Edited Transcript of SCA B.ST earnings conference call or presentation 24-Apr-20 8:00am GMT

Prices within sum product areas have, however, decreased substantially at the first area 2020 compared to the first area '19. besides here, we to then stand at worry that the prices, at principle, peaked nearly the fourth area 2018 and the first area 2019. The keen decline at prices has, of course, had a negative shock above sales, besides above sum above EBITDA, which dropped 34% quarter-on-quarter. above the other hand, during the first quarter, we've seen lower costs although raw materials, such because wood, OCC and hence on.

Finally, I will also, at this summary, mention that we have, based above the inquiry made out of our jungle holdings during the summer 2019, confirm that we can gradually amplify the harvesting at our jungle holdings from today's flat of 4.35 million cubic meter to 5.4 million cubic meter, and this is indeed good news, and I will convert uphold to this later.

When we exhibit at our econmic key figures although the first area 2020, we can notice that we send SEK 1.03 billion above EBITDA flat and this is a reduction by 34%, because mentioned, compared to the peak area Q1 at 2019 and that you can also yell on at the table above the right-hand side. although we cottage dine delivered an EBITDA margin of 21% and an industrial answer above chief employed of 9% calculated above the final 12 months. Our leverage increased to 1.9, because you can see, and that was largely because an consequence of a currently lower EBITDA level.

Now I'd comparable to convert into each section starting with forest. And during the first quarter, we had a stable furnish of wood to our industries in spite of a gentle winter. And because you force know, SCA has a high species of self-sufficiency. We dine geographically dispersed jungle holding, and this mode typically that we are at good attitude when it comes to our fiber supply, whatever climate conditions.

So because I mentioned final time, we now dine significantly lower pulpwood prices, both although the pulpwood that we import too because although the wood we buy above stumpage. at addition, the charge although sawlogs is dropping besides much slower. And today, we dine no shock above charge or quality from spruce beetle damages at our region, which we are same fortunate for.

As a originate of higher implore from the pulp and kraftliner industries, sales increased by 11% quarter-on-quarter, although wood prices fell. because you can yell on here also that the EBITDA increased by 37%, largely because of the amplify at net growth at the jungle from 3 million to 4 million cubic meter per year and by now that we dine increasing allowance from revaluation of biological assets.

In wood, we dine had a stable consumption during the first area 2020, and prices dine been above a flat because of oversupply at Continental Europe. besides that is no the least although of the problems with the spruce beetle that we've talked nearly before. My estimation a area ago was that prices although hard wood products to lessen by nearly 2% from Q4 '19 to Q1 2020. And we learn -- now learn that the real consequence although us was more 2 -- minus 2.7% although the first area at that comparison. impartial now it's difficult to predict the just development although Q2. We dine somewhat divided development above the market, and I will convert uphold to that at a while.

Sales anyway was down 14% and EBITDA 68% when comparing quarter-on-quarter, besides you to stand at worry that the restructuring of SCA wood France provided SEK 90 million at the first area '19.

Then we convert into pulp, and the implore although pulp is uphold above a good level. although instance, we yell on a healthy amplify at implore although pulp although tissue, hygiene products and specialty Paper. because we indicated at the annual report, the charge has started to increase, and we notice that the European NBSK PIX prices convert from $820 up to $840 at March. SCA, Metsä and other players dine now announced farther charge increases from USD 840 up to USD 880 to USD 890 per tonne.

Stock levels although hardwood too although softwood pulp are now above a normalized level, and some faculty has also been closed down because of the coronavirus pandemic. pulp sales increased by 5% at the first area 2020 compared to Q1 '19, entirely because of significantly increased volumes. And because you can yell on from the table below to the left, prices dine fallen during the corresponding period, and this has resulted at EBITDA dropping 47%.

If we then convert into containerboard, we dine seen strongly increasing deliveries of kraftliner because final summer, because you can yell on at the table at the upper left corner. And we had new statistics early this morning showing that deliveries at March '20 was 8.5% higher than March 2019. And at the same time, we dine prominent lower product during Q1 2020 because of the Finnish motion and also although of the coronavirus. This has led to a continued decreasing inventory levels and the levels are now low. And again, according to the statistics that came this morning, we dine a 30% lower stock flat at March this year than we had 1 year ago. And we also last to notice a stable flat at the implore although boxes.

