

Tariffs on pulp. Tariffs on pulp. As I said before, I mean, as it is just now, we face 10% tariffs from Europe over to US. And at the same time, Canadians, they face zero tariffs. percent tariffs so I mean that of course changed the competition a bit and then we have to wait and see but as it is just now I mean that is of course not positive for us we haven't really seen an impact up till today but if this continuous, I mean, then we have to, as I said, reposition our sales of pulp. And I guess if Canadian volumes over to U.S., if they increase, that will create space in other markets.

Okay. Then final question. Is it possible to give any sort of time when we could see a turnaround in the renewable energy segments?

Turn around in the renewable energy.

Yeah, I don't know if I mean, as it is just now, I mean, we have what we have electricity prices in the northern part of Sweden. They are quite low. I think the hydrologic balance is plus 15 terawatt hours in the Nordics just now. And I mean, that is not beneficial for an energy producer. So I mean, that give conditions for our production or profitability in wind. On liquid biofuels, I mean, we've talked about that before, but still, we have the decreased mandate, and that will still, and also, of course, reduce the oil prices due to the geopolitical situation. I mean, that also... will have a negative impact on the market for liquid biofuels. But on the pellet business, I guess we have... It's a solid business.

I just remembered the self-sufficiency. Last year, around 80% self-sufficiency on electricity as an example, so we still benefit from low electricity prices. Our renewable energy business will be impacted negatively, but we will have lower energy costs in our wood business and our CTP business and our container board business and also with liquid biofuels with low oil prices i mean we make less money renewable energy but we have lower cost for for our logistics operations and our forestry operations so so we still as a group as a whole we benefit from low electricity prices

So, again, I mean, we fall back on our strategic position. We like to have a high degree of self-sufficiency in wood, energy, and logistics, and all the time we believe that is exactly the right position we shall have. So, I mean, and that's also, I guess, why we can deliver a rather solid result also this quarter.

Okay, that's clear. Thank you.

Thank you. That all questions that we have today. With this, I'd like to hand it back over to our speakers for any additional or closing remarks.

And that concludes our first quarter report presentation. We'll come back in July for our half-year report. Thank you for dialing in.