Svenska Cellulosa Aktiebolaget SCA (publ) (SCAB) Earnings Call Transcript

Good morning, and welcome to this presentation of SCA's third quarter report. Today, we are joined by President and CEO, Ulf Larsson; and CFO, Andrea Evertz. We look forward to walking you through the results, followed by Thank you, Per. Good morning also from my side and a warm welcome to our presentation of our results for the third quarter '26. During the quarter result increased sequentially and was also in line with Q3 '25. Market conditions were mixed between the segments during the third quarter. We continue to see improvements both in pricing and demand for the containerboard segment. In renewable energy, we have seen another quarter with a strong result, while Pulp and solid wood products faced a continued challenging market. high fuel prices driven by the conflict in the Middle East impacted the result within the Forest and Industrial segments negatively by the liquid biofuels business, on the other hand, benefited from higher oil prices. As we reached SEK 1.63 billion on EBITDA level and by that, an EBITDA margin of 31% for the third quarter. So turning over to some financial KPIs for the third quarter. And as already said, our EBITDA reached EUR 1.63 billion accounted for the last 12 months, and the leverage was at -- the 2 while net debt to equity reached 10.4%. I will now make some comments for each segment, starting with Forest. And during the quarter, a continued to process wind fell volumes for forest owners in the areas affected by the storm at the end of last year. Harvesting level of our own forest was stable but slightly -- at a slightly lower level compared to the same period last year. Harvesting to our own forest has contributed to a balanced supply of wood raw materials to our industries also during this period. Prices for both pulpwood and sawlogs have continued down. However, compared to the same period last year, solar prices was somewhat higher, while pulpwood prices are clearly lower. When 1 compares Q3 '26 with Q3 '25, sales were down only 1% is for pulpwood and increased fuel costs. During the quarter, I say sold low productive forest land far from our industries and at the same time, we acquired around 5,000 hectares of productive forest land closer to our industries for the same amount of money. Solid wood product Products is moving sideways due to slow building activities in most regions. We expect the demand to continue to be stable on current level in the coming quarter. production in Germany and Canada has decreased year-on-year, but volumes in Scandinavia are close to last year's level, driven by processing of storm-fell logs. Stock levels remain on the high side among producers for pine but are on normal levels for spruce. Stock levels at customers continue to be on the low side. Delivery volumes were lower in Q3 '26 in comparison with Q3 '25. SCA Stockhouson goods is at the balance over the same quarter last year. This development is in line with what I said when I presented the report for the second quarter. The cost for sawlogs in the third quarter was still high, but we saw a small price decrease in comparison with the second quarter and we expect to see some further decreases in logs were 6% lower in comparison with the same quarter last year. EBITDA margin decreased from 15% to 8% due to higher raw material costs and lower delivery volumes. 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 5 years. And as mentioned earlier, we note that the inventory level is on the high side in Scandinavia, especially for pine, while the SCA stock level is balanced. As can be seen like the 5-year average during '26. In the diagram to the top right, we can note that the export price index decreased somewhat in the third quarter. And as already mentioned, as prices moved in the same direction. Going into the next quarter, I estimate that the underlying prices in the market will be unchanged, but are moving into -- but we are moving into a seasonally weak demand and we still have negative effects from lower quality on the storm fed logs, giving a limited risk on the downside. Over to Pal. And when comparing Q2 '26 with Q2 '25, sales were up 7%, mainly due to strong production action and higher delivery volumes, which was somewhat mitigated by lower prices. was down 18%, which was mainly driven by lower prices, SEK 4 million. The third quarter, supported by a relative weak demand, combined with a high inventory level in China. Several softwood pulp mills have had market-related downtime during the third quarter and on closures of softwood pulp capacity have been announced in both North America and Europe during the year. In Europe and U.S. softwood pulp prices decreased slightly during the third quarter, whereas prices in China first declined before rebounding towards the end of the quarter. Looking at CTMP, demand and prices remained all inventories of softwood pulp stayed at a high level during the quarter, as shown in the diagram, whereas hardware inventories increased from a low level to a more normal level. So moving over to Goods. And here, sales were up 12% compared to the same period last year, driven by higher delivery volumes and higher prices. increased by 30%, driven by lower costs for planned maintenance stops, higher prices, lower costs for raw materials and repayment of tariffs of SEK 27 million. This was partly mitigated by negative currency effects. After softer box demand in the early summer, demand recovered in the third quarter with full year growth, slightly below long-term average. Stronger manufacturing industry in combination with the growing retail business has been very supportive. European demand of containerboard has improved during the third quarter following the box demand, and we forecast a positive demand development of containerboard in the coming quarter. There is no new containerboard capacity started up in the first 3 quarters of the year. During the last quarter of 26, we can expect ramp-up of the new capacity started in '25 as well as some closures to balance some of the increased supply. Kraftliner inventories remain on a seasonal normal level, Q3 driven by both stable deliveries and limited supply. During Q3, the availability of OCC has been in balance with supply and demand, which in its turn, has led to stable prices. Prices for brown kraftliner in Central Europe increased in the beginning of the third quarter with EUR 60 per tonne for brown kraftliner and EUR 40 per ton for white kraftliner. The improved underlying demand in combination with strong cost pressure and lower global supply have supported the third price increase for kraftliner this year. with gradual implementation from September, prices for kraftliner and Central Europe have increased with additional EUR 8 per tonne and another EUR 60 per tonne for white kraftliner. Finally, I will say some words about renewable energy. And in this segment, we have had a strong stronger quarter this year compared to the same period last year, and that is mainly driven by higher prices and strong production in a jointly owned by refinery in Gothenburg. Electricity prices were volatile during the quarter, but higher in comparison with Q3 previous year. Delivered volume was higher, driven by our new wind from Fasikan. In solid biofuels, we have had a good production and stronger deliveries in the year in comparison with last year. And by that, Andreas, I hand over to you.

Thank you, and good morning, everybody. I'll start off with the income statement for the third quarter, driven by high delivery volumes which partly offset by lower prices and negative currency effects. EBITDA was in line with the third quarter last year and totaled SEK 1.6 billion. Lower prices and negative currency effects were offset by lower costs for planned maintenance stops and higher delivery volumes. EBIT decreased just about SEK 1 billion and financial items totaled minus SEK 102 million with an effective tax rate of below 20%, bringing net profit to SEK 772 million or SEK 1.1 per share. . On the next slide, we had financial development by segment. Starting with the Forest segment to the left. Net sales decreased to SEK 2.4 billion driven by lower prices for both sawlogs and pulpwood compared to the previous quarter. EBITDA decreased to SEK 702 million, driven by lower prices and seasonally lower harvest from SCAs upon Forest. In wood, prices decreased somewhat compared to the previous quarter, mainly driven by product mix, while the cost for sawlogs decreased. Net sales decreased to SEK 1.4 billion, driven by lower delivery volumes and somewhat lower prices. EBITDA increased to SEK 17 million, corresponding to a margin of 8%, and the increase was, as I said, driven by lower cost for wood raw materials and totaled just below NOK 1.8 billion. EBITDA increased to SEK 198 million, corresponding to a margin of 11%. The increase was mainly driven by lower raw material costs. High delivery volumes, lower distribution costs, repayment of tariffs of SEK 15 million and higher energy net, which was partly offset by lower prices. In containerboard, kraft liner prices continued to increase during the quarter. Net sales increased to just below SEK 2 billion and EBITDA increased to SEK 446 million corresponding to a margin of 23%. The result was positively impacted by a lower costs and repayment of tariffs of SEK 27 million. In Renewable Energy, we had another strong quarter driven by high fuel prices EBITDA totaled SEK 201 million, corresponding to a margin of 42%. Somewhat lower results in our solid biofuels and wind business were partly offset by some high results for liquid biofuel. On the next slide, we have the sales bridge between Q3 last year and Q3 this year, offset by higher prices in containerboard. Volumes increased 9% driven by higher volumes in pulp and containerboard, which was offset by lower volumes in wood. And lastly, currency had a negative impact of billion. Moving on to the EBITDA bridge and starting to the left. Price mix had a negative impact of SEK 144 million, and higher volumes had a positive impact Materials had a positive impact of SEK 7 million while Energy had a positive impact of SEK 4 million. We had a negative impact from currency of SEK 57 million ops and tariff repayments of SEK 42 million, which was partly offset by higher distribution costs. In total, EBITDA was in line with Q3 last year and total at SEK 6 billion, corresponding to a margin of 31%. Looking at the cash flow. Operating cash flow decreased to SEK 426 million for the quarter and SEK 1.4 billion for the first 9 months. Working capital in the quarter was negatively impacted by higher prices and market mix. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Looking at the balance sheet. The value of the forest assets totaled SEK 105 billion. Working capital increased to SEK 5.4 billion Capital employed totaled SEK 112 billion and net debt stood at SEK 11 billion. Equity totaled SEK 102 billion and net debt to equity was 10%. And and we have now almost finalized our large ongoing investment projects. Thank you. With that, I'll hand back to you.

Thank you, Andreas. And if we, again, then summarize the third quarter, I mean, I think we have delivered a stable quarter. result increase sequentially, as I said, and was in line with the same period last year. We have mixed market conditions, a strong market for containerboard, higher prices, good demand. renewable energy, of course, still on a very high level. On the other hand, the market conditions for pulp and wood is continued challenging I would say. So by that, I think we open up for questions, please. .

[Operator Instructions] We will now take our first question from Lena Larson of SEB line.

Market is developing now in the fourth quarter? And how are they affecting fourth quarter results in forest and then if we could also talk about the long cost situation, it would going into the fourth quarter and the pulp would cost for?

We have had a rather solid supply for a number of quarters. Now and that is, of course, also related to -- and we are still helping our friends south of the SA area to take care of the wood. We have also seen some additional volumes coming down now recently. And by that, we believe that we will continue to harvest a rather big part of store fell wood. And think you, Andreas can maybe elaborate a little bit about the cost side.

Yes. So this quarter, we saw a decline of around 5% compared to both sawlogs and pulpwood. And going into the fourth quarter, we see another 4% to 5% decline in both sawlogs and pulpwood. .

Perfect. That's very clear. And then maybe on containerboard, you've had this price momentum now for a couple of quarters. Could you elaborate a bit more on that? I think you said that we have a good chunk of price impact coming through in the fourth quarter. Is that more or less than what we've seen in the previous couple of quarters? And also in conjunction to that, what has not been at least publicly announced so far. Could you talk about the price dynamics in relation to escalating natural gas prices? And if you're hearing anything in the market and from your customers in terms of scarcity constraints and upward pricing pressure in containerboard, please?

I mean, as you said, I mean, we have increased prices, 60 plus -- SEK 60 per tonne, and that is already in I would say, the P&L, then we have done an additional price increase of SEK 8 per tonne for brown unbleached kraftliner white kraftliner. And that is not fully implemented yet in the results that will come in the fourth quarter. When it comes to, I mean, testliner produced as far as we hear now, no price increases announced from that side. And we can also see that OCC prices is picking up a little bit. So I guess, in some areas, and they have a rather strong cost pressure. On the other hand, we have an oversupply of test line, I guess, in the market, then I guess many of those producers, they like to protect what they have in Europe. So that's maybe the reason why we haven't seen any further price announcements. But I guess it is a rather tough situation being a test liner producer as it is just now. Thank you.

We'll now take our next question from Gabriel Simos of Goldman Sachs.

So I have 2, the first 1 on the containerboard side. So I just wanted to get some more clarity on the demand that you're seeing for containerboard. So we've seen some players on the box side. I'm mentioning it's been hard to implement the higher paper prices into boxes because box demand has not been great. in Europe. So I just wanted to understand if you are already seeing any of that hitting demand on the paper side, especially given the stronger price increases that we've seen lately for kraftliner versus testliner, if you're seeing any sort of move towards the replacement of Virgin for recycled products at this point, even though you just mentioned that the situation for testliner has like continues to be tough. I just wanted to understand if you're seeing any of your clients requesting some -- and the second question will be on the wood prices. So basically, as Andres just mentioned, a 4% to 5% decrease expected in the fourth quarter with some more calamity wood. I just wanted to understand when we should see this phenomenon of higher calamity wood and lower prices being over and when we should see it actually stabilizing. So -- if you think about the sustainability of the level of profitability in the Forestry division, especially on an EBITDA per cubic meter -- cubic meter, excluding revaluation level. What should we think about profitability on a more recurring basis? Are we close to getting there? And what would you expect once the column would is overly -- should we see prices moving back up because of the higher cost? Or is this the new sustainable level for these prices?