The charge although testliner has increased recently by EUR 30 per tonne because of healthy implore and gradually increasing prices although OCC. Suppliers dine announced another charge amplify of farther EUR 50 per tonne although testliner, and we appraise that the charge although kraftliner will pursue an amplify by EUR 30 per tonne because a first step. Overall sales went down 5% quarter-on-quarter although Paper. because you can yell on from the graphs below to the left, prices dine dropped however the volumes although kraftliner has risen.

EBITDA dropped 38% quarter-on-quarter because of lower prices, besides that was mitigated by higher kraftliner volumes and also by lower raw material costs and a definite exchange appraise effect. because I mentioned before, we made a new jungle inquiry uphold at 2019, and this inquiry showed that the annual growth at SCA jungle was 1 million cubic meter higher per year than we measured earlier.

We dine now done some vocation and calculated a new harvesting plot based above this survey, and the inquiry shows that we can gradually amplify the harvesting volume from today's 4.3 million cubic meter per year up to 5.4 million cubic meter per year 2025. And the ramp-up is expected to exist linear above 5 years. And hind that, we will remain above the new level.

In condition of coin flow, we appraise the definite shock will amplify gradually to attain an annual consequence of SEK 300 million to SEK 350 million per year at 2025, sum other things being equal, of course. And the consequence will convert from both an increased coin race from our -- from own jungle holdings and an improved mix, indeed relative higher volume from our own forest. And at condition of profit, the consequence is estimated to SEK 150 million to SEK 175 million per year because an increased harvesting volume above own jungle holdings will lessen the revaluation effects.

And then my final glide ago I hand above to Toby here. And at SCA, because I mentioned, we can maiden yell on a limited consequence at Q1 because of the coronavirus pandemic, besides we desire a continued suspect going dispatch here. besides to summarize, at forest, we dine had no consequence whatsoever hence far. at wood, we dine seen maiden a limited consequence at Q1, besides we see, because I mentioned, the significant suspect going forward. because it is impartial now, we dine stable volumes to Scandinavia and a healthy working just here. The implore at Asia is improving hind a weak commence of Q1. above the other hand, we can yell on that we dine same low activity at Southern Europe, although example, Italy, France, Spain and hence on, and also at U.K. And we reason that we will perhaps lack to diminish product at Q2 at order to confront the lower demand, and we will make a thorough eye above the stock level, and we will steer the product out of -- from that perspective.

In pulp, we've seen an increased implore at Q1, because I mentioned, and specially although pulp to tissue and hygiene products. above the other hand, we yell on a lower implore although pulp to printing and writing, besides that is a marginal division of our supplies, hence less shock from that part.

In Paper, we yell on a higher implore although kraftliner and significantly lower implore although magazine Paper. besides if we commence with kraftliner, an increased implore although e-commerce and basic products besides lower although industrial packaging. at magazine Paper, we dine seen a significant decline at demand, resulting at temporary product stops at Ortviken going forward.

Our chief priority has been to convert the health and safety of our employees and also attempt to diminish the infection risk. And we dine procedures at lay to minimize disruptions at product and distribution. We've also secured a good -- the furnish of keen raw materials. We are at this era helped by the fact that we dine our own logistic company. And by that, we dine good access to distribution capacity, which is indeed significant these days. We dine had a company concentrate above securing the tendency coin race by avoiding unnecessary expenditures, stock management and hence on. And finally, I also used to comparable to underline that we dine a healthy liquidity status supported by our own jungle holding.

So -- and by that, I hand above to you, Toby.

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Toby James Lawton, Svenska Cellulosa Aktiebolaget SCA (publ) - CFO [3]

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Thank you, Ulf, and I will commence here with the allowance statement. And here, you can yell on again, above the net sales, we had a decline of 6% at net sales versus the first area of 2019 where prices had chief shock negatively, however volume, specially pulp, besides also now kraftliner has had a definite effect.

Our EBITDA margin at the first area was 21.5%, which is down from the high point at Q1 2019, besides cottage a resilient EBITDA margin level. econmic items farther down are more or less at rope with final year, slightly lower. And the tax has an effective tax appraise of 20%, hence normal stable effective tax rate. And a tax blame of SEK 121 million which gives us a net benefit although the era of SEK 483 million and an allowance per section at the area of SEK 0.69 per share.

Speaking to the next glide with the contribution by section and quarter, starting above the peak left with the forest. You can yell on here, we've had an increasing tendency above a amount of quarters, which is indeed driven by the higher volume and demand, specially from Östrand at the pulp sector. The higher volume used to furnish Östrand is largely externally sourced. hence that doesn't shock our bottom rope at the jungle division, which is indeed driven by the harvesting of our own jungle and the revaluation consequence at our own forest. hence when it comes to the bottom line, you can yell on we've had a higher EBITDA this area versus the area 1 final year, and that consequence is indeed because of the new revaluation, which is nearly SEK 100 million higher because of the new valuation mode of our jungle holdings. besides we are down versus the fourth area when we had seasonally -- we had some more harvesting of our own forest, besides we also had some chief gains above some sales of jungle dust at the fourth quarter, hence that had an shock versus the fourth quarter.

When it comes to the wood piece above net sales at the top. We had more deliveries this area versus area 4 final year. besides we, above the other hand, dine lower pricing. And above the bottom line, you can yell on also the consequence of lower prices versus the fourth area and foregoing lodging final year, which is partly offset now by somewhat lower wood cost.

On the pulp at the top, you can yell on the consequence of higher volumes versus area 4. We had a maintenance pause at area 4 because well, which suppressed volumes a small bit, besides we dine now lower prices versus area 4 and versus earlier lodging final year. hence that has a negative shock above sales. when it comes to EBITDA, again, we dine no maintenance pause this quarter, hence that's why we convert up versus the fourth quarter. We also dine a definite shock from lower wood costs, besides offset by negative impacts again from lower prices flat although because the charge amplify came across at the aim of the quarter.

On Paper, we've had better kraftliner deliveries at area 1 versus area 4, besides pricing is -- medium pricing is lower. And when it comes to the bottom line, the originate is comparable where we dine a negative consequence from lower prices, besides we are offset by some better kraftliner volumes. We had, again, no maintenance stops at Paper, also at the first quarter, calm we had some at the fourth quarter, and we dine some definite effects from wood costs and FX here because well.

Looking at the bridge now of net sales versus the same area final year, area 1 final year. You can yell on we had SEK 5.1 billion of net sales at the first area final year. We dine a significant negative shock from charge of 16%, which is across sum segments. This is offset with an 11% definite consequence from higher volumes, which is both from the higher pulp volumes from the expanded pulp mill, besides we also had healthy volumes this area at kraftliner. We dine a definite shock from coin of 2% and then we dine a 3% shock from the deconsolidation of wood France, which happened early final year.

Then above the next slide, above the bridge although EBITDA. You can yell on here, we had EBITDA of SEK 1.56 billion at the first area final year, and we dine the significant shock of charge above EBITDA of SEK 912 million, and this is remembering again that the first area final year was more or less the high point price-wise across most segments. And this is offset then by volume, which is again pulp and kraftliner, of SEK 167 million. We dine a definite consequence above lower costs although raw material, both wood raw material and some other raw material, recycled fiber and other raw materials, of SEK 174 million. We dine a definite coin consequence of SEK 140 million, and then we dine the consequence at other, which is largely the consequence that we had a one-off item at Q1 final year from the divestment of wood France, which was SEK 90 million. hence that's the bridge, and we dust above an EBITDA flat Q1 2020 of impartial above SEK 1 billion and an EBITDA margin fairly resilient flat at 21.5%.

When it comes to coin flow, you can yell on we commence with the EBITDA and then we acknowledge away the consequence of the revaluation of biological assets, hence -- and then we dine our operating coin surplus. We dine a alter at working chief this area of minus SEK 146 million. The first area is -- usually seasonally has an expansion of working capital, besides we're better than final year and tight this year, partly because of the fact that we dine a same shut control, because Ulf mentioned, above coin race during the first quarter.

We dine tendency chief expenditures at the area of SEK 175 million and an operating coin race of SEK 341 million, and then we dine strategic chief expenditures of SEK 189 million, hence we are cottage funding our strategic expansion healthy within operating coin race and generating a reasonable operating coin flow.

And then looking at the net debt bridge, you can yell on at the aim of final year, we had a net debt of SEK 8.6 billion. We dine the consequence of the operating coin flow, which reduces net debt by SEK 341 million. We dine the strategic CapEx above the other hand of SEK 189 million. And then I expect can the intimate to highlight above the right-hand side, above other, we dine an consequence this area from the net pension liability, which largely comes from the asset side, where we dine an consequence of SEK 600 million versus the fourth area final year, hence net debt at the aim of the first area is SEK 9.1 billion.

And then impartial to give an overview now of our financing and liquidity situation. There's a destiny of numbers above this slide. besides if I impartial concentrate above the desk above the peak left, you can yell on the breakdown of our full debt of SEK 9 billion there. And the various sources of that full debt of SEK 9 billion. I won't progress into the details. besides at the bottom left, we described some of the actions we've taken because the aim of the period. And particularly, we dine a new borrow from SEK, the Swedish Export belief Agency, which we've used to diminish our exposure to commercial Paper. And we've also taken an additional RCF above board of SEK 1.6 billion. hence with those 2, we've increased our liquidity retain to SEK 7.5 billion, which means, yes, we both dine a healthy liquidity and we dine a large liquidity reserve.

And then to impartial convert to the next slide, impartial to exhibit the rest sheet. We dine our jungle assets, which are now valued impartial above SEK 70 billion, and then we dine a full chief employed, including sum the other industrial wealth of SEK 77 billion. And our net debt is now SEK 9 billion, SEK 9.1 billion, which gives a net debt-to-EBITDA of 1.9x, an amplify versus the aim of final year of 1.6x, largely driven by a lower rolling flat of EBITDA. And then we dine an equity of SEK 68 billion and a net debt-to-equity ratio then of 13%.

And I'll hand uphold to Ulf.

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Ulf Larsson, Svenska Cellulosa Aktiebolaget SCA (publ) - President, CEO & Director [4]

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So thank you although that, Toby. Well, impartial to summarize, I mean, because I said, hence far, we haven't been also impacted by the coronavirus pandemic. besides of course, we dine the piece of suspect going dispatch here now.

Sales declined versus the first area '19, and also EBITDA, besides then we to stand at worry that the first area '19 and the fourth area '18 was more or less the peak. And the good news that the higher jungle growth enables increased annual harvesting volume. We will gradually step-by-step amplify from today's flat up to 5.4 million cubic meters at 2025.

With that, I study we empty up although questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first puzzle comes from the rope of Christian Kopfer.

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Ulf Larsson, Svenska Cellulosa Aktiebolaget SCA (publ) - President, CEO & Director [2]

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Shall we impress to the next?

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Operator [3]

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Our next puzzle comes from the rope of Mikael Doepel.

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Mikael Doepel, UBS Investment Bank, investigation piece - Executive Director & Analyst [4]

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Just starting off with your visibility accurate now. I intend you address nearly the COVID pandemic and that you haven't seen much of an shock hence far. besides what's your visibility, I mean, across the various segments at condition of order books and hence on?

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Ulf Larsson, Svenska Cellulosa Aktiebolaget SCA (publ) - President, CEO & Director [5]

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Yes. I intend because I said, we are -- at pulp and at kraftliner, we dine indeed healthy order books. And at magazine Paper, because I mentioned, I mean, we dine had a decline at stock of orders. And also, because I said, we will make an eye above the stock level. hence when needed, we will acknowledge payments at magazine Paper. And at final then, hard wood products, it is a small bit more unsecured picture, I think, although hard wood products. besides we have, because it is impartial now, fairly healthy stock of orders. at same time, we learn that -- I intend the Mediterranean division is cottage more or less closed. U.K. is also more or less closed. above the other hand, we dine a healthy just at Scandinavia. We dine healthy markets at China and Japan, because it is impartial now. And we dine to make an eye above this. I intend it's no -- we dine to exist flexible. And today, because it is today, we plot although some curtailments at -- also, at hard wood products, besides because it is impartial now, we don't learn how much and when really.

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Mikael Doepel, UBS Investment Bank, investigation piece - Executive Director & Analyst [6]