Good morning, sincerely welcome to this presentation of SCA's half year report for 2020. The report will be presented by CEO Ulf Larsson and CFO Toby Lawton. After the introduction, there will be an opportunity to ask questions on the report. Please, Ulf, take over.
Thank you for that, Björn. Also from my side, good morning, and a warm welcome to the presentation of the SCA result for the second quarter 2020. I like to start with this slide, a summary of the second quarter, and I can state that, also during the second quarter, we have been clearly impacted by the coronavirus pandemic. The main priority has been to secure the health of our employees, and by doing so, we have also succeeded in securing a stable operation in a quite challenging time. The sales was generally well-maintained during the second quarter 2020 compared to the first quarter 2019, owing to a stable development of volume for all product areas, except from publication paper, and I will come back to that later.
The prices within all product areas have, however, been substantially lower during the first part of 2020 compared to the same period 2019. The sharp decline in prices has, of course, had a negative impact on the sales, but above all on EBITDA, which dropped 25% versus the same quarter last year. When looking to the demand for each product area, we have been differently affected by the coronavirus pandemic. Apparent demand in the full value chain is hard to predict, and we clearly saw effects from hoarding and inventory built up immediately after the outbreak of the coronavirus pandemic, not the least in pulp and kraftliner. Now we feel in these areas that we are in a de-stocking phase. The demand for solid wood product has been surprisingly good to strong during the whole period.
While we see more or less a collapse in the demand for publication paper. During the quarter, we have also seen continued lower cost for raw materials such as wood, chemicals, and so on. Based on the survey made of our forest holdings during the summer of 2019, we have now confirmed the increase in harvesting volume in our own forest from today's level of 4.3 million cubic meters to 5.4 million cubic meters. This increase will be gradually implemented up to the year 2025, resulting in successive increase in long-term cash flow of SEK 300 million-SEK 400 million per year. When looking at our financial numbers for Q2 2020, we can establish that we delivered a little bit more than SEK 1 billion at EBITDA level. This is more or less at the same level as we had in the first quarter 2020.
When we compare with the second quarter 2019, it is a reduction of 25%. We have an EBITDA margin of 21%, which is equal to the margin level for the first quarter 2020. By that, we also had an industrial return on capital employed of 6% calculated over the last 12 months. As you can see here, the SCA model maintains the margin level even in tough time due to the stable contribution from our forest holdings. Our leverage increased to 2.1 due to current lower EBITDA level, but the absolute debt level is still lower than last year, despite the big investment in Obbola, which is running according to the plan. I now like to make some comments for each segment, and I start with the forest. We have also, during the second quarter, had a stable supply of wood to our industries.
We have seen a continued steady drop in pulpwood prices, both for the pulpwood we purchase through import, as well for the wood we buy on someplace from private forest owners in the region. Today we have in the SCA area, no real impact from spruce beetle damages on either price or quality. Sales was down by 14% due to lower volumes and prices versus last year. EBITDA increased by 21% despite the lower prices and volumes, and that is mainly due to the increase in net growth in the forest from three to four million cubic meter annually and the increased earnings from revaluation of biological assets. In wood, we've had, as I said, a surprisingly strong consumption during the second quarter 2020, and that goes mainly for Scandinavia, but also in U.K., U.S., and Central Europe.
We have seen especially a high demand from the building material sector, but also from the DIY business. Asia has been a bit slower for us during the second quarter. We have seen rather big volumes coming in from Russia to China, and in Japan, we have seen lower building activities during this period. We had expected a somewhat bigger impact from the coronavirus pandemic in this area, so we have reduced production levels somewhat during the quarter and also over the summer. Otherwise, we could have delivered high volumes. My expectation last quarter was that we should see a small price increase for solid wood products between the first quarter and to the second quarter this year, and the actual outcome for us was about 2%, and a bit higher than in local currency.
I believe that we will see another small price increase for wood in the third and maybe also for the fourth quarter. Versus last year, sales was rather flat, but EBITDA was down 24% due to lower prices. As I said earlier, apparent demand for pulp in the full value chain is hard to predict, and we clearly saw hoarding and an inventory built up immediately after the outbreak of the COVID-19 pandemic, and now we feel that we are in a de-stocking phase. Still, inventory levels are on a normal level for both softwood and hardwood pulp. European NBSK peaks price went from $840 per ton up to $860 in Q2, but now it's come back to $840 again in July. Pulp sales decreased by 10% in the second quarter 2020 compared to the second quarter 2019, that is entirely due to lower prices.
As you can see from the diagram below to the left, prices have fallen sharply during the corresponding period, and this has resulted in an EBITDA drop of 47%. During July, affecting the third quarter, a leakage in the recovery boiler was detected, and the pulp mill was emergency stopped. The inspection after days of cooling down the boiler showed that a black liquor injector had been slightly wrongly positioned and had damaged the water tube in the boiler. After repair and during the restart of the pulp mill, further consequences of the emergency stop were detected, and the screen basket in the boiler had been damaged and had to be replaced, causing several days of additional stoppage. We estimate today that we will lose around 50,000 tons during the third quarter, and that will give a financial effect of around 150 million SEK in the third quarter.
If we turn over to paper, exactly as it is in pulp, it is also in kraftliner hard to predict the current demand as we also here saw an inventory build-up during the first quarter, and now we feel that we are in a destocking phase. Demand for boxes has come down a bit, but kraftliner inventories are still on a normal level. The price for unbleached kraftliner increased by 30 EUR per ton in the second quarter, but that will be reduced again by 30 EUR per ton during the third quarter. If we turn over to publication paper, we can see that the demand has fallen dramatically, 30%-40% depending on grade during the quarter due to the COVID-19 pandemic, and immediate cuts in marketing budgets and print advertising.
We have had to make market-related downtime due to the lower demand and had a low capacity utilization as a result. This is the main reason for paper sales down 21%, and EBITDA was also down 53% versus last year. When it comes to price for publication paper, they have been stable in the second quarter, but the weaker market situation described will lead to price reductions in the third quarter of some EUR 20-30 per ton from an already low level. I am pleased to say that we have managed to complete the planned maintenance stop in Obbola during the second quarter, and we made careful plans and managed to carry out all activities as expected, allowing us to keep the project on track, the big expansion project in Obbola.
As mentioned last quarter, we conducted a forest survey of our Swedish forests back in 2019. Among other things, we could state that the annual growth was 1 million cubic meters higher than we earlier measured. We also could note that the standing volume was 11 million cubic meters higher than earlier estimated. Based on this information, we can now confirm the annual harvesting volume in our own forest will increase from today's level of 4.3 million cubic meters per year to 5.4 million cubic meters per year. This increase will be gradually implemented up to year 2025, resulting in a successive increase in long-term cash flow of SEK 300 million-SEK 400 million from 2025.
As I mentioned at the start, the business during Q2 has been clearly impacted by the COVID pandemic, and with us, our main priority has been to secure our employees' health, and by doing so, we have succeeded in securing stable operation. The impact on production deliveries and demand for SCA products related to the COVID pandemic has, in other words, so far been limited with one big exception, and that is in publication papers. Here we, having one goal, lost 30%-40% of the market, and we have also been forced to make substantial curtailments during the period. We had, of course, a big negative impact on the result for the quarter. By that, I hand over to Toby.
Thank you, Ulf, and good morning, everybody. I'll turn first to the income statement. Here you can see for the quarter we had, as Ulf mentioned, an EBITDA of just over SEK 1 billion for the quarter, which gave an EBITDA margin of 21.3% this quarter, then an EBIT of SEK 600 million in the quarter. We had financial items of SEK 31 million, a bit lower than we had last year. As Ulf mentioned, the net debt is slightly lower than it was at the same time last year. I'll come back to that. We also have some effect here that we are capitalizing interest on the part that's financing the new investment project in Obbola. That had some impact as well in reducing the net financial cost.
The tax is SEK 110 million with an effective tax rate of 20%, which leads to a net profit in the quarter of SEK 459 million and an earnings per share of SEK 0.65 per share. If I turn to the next page with a contribution by segment and quarter, I start on the left-hand side for the forest. On the top left, you see the net sales development for the forest. Here you can see versus the previous quarter, we have a lower net sales, and this is really due to the lower delivery volumes from the forest this quarter, partly related to the volume issues Ulf mentioned in the industries. I'll come back to that.
On the EBITDA side, we had a higher EBITDA this quarter, which is really due to the higher share of harvesting from our own forest compared to the first quarter, which is a seasonal effect that we see every year. Over a bit longer perspective here, you can also see that we have a higher revaluation effect that we've implemented from this year coming from the new method for valuing forest assets, and that's offsetting the effect of lower wood prices, which have come down successively since last year. In the wood segment, you can see an increase in sales, which is a result of higher delivery volumes, and particularly a seasonal effect. We have seasonally higher volumes this quarter, but in the supply operation, we also had strong volumes. It's better than expected on the sales side.
On the bottom line side, we had the positive effect of those volumes. We have slightly higher selling prices and lower raw materials costs as well. The EBITDA increased from the first quarter from SEK 95 million to SEK 143 million this quarter. When it comes to pulp, the sales were down on Q1, which is due to the lower delivery levels versus Q1. Even though production was on the same level as Q1, we had lower deliveries in the second quarter, which led to a lower top line. The bottom line is slightly down, more or less flat with the first quarter. Here we have the effect of the lower delivery volumes. We do have a positive effect from slightly higher prices this quarter. We also now have a negative effect from lower electricity prices.
The net electricity that we're selling from Östrand is impacted that we have lower electricity prices in our region at the moment. When it comes to the paper division, you can see on the top line there's a 16% decline quarter-on-quarter on sales, which is really driven by the lower publication paper volumes this quarter. On the bottom line, that also has a significant impact on the EBITDA with the low capacity utilization that we have in publication paper as a result of the low volumes. In addition, we had a maintenance stop in Obbola, which had an impact of SEK 68 million. Those two effects together result in the declined EBITDA versus the first quarter for the paper segment.
If I turn to the next page on the bridge of net sales, here you can see versus the second quarter of last year, the impact of price mix was negative 9% versus the second quarter of last year, and more or less impacts all segments. The volume impact is primarily from publication paper, but is a 4% negative impact on net sales. We have a positive currency versus the second quarter last year of 3% as well. Overall, a 10% impact on net sales. When it comes to EBITDA, you can see here the impact of the prices, the lower prices impacts EBITDA with SEK 550 million. We have an impact of the lower volumes on publication paper of SEK 67 million.
It's mainly publication paper, and this is really the impact of the lower capacity utilization and lower volumes we have in publication paper. We have a positive impact from raw materials with lower cost, particularly for wood raw materials. We have a worse energy balance this quarter versus last year, which is again, as I mentioned, impacted by the impact of the lower net income from energy sales in Östrand. We have a positive currency of SEK 67 million and then a small positive impact also of SEK 23 million in terms of other and fixed costs. If I then turn to the cash flow, and here you can see in the quarter we had an EBITDA of SEK 1,000,000,001 in this quarter.
When we take away the effect of the revaluation of biological assets and other non-cash items, we had an operating cash surplus of SEK 768 million in the quarter. We had a working capital outflow of SEK 151 million. We have a cash outflow seasonally in the first half year. We usually see a cash outflow in the first half year. This year, it's helped a bit by the lower volumes and prices. Net, we have an increase of SEK 151 million in net working capital. I can also mention here that to date, we have not seen any impact here from the coronavirus pandemic in terms of working capital positions. Current capital expenditure is SEK 338 million, in line with last year, which leads to a total operating cash flow for the quarter of SEK 273 million.
We had strategic capital expenditures this quarter of SEK 655 million, which is mainly Obbola. We had a significant down payment this quarter on the paper machine, so we had a large strategic capital expenditure outlay this quarter also. The next slide, I can show the development of our net debt. As Ulf mentioned, our net debt is lower than it was at the same time last year. We are SEK 300 million lower than we were at the same time last year. At the same time, we have financed strategic investments during 2019 and the first half of 2020 of more than SEK 2 billion. Now, of course, that's mainly the Östrand project that we are financing in terms of strategic investments.
In addition, we also have, just to remind you, an unutilized credit facilities of SEK 7.7 billion as at the 30th of June this year. Finally, turn to the balance sheet. Firstly, here you can see on the top line, you can see the forest assets. Here we have had an increase versus the end of last year of about SEK 1.2 billion, from SEK 69.7 billion up to SEK 70.9 billion. If I bring your attention to the last line here where you see the line market price for forest assets. Here you can see the market price in our region as we measure it over a three-year average, and you can see that it's now five SEK per cubic meter higher than it was at the end of last year.
That shows that the attractiveness of the forest asset category is relatively unaffected by the current situation. If you apply this price increase to the expected volume that we're going to have at the end of this year, then it would lead to an increase in the forest assets of SEK 2.4 billion. We apply this proportionally throughout the year. So far with half the year gone, we have SEK 1.2 billion reflected in the forest assets that we have in the balance sheet. The next line down is the working capital, and here you can see it's increased versus the last year. Again, at the half year point, we seasonally have an increase in working capital. We are some SEK 200 million higher on this point than the end of last year.
We have deferred tax. We have other capital employed, which is some SEK 700 million higher than it was at the end of the last year, which is mainly the investment in Obbola and the fixed assets associated with the build-up of the new mill in Obbola. We have a total capital employed now of some SEK 79 billion. Of that, some SEK 9.4 billion is financed from net debt. We have SEK 9.4 billion of net debt, and we have a debt to EBITDA multiple of 2.1x. This is higher than it was in the last quarter, and this is mainly due to the run rate of EBITDA over 12 months, which has come down rather than an increase in net debt. We have SEK 69 billion is financed from equity. Net equity is SEK 69.4 billion, and we have a debt-to-equity ratio of 14%.
By that, I will hand back to Ulf for a summary.
Yeah. I think we have told the story, and we can open up for questions already now.
Thank you for the participants. If you have any questions, kindly press star one on your telephone and wait for your name to be announced. To cancel your request, kindly press the hash key. Once again, star one if you have any questions. Thank you. The first question is from the line of Alexander Berglund from Bank of America. Thank you.
Good morning. Thank you very much. I have a three-part question on the decline we're seeing now in publication paper. You mentioned prices coming down now between 20 and 30 EUR per ton into the second half. Is that locked in for the whole of the second half, or could there be potential for further price negotiations in the coming months? The second question is more of a bit of a medium-term view. I know it's obviously very hard to forecast here. Do you think that the demand in publication paper will gradually bounce back as the economy is reopening? Should we consider the possibility that COVID-19 could actually also accelerate the structural shift that we're seeing from print to digital?
If you have any comments on what your customers are telling you, that would be helpful. Thirdly, as a consequence of these developments, are you evaluating any further permanent mill closures or potential future conversions into packaging grades? Those were my questions. Thank you.
Yeah. If we start with the first one, as I said, we've had a rather flat price development in publication papers for a couple of quarters, and on a low level, I would say. Now we see that we will have price reductions for the second half of this year. For publication papers, I would say that the absolute majority prices are set for six months, and that means that we will have this price level for the coming six months, more or less. That's my thinking. The second one was maybe if we have reached some kind of new normal, and yeah, I believe so, more or less. We have a structurally declining market in publication papers. We've had that for many years. The industry has been quite good in closing down capacity, so keeping the balance in a reasonably good way.
After the financial crisis, we saw a sharp drop in consumption, and it never went back to what it was. I think that we will face more or less the same thing here, going forward now. I think it might be possible that we will reach some kind of new normal in publication paper. Publication paper for us is not our core business, and since 2012, we have reduced the capacity from 2 million tons per year down to today, 700,000 tons per year. We have also said that we will sooner or later reduce the exposure to publication paper further. This is not the place where we should be in the future.
Thank you very much.
Thank you. The next question is from the line of Robin Santavirta from Carnegie.
Thank you very much. Just still related to publication paper, as you say, prices set to come down some EUR 20-30 per ton for H2. What is the input cost or overall cost outlook for H2 compared to H1? Also, you said you're fairly cautious on sort of a bounce back in demand, but, I guess, the lockdowns in Q2 have been quite harsh on demand. Do you expect Q3 and Q4 demand to be in line with Q2 or better?
Hi, Robin. Toby here. I can take the first question. Input cost when it comes to the key raw materials, if it's wood or chemicals, have been pretty flat development over the first half year. We don't expect a big change in that for the second half of the year either. The main input costs are pretty flat. The biggest impact by far, to remember in terms of cost, is really the capacity utilization, which has a big impact. I think you see these kind of lower volumes, your capacity utilization goes down and basically your fixed cost coverage as a result is not as good. That's really what affects the result in publication paper with these lower volumes. Yeah, that's the biggest effect. The second part of the question, I think, yeah.
As I said, we have taken substantial containments during the second quarter, 30%, 40% of the market just disappeared. In this area, I would say it's hard to judge the consumption for the rest of the year. We don't really forecast that. We are in a tough position when it comes to publication paper, and we have a very low capacity utilization in this field. I feel that goes for the whole market as it is just now.
All right. Thanks. Then related to you said that it's non-core publication paper for you, that's understandable, and that you basically long term will not be in that field. What are the sort of options for you to do in Ortviken? Could you comment a little bit on that? Both midterm and long term.
We have many options in Ortviken, but for us, we cannot just look at one mill. We have to develop the total portfolio, if that includes Ortviken or not, that's not important, really. We have done substantial investments in pulp. We've done it in kraftliner. We do it just now. We're also investing in forest and we have a very solid business in wood. It is better really to invest where we know that we will have a good return on the money. We don't just look at one site.
I understand, I guess you have revealed some kind of plans for expansion of CTMP production.
Yeah, that is one. That might be a very good option for us. I think if we do that, it will be a very cost-effective production. We are still in a thinking phase when it comes to Ortviken. That is one good option, and that would fit well to our strategic view on pulp. That is a good option.
Good, thanks. Finally, just on pulp, weak delivery volumes in the quarter. Could you just comment on why is that? I do understand there will probably be some de-stocking among customers late in the quarter. I guess early in the quarter, there was still some hoarding. Why such weak volumes in the quarter? Also, what should we expect for the rest of the year in terms of delivery volumes and capacity utilization? Finally, on the cost side, when I look at H1 in pulp and I look at volume weighted cost and then compare it back to what you had in 2015, 2016, sure, the mill is not running at optimal capacity yet, but still it feels like the costs are quite high.
Could you give any kind of guidelines about the outlook for either mid-term or long term for both the volumes and the cost expectations you have in pulp?
Yeah. If we start with deliveries, we did prepare for a planned maintenance shutdown in the autumn. That's the reason why we had to hold back the sales in the second quarter and deliveries. That is by purpose. Again, as I mentioned, we had a breakdown now in the beginning of the third quarter, which is absolutely unplanned, and that will have a huge impact. It is 50,000 tons, and it was a rather small thing to start with, but then we had consequences also in the fiber line, and just now we are starting up, and now everything seems to work well again. We will lose 50,000 tons in the third quarter, and the negative effect on the result, we have estimated to SEK 150 million for the third quarter.
Deliveries production was good in the second quarter, and deliveries were planned due to the fact that we have to take a planned stop between the third and the fourth quarter, I think.
Yes.
Maybe Toby can comment on the cost side.
Yeah, absolutely. I think here it's important to remember also that the deliveries were lower in the second quarter, as Ulf mentioned, but the production was on a similar level to Q1. You can't take the delivery volume as a guidance for the cost in it. In fact, the cost development in the Q2 versus Q1 was in the right direction and was okay. We still have some way to go, but was in the right direction. We have an impact ongoing as well, which I mentioned in my presentation from electricity prices, which versus last year is negative, that we were a net seller of electricity in Östrand, and therefore the electricity price which is now during Q2 and partly Q1, has been very low in the northern part of Sweden, lower than other parts of Sweden. That has an impact as well.
Overall, the cost development is heading in the right direction.
Can I just follow up on that? Do you believe that you can reach with the same electricity and the same input cost, the same cost level per ton that you had in 2015, 2016, sort of once everything is fully up and running?
We expect to improve on the cost level we had in 2015 because we now have the significant improvement from the new mill. Absolutely, we expect to improve versus 2015. We have the benefits.
Right. That is unchanged.
Yeah.
You mean it's unchanged. Yeah.
Yeah. Remember, a big proportion of the cost is wood as well, and therefore wood prices. Wood prices are lower this year than they were last year. The dynamic on wood prices plays an impact as well.
For sure. Thank you very much.
Thank you. The next question is from the line of Martin Melbye from ABG.
Yes, good morning. Two questions. One first, you gave comments about price changes per segment excluding the forest segment. You gave some comments also that lower prices would be offset in that segment by the value increases. Did I read that correct, that there's no price change on the forest segment quarter-over-quarter for Q3?
Yeah, we expect it to be relatively flat Q2 to Q3 in terms of wood prices between the forest and the industries. That's true. I was talking historically, when you look versus last year particularly, then when you look at the forest segment, we have lower net sales from lower wood prices. Then in the bottom line, that's offset by a higher revaluation effect.
Okay. Then the last question on the paper segment. You commented that kraftliner prices would drop EUR 30. Was that relevant for Q3 already, or is that an effect more for Q4?
I think we will see some effect in August and September. It will affect also the result for Q3. That goes for unbleached. In White Top, we have seen prices have been flat and are flat.
Okay.
Yeah. That goes for unbleached kraft.
What you reckon is the price change on packaging quarter-over-quarter in Q3 overall?
For us, as I said, I think that we will see. We have different agreements with different customers, but we will start to see price decreases in August for unbleached kraft. I suppose that will be fully implemented for unbleached kraft in September.
Okay, good.
Our next question is from the line of Oskar Lindström from Danske Bank.
Yes. I missed the first part of your presentation, Ulf. Maybe you mentioned this, but I have a little bit of a question about the geographic sales mix of the pulp division in Q2. What percentage of volumes were you forced to sell, or did you sell to the spot market and to Asia, I presume? How do you expect that to develop in the coming quarters?
Yeah, I think we did have a higher level of sales to Asia and export than we had in the first quarter. That mix is worse in the second quarter than the first quarter. That's true. We don't give a forecast of how that's going to develop going forward. That depends on how the market develops. In the second quarter, we did have an effect from more export sales. As Ulf mentioned, we had in probably the beginning of the second quarter, the volume was strong. We had this hoarding effect, and then the de-stocking effect has come towards the end of the quarter. That's where we place more volumes outside our core markets.
Right. A follow-up question regarding the mix is more in terms of end markets, and you've touched on the very weak demand from publication paper customers. What about the demand from tissue producers? Now, you mentioned the hoarding effect at the beginning of the quarter. What's the demand looking like right now from tissue producers?
I think it's rather stable. When you look into press conference from other companies dealing in tissue, it's a rather strong market, I would say. I think we had this hoarding effect. How long will this, let's say, de-stocking phase last? It's hard to predict. For us, just now, it's not a problem for us to find customers for pulp. The problem for us just now in the third quarter is that we had this breakdown in the boiler. For us, it's more to find a good way to supply our customers, to be honest. I feel that the market for tissue is stable. As you might saw in Asia, you had a really strong second quarter for some place there. I think it's the hoarding effect.
All right. That means that tissue producers are what, sort of two-thirds of your sales volume in?
About 70%.
pulp?
Yeah, about 70% of the sales.
All right, super. That's great to know. Thank you. That was my only question.
Thank you.
Thank you. Our next question is from the line of Michele Dopico from UBS.
Thank you. Good morning, everybody. Just coming back briefly on the publication paper side. Would you be able to quantify the demand declines that you saw there on a year-over-year basis in June and also perhaps in July, just to get a feel of how things are trending there?
Yeah. When you look at the second quarter overall, it is a 30%-40% year-on-year decline, like in the second quarter versus the second quarter last year. That's what we have seen in there, and that's what you see month by month at the moment, 30%-40% decline. On a full year basis, Q1 was much more flat. Of course, I don't have the figure in front of me. Year to date, then the effect is more like 20% decline in volume first half of this year versus the first half of last year. For the second half, that's a prediction then. It really depends how
How the market develops, but month-on-month, we're still at this 30%-40% decline at the moment.
Okay. The 30% to 40% is also what you see in July?
We don't have statistics for July yet. We don't see July yet. We have to wait for those statistics. It's still weak.
Okay. In terms of on the kraftliner side, you talked about some de-stocking effects there. What kind of a volume trends do you see in that part of your business right now?
Sorry, what kind of? I didn't catch it.
Well, volume trends again. Are you seeing volumes declining? If so, by how much? Are you seeing volumes up right now? What kind of a trends do you see there for your kraftliner business?
It's a rather stable demand for kraftliner still. Again, I think you had the hoarding effect in the first quarter also with boxes, and by that, also for kraftliner. You've had also this de-stocking phase in kraftliner. The underlying demand for containerboard is good and the stock level is more or less on a normal level. It's hard to, again, what kind of impact will the coronavirus pandemic have for the total society in the third and fourth quarter? We cannot say, and you cannot say. Will we have a second wave of coronavirus in the autumn? That will, of course, have an impact, if that will come. Will we start up and come back to some kind of normal? I think we will quite soon go back to normal consumption in containerboard also.
As I said, we had this effect, but now we feel it's a rather stable situation.
Okay. Switching gears a bit in terms of working capital, which Toby talked about previously. Could you give some thoughts around? You mentioned the seasonality there in the tie-up and release, but for the full year, what would you expect as things stand today on a net basis? Do you expect to see a release or a tie-up in working capital for 2020?
We don't give predictions. I think you can say the lower prices we would see reflected through in a lower working capital. It depends a bit also on the volume development in the fourth quarter, in particular, because that's what drives the working capital at the year-end. I think the big impact of prices that you've seen on bottom line versus last year, you will see reflected also through working capital for the full year. I think all else equal, you would expect to see a reduction in working capital for the full year. It also depends, if it's a very strong volume in the fourth quarter, that leads to an increase in working capital.
I think I would add also to mention that I mentioned it briefly in my presentation, we don't really see any impact in terms of customer receivables at the moment from the crisis. It's not impossible that effect begins to come through more in the second half of the year, depending how things develop. So far, we've actually had a good, tight development in terms of payment practices and overdues. No impact on that front.
Okay. Just finally on CapEx, what kind of a CapEx level do you expect for this year? Perhaps also if you can say anything about next year?
I think we've guided before for SEK 1.2 billion in CapEx for the full year. With current CapEx, yeah. Current CapEx, we're following that plan.
Yeah.
For strategic, we expect around SEK 1.5 billion, which is the Obbola project primarily in strategic CapEx.
Okay. Good. Thank you very much.
Thank you. Our next question, it's on the line of Linus Larsson from SEB.
Much on wood products, we've been positively surprised on the volume side. We were expecting a quarter ago to see some potentially steep volume declines year-on-year. Now we have a 6% volume growth instead. I wonder now, looking into the third quarter, do you think the wood product business will still continue to grow volumes year-on-year?
I would say that if we would have known what we know now, then it should have been growing. We took the decision to not put in extra people into the sawmills during the summer. The main reason was, of course, not to expose our employees for risk due to the coronavirus pandemic. Also from my point of view, I thought that the market should be quite slow because of the coronavirus pandemic. That was a mistake. We have seen a high activity, not least in Scandinavia and in the builders merchant sector, as I said, and DIY and so on. If we would have produced more, then we could have easily sold it. Now we have taken the decision, we have closed down some of our sawmills during the summer.
Normally we don't do that, but we did that this year.
Due to that fact, I think that we will not have the same volume this year as we had last year, but that is not due to the market, it's due to misplanning or planning or I mean, the main reason is, of course, we don't like to expose our employees for the risk to be infected.
Okay. I understand it that you are much more held back by planned downtime in the third quarter compared to that effect that I guess you had at least to some degree in the second quarter.
Yeah. You're right. I mean, I cannot really give you the proportion, but I think we are maybe to one third affected in the second quarter and two thirds in the third quarter.
Yeah. I think we're talking about the wood, much more effect in the third quarter than we took in the lower volume produced in the sawmills.
The stops will come in the third quarter.
Yeah.
Yeah.
Thanks. That's very helpful. Just for maybe clarification's sake, in publication paper, we have spent a lot of time on already, but you say market demand was down 30%-40% in the relevant markets in the second quarter year-on-year, whereas your volume in publication paper was down only 24%. What's the reason for that deviation?
I think we managed a bit better than the market overall. That's when we look at the market statistics, it's 30%-40%. We had, as you said, around a 26% decline in volume versus last year. The market overall is down more.
Exactly. How have you adapted? How have you changed your marketing behavior? Is it a matter of different geographical mix, or what do you think is the driver for this difference?
No, I think it's customer mix. I think there might be some impact that we've managed to keep production very stable and operating throughout the whole period, whereas some other mills have had to close earlier on due to the pandemic. That could have had some impact.
We did more to Asia, I think, during the second quarter.
The price has been lower, of course. That, anyway, had a negative impact on the result. It is not much that you can do. I mean, we cannot travel, we cannot meet customers physically, so we have to work by phone and so on. You can always do what you can to get the volume, but it is really tough out there.
Yep. Okay. Just finally, and I am not sure if you did already comment on this, but for the full year, what is your estimate for the revaluation of the forest land over the P&L in full year 2020?
Yeah, I can say we had SEK 571 million in the first half year. I think we expect more or less double that for the full year now. Around SEK 1.2 billion, you could say, for the full year in terms of revaluation effect. Based on where the prices are that we see now with that five SEK per ton increase in the prices and the net growth that we know we have, that's what we expect.
That's great. Many thanks.
Thank you. Our next question, it's from the line of Cole Hathorn from Jefferies.
Morning. Thanks for taking my question. Just on sawlog and pulpwood prices. If you look forward with the decline in demand for graphic paper and possible mill closures reducing wood demand, how do you see this impacting demand and pricing in pulpwood and sawlogs in the coming years? That's the first question. Secondly, with the spruce beetle impact seemingly increasingly a concern in southern Sweden, how do you expect the industry to adapt to this?
If we take the pulpwood and sawlog prices, I think you will have more or less no impact at all on pulpwood and sawlog prices in our part of the world, at least. Both for sawlogs and for pulpwood, we have to import, and we are under balanced in our region where we have the forests, if that was the question.
I think you've seen the effect over a number of years of declining publication paper volumes, and those volumes being shifted towards pulp and packaging segments. Those are the more dominant segments now.
When it comes to the spruce beetle, in the SCA area, so to say, from mid-Sweden and north, we haven't seen any big impact from the spruce beetle. We know that you have still some problems in the southern part of Sweden. You have really big issues with it in Central Europe, not least last year. I think also still this year we have some problems. Short term, in regions where you have the spruce beetle. Some companies can buy wood to a lower price, of course, because you have to cut, otherwise the wood will be destroyed. Long term it is a problem, of course, because then you have less availability of wood. Definitely we prefer to have a stable situation as we have just now in the northern part of Sweden.
Due to the climate, I think we are a little bit less exposed in the northern part of Sweden than you are, at least in the central part of Europe.
Great. Finally, just on kraftliner, your inventory levels are broadly at a balanced space. Am I right to assume that recycled inventory levels are probably more elevated and putting a bit of downward pressure relative to kraftliner, or am I reading too much into that?
I think we've seen a price pressure on testliner come first, and that usually is then kraftliner follows the testliner development. What has caused the OCC prices is one thing, of course, and there's been some new capacity in testliner as well. Those two factors have probably played a role in the testliner price development.
Okay. Thank you.
Yeah.
Our next question is from the line of Johannes Grunselius. You may ask your question.
Hi, everyone. It's Johannes Grunselius here, Kepler Cheuvreux. I have two questions, but my first question is on FX rates and your hedging, because you're providing the information about hedging levels for the coming quarters, but the average rate for the whole sort of hedging portfolio for EUR and the whole hedging portfolio for USD. How should we think about the rates you are giving? Let's say the USD exchange rate here averages USD 9.59. Is that sort of stable for the coming quarters, or is it fading down towards the spot rates at the end of the period? Could you help me with that, please, to give some comments?
It's not exactly the same in every quarter of the period. At the moment, it's slightly better towards the end of the period than it is at the start of the period, because the bulk of our hedging is for the next 6 months. There's not a big difference between the rate we quote here, say the 9.59 for the USD, and the rate you see coming for the next 6 months, which is where we're hedging 75% of the exposure. We ramp down during the two quarters after that.
Okay.
Yeah.
FX rate should be quite limited quarter-over-quarter in the third quarter, and quite limited as well for the fourth quarter, basically.
Yeah. You have a 25% exposure, yeah, in terms of FX.
FX, yeah.
Yeah.
Yeah. Also on what you said today about the production issues, the unplanned one for the pulp mill in Östrand. Is there any possibility that you can get insurance compensation or anything have to do with failure on the equipment side or something like that? Do you foresee any sort of chance for compensation?
Yeah. We will go for that, of course. I don't like to discuss the chances because we have discussions to take with one of our suppliers. The main reason for this damage, as I said, was that a black liquor injector had been wrongly positioned, and in, I think 12 to 18 hours, the damage was done. We had to stop in the recovery boiler, but then you have other consequences also. One was, as we said, the screen basket, but we had also I don't even know the English words of everything, but we had several engines that broke down. As the pulp after a while gets colder, then you have another density, and it creates a lot of problems. We have had a disaster there now for more or less two weeks.
Of course, we will try to have a discussion.
In terms of the effect of that. It's also true that.
It's just speculation.
The main cost is not the equipment, it's the loss of production and the consequential effects both in the pulp and in logistics and so on, around for deliveries and wood supply.
Sure
It's not the equipment that costs a lot.
Okay. Sure.
Okay. My final question, maybe you talked about this and I missed it, but you obviously take up the price assessment, with krona per cubic meter of standing forest. Is it because the recent transactions that are relevant for you has been on a higher level over the last, let's say, for the first half year compared to 2019? You're replacing transaction values longer back? Because if I remember it correctly, you're rolling transaction prices for three years. That's the methodology you're using for your valuation. Could you give some comments on this, please?
No, you're correct. It's a three-year average that we have here. When you take in the effect of the higher prices in the first half of this year, and those are higher than the prices were three years ago.
Yes. Okay.
That's the effect. Mm-hmm.
Yeah. What would you say about prices for the first half this year compared to 2019? Are they roughly at the same level, or do you also see an increase there?
No. I would say pretty stable. We saw actually an increase towards the end of last year, and then pretty stable, I would say, during the first half of this year.
Okay. Thank you very much for helping me with my question. Have a good day.
Thank you.
Thank you. Our next question is from the line of Marco Hardiman. You may ask your question.
Yes. Good morning. This is Marco from Handelsbanken. I had a few more questions. Maybe just continuing on the forest valuation. You put out a release today that your initial assessment of the 5.4 million cubic meters is accurate, that will come into play. Is that now fully reflected in your valuation of the biological asset, the sort of cash flow estimate that you have there and that 5.4?
The new harvesting plan is now reflected in the discounted cash flow calculation, which is the basis for the biological assets. Yes.
That's all on the balance sheet now?
That's in the biological assets which we report on the balance sheet, yes, and which is the basis for the revaluation effect as well.
Okay. Very good. On pulp, I suppose you've had some issues in Östrand. If I understand correctly, you were sort of talking about roughly 90% utilization for this year for your pulp mills. Should we now assume that to be sort of 85%, or what's the thinking at the moment?
As we said, we will lose 50,000 tons due to this damage, so that's maybe right.
Okay. Going to next year, you have maintenance in Q4 as well. Should we anticipate that you'll have full production in 2021?
Yeah, I think that is what you can calculate on. Mm-hmm.
We have a maintenance stop every year in the fourth quarter, of course, but that's.
That's included.
Included in the expected capacity. Yes.
Yeah.
Full production, does that mean 1 million tons or what's the number?
900 in NBSK, and then slightly less than 100 in, I think we've said 90 or something in CTMP.
Yeah.
If no other problems, we should expect 990,000 tons of production next year and similar deliveries?
I think we don't give forecasts, especially not that far out, Marco. We're ramping up and trimming production this year. Obviously, we've had a setback now in July, which means we're not going to come to the level we hoped this year. Yes, we want to get to full capacity as quickly as possible. If maybe you're a bit realistic, I think you should probably include some effect of ramping up also next year, probably. We won't be at absolute full capacity, but
Okay. Good. That clarifies that.
Finally, on the energy issue, I suppose you suffer from lower energy costs from energy prices from Östrand. Overall, are you still a net buyer of electricity?
Yeah, you could say overall, we're a net buyer primarily in publication paper. That's where we're a net buyer of electricity. Östrand is a net seller of electricity, and publication paper is a net buyer of electricity. There we hedge the position that we have in terms of electricity cost for publication paper. We have a pretty stable energy cost for publication paper. Obviously the lower volumes have an impact there as well if we're not utilizing all the energy that we're hedging.
What is the sort of logic of hedging the energy cost but then not hedging the energy sales?
No, you could say we hedge our net position. We do hedge our net position. What you could say is happening right now is that we have a significantly less use of electricity than we would normally expect if we were at full volume in publication paper. That has an impact that our net position has changed during the quarter. We are a net seller of electricity in Östrand, where the lower price has an impact. We're not as big a net buyer as we were in Ortviken. There we have almost all the electricity purchases are then externally hedged. I don't know if that makes sense. If you follow my logic.
Okay. You are still a net buyer of electricity even in Q2?
We're pretty balanced. We're still a small net buyer in Q2, but much less than we were previously.
Okay. Should we expect you to continue to be a sort of spot seller of electricity in Östrand?
Yes. We will continue to sell electricity in Östrand. Yes.
In spot, not like hedged or anything like that?
Yeah. I think we don't give full forecast again, but largely, we're exposed to the spot electricity price in Östrand. Then you see the balancing effect in Ortviken if Ortviken is fully up and running. That effect is what has been reduced now with the lower volumes in Ortviken because the balance is what we hedge externally.
Okay. Very good. Thank you very much.
There are no further questions at this answer. Please continue.
Further questions?
There are no further questions now.
Okay. Thank you all for taking part in this press conference and presentation of the half year report for SCA. I hope you will all have a nice summer, and I look forward to hearing from you again. For example, at the report of the third quarter, which will be on the 30th of October. Thank you, and bye.