Good morning. Welcome to this presentation of the SCA half-year results for 2023. With me here today, I have CEO Ulf Larsson and CFO Andreas Ewertz. With that, Ulf, I hand over to you.
Thank you, Anders. Also from my side, a good morning and a warm welcome to the presentation of the result for the second quarter. When I summarize the second quarter, I can state that we have delivered a stable result, not the least driven by a profitable growth in renewable energy, stable performance in forest, also resilience against cost inflation. The latter is, of course, partly due to our relatively high degree of self-sufficiency in our wood raw material supply and also in the energy supply, logistics, and so on. However, we see a continued weak demand for solid- wood products, pulp, and container board. Prices for solid- wood products increased as expected during the second quarter in comparison with the first, will come down again in the third quarter.
Prices for Containerboard have now stabilized, while prices for pulp are still decreasing in both Europe and U.S. EBITDA decreased in comparison with the second quarter last year, but reached SEK 1.7 billion, and by that, a healthy EBITDA margin of 37%. When I compare the second quarter this year with the second quarter of last year, I can note the sales decreased by 22% and the EBITDA by 46%, mainly due to lower prices. On the positive side, we have seen a high result in forest and energy, combined with a positive currency effect. I turn over to some financial KPIs related to the second quarter of 2023.
As mentioned, our EBITDA decreased 17% in comparison with last quarter, but reached SEK 1.7 billion for the second quarter 2023, and that corresponds to 37% EBITDA margin. Our industrial return on capital employed came out on 20%, calculated as the average for the last 12 months. The leverage is stable, a bit over 1, despite our almost finalized large ongoing investment projects in Obbola, Ortviken, Bollsta, and also Gothenburg. By that, we continue to finance all our investments, including strategic projects, with our operating cash flow. I will now make some comments for each segment, and I will start with the forest. During the second quarter, we have had a stable supply of wood raw materials to our industries.
In general, we can note the continued high demand of wood raw materials, by that, continued increase in wood prices, that you can also see in the graph in the bottom left. When we compare the second quarter 2023 with the second quarter last year, pulpwood prices have increased by almost 35%, somewhat more for birch and somewhat less for conifer. Corresponding figