A renewable resource invented by nature is surely part of tomorrow's solutions for a sustain-
Investor Day for the future Forest Products company, SCA. My name is Björn Lyngfelt. I'm responsible for communications within what is now a business unit within the SCA Group, but soon to be the independent Forest Products company, SCA. First, let me tell you that if something happens in here, you can evacuate this room in all the four corners of the room, and there is a heart starter in the reception. Just let us know if it's too exciting, and we will manage that as well. The program for today, we will have presentations now during the morning. We will have a coffee break, and at the end of the presentations, there will be a question and answer session. It will not be an opportunity to ask questions immediately. We'll have lunch. We will have a bus that will bring you to the site visits.
That bus will-- Something else than what we intended when we said it. Please continue to follow us and take part of the information. Who will give an overview of this company?
Thank you for that, Björn. Once again, most welcome to this event. We are really happy to see that so many of you have come here, and we hope and believe that we will be able to deliver an interesting day. As Björn said, we start with some presentations before lunch, and after lunch, we will look at the operations, which is maybe the most important and interesting part. I think it's appropriate with a short introduction of the senior management team, and as they are a little bit spread out in the room, I think I give name and position, and if you then in the team, please stand up so we can have a look at you. I think I start to the left on this beautiful picture, and Åke Westberg, where do we have Åke?
Åke is responsible for our pulp business unit. He's been in the company since 1974. 43 years, Åke. Soon time for the second gold watch. That is impressive. Perfect. We have Björn. He has already presented himself, in charge of communications. Ole Terland, responsible for strategic development. In this staff, we find R&D, M&A, technique, sustainability, and more or less everything. We have Jan. He's in bed because he's got a cold, so he's in bad shape. Ingela, please stand up. Ingela, responsible for the big expansion project at Östrand, which you will hear much more about later on. Toby, brought in from Asia, from Vinda. He's the CFO of the company, has just recently arrived. Mats Nordlander, responsible for paper, will also be one of the presenters later on. Jonas Mårtensson, head of wood. Not the wood head, but head of wood.
We have Mats Sandgren, responsible for our forest. Been also in the company since 1990. No, 1982 with a short break. Thank you. Mikael Källgren, renewable energy. We have Magnus Svensson, responsible for purchasing and logistics. Last but not least, Stina, responsible for HR. Maybe finally, I should say some words about myself. I've been also in the company since 1992, 25 years, and done a lot of different things. Started in the forest department, responsible for the logistical operations in the north and responsible for the wood procurement for a while. Been also managing a forest district in Ångermanland. Back to Piteå, responsible for building up, at that time, the most modern sawmill in Europe in Munksund, which by the way, was a really successful project.
We acquired Graninge in 2001, and I was responsible for the merger between our sawmill operations. Since 2003, responsible for the wood business, and since 2008, I've had my current position as responsible for the forest division within SCA, and also since then, I've been a member of the senior management team in SCA. Now we are going to have this split, and that will of course mean an increased strategic focus, and you have also seen that we just currently or recently have appointed a new board of directors. We are happy to see that we have many people with great knowledge and experience from the industry. Martin Lindqvist, SSAB, Lennart Evrell, Boliden, Lotta Lyrå, IKEA, and soon in Clas Ohlson. I think that will be beneficial for us going forward. We are already today well-positioned as a standalone company.
We have a good cash flow, we have good profitability, the asset base is well invested, and not the least important, we have really good people. It doesn't really matter what kind of investments we do if we don't have the right people in the system that enable us to deliver on these investments, and we have that. We also have a strong brand, and that is good to have when it comes to customers. I think that many of my business unit managers, they will give you some information in what way we have been able to develop the business in close cooperation with the big strategic customers. A good and strong brand is also good to have when it comes to the employees that we have in the company today, and also the potential employees. It's also good to have when it comes to suppliers.
As you know, we are a big buyer of wood from private forest owners in this region. It's good that they like to do business with SCA, of course. We have a really dedicated management team, and we are fully convinced that we will be able to increase the shareholder value in the long term. That's the reason why we are here, of course. In this slide, I like to give you a short overview of the operations within the new independent SCA. First, among other things, we are the biggest private forest owner in Europe. We have 2.6 million hectares of forest land, and that is an area equal to more or less to the size of Belgium. In this area, we harvest every year 4.3 million cubic meters, and that give us a degree of self-sufficiency of about 50%.
At the same time, we have well-managed forests. We have also quite young and fast-growing forests, so we have a net growth in our standing volume of three million cubic meters per year. All our forest holdings are certified according to the FSC and PEFC standard. In addition to what we have in our own forest, we of course buy from private forest owners, and today we are buying every year between three and four million cubic meters per year. At the same time, we also buy from the state-owned forest, the church, and so on. If we turn to wood, we have a world-class operation here, and Jonas will tell you all about it later on. I think the most important thing here is that we have been able to grow this business by 10% per year as an average during the past 20 years.
That is something. We have increased saw capacity a little bit, but not too much, but we have done substantial investments in our sawmills, and by that I can say that we are world-class in terms of cost efficiency, productivity among our five sawmills. We are just now also running maybe the biggest industrial project ever in Sweden in Östrand, and Ingela is responsible for that project. We are investing close to SEK 8 billion, and the main reason for this is, of course, that we have a growing demand in the tissue and packaging business. At the same time, we are, as I said, the biggest private forest owner, and to be in pulping, that is a quite wood-consuming game. You need five cubic meters per ton pulp.
It is also, of course, good for the value of the forest to have a project like this close to your own forest holdings. In paper, we are the leading kraftliner producer, and by leading, I mean that we are the biggest independent player. Since we divested our corrugated business 2012, we will never risk to compete with our customers, which is a good thing. Last but not least, we have a good potential in renewable energy. We already today do a lot of things in this area, but maybe the most interesting things is what we are looking into possibilities into liquid biofuels, and I will come back to that later. Just to summarize this slide, we have the size, we have also good profitability, good cash flow, we have growth opportunities, and last but not least, we have great people in this company.
When European Union had its climate meeting, Copenhagen 2015, it was clearly said that the forest industry and active forest management was an important part in combating the climate change. We can do that, of course, in two ways. First, you know that it is growing forests that bind carbon dioxide. That is one thing that is important. The other thing is that from the products that we can produce from the forest, we have the opportunity to replace fossil-based materials with renewable materials, which is also not the least important in this perspective. Another strong trend is the increase in trade in e-commerce. E-commerce put big requirements on high-quality packaging solutions.
We can see an increase in demand for packaging materials, that's for sure. The actors in this trade, they like also to present the products in a high-quality packaging solution, which is also beneficial for virgin fibers. Here we have a really good position. The third trend, which is not mentioned here, is maybe that step by step we see that it is not so easy to get access to recycled fiber of good quality. Also at the same time the price is going up. We think that is the third big thing for being in virgin fiber going forward. The base for our operation and our business is the forest, our golden egg. On this natural and unique resource, we have built up an entire industrial ecosystem.
I like to give you one example from this region, from the Sundsvall region, how this integrated value chain can work. The map is maybe not perfect, but I hope and believe that you can follow my thinking here. If we start in the forest and we cut the tree, the bottom part will be brought to one of our big two sawmills in this area, Bollsta or Tunadal, depending on what species it is. The upper part of the tree, the pulpwood, will be either brought to Östrand pulp mill for producing pulp or to Ortviken for producing paper. When we process the log in the sawmill, we get 30% chips. That will be brought to Östrand pulp mill for producing pulp. We have 10%-15% sawdust. The sawdust will be brought to the biggest pellet mill in Sweden, in Härnösand.
From this pellet, we fuel our lime kilns. We also today fuel our steam boilers. By that we have been able to reduce the carbon dioxide emissions with 60% during the past five years. I can say, I'm proud to say, that these industries that we can see after the northern coast here have maybe the lowest carbon footprint in the world if you compare with similar industries. That is really something. At the same time, that is not the least important, 20 years ago, we had a real problem to get rid of the sawdust. Today, it give us a net contribution of SEK 100 million-SEK 150 million on the last row, just due to this system.
If you look to the left in this slide, you can see our research center on campus with the Mid Sweden University, and we have a close cooperation here, a close cooperation between the university, our R&D center, and also with our mills, of course. In this cluster, we have world-leading capacity and competence when it comes to how to use the fiber. We also have it when it comes to printability and things like that, which is, of course, good for ourselves, but it's also really good for our customers, and it's really well appreciated by our customers. If you are located in the northern part of Sweden, and we have no choice, we have our forests there, we have our big industries, you have a long way to all customers because this is a global business.
We have to distribute our products all over the world, and we have our logistic company in Tunadal Harbor, and through Tunadal Harbor, we can reach all over the world in an efficient way. We have a really strong integrated value chain here. We have been able in the past to show that we can benefit from this integrated chain, and that is also maybe the main reason for me to strongly believe that we should really keep this forest and the industry together. If you then turn over to the forest, we can see the value creation in the forest in three elements. First, we have our harvesting, and as I said already in the beginning, we do harvest 4.3 million cubic meters annually, which give us a degree of self-sufficiency of about 50%.
I think that level is quite good because that level guarantee that we always can use the potential that we have in our own forest in terms of cash flow. We can always bring out from our own forest what we like to bring out. The second part is the net growth. We have well-managed forests. We have also relatively young forests, and that means high productive and fast growth. We have every year net growth in our standing forest by 3 million cubic meters per year. The third leg here is the land value. We don't know what's going to happen in the future, but we for sure know that a piece of land has every year been a little bit more expensive tomorrow than it was in the past. Mats Sandgren, responsible for our forest business unit, will tell you more into details about this.
We have wood, and many of you sitting here, you think that wood is boring. I think that wood is fantastic, and we have been able to grow this business, as I said, 10% per year as an average during the past 20 years. The main reason for that is not that we have increased the capacity. We have done that, but that is not the main reason for this increase. The main reason is that we have developed our go-to-market approach in a quite interesting way. Today, more than 40% of our sales in wood goes to the build merchant's retail business. Of course, we sell a piece of wood. We sell also some sheet materials. We do distribution, we have information, we have knowledge, and we charge for the whole package. That is really good to do.
Jonas will tell you, who's responsible of this wood business unit, will tell you more about this later on. It is a fantastic development, and we also see good possibilities in this area going forward. At the same time, we have definitely done a lot of restructuring in our sawmills. In 10 years, we have reduced the number of sawmills from 11 down to five. We have also done substantial investments here, little bit more than SEK 2 billion. I'm absolutely convinced that the five mills that we have today, they are absolutely world-class when it comes to cost efficiency, productivity, and so on, if you compare with mills with equal log size, because that is important in this part. Östrand, as I said, maybe the biggest industrial project ever in Sweden, we are absolutely in the middle here.
We will spend close to SEK 8 billion into this project. The basis for the investment, as I said, is of course, the growing demand in tissue, but also in packaging, and not least, white packaging. When we start up next year, we don't know what has happened with the US dollar. It might be strong, it might be weak. We cannot really foresee what's going to happen with the PIX prices. What we are really convinced is that we have created a mill which will have absolutely world-class in terms of cash cost. That is also the most important thing in the long run, because this mill will be here for 40, 50 years. 10 years ago, when we did look into this project, the big issue for us at that time was excess of raw material.
Today, I'm really happy to say that we believe that we mainly can supply this mill with domestic wood, partly from SCA Forest, of course, but also to large extent from private forest owners in the region, but also from other bigger players as forest owners associations, state-owned forests and so on. The main reason is, of course, the increasing demand in the market, but at the same time, this project will secure and also increase the value of the forest for us as a big forest owner, but also, of course, for other forest owners in this region. Ingela will give you all details about this project, you will also have the opportunity to look at it in live after lunch. We turn over to paper. If we are favored by the digitalization in packaging papers, we are definitely negatively impacted in publication papers.
That was also the reason why we have substantially decreased our exposure to publication papers during the past years. 2012, we did divest the Aylesford and Laakirchen. 2015, we closed down the oldest machine at Ortviken. Still one shall know that Ortviken is huge, close to 800,000 tons per year, which give a position around number 7 in the world. In this game, size is equal to productivity and cost efficiency. Of course, focus is on operational excellence, cash flow, and so on. At the same time, we have seen a fantastic development to Ortviken. The innovation rate in Ortviken is really high today. As Kristina, who's in charge of that mill, mentioned in the short movie here, 35% of the sales last year came from products developed during the past five years. That is quite impressing.
I don't think that we have anything similar, at least not in the forest part of SCA today. In kraftliner, I said that we are the leading producer of kraftliner, and by the leading, I also said that since we divested our corrugated business 2012, we will not risk to compete with our customers. That is one good thing. The second good thing is that we have a super efficient production here. In Obbola, we have the biggest machine in Europe. In Munkfors, we have the third biggest machine in Europe. Again, size is equal to productivity and cost efficiency. At the same time, as an unintegrated player or an independent player, we have been able to really develop and focus on our own product portfolio, which has meant that we have increased the share of White Top wet strength and Heavy Duty liner.
Mats Nordlander, who is in charge of the paper business, he will give you all details about this development. The third thing is that when we ask our current customer base and potential customers who they see as the leading kraftliner producer, they say that SCA is that. That is also a very good starting point for future and improving cooperation. We turn over to energy, renewable energy. Renewable energy, liquid biofuel, and green chemicals maybe offers the biggest additional growth opportunities that we have in SCA going forward. We are already today big in forest biofuels, and we do produce nine terawatt hours, and that is equal to what we need to heat up 500,000 households in this region, so quite a lot. We do have a number of really good wind sites on SCA land.
Today we have a capacity of 2.5 terawatt hours of installed capacity, financed by different partners, but it's on SCA land and give us a good lease income here. 2.5 terawatt hours is equal to what is needed to heat up Stockholm City. Maybe the most interesting part in renewable energy is what we are doing in liquid biofuels. As you might know, we have just recently invested SEK 50 million in Obbola in order to see if we can extract black liquor from the process, and through that, produce liquid biofuel. We don't know if that will work, but if it does, we see a great potential, not least in Östrand when Östrand is up and running, because now with the new mill, the bottleneck will be the recovery boiler at Östrand.
If we can take out the black liquor, then we can also increase the capacity with very limited extra investment cost. At the same time, we can maybe create a good business in liquid biofuels. Very interesting going forward here. We really see in SCA that we are paving way for coming generations. We have a responsible management, and by that, we have been able during the past 50 years to increase the standing volume in our forest by 50%. At the same time, we have also doubled the harvesting volume. As already mentioned, it is the growing forests that bind carbon dioxide. In our forests every year, we bind four million tons of carbon dioxide. That is much more than we emit in the entire operation from the forest to the customer.
Also mentioned, but I can do it again because I'm really proud of that, we have been able to reduce the carbon dioxide emissions by 60% during the past five years, which means that we have really the lowest carbon footprint in the world in our industries here. To summarize, we have good growth opportunities in more or less all product areas where we are present. We have this efficient integrated value chain, and we have really in the past been able to benefit from that chain. I really believe that the forest and the industry really should stick together because we have many opportunities there if we work in an innovative way. We have already today a well-invested asset base, but maybe more important, we have really good people in the company.
As said, if we don't have the right people, it doesn't really matter what kind of money we put into these investments. We have had in the past a strong and stable cash flow, and that is also what we are going to intend to have going forward. By that, I think that I hand over to Toby talking about financials.
Thank you. Thanks, Ulf. Good morning, everybody. It's great to see so many of you here in Sundsvall today. To introduce myself, I joined SCA some 22 years ago, and I've worked around a number of different parts of SCA around Europe, including Sweden, where I was responsible for the M&A function for SCA for some years, and then also Asia, where most recently I've been CFO for Vinda International Holdings, which is a listed company on The Stock Exchange of Hong Kong, which I think many of you will be familiar with because also SCA is a major shareholder in Vinda International Holdings as well. Then I came here and joined Forest Products in the beginning of March this year, and now part of this very exciting journey with Forest Products and the company. I hope to meet many of you and discuss with many of you during the day.
If I move on to show the overall performance of the company. If you look on the left-hand side here, you can see our top line development, and over many years, we've managed to consistently and steadily develop and grow our business and at the same time adapt our business through that time as in many ways, as Ulf has mentioned here as well, to change the business, to change our product portfolio, our asset base and asset portfolio, and also customer base to adapt to the changing market demands over time. We've delivered a solid and growing top line, and at the same time, we have a track record with a best-in-class EBITDA margin north of 20%, which we've had over many years as well. It's a solid and strong and stable base.
Move over to show you a bit of our different businesses. We have four different business segments. We have forest, we have wood, we have pulp, and we have paper. You will hear from each of the segments later today. You'll hear much more about each segment. To give you an overview of the financial performance of each segment, firstly, forest has a very stable, good top line and bottom line, and the top line from forest is mainly or nearly all is internal sales supporting the other businesses. That's how our forest business really supports the other segments, and a very stable, strong EBITDA. In here, we also have the revaluation effect on our forest is also a part of our EBITDA in forest.
A bit less than half of that EBITDA, typically over a full year in the forest is represented by the growth of the forest, which has a profit impact, but that's a non-cash impact. Then we have our wood business, which has shown strong, steady growth over many years now. In here we have also our foreign operations in U.K. and in France are part of the wood business, and we have a very strong sawmill base in Scandinavia with very strong efficient sawmills as well. When we benchmark our profitability is best in class in terms of our wood operations. Even though you can see here the EBITDA margin of the wood segment is the lowest of our four segments, but the capital turnover is also very high in wood, so it delivers a solid return.
We have the pulp segment. This is the smallest in terms of top line of our four segments, but it will grow substantially with the completion of the Östrand investment, of course. Here we've also had some impact in the last 12 months from the project in terms of cost, but the biggest single factor impacting the result, both top line and bottom line, is really the pulp price development, of course. Finally we have the paper segment, which is our biggest segment here in terms of sales. Here we have our packaging papers and our publication papers. We had an impact in 2016 when we closed a newsprint machine in Ortviken, so reducing the exposure to publication paper.
Aside from that, we've got steady growth in this segment, particularly from the packaging paper side, the Kraftliner, a stable bottom-line development as well in terms of EBITDA margin. Overall, we have, in their own right, four strong businesses. Together with the forest business supporting the industrial businesses, we also have a strong package which deliver the track record EBITDA margin that I showed on the previous slide as well, the north of 20%. Move on to a bit about our cost structure. Our cost structure is largely domestic-based in Scandinavia, in Sweden. You see that if you look at the top right quadrant on this wheel, you can see some 14 plus 12, so about 25% of our cost is materials, which are largely locally sourced.
We have another 16% personnel, which is largely based in Sweden as well. We have some others with transport and distribution and energy, which are based to some extent on global markets. Overall, the exposure of our cost base to either global market fluctuations or to foreign exchange movements is relatively limited. If I move on to our income side, here the picture is of course different since we are a major exporter. Here you can see on the left-hand side, some 14% of our sales go to Sweden. Yeah, a relatively limited amount go to Sweden, and the rest is obviously largely exported. The biggest markets, 80% is Europe. U.K. and Germany are the two biggest countries. We also have 11% here in Asia, which is a growing part of our portfolio as well.
We're a large exporter, on the right-hand side, you can see our currency exposure, here we look at our invoice currency, and you can see we have a large exposure when it comes to invoice currency to EUR. A large proportion of our invoices are in EUR. I would caution a little bit here because even though we would invoice in EUR, a large part of those sales are dependent on global U.S. dollar-based prices as well. There's a dependence on global U.S. dollar-based prices, and even global U.S. dollar-based prices are also dependent on the strength of the dollar. There's a lot of interdependence between the currencies, and I would summarize by saying our dependence is on having a competitive Swedish crown in a global context against a basket of global currencies.
When it comes to seasonality, I can only show you six quarters here, but you can see it's the same picture over a longer period of time as well. I would say we have relatively limited seasonality in terms of both our top line and bottom line. To mention a couple of effects, we typically have our largest maintenance stops in the second quarter, that's a consistent pattern over the years. Probably the other thing I would say is if you look at the forest business in particular, we harvest more of our own forest in the summer, and we source more externally in the winter, and that does have an effect on the forest business as well. Overall, limited seasonality.
Here when it comes to our CapEx, we have a tightly controlled maintenance CapEx level, which is supporting our well-invested asset base, which you'll hear more about later. The dark blue block you can see here is our maintenance CapEx level. Here you can see relative to the dotted line as well, the dotted line is our depreciation level. Our maintenance CapEx level is typically a little bit behind our depreciation. Then on top of that, you can see our strategic capital expenditures, which is dominated by which is really the Östrand CapEx, and that will come over this year and also next year as well. If I just move on to give a bit more about the Östrand investment, you'll hear a lot more from Ingela later about this project.
Just to give you some guidelines, perhaps on some of the parameters and financial elements. This project you see on the graph on the right-hand side here that the capacity growth will go from 430,000 tons of NBSK to 900,000 tons. A big increase in capacity in the project. The startup is planned for the middle of next year, for June 2018. We, as at the end of quarter one, we had invested SEK 3.1 billion. The remaining SEK 4.7 billion will come over the following [15 quarters]. We expect to have an extended stop when we do the startup next year, so in the summer of 2018.
You can see on the bottom right here, we've had some costs from the project this year and last year, and we'll come back towards the end of this year with the expected impact of that stop next year. We'll come back at the end of this year with that. In terms of volumes, we expect that the lost volumes that we get from that stop will be compensated by the increased capacity for the period after the stop, more or less. We have also a ramp-up period, which we estimate to 12-18 months. 2020 will be the first full year when we have the full effect from the new capacity, and in our line with a big step-up in capacity that you can see on the right-hand side. Up to then, 2019 will be a somewhat in-between year.
Finally, of course, the project has an effect on depreciation, and we expect an increase in depreciation of around SEK 300 million, which will come in from 2019 in full. Okay. If I take you through working capital, we have a pretty stable level of working capital. As a percentage of sales, the top dotted line you see here, our working capital is between some 15%-20% of our net sales. Pretty steady through the period. We have had some increase in the last quarter, driven to a large extent by the CapEx project as well. Overall, we would expect to be tightly managed within that band of 15%-20%. Here I'd like to emphasize, we also have a very strong operating cash flow.
If you look at our result, we of course, have an effect from the forest revaluation, which is a non-cash item. That is the light blue box here. If we adjust our operating profit for that item to the sort of middle dark blue, you can see that consistently over a period, we should be, and we are delivering a cash flow which is in excess of the adjusted profit, taking out that item. We should be, given that our maintenance CapEx is slightly less than depreciation, and that we are tightly managing working capital. We should, over time, deliver a good conversion of our profit into cash flow. We have a track record of doing that.
Coming to our balance sheet here, you can see basically the biggest number on the page on the top right-hand side is the valuation of the forest asset. I know there are many opinions on the value of this asset. This is one opinion, and this is obviously the opinion that's relevant according to our books and according to the accounting standards we use to value the forest. That's SEK 31 billion we have as the valuation of our forest in our balance sheet. We have to adjust that for a deferred tax. After taking deferred tax, we have some SEK 24 billion as a net value of our forest in our balance sheet. We take the remaining items, which is mainly the industrial assets we have, we come to a total capital employed of some SEK 41 billion.
That will go up slightly over the coming 12 months as we complete the Östrand project as well. That is our capital employed. When it comes to our financing side, our net debt, and equity, we have not reported for ourselves yet independently. That will happen first in the second quarter, which will come out in July. You can see here on a pro forma basis, based on the SEK 5 billion net debt that has been announced, which is the intended net debt that we will take over, but based as at the end of December last year. We will have around SEK 5 billion net debt to start with, which will grow a bit with the Östrand project as well. We'll have equity of around SEK 35 billion.
This means we'll have, in terms of leverage to EBITDA around 1.6 times at the end of the first quarter, or net debt to equity around 15 times. A safe, secure level of leverage in the company as well. To describe a bit where the financing comes from, and I think some people here today have been involved in this financing, so thank you for coming. We have a financing package of SEK 9.5 billion. The biggest part is a revolving credit facility, which we have with a bank group of four Swedish banks, which you can see the names here, Handelsbanken, SEB, Danske Bank, and Swedbank. We have a maturity, some tranches three years and some five years. We have an additional portion, which is from Svensk Exportkredit, which is another SEK 1.5 billion, with also five, six, or seven years maturity.
A fairly good duration. On top of that, this financing includes an allowance for completing the Östrand project, but also we have a reserve of 10% of our annual net sales, which is a reserve we build into our financing structure as well. We have an investment grade rating from Standard & Poor's, which is a triple B investment grade rating. On top of this, I could also mention we intend in the medium term to look at commercial paper as another funding source, to look at other funding sources. I think this is a very good package to start with to set us on our way. Just to summarize, I know it's been a lot of financial figures and not many pretty photos like you might see from some of the other presentations.
If I was to ask you to take three takeaways or three messages to take away, I think number one is really our track record in terms of EBITDA margin, of delivering strong EBITDA margins, best in class EBITDA margins above 20%. I think number two is really that we have a good cash conversion and a strong cash flow, and a track record of good cash flow. Number three, I think that both of those are really supported by, and secured by having a forest asset supporting and working in combination with the industrial assets to support those two, EBITDA margin and cash flow. Both of which will also be enhanced in future by the Östrand project as well. I think that's the key. If there's some key messages to take away, that's what I'd like you to take away.
Okay, with that, I will move on and hand over to Mats.
Thanks very much, Toby. Good morning, ladies and gentlemen. As presented, I'm Mats Sandgren. I've been responsible for the forest side of SCA now for almost nine years. Otherwise, I'm an old-timer within SCA. I started out back in 1982, and I have held different positions within SCA Forest. I also worked for a time as a sawmill manager down here in Tunadal for SCA Timber, and I've been with Södra Skogsägarna for the years between 2003 and 2008. I'll give you some figures, and I'll come back to the figures later on during my presentations. As Ulf said, SCA is Europe's largest private forest owner. Our land area adds up to about 6% of the Swedish land area, 2.6 million hectares of land, and of which 2 million hectares of productive forest land with a standing volume of 230 million cubic meters.
It's actually a huge value asset that we have within SCA, and all the land is close to our industries. The net growth at the moment is 9.5 million cubic meters. Sorry, the gross growth we will have, and the net growth is three million cubic meters. Our harvest 4.3 million. That gives us a self-sufficient rate of 50%. As I said, I'll come back to the figures. SCA has a relatively young forest or forests that drive our biological growth. You can see on the slide that most of the forests that are growing are between 20 and 80 years old. That's why we have this strong growth. Part of it is, of course, due to a very offensive and ambitious silvicultural program that started out right after the Second World War, I would say.
Also due to having introduced the lodgepole pine into our forests. The lodgepole pine was chosen after very solid research work that was done in the early 1970s by the people in the silvicultural department. They were looking at different tree species to see which species would grow fast, as fast as possible, and also would suit our industries. After that solid research work, lodgepole pine was chosen. Today we can say that that was very wisely done because it's growing 35%-40% faster than the domestic pine does. It gives us a very strong growth. We have also, of course, started to use it in our pulp and paper mills. Some people doubt that it's possible to use it in the sawmills, but that's done all over Canada and North America.
If you look down on that end in the room, you'll see a squared box, and on top of that, some pieces of wood, and also a bowl made of lodgepole pine. All that wood is from lodgepole pine. We've had opportunities to try the lodgepole pine in the sawmills after the storms that we had. We made trials, and I think we have very nice products to look at. As mentioned, we have a harvesting level that corresponds to about 50%-60% of the available annual growth. The harvesting level will be increasing over time when the young stands that we have reach harvestable age, and we will reach in 100 years some 6 million cubic meters or so in harvesting level, and the rise will start maybe around year 2035.
When you have a high growth rate and when you have a strategy not having to reduce your cutting levels in the future but stay at the same level or rise it, you will also have a continued increase in standing volume. Our net growth, as Ulf mentioned, is 3 million cubic meters yearly. If you're looking back, you can see that the standing volume has gone up with about 50% over the past 50 years. Of course, this increase will continue, and you will see an increase in value due to that. How can we be so sure of this? Well, SCA has made forest surveys for a long time. We do them every 8 to 10 years. We have did the ninth forest survey the years 2012 and 2013.
We are quite sure that we will have a continued increase in our standing volume in the coming years also. As mentioned, 4.3 million cubic meters together with the ships from our own sawmills will give us a self-sufficient rate of about 50%. The other half of the volumes that we need, we have to get from other sources. The most important source is what we're buying from private forest owners, and it's between 3 and 4 million cubic meters yearly. That means that we're buying standing volumes, so we are harvesting them, are in control over the wood flow from not only our own forest, but also from the forest that are owned by private forest owners.
We have responsibility also for the private forest owners' forests, because when you look at the storm that we have in December 2013, of course, we will have to help also the private old forest owners to get their wood cut and delivered to a good price. We will also help them when we have or might have some insect attacks, like from beetles, bugs that they attack spruces first of all. We also buy timber from other forest owning companies like Sveaskog and Holmen. We also have, as a reserve, two fully owned companies in the Baltics, one in Estonia and one in Latvia. When it comes to delivering wood, we have an extensive timber exchange, and we're changing timber to minimize costs and to lower emissions, of course. I'll give you an example.
If Holmen cuts pine saw logs outside our mill in Bollsta, they will deliver into Bollsta. We are cutting saw logs of pine in this area, we might deliver them into the Holmen's sawmill in Iggesund. That way, we will reduce the distances of transportation, and we will save costs. This is possible due to the way we have with the measurement unions that are neutral between the selling and buying parts in Sweden. Quite important for cost saving and efficiency. We also have a very efficient transportation network within SCA. We use the railroads a lot. We have eight railroad terminals of our own, and we transport about 50% of the volumes by rail. If you look at the prices in the northern region in Sweden, you can see that we have steadily rising prices, not heavily rising, but still steadily rising.
Looking upon that from an SCA perspective, we're quite happy with that because as we have said, we need to buy half of the volume from other forest owners, we are happy with a stable price development. If you look at the figures, you must know that this is road list prices that are presented by the Swedish Forest Agency. When it comes to what's actually paid by the roadside, you have to know that there are premiums as well. Premiums because of volumes or seasons or something. They are substantial, I would say. You have to add this on this figure, I emphasize once again, it's roadside prices. As in all businesses, in your daily work, you have to be efficient, and you have to be cost effective.
When you look at productivity and harvesting, for example, I must say, I think we have been quite successful. Last time we had an all-time high productivity in harvesting. We did around 65 cubic meters per man's day of work last year as an all-time high. Looking back 30 years, you can see that the productivity was not even a third. This is, of course, due to the technical development and also to the different organizations that we have today. If you're looking back to 1985, you might have had two machines to fell the tree, to debranch it, and to cut it. You went over to a 2-grip harvester, and today we work with a 1-grip harvester. It takes about 20 seconds to cut a tree, fell it the branches and to cut it into pieces.
Going back 30 years, it took a minute, so three times as much. This affects our costs. If you look at the cost of harvesting, you can see that the price has gone up about 20% in 30 years. But if you compare it to the consumer price index, the consumer price index has doubled. When you're into managing forest, you have to be sustainable, of course, and you have to acknowledge all the demands that are in nature conservations. Our forests are certified, as mentioned, by FSC and the PEFC standards. That will be a guarantee to our customers that what they are demanding is actually fulfilled by our management policies. When we are felling and harvesting trees, we are replanting three new seedlings for every tree that we cut, and the seedlings are produced in our own nursery.
You might have seen it coming from the airport and passing the Indalsälven. Sorry, Indalsälven. You'll see our nursery, and it's the biggest nursery in the world with production volume of about 100 million seedlings yearly. We sell about half the production to external buyers. When it comes to that part of the business, also there you, of course, have to be looking at how you can be more and more efficient, not only in the nursery, but also when you're doing the regeneration. This is a kind of seedlings that's called Jackpot. There are 67 plants in each and every cassette. Our people in Bogrundet, they developed a smaller plant with the same survival rate and growth capacity as the larger plant.
This smaller plant is called Powerpot, and this gives us an extended efficiency of between 12% and 15% in the operations when you're regenerating forests. Quite impressive, isn't it? You can carry twice as much with you as with the other plant. We are selling both, of course, but quite nice. The most important thing when it comes to developing seedlings, maybe it's the plant breeding because the plants that we are producing today in the nursery is growing 25% faster than natural plants are growing. That's an important part of getting the growth rate up. Forest land can be used not only for forest production, but also, of course, for producing wind power. We have land with excellent wind conditions, of course, and it's our strategy to make the land available through leasing or partnerships.
The average annual production is 2.5 terawatt hours yearly, and we have an ambition to double that wind power production to five terawatt hours in year 2020. To finalize, we are Europe's largest private forest owner. We have a very sustainable forest management that will see to that we will have as much timber, biological diversity, and natural experiences tomorrow as we have today. The growth is significant to the relatively young stands that we have. We have a long-term, stable, and increasing felling rate. I would say that we have a world-class productivity in our forest operations and a very efficient value chain. We will have a secure timber and biodiversity level for future generations as well. Thank you very much. Thank you for your attention. We will now have a coffee break when you will have the opportunity to look around at the exhibitions here.
You will have the opportunity to meet and mingle with the SCA team. Before we break for coffee, there is one person I would like to introduce to you, and that is a person of probably high interest, Nils Lindholm, can you rise? Nils is our IR manager and a good point of contact now and in the future. We will have a coffee break now until 10:15 A.M. You will have ample time to drink coffee and to mingle and chat. I will bring your attention to the clock when we approach 10:15 A.M. so we can keep the schedule that we have announced for our non-present participants, the people watching the webcast. Thank you for the first session, 10:15 A.M., we will start the second session. Thank you.
There is always a risk breaking up for coffee.
Are you all ready? Good morning. My name is Jonas Mårtensson, and as Ulf mentioned, I am the President of SCA Wood. I'm not a woodhead, Ulf, but I'm passionate about wood. I've been in the wood business for close to 20 years now, and I've been with SCA for a bit more than 10 years, and in this position since 2008. Let's start. I will start by giving you a brief overview of our business. As you can see, last year, our net sales were a bit more than SEK 5.4 billion. We have in total 1,200 employees, mainly in Sweden, the U.K., and France. We are the second largest producer of softwood in Europe, and we are number 1 in Sweden with an annual capacity of around 2.2 million cubic meters.
As Ulf mentioned, as you have heard, we have invested quite a lot in our sawmill operations. Today we have five highly automated and efficient sawmills close to our forest holdings in Sweden. We also, which not so many knows about, we further process quite a big share of the volume that we produce in our sawmills. That volumes go into our own value chain for further processing. We have in total 10 planing and three painting facilities, either close to our mills, sawmills here in Sweden, or local into our core markets in Sweden, the U.K., or France. Our strategic focus is on value-added products for the building material trade and the wood industry. I will come back to this later on in my presentation to describe how we work with these 2 segments.
It's good for you to know that a bit more than 60% of our net sales comes from value-added products from these two segments. I will talk more about that as well. If we move on to picture number 43, wood has an attractive market outlook, as Ulf mentioned. There are some favorable macro trends, such as sustainability and carbon footprint that are driving the demand for renewable products such as wood-based products and solutions. Wood is also taking market shares from other more traditional building materials such as concrete and steel. The softwood market has grown by 3% year-on-year since 2012. The growth is mainly driven by the current market conditions that you see in Sweden in terms of building activity and renovation. We also see an improving construction market in Europe, as well as a pickup in the U.S. housing market.
Additionally, we see also good growth in the repair and renovation market, both in Europe as well as in the U.S. Finally, in recent years we have seen a strong growth in softwood consumption in China. China is today the second largest global market for softwood and it's been growing very fast the last five years. All in all, this give us a market with a very positive outlook. This picture shows our net sales last year by region. As you can see, we have a very strong position in Scandinavia and Europe, mainly in the U.K. and France. We have been able to grow our business in value-added products for the builders merchant, as Ulf said also, in the U.K., but also in France and Scandinavia. As you can see, our exposure to the MENA region is also relatively small.
We've made the strategic decision some years ago to move volumes from that region because it's an unstable region, mostly for standard products, volatile and standard products. We have shifted volumes from the MENA region to Asia. Our sales to Asia goes mainly to Japan and to China. We started our sales office in China more than 10 years ago. This was earlier than most of our competitors. Today we have a very good and deep connections with our customers. We have a very good infrastructure there as well, and we have two sales offices. As I mentioned, China has developed very good during the last five years, and we've been able to capture that growth.
Today our business stands on three pillars, value-added products for the building material trade, such as planed and painted product that you can see on the picture here on the left-hand side. Value-added products for the wood industry, mainly for the window, door, and furniture industry. The picture in the middle shows a wood component that we produce for one of our window customers. We also produce what we call standard wood, and I will come back to that a bit also. As I mentioned in the beginning, our focus is on the building material trade and the wood industry. Some 10 years ago, we did a rather thorough strategy review, where we decided to firstly, to continue to produce products for the wood industry that we have already started in the mid-1990s.
We also decided to start a new business area and to enter the building material trade. That was, as I said, 10 years ago. The main reason for choosing the building material trade as a new business area were primarily, we wanted to continue our journey to move from volatile commodity standard products to more value-added products with higher and more stable margins. This was especially true where the fiber from our forest holdings in the north of Sweden give us a competitive advantage. Our fiber are well-suited for products with invisible end use. Mats mentioned that we have some examples of Contorta over there, and I would say that you should go there and look at some of our products. Contorta, or a lodgepole pine, is a perfect species for producing products for visible end use, and we have some examples over there, as I said.
We were also looking for an area where the consumption of wood suited the capacity of our business, but also our growth ambitions. However, even though we focus on building material trade and the wood industry, we still need to produce some standard wood. The reason for that is we need to maximize the wood recovery. The log cost stands for the majority of our production cost, around 65%-70%. To be profitable and to have a very good performance, we need to be very cautious about how we take care of the logs and how we maximize the wood recovery. Therefore, we will always produce some standard products and sell that in a more traditional way. If we move on to this picture, we have grown significantly during the last two decades, as you can see.
We have also been able to establish two new business areas. We started our focus on the building trade 10 years ago. We have grown this business from zero to a SEK 2.3 billion business, and today this business stands for 40% of our total turnover. As I said, we stand robust today on three pillars, but we still need to produce some standard wood. In our strategy, we have also tried to select the best customers that we can find. Ideally, we prefer customers that are big, they are growing, and they are profitable. If you look at the right-hand side of this picture, you can see some examples of customers where we have been able to have long-term business and good relationship, and they have, of course, been an important part in our success of driving the business and grow like this.
I will continue to talk about our building material business. We started this from zero 10 years ago, and today we have a very strong position in all our three core markets. We have a number 2 position in Scandinavia. We also have a number 2 position in the U.K. and a number 4 position in France. To occupy these positions, that reflects a business on the way up, and then it's the question, how have we then achieved this? Today, we have a solid business model that works well for our customers in our core markets. We also have an attractive and a broad product portfolio. We offer a high level of customer service and support. Our mantra is OTIF, on time, in full, nothing less. We not only bring products, we also bring ideas to our customers to help them to grow their business.
In short, we are more commercially interesting to our customers. We have also invested in production and distribution capacity in all these three core markets. As we have announced, as you may have seen, we have built a greenfield planing mill in the U.K., close to the port in Hull. We are right now upgrading our planing mill here in Sundsvall, and we have also built two new painting lines during the last couple of years. We have made these infrastructure investments today to be able to grow our business tomorrow. As our sawmills and our planing mills are located close to the coast, we can charter our own vessels to bring raw material from our Swedish mills to our planing mills in France or in the U.K. By that, we have a very efficient logistics systems, and we can reach our customers in a very cost-efficient way.
Our ambition is to continue to strengthen our position in these three core markets by offering them value-added products and solutions, and we see great opportunities to continue our growth in both Scandinavia, in the U.K., and in France. If we move on to the business that we call the wood industry. For our wood industry customer, our ambition is to create value by offering them value-added products and our know-how in wood processing. By using the technology that we have in our modern mills, we can sort out the logs that is the most suitable for the end purpose. A couple of example includes sorting logs, for example, with high strength properties for the construction industry, or sorting out logs with X-ray with a special type of grain for the furniture industry.
Together with our priority customers, we develop and design new products and supply solutions to fulfill their specific needs. In some cases, we have also invested in production facilities to produce custom-made products for them. For some of our customers, we are also responsible for the total raw material need. We have control of their incoming need, and we make sure that they always have the right products in their inventory. Together with the right customers, this leads to a business with growing volumes that is less price sensitive, where we can also reduce cost in the value chain, and that will give us higher margin. As you all understand, the barriers for entry are also higher. Innovation is one of our strategic priorities. An increasing part of our sales comes from innovations that we have launched in recent years.
We have dedicated resources, we have system, we have KPIs to drive our innovation process. On this picture, you can see some examples of innovations that we have launched during this spring. We have launched a pine decking board with a 99% heartwood guarantee, heartwood is the high density non-living center of the pine tree. That part of the tree has the same durability against rot as a treated product. This is a good example how we use the technology and the competence that we have in our mills to utilize our North Swedish pine in the absolute best way. This is an environmentally friendly product that has the same features as a treated product. Another example is what you can see on the right-hand side of this picture. This is a solution that we call SmartTimber that we are launching right now in Scandinavia.
This solution includes a number of new innovative products, but not only that, it also includes logistics service, it includes in-store and web training, as well as point of sales and marketing material. By offering innovative products and solutions, we will drive both sales and margins, both for ourselves and our customers. As you have already heard, and as you also saw in the film in the beginning of this presentation, we have very modern sawmills. For more than 10 years, we have channeled our investments into a few number of mills. We have, during a 10-year period, invested SEK 2 billion in these mills. As a result, we now have five modern, highly automated and efficient sawmills close to our certified forest holdings here in Sweden. Today, as you have heard, we produce more in our five mills than we did 10 years ago in 11 mills.
You can see our average capacity today is 430,000 cubic meters per mill. As in comparison, the average capacity in Sweden, if we look at the Swedish sawmills, is around 140,000 cubic meters. Ulf said that we do not produce so much more today. We produce 2.2 million cubic meters. As you all understand, productivity has increased and production cost has decreased significantly. We can conclude that this investment decision was a really good one. To minimize the risk with the investments, we have moved raw material and business from the mills that we have closed to the mills where we have invested and increased production. Our strategy is to deploy the best known sawmill technology that we can find on the market and implement that in all our mills.
By doing that, we can transfer know-how and competence between our mills when we invest in new machines and ramp up production. To summarize this, we produce more in fewer mills with fewer overhead costs, and we use world-class technology. As you saw in the beginning of this presentation, SCA utilizes 100% of our forests, and we utilize 100% of the log. The bark is used to produce heat for our kilns, and the pulp chips that comes from the log cutting process goes into our own pulp and paper mills close to our sawmills. As you heard, around 10%-15% of the log remains as sawdust, so it's important to have a well-developed pellet business to contribute both to profitability and sustainability. Our three pellet facilities, they are located close to our sawmills.
We produce 300,000 tons of pellets, or 1.5 terawatt hours of green energy every year. Our pellets mainly go to energy companies, or to wholesalers, or even directly to end customers. Also, as you have heard, one third is used internally in our own operations. In conclusion, I would like to emphasize the following points. We have a very strong position in our core markets when we talk about the building material trade. We will continue to focus on value-added products in this business and in our core markets, Scandinavia, U.K., and France. We will do that by being more commercially interesting to our customers. We have five highly automated and efficient sawmills close to our certified forest holdings in Sweden. As you heard, we produce three times more than our competitors, or the average in Sweden.
That is a remarkable output statistic that makes us totally unique in terms of performance. You have seen that the global softwood market has been growing by 3% year-on-year since 2012, mainly driven by the construction and the building activity in Europe and the U.S. We also have a good support from a good growth in the renovation and repair market, both in Europe and in U.S. Wood is also one solution to reduce CO2 emissions and to contribute to better climate and a greener world. Wood is also taking market shares from more traditional building materials, such as steel and concrete. You have heard that one of our strategic priorities are innovation. We will continue to drive our sales and our margins by offering innovative, sustainable products and solutions to our customers.
As you have seen, this is a growing business with strong and stable margins, with a marketplace where we have a positive outlook. This is a successful, ambitious, innovative, productive, and profitable business that I am very proud to lead. Thank you. By that, I would like to introduce Ingela Ekebro, one of our biggest customers in terms of pulp chips, at least.
Thank you. Yes. Hello, everyone. My name is Ingela Ekebro, and I'm General Director for Project Helios, the expansion project of Östrand pulp mill. I started up in SCA in 1986 and been working in several positions. I've been responsible for the pulp mill since 2004, and President of the pulp business since 2008. When the decision came in 2015, I had the opportunity to take on the challenge to lead the largest industrial project in Sweden, maybe ever, and that was a challenge I couldn't resist. So I'm going to tell you about the pulp business within SCA today. The pulp business contains of one strategically located, quite modern, but medium-sized pulp mill. It is close to SCA Forest holdings.
It is close to SCA sawmill business, who also is an important supplier of raw material, and also close to SCA's efficient terminal in Tunadal, from where we have access to the whole world. Pulp market is a global market. We have two production lines, NBSK, Northern Bleached Softwood Kraft, that has been produced in Östrand since 1931, and CTMP, Chemi-Thermomechanical Pulp, that has been produced since 1982. We also produce 0.5 terawatt hours of green electricity, and supplies the district heating systems in Sundsvall and Timrå municipalities with mainly recovered heat. The turnover in 2016 was SEK 2.5 billion, and there are some 310 people working at Östrand today. The head count will increase after the project by only 20, and that will be some the initial years of the startup, mainly due to changes in sales organization and the need of more technical support.
Our kraft pulp is sold under the brand name Celeste, and that is a clean, strong pulp with a super strong environmental profile. Our dedicated team has been working hard since the beginning of the 1990s to reach a top position in the world for both our pulp products. The capacity today is 430,000 tons. We sell around 15% internally to SCA Paper at market prices, and the rest of the pulp on the external market. The CTMP is sold under the brand name Star. The capacity is 100,000 tons, and all of it is sold on the external market. NBSK and CTMP are produced in different processes that develop different characteristics of the pulp. The fibers from the pulp can play different roles in the customer's end products. Where Celeste contributes to paper products with brightness and strength, CTMP brings bulk stiffness and/or absorption capacity.
All paper manufacturers mix different pulps into their end products to get certain characteristics in their products. For example, bleached hardwood kraft cannot be as strong as a softwood kraft, since the fibers in the hardwood is just about a third of the fiber in a softwood. Hardwood brings softness and printability to end products. All pulp products have certain objectives in an end product. The NBSK fibers grow in Northern Europe, in northern U.S., and in Russia. We see a strong future for NBSK pulp, and I will come back to that. First, I will summarize what Celeste offers to the market. As I said, we have already a strong offering for our customers. We are a preferred supplier, and being a preferred supplier is really important to be profitable.
Celeste that is strong and easy to process for our customers, make it possible for them to reduce their costs by mixing in less softwood pulp, still reaching their required strength, and also saving electrical energy in their processes. Equally as important for many of our customers is the environmental profile. A strong performing pulp in that aspect gives them a better opportunity to use the eco-labeling system that their end customers demand. WWF has a ranking system, the EPCI, Environmental Paper Company Index, where companies can voluntarily report their performance regarding energy consumption, environmental impact from the pulp processes, and how they source the pulp processes with the fibers. Last time, in 2015, our pulp Celeste ranked absolutely top in class, and this is an ongoing development, and the project will further strengthen this profile. Why is it important to be a preferred supplier?
We don't add on a premium yet, but as many of you already know, I think, the normal setup for a pulp delivery is that the supplier pays the logistic costs to the customer's gate or to a close by terminal. Being a preferred supplier makes it possible for us to optimize our customer base and create efficient logistics solutions and reduce our costs. SCA, who has our own logistic company, is really competitive in that aspect. In a nutshell, it's important to be a preferred supplier in order to be able to reduce costs. Now, having shown you Celeste's attractive offering on the market, let's get into the rationale for the project. Pulp is a raw material. The raw material producer always need to improve our competitiveness. That means to produce more pulp more efficiently to an increasing market.
The rationale for the project is, as Ulf had mentioned, firstly, growth. Market analysts foresee a long-term market growth, and I will come back to that. Secondly, capacity. The project will, by doubling the capacity, create a cash cost leader mill by clever process design. Thirdly, environmental profile. As I said, it's important to further strengthen the environmental profile. Fourthly, flexibility. We will be able, by the project, to create a pulp line that can produce a wide product range to our customers. Finally, value. We need to support the forest value, and the long-term healthy demand from a strong industry is supporting the forest value. The production start is planned to be in June 2018, with a normal ramp-up curve of 12 to 18 months. One contribution to the cash cost excellence is the energy efficient process that we are been able to make now.
We will produce 1.2 terawatt hours of green electricity when the mill is up and running on full capacity. Half of that will be supplied to the grid. I will come back to that. Now let's go back to the market growth. What are the main drivers? Pulp market analysts foresee a long-term growing demand both for softwood and hardwood, and that has been the case for several years. The drivers are increased global usage of tissue products and also internet shopping that creates a strong demand for packaging papers. The tissue market is growing faster than the decline in the newsprint market. The decline in newsprint market is also creating a shortage of recycled fibers that is replaced by fresh fibers.
The increase in the tissue market has been more than 5% annually the last five to six years, and the tissue segments now accounts for 29% of the total bleached softwood market. SCA Pulp today is well established in the tissue segments. Last year, we sold around 60% of our production to the tissue market, a split we are very happy about since that is the most growing market. To summarize this situation, global tissue demand is growing strongly. SCA Pulp is well established with a strong offering to our customers. We have the product knowledge, we have the proven experience in being a preferred supplier, and we soon will have more capacity in place. We can and will exploit this market opportunity. Now let's take the second bullet point, the cash cost item.
As I said, a profitable raw material producer must always improve costs and productivity. For the last 10 years, SCA Pulp has been able to improve productivity by 40% by debottlenecking, working with cost savings, and lean production. However, with the investments, we will reach a totally new level, and that is that it doesn't take double manning to run a pulp line twice as big. The ambition throughout the design process has been as few and as large process parts as possible, still being able to produce pulp of superior quality, of course. Also, as I already said, it is important for a mill to be close to the forest sourcing, and we will be able to source this mill mainly from local forests and sawmills. Almost half of this will be supplied to the mill by train.
The project is making that possible by adding railways, so we can take in 44 wagons at the same time to the mill, compared to today's six. For maximum flexibility, we already have a wood quay on site. The electricity production that I mentioned is created by a clever process design. We will significantly reduce electrical consumption and heat consumption in the pulp process and increase, at the same time, the electrical production per ton. The increase to the grid will be 275% per ton. All in all, that moves Östrand pulp mill from the middle of the second quartile for cash cost for softwood pulp mills to the very top, where the profitable long-term pulp producer should be. We haven't gone from bad to good, rather from good to great. This clever process design can also create new options for SCA.
SCA is quite long way in its thinking in how to produce green hydrocarbons out of this potential. Hydrocarbons can be used for products such as green diesel, green gasoline, green jet fuel, or green chemicals. We have an identified potential at Östrand pulp mill of 3 terawatt hours from black liquor and wood residuals such as bark and sawdust. That amounts to 3.5% of all liquid fuel usage for transportation in Sweden today. That's quite a substantial potential. As Ulf mentioned, SCA to date has invested SEK 50 million in a pilot plant in Obbola, where we will demonstrate the whole value chain from black liquor to green hydrocarbons. The production just has started. This is a super exciting future, I think, and there are, of course, no decision yet for a full-scale plant, but I think the time will come quite soon.
SCA has a huge focus on making this happen, and this could mean those new businesses from green hydrocarbons, as I said, but also a technology business for SCA. This can be a sleeping giant. It's just a matter of time, and this great potential is created by the expansion project. That is the first important step. Today, and more than a year ahead, my absolute focus will be on securing the delivery of the expansion project. The project are still 644 days after the go-ahead decision, going according to plan. We have a well-functioning project. We are on time, and we are on budget. We will reach our important goals for cost, quality, and environmental profile, and we will do it on time.
The new operation center is actually ready today, and that will be the place where the production organization, together with the maintenance organization, will run this mill in the most efficient way, but they will not move in yet. From now and a year ahead, the new operation center will be used for a massive training program. We have bought process simulators, so all people in the production, all operators will run their process virtually before the actual startup. The operation center will also be used for all commissioning works and startup that we have ahead of us. One important key differentiators in our project compared to, for example, a greenfield project, is the sequential startup that we will be able to make due to the fact that we have an ongoing operation at site.
We will start up three important departments before the start of the fiber line and the recovery boiler in June next year. We will start up the wood handling department this summer. We will start an evaporation plant in November and a new drying machine in January next year. This is a very important factor for us to mitigate risk. We will do whatever it takes to deliver on time, in full, so SCA can capitalize on the attractive softwood pulp market and also continue to explore the exciting biorefinery options that we have. Thank you. Now I have the pleasure to hand over to Mats, head of the paper business.
Thank you. Very good. Excited to be here and excited to present the SCA Paper for you. First, a short introduction of myself. I've been in management positions of this industry for the last 25 years, and I've been covering, I think, most parts of the value chain, and I would say also most parts of this globe in terms of continents. Africa is probably the only continent where I have not been actively working with this industry. I've now been heading this SCA Paper for the last two and a half years, and I'm really excited of being part of creating this new company, SCA. This place and Sundsvall is also my birthplace, so this is really important also for me. First, a short introduction to the business.
This is a business a little bit short of SEK 8 billion, generating a fairly stable EBITDA margin of 15% over the years. As you can know it, as you see, it is based on two quite different businesses. We have the publication paper business and the kraftliner business. At first glance, you would think that they don't have too much in common. That is true when it comes to the customer base, and that's why we are operating these two businesses with two different sales forces and two different, I would say, go-to-market strategies as well. But when it comes to the cost base and the supply chain and the mill operational models, we are sharing many things, and everything from our raw material base to our logistics systems out to the customers. That's where we are trying to seek synergies and best practices.
My own experience is that it's easier to seek real hard-cost synergies in between two different businesses, but with the same geography, compared to having the same business, but in different geographies. I think we are trying to somehow we are compensating the lack of scale, in total scale here, with trying to seek synergies here in between the different businesses here. Our strategy and our improvement targets for the two different businesses are very clear internally today. The role of the kraftliner business and our publication paper business is very clear for us. We have already delivered proof points of that so far. We have restructured the Ortviken mill. It was in the very end of 2015, and we have also brought the kraftliner business as an independent supplier of kraftliner to the market quite successfully.
Ulf was mentioning, actually, when we asked the Kraftliner buying customers who was the leading Kraftliner supplier on the European market, our company came up as clearly number 1. That was a very good base of building this further on. I walk in firstly to the publication paper business. Ortviken, it's based on one mill, but in this one mill, we have three paper machines. We have one mill site. You would look later on, you would see it just down the hill here. It's one of the biggest mill sites in the world, number 7. In Europe, if you look on the chart here now, first of all, there are no mill sites that have four paper machines today. There are quite a few with three paper machines, and in Europe, there is only one that is clearly bigger.
As you can see, there are many publication paper mills that have two or one paper machines, and that are in total smaller than the Ortviken mill. We believe that this is a good fundament going forward when we are focusing on achieving operational excellence of the Ortviken mill, that this will be a cash-generating unit, and it will be competitive for some years to come. In our strategy, you could say our ability to source fresh spruce and select fresh spruce fiber, together with our peroxide bleaching technology that is state of the art, makes it possible for us to compete with high-value wood-free products. We can produce ultra-white publication paper grades. This is also forming our strategy going forward, because this is a competitive advantage for us.
Traditionally, you would say I've been segmentizing the product ladder of printing papers in a very schematic way here. You would have recycled-based products, wood-containing products. That is what we do at Ortviken. We would have wood-free products. In a simplistic way, you would have quality on one axis and price on the other axis. They are somehow competing, and to a larger extent, going forward, competing with each other. We are feeling challenged, of course, by recycled-based products. Due to our ability to make ultra-white products, we can compete with wood-free products. Our strategy is to reduce our dependency competing in the lower segments and increase our ability to compete in the upper segments. This has been driving our innovation work and our product renewal work. As I said, 35% of our current products did not exist five years ago.
This is one reason also why we are gradually exiting the newsprint segment. Today and this year, newsprint will only represent 3% of our total production at Ortviken, and it's going down. If you want to know a lot about newsprint, we are perhaps not the best source of that information going forward. There will be nine billion people on this planet by 2050. That requires us to use more renewable materials, and we need to get more out of less. This also supports a long-term growth trend for packaging material and Kraftliner. On the globe, there is a strong growth of the middle class, and when you're going from poverty to a middle-class situation as a family, your highest priority, that is to start consuming hygienically packed, ready-made food, because that changes your family situation so enormously.
The women doesn't have to get up 4:00 A.M. in the morning to milk the cow, as one example. This also grows food packaging very fast, and food packaging is the biggest packaging segment in the world. Globalization means trade, global trade, not at the least by e-commerce, as we know. This drives an increased demand for high-performance packaging solutions. We can see that the environmental awareness, not at the least in between renewable materials and plastics, there is more and more awareness, and we can see evidence of that discussion ongoing today. That is driving an increased demand for fresh fiber products. At the same time, there is a lot of debate and discussions, even about legislations in Europe because of food safety awareness, and that is also favoring fresh fiber products.
We believe the fundamentals are very strong here, that we will see a strong demand for packaging materials going forward for a long time ahead. This slide, I think, is quite important when it comes to our kraftliner business. In the containerboard segment, that is both recycle-based containerboard and kraftliner-based containerboard. Kraftliner, as we define it today, represents 17% of the total containerboard segment. As a comparison, that share of wallet in the U.S. is 50%. In Europe it's 17%. This is a big segment. However, the growth for kraftliner in recent years have been very strong. If you look on the bars to the right there, you would see that in between the years 2010 to 2014, the growth of containerboard, excluding kraftliner, was 2.6%, but the growth of kraftliner, only 0.4%. You could read this as there is a higher demand for recycle-based fibers.
In the years 2015 and 2016, the growth of kraftliner was almost 6%, corresponding to a volume of 600,000 tons, whilst the rest of the containerboard market grew 3.4%. All are good growth numbers. In quarter one here, the growth of containerboard 7% and 5%, still a very nice growth figure. Now I think comes the catch here. I believe that the fast growth pace now for kraftliner, by statistics, will go down due to the scarcity of supply. One reason why kraftliner grew so fast now from 2015 to 2017, at least here, was that supply became available. It's very hard to measure the real underlying demand, because it's very dependent on the supply side as well. What we have seen is a very strong demand now when supply became available. This, I think, it's very important to remember.
When it comes to our product strategy, well, I believe we have a clear strategy for our kraftliner business. It's based on differentiation on one hand and optimization on the other hand. I would say our fiber source, but also our assets and knowhow, makes it possible for us to differentiate with the strongest and heaviest kraftliner product. We can also, as the only European producer, produce a wet strength kraftliner products. We are also, I believe, best in class when it comes to the printing surface of our White Top product. For the rest of the portfolio, we are seeking to optimize every SKU that we have based on profitability. We are by this building on our strengths, meaning that we are trying to grow what is good, and we are also prepared to exit products not being profitable enough.
For us, this means active product management. This is perhaps one of the most important differences by being independent and being integrated with the corrugating units ahead of you. We can actually work very actively in trying to optimize our product portfolio to what fits, I would say, our strategic or competitive advantages. When it comes to our asset base, we have two of Europe's largest and most efficient kraftliner machine today. One of the machines are number one and the other is number three in Europe, although they are both 30 years plus of age. We have invested around SEK 3 billion in recent years into these businesses, but with a clear strategy. In Munksund, we have increased the capacity and improved the quality for White Top and high-strength kraftliner.
As you can see on the right-hand chart here, we have increased the share of these products faster than the total capacity increase in the mill. In Obbola, we have upgraded and renewed the pulp mill with the latest technology, which means we are producing more pulp, we have a higher pulping capacity, and we can do that at a lower cost and a lower also carbon footprint from the pulp mill here. This is a good base for us going forward. As an independent supplier of kraftliner, we have to earn the trust from our customers every day. We have to bring real value to our customers to build the loyalty that we need going forward here. To compete, we have simply to be the best in everything that we do.
We are therefore driving innovation in close collaboration with our customers, both in terms of services, but also in terms of product performance. When it comes to our customer priorities, we are focusing on the most demanding customers, and they are located in Central and Northern Europe. This is where we are putting our priorities today. In our innovation work, we are dividing this basically into three streams. One stream being enhanced product features, and there we have a priority on lightweightening. New applications, we're looking into new applications for our kraftliner business. It could be paper cups or paper bags, or we are looking to completely new business models. Here I will come into what we call Arcwise a little bit later, and I will explain a little bit more in detail what that is.
This is also addressing the mega trends that we can see in society. With material efficiency, as I said, we have to learn how to do more from less. We're seeing the changing lifestyles. We are seeing the environmental awareness on renewable materials versus plastics, and that is something that we are trying to address with our innovation priorities here. As a very practical example of what we mean, I will show you this example. You can produce a standard box, a corrugated box with different materials. Here to your left here, you see a box produced with our Eurokraft products. That's a kraft top product. That's a high share of recycled fiber. Here we have been specifying that with a 165 GSM grams Eurokraft products. The total box weight here came up to 850 grams.
If you instead used our next generation, that is what we call next generation Kraftliner that we are bringing out to the market now, you can exchange that Eurokraft product with a Kraftliner product of 150 grams. You're saving material. The weight of the total box goes down to 800 grams. It maybe doesn't sound too much, but in our world we have reduced the Kraftliner or the kraft containerboard weight with 10% here, and the work is ongoing. This is a continuous work, and this means that we could exchange these qualities. You can also think radically new, and that is what we have done with our Arcwise technology or our way of doing corrugated boxes in a different way. We have a patent technology to make curved corners of corrugated boxes, as you see here.
Now you're thinking in a completely new way. You can change the design of the box. If you are making round corners, the box becomes much stronger. Nature tries to make round shapes if they want to make something really strong. All of a sudden you can radically change the weight of the box. Now it's 550 gram instead, if you're using the same material as you did in the middle. This is a patented technology. We have no intention of starting to produce corrugated boxes again, so we have created a new business model here where we are seeking license takers and we are getting a fee for producing the box someone else is producing it. We have created a new business within paper around this Arcwise technology, and we are coming out on the market now.
So far we have eight license takers here in Europe, and we have more in the pipeline there, but we are focusing on getting products now out on the market. I can say there are already now two major product lines coming out on the markets in Germany and in the U.K. as we speak now. Changing packaging designs is a slow process. We know that. It takes a lot of time to convince big brand owners of changing their way of producing packaging design. It's such an integrated part of the brand of the product. We feel that this is an opportunity for the future, and this technology has been developed in our R&D center here in Sundsvall, and then we are now turning it into a business going forward.
As a summary, I believe we have clear strategic and operational priorities. We have ready-made plans, I would say, to meet the challenges and opportunities that we see ahead of us. Our publication paper business here, we are running that with a strict cash flow focus, where we are trying to improve the business without major investments. On the other hand, on our Kraftliner business, we're building our strategy on our market-leading position and the favorable growth trend that you see. We believe that we can leverage investments that we have already made to further focus our product mix on higher value products. We have also the optionality for further capacity investments in Obbola due to the increased capacity of pulp making that we have today. Also product mix improvements in Munksund with clever investments, if we choose to do so.
I believe that this is a very good business going forward. Thank you. I believe with this, I would ask Ulf to come up.
By that, we are at the end of the presentations, I would say, and it's not really easy to summarize anything here. I hope you can agree with me when I say that we have a strong story to tell here. We also have a strong management team leading a highly dedicated and competent workforce, and they are really eager out there to deliver on all those growth opportunities that we have, and I hope that we have been able to show some of them here today. It is also so that one can say that the base for our business is, and also for our operations, is the forest, the golden egg. On this, we have created what we call an industrial ecosystem, super efficient industrial ecosystem. In this integrated value chain, we see lots of opportunities.
To summarize a little bit, we started with the forest, and Mats said that we are the biggest private forest owner in Europe, which is really something to have in the portfolio. It is well managed forests. Relatively, it's quite young, and by that, also fast-growing, so the growth is tremendous, and the net growth and the increase in volume, standing volume today is about 3 million cubic meters per year. At the same time, the forest is certified according to the FSC and PEFC standard, which to some extent guarantee a sustainable forestry. I think the track record of increasing the volume 50% during the past 50 years and at the same time double the harvesting volume, that is proof enough. Wood, Jonas, we can clearly underline that wood is not boring, it's profitable, and it's really exciting.
The development here has been fantastic during the past 20 years. We have had a growth of 10% per year. We have had profitable growth, which is not the least important. At the same time, we have done a lot of things in our sawmills. We have reduced the number from 11 to five. We have spent a lot of money. I think the most important part in the wood business is really what we've done in the market and our go-to-market approach. A lot of innovative work has made it possible to have this profitable growth, so that is something to remember. In pulp, Ingela, it is anyway the biggest industrial project ever in Sweden, and you heard that we are really convinced to deliver on the goal that we've had, and so far on schedule, on time.
It looks to be easy to run a project like this, but you will see it when you come out there, it's not so easy to, at the same time, run the old mill and build up a new one, a brand new world-class mill. One thing that you mentioned, Ingela, which I think is important, that we are not going from bad to good. We are going from really good to great. We have a good position already today. That you can also see in Toby's figures, but we will create something really special here.
The basis for the investment is, of course, the increasing demand in the market, in the tissue market, in the packaging market, at the same time, of course, for us as a big forest owner, we really will secure and also increase the value of the forest land for ourselves, of course, but also for all private forest owners in this region. Mats, we finalized with paper, in publication papers, we are hit by the digitalization, we have also taken measures here. We have reduced the exposure quite substantially. We did divest 2012 our mill in Laakirchen, our mill in Aylesford. We have closed the oldest machine here in Ortviken, still we are big, we are cost efficient, we have a clear cash flow focus. In our Kraftliner business, that is a completely different animal.
Here we are favored by the digitalization. We can see an increase in demand. We can at the same time see that we have a scarce situation when it comes to recycled fiber, that is in the combination of quality and price. Magnus Groth, he just recently when we released the quarter one report, he said that we will not anymore build a new tissue machine based just on recycled fiber. That will not be possible. I think that we have a golden egg also when it comes to virgin fiber and the forest again, of course.
I'm very proud to lead this, myself and also my team sitting here, we are really looking forward to the journey ahead, we are convinced that we will long-term be able to continue to deliver an increased shareholder value, that's also the reason for being, of course. By that, I think that we open up for the Q&A session, please, if you can come and join me, the management team that has been presenters here. I think that would be good.
We will now give you an opportunity to ask questions to the team that has been on stage. I will try to keep a sharp lookout for you who opt for questions. We will have microphones over there. We also have spotlights in the face, so please lift your arms high so I can see you. Please introduce yourself as you get the microphone so everyone can hear you. Yes, we have the first microphone. I have.
Okay. Olof Grenmark, ABG Sundal Collier. Thank you very much for interesting presentations. If I may have two questions. First of all, when we analyze the profitability in Forest, your division Forest, is it your true profitability that we're seeing, or are you in any way subsidizing your downstream business?
Do you want to take both questions first, or do you want to?
That was the first question.
Oh.
Secondly, we haven't heard anything about your profitability targets today. Is it fair to assume that you will have the same kind of targets that you had within SCA, that is to grow in line with the market? The obvious question is, what is the market? To be in top quartile return on capital employed. First of all, regarding the profitability in forest, please.
Do you want to take it, Ulf?
Yeah, I can start at least. The answer to the question is yes. We base the price that our industry has to pay on the price that we have to pay to private forest owners in this region. When you do the comparison between different actors, which you might have done, we cannot really comment on any other player here, we do like this. We have quite substantial swaps, wood swaps, and what we gain from these wood swaps, that is in favor of the industry. You can do that in different ways, we do it that way. When you look at the past three years, we have had quite substantial windfalls in this area, which means that we have had higher harvesting costs.
We have also had a price level in the market that has been quite low for a while due to the fact that we have had a surplus of wood. That has also had an impact when you look at the restatement, for example. We every year buy and sell forest land, and every time we also have a capital gain. In our case, we put that under the line, which is not the case with all players here. The fourth thing maybe is that we have the forest where we have the industry. I think that also have maybe an impact.
Okay, thank you very much. What about the profitability targets, please?
The new board isn't in place yet. They need to have some time to find out what kind of financial targets we will have going forward. Up till then, we have the targets that we have today.
Fair enough. Thank you very much.
Yeah.
Thank you. We have two questions, or at least two participants asking questions here at the front table. Who wants to start? Thank you.
Thank you very much. It's Linus Larsson with SEB. I think you very convincingly have displayed the advantages of your integrated forest and forest industry strategy. I wonder if you would also be willing to acknowledge some challenges relating to that, what I have in mind is, as a big net buyer of wood, as a group, you will not have an incentive to have high wood prices, but rather low wood prices. How does that affect the financial targeting for your biggest asset in your asset base, the forest land? That's pretty much three-quarters of your balance sheet. How does that affect our ability to evaluate your performance in the downstream? Is the wood price representative and comparable with other competitors and constellations in the market? Maybe thirdly, how can we ensure that your investment decisions in the downstream are based on the adequate raw material costs?
costs.
I think coming back to what was just said about the wood price, we base the wood price between the forest and the industry on what we are buying in this region. You have regional differences, that might be impacted of the structure of the ownership of the forest and so on. That's the case.
And I-
Sorry
I could emphasize. We are a big net buyer of wood, and we set our internal price according to the price which we are buying at as well, which is a market price. That is the market price we are using. It's a clear market price between the different parts. The fact that we're a big net buyer of wood, that we are and that we will continue to be for some time. It's the market price that exists today, so it's not being driven in a particular direction for any other reason.
Then just to add again.
Yeah
The value of the forest is, of course, 100% dependent on what kind of industry you have close to the forest. You have seen some example in Norway, for example, where an industry closed down, caused a situation where it wasn't really worthwhile not to do the thinnings, but not even to do the final cuts. Of course you have a connection. You can never get rid of that. Then how to judge? Well, I can see maybe the challenge there, but I think that maybe you have to judge the whole chain from the forest to the industry. In that perspective, SCA has been transparent since many years. You can see yourself that we have been able to deliver really good result over the years. I think that is the answer, more or less. It isn't easy, not even to be an analyst.
Okay. Please.
Oskar Lindström from Danske Bank. We've had a couple of questions about the forest side of your business. I thought I'd ask some questions about the industrial side of your business. First off, about the strategy going forward. I realize the new board is only just in place, and you haven't had a chance to, or they haven't had a chance maybe to set out the strategy. In your opinion, is there any logic in expanding the industrial operations beyond the Swedish fiber base that you have? Are you going to be, in the future and always, centered around the regions where you have a fiber supply that you at least partially control?
Also following up on that question, is there an expansion potential or logic to expanding, I guess, the paper operations, given that you have a very good mill site in Ortviken which, to a certain extent at least, is today producing products which are structurally declining?
Okay. Two questions. To expand beyond Sweden, that's a strategic.
Yeah
That's probably you, Ulf, would be.
First, just to underline that, we have rather big and good growth potential in the current business. That's for sure. You have heard lots of possibilities here, and I think that is exciting, and that is also something that we should try to deliver on. Growing out from Sweden, that I would say is maybe something that we have to discuss with the board. For me, I think the main focus just now is to grow what we have in Sweden, and we have many opportunities here, if that is an answer. Short term, at least. In terms of paper, we will not grow publication papers if that was the answer. It's a clear cash flow focus, Mats Nordlander has really showed that still we have a good innovation rate there.
35% of the products that has come out from the last five years has been developed during the past five years, which is quite impressing. We can do a lot of things in the frame that we have today, but it is a cash flow case, definitely so. In Kraftliner, that is an opposite game. Mats described here that we think that the reason for Kraftliner not growing as fast as maybe the testliner has done in the past is that you haven't had availability. When you had the Varkaus mill entering into the market last year, you could really see a fast growth, and we think that Kraftliner is a good opportunity. I don't know if you'd like to add something, Mats.
I think this is true. As you remember, perhaps, we made a trial in Ortviken to make packaging material out of the asset base we have there. That was not very successful. We couldn't do it in a competitive way. We decided that had larger negative impacts than positive impacts. I think for the Ortviken mill, we have to really focus on trying to be the best in class of that, what we do there. If that expands a little bit.
Yes. If I may, just a second question to you, Ingela, on the Östrand Project Helios. Can you give us any guidance in terms of the profitability impact that that project will have, both in the sort of startup year, but then later on when it's fully up and running, either in terms of EBITDA impact in absolute terms or return on capital employed for that project?
I think I passed that question to Toby.
I think basically the future depends very much on factors like pulp price and so on. We don't give forecasts, but obviously the new capacity will bring a big effect, and there will also be some efficiency gains, which Ingela presented in terms of people cost and some energy, which will have some impact. Like I say, at the end of the day, you probably have a view on the pulp prices as much as we do, which will have a big impact on the result as well.
All right.
That's about all we can say for now.
All right. Thank you.
Yeah.
Yes. We have a question over there, and then in the back.
There.
Next there, okay?
Thank you very much.
Okay. I have noted three questions after yours. Please go ahead.
Okay. Thank you very much. It's Christian Kopfer from Nordea. Just a couple of questions. Firstly, a follow-up on forestry. I think if you look at wood prices currently are pretty much the same level as they were 20 years ago. Mats, on forestry, you said that you are quite happy with stable prices. On the other hand, looking at your book valuation of these assets, you expect prices to go up quite substantially over the next 100 years. I just wanted to hear your feedback on that.
Who want?
Toby.
Mats? Toby?
No, I can say, when you saw the prices, they're relatively stable, but there's an upward trend to those prices. Over 100 years is of course a long time. Basically, when we do our forecast, which is built into the forest valuation, we're basing it on the historical trend.
Okay. You mean the average nominal price increase has been around 2% per year the last 20, 30 years, or?
Yeah, I don't have a figure in my head, basically the future forecast is in line with the historical trend as well.
Okay.
On the financial side, again for you, Toby, then. Looking at the paid taxes, you have almost not paid any taxes, if I read it correctly, for the last three years. What's behind that, and when do you expect to pay taxes?
Yeah. I think standalone, you'll start to see our standalone paid taxes going forward now. We've also been part of a tax pool in Sweden with the other SCA assets up to today. Going forward, our paid tax will also be impacted quite significantly by the investment in Östrand, which will have a taxable deduction ahead of our depreciation. That will keep the tax paid probably below the P&L charge for tax for some time as well.
Can you comment on when do you expect to pay full taxes?
No, we can't comment on that.
All right. Finally from me then, on Kraftliner. We have seen Kraftliner prices coming up quite dramatically the last couple of weeks, last couple of months. Can you comment a little bit what has been behind that, and if it's a risk in the current price level? Thanks.
I think I commented on the growth trend that you see that we have been operating very high operational rates, and there is a strong demand for kraftliner. There is always risks ahead, of course, the risk is on the demand side more than on the supply side, as far as I can see. Even today, with today's price levels, if you would build a greenfield kraftliner mill today, you couldn't really do it with current prices. That says a little bit. There is a demand for new capacity, so you have to find other sources or other concepts there. Of course, kraftliner prices are not totally independent on the testliner prices. They are interchangeable. I think it's very difficult to give a forward-looking, I would say, estimate of pricing going forward.
We can only comment on the current situation, the current situation, we have a strong demand and high operating rates for us and the industry.
Okay. Thank you very much.
Okay. We move the microphone to the next table, then to the back, then we move over to our right, your left.
Yes. Thank you. [Mikael Doepel] , Handelsbanken. A couple of questions. First of all, now when you spin off the hygiene business, do you see any streamlining opportunities within the remaining SCA as a function of that? Secondly, you have a very decent exposure to the euro, and I was just wondering about what's your hedging policy there?
Okay. Streamlining opportunities.
Do we see any?
Should I take the hedging question first, and you can think about the streamlining opportunity?
Okay. We hedge first, then we streamline then.
As a big exporter, like many other big exporters in Sweden, we have a big exposure to the euro and probably the dollar underlying as well. We have in the Q1 report, I think you'll see the hedging position we have at the end of Q1, and it's the same today. We've basically hedged around a third of the EUR flows up until the end of the year. Going forward, after that point, we don't have a clear position to tell you. I think we don't expect to be extremely active in terms of hedging all the exposure. We think that is really not our core business. Like I say, we've got a third hedged up until the end of this year, and that's where we stand today.
Okay.
Yeah.
Something about streamline. We didn't really bring anything from Stockholm in terms of overhead or anything like that. We have built up what we need here in Sundsvall, which is 15, 20 people in order to run corporate functions such as investor relations and the treasury, and some functions at the financial part. I think that when it comes to continuously keep an eye on the cost development, we have been quite good at that in the past, and we have, let's say, a well-functioning system for that, which we call just now improve. It is more or less in our DNA. I think we do continuously benchmark with what we can do benchmark with, and we more or less always find out that we are cost efficient. We can always do more. We can always do better.
We are really focused on keeping our cost on a low level, and we will continue to do that, of course. The first thing now, when the split is over, is really to try to look over the cost structure, because it's quite costly to spin off something, I can guarantee that.
Yep. Okay, we move the microphone to the back. Then over.
Thanks for taking the question. Mine's on Project Helios again. On slide 60, you talk about going from the second quartile in terms of cost competitiveness to the first quartile. I just wondered if you could actually put some numbers around that, however you feel most comfortable in quantifying that move. I'm just trying to think of the relative change here in terms of returns.
No, I don't want to put figures into that. I think it's also really important to notice that this is compared to other softwood producers.
Okay.
It's based on the branch statistics.
Yeah.
Okay. Thanks.
Okay. Please.
Thank you. Robin Santavirta, Carnegie. Could you comment about the pulp business profitability, which obviously has been extremely good 2014 and 2015, and then declines significantly last year and also now in Q1? I do understand that the prices of softwood also decline, but it seems as if there's something else as well. You mentioned some costs are already now taken from Östrand. What's behind that, and what you will sort of expect going forward before the ramp-up of Östrand?
Yeah. I think in the Q1 report, you'll find some more explanation behind it. The biggest factor is the pulp price, of course, which has changed between 2015 and 2016 and Q1. There's also some project costs, which are specified in the Q1 report, and I think on one of my slides you can see there. A third factor we had also in quarter one, which we mentioned, was we wrote down some of the el-certificate, the green energy certificates in quarter one, which had a further impact, which was a one-off effect in quarter one.
Right. Going forward, regarding the project cost, are these recurring now for the next sort of-
We've shown you the project cost also for 2016, sorry, 2017 in the report. You can see the full year effect of the project cost. For 2018, we're going to have to come back at the end of this year with the effect. There will be a prolonged stop in 2018 in conjunction with the startup. There will be some costs associated with that, of course. We'll come back on those. Going forward, I know I have a few questions trying to sort of get further details. We're not giving forecasts as we say, there will be obviously big impact from the extra volume. The drop-through depends on the pulp price at the time, of course, which we don't know. There will be some efficiency gain as well.
We can say that in the first quarter, we said SEK 48 million was impacted by the project. That is, you have double manning in order to educate the people that is going to run the new mill. You have some write-offs because we are now starting up the new wood handling system.
Yeah.
The total amount will be close to SEK 150 million during 2017. We had close to, was it SEK 40 million due to certificates in the first quarter? 2016, we had some struggle in the production. We had the biorefinery went down in the beginning of the year. That was also communicated and some other things. 2016 was in production perspective, not a good year. 2015 was a fantastic year. Of course, we have some challenges in the operations now to run the old mill at the same time as we build a new one. That you will really see when you come there because it's tight out there.
Good, thanks. Another one, if I may, related to CapEx going forward. Could you give some guidelines excluding the Östrand investment? What should we expect now over the next two, three years?
I think you can look at the history as a pretty good guideline. We've invested a bit less than SEK 1 billion per year in maintenance CapEx over the history, we don't expect that level to change very much going forward.
Below depreciation.
Around, yeah.
Yeah. Thank you very much.
Thank you. We had another question, center right. Over there, in the back. Center right. Sounds like politics.
Thank you. Ian Wood at Redburn. Just a couple of questions. I think you mentioned in the presentation a planned step-up in harvesting in around 2035.
Yes.
Could you give some indication on what this might do to the profitability per timber felled of that operation in terms of the scale? On a second question, the pulp mill. I think you've shown a slide before of where Östrand is on the cost curve, and you talked about it again today. I wonder if you could talk about what FX rate these comparisons are struck at. Thank you.
Okay, increased felling. Mats, do you want to comment upon that?
Yeah. We are pretty sure due to our forest service that we will increase, of course, the cuttings. Your question was something else, wasn't it?
It's on the impact of profitability of the timber felled.
Of the impact of Well, that's impossible to say, of course. Larger volumes often reduces costs, so I'm looking forward to it.
At that time, you're retired, so.
Yes, I am. For sure, maybe more than that.
Dead, perhaps. We're picking up for our successors. There was the question.
Pulp cost.
pulp.
Yes. I think all I can say, when you saw the picture with the first quartile, second quartile, that was based on a study from 2015, so it was using exchange rates at that time.
Okay.
Thank you. We have a question over here.
Thank you very much. [Mikar] of the DNB. I just wanted to ask about this liquid biofuels opportunity. What are you thinking there? What's going to be the marketing going forward? What kind of regulatory items you're looking at? Would you need some kind of partners there to market it? How will this process go from here? Thanks.
Well-
I think we hand over the microphone to Mikael Källgren. He's in the audience somewhere.
Yep. Mikael Källgren, responsible for our renewable energy business.
Yeah. Thank you. We're very early in the process, as Ulf said before, and Ingela. We have two paths. One is where we're developing our own technology, converting black liquor into hydrocarbons. The other one is converting sawdust and bark to hydrocarbons. On the other hand, we're investigating and securing the prerequisites for a commercial plant in Östrand with permits and detailed planning. It's early in the process, and no decisions has been taken besides the decision in the pilot plant in Obbola. For the first, it's technology development. We have a lot of challenges ahead. The second one is there are no large biorefineries today, not with this technology, so it's a new permitting process and so on. Yeah.
Technology permissions and then the regulatory status when we come to a position when it's possible to evaluate an investment. Any more comments?
No.
Okay. Any more questions? Yes, please, Linus.
Thank you. Thank you very much again. It's Linus Larsson with SEB. Just a follow-up question on the previous question regarding the liquid biofuels. It sounded in the earlier presentation as you're very close to a full-scale decision. Could you maybe elaborate a bit more on that? I mean, timing-wise, size-wise, it sounds as if this could turn into a big CapEx project, and size and timing of that would be very interesting.
We are exactly as Mikael Källgren said, we are in the first phase. We have taken the decision to spend or invest SEK 50 million in Obbola just in order to see if this is working. We have a couple patents that we have secured, which is, of course, important. We don't know if this will be a commercial way to produce liquid biofuel. If it will work, then we say we have great opportunities. We have great opportunities around, let's say, the infrastructure that we will now create around Östrand, not least, but we have also other chemical pulp mills. Around Östrand, we will have a fantastic infrastructure, and if we can utilize that in different ways, and one way could be liquid biofuel.
Another important thing is really to extract black liquor from the process, and by that, also give the opportunity to increase the capacity with very limited investments. That is really a fantastic development if it works.
Too early to say anything about.
We maybe should add that we have started a permission process at the Östrand site for a potential investment. As you know, permission process, they take a long time. They are quite crucial for the conditions when you are at the point where you actually make an investment. In that process, of course, we have needed to become a bit more concrete on what sort of mill, what sort of process, what sort of site will we need permissions for. If we started permission processes only when we knew what to do and were just before any investment decisions, there would be no investments because then the opportunity would disappear before the permission process was finished. There is some indications in the documentation around that permission process.
I guess that is public information.
That's public information.
Could you share with us the scope of that permission that you've asked for? What is the size of this potential facility?
Ingela, maybe you.
I think Mikael.
Mikael is probably the one.
The better one to answer that.
Bear in mind, this is the first step in a permission process. I remember a time when we started the permission process for expanding the Bollsta Sawmill, we sought permissions for everything we might want to do for 50 years or so. The mayor of Kramfors, he almost blew a fuse because he realized that, oh, this is billion investments. He told the local newspaper that during a silent period, which was not very good. Permission processes is one thing, investment decisions, another thing. The first comes first, and the second comes sometimes later. Mikael?
Maybe I could just add before Mikael. Sorry. I think it's basically we're saying it's too early to draw any financial conclusion or any financial estimate. It's definitely too early for anything. We think it's an interesting possibility, but there's no sense in trying to make a conclusion. If and when we get to a stage where it does become more concrete, we will, of course, come back and explain in much more detail. We genuinely hope that will happen. Right now it's too early.
Yeah. The permitting process is, as Ingela said, it's a large biorefinery with two lines, one with black liquor and one with sawdust and bark converting into hydrocarbons. The volume is three terawatt hours annually, and it's about 3.5% of the total usage in the Swedish transport sector. It's a full-scale commercial biorefinery.
Thanks.
Okay.
Now that you gave me the mic- May I take the opportunity-
That's all I said
To ask just one more question on CapEx? You have an ambition to double your wind mill capacity in a short period of time. Could you talk about the financing of that project? Would that be at all based on own CapEx, or is it other partners' CapEx, or is it a combination?
Well, yeah. The model we have at the moment is that we do not invest our own CapEx in wind power. We lease the land, so we have a lease income from the land. There may be some small investments around infrastructure, but very limited CapEx from our side. That's the model we have at the moment. Yeah.
The strategy is to the wind mill power capacity that should be established in the northern part of Sweden should be established on SCA land. That is our focus.
Excellent. Many thanks.
Please, Oskar.
Thank you. Oskar Lindström with Danske Bank. Regarding the black liquor project that was mentioned in Östrand, the other side of it is, as you mentioned during your presentation, that it would free up capacity in the boiler. That would enable you to increase capacity or production of pulp further. On that note, two follow-up questions here. First of all, how much could that sort of potentially free up in terms of increased pulp capacity? Second, what would be the size of de-bottlenecking investments necessary in order to reach that capacity if the capacity was made available in the boiler?
There is a number of ifs in that question.
It's far too early. As already said, we are just now investing in knowledge, and we have this pilot, SEK 50 million. We have employed a couple of competent people in this field. We also dedicate some resources at our research center. We don't know if this will work, and we don't, of course not know what kind of capacity we could add, and definitely not know anything about the cost.
All right. It was a nice try. Thank you.
I can just add that a recovery boiler is not just a boiler, it's a chemical processor. One of the investigations that are carried out now and for the coming years is actually about how much lignin can you remove without disturbing the process. That will be a part of the investigation.
It's R&D rather than the CapEx as yet.
All right. Thank you.
Okay. Do we have any more questions? Lunchtime is approaching. Okay. Thank you for your attention. Lunch will be served just behind you. Well, it is actually served, but you're not there yet. I'd like to mention a few more things. When you leave here, you have boxes. You heard Mats elaborate on this Arcwise technology. You will be able to test it because the boxes over there, they are Arcwise boxes containing useful material, the presentations, but also some other items that you may find, I hope so, useful. There is also a seedling so you can start your own competing forestry business. We're ready to meet you anytime, anywhere. The buses to the mill sites will leave from the front of the hotel, 1:00 P.M. sharp, and then to the Bogrundet Nursery. These are actually three quite unique places to visit.
The most modern and efficient and fast sawmill in the world, or at least in Europe. The biggest investment project in Sweden ever, and the largest tree seedling nursery in the world. That's something to see. We'll also keep schedule and make sure that you are safely delivered to the Sundsvall Timrå Airport so you can catch the 4:15 P.M. flight from there. The bus will return to the city center, to the railway station, and up here to the hotel if you have other plans than leaving by that flight. Yes, I think that was all. I'd like to thank you all and hope that you have appreciated this opportunity, this first presentation of the future Forest Products company, SCA. There will be more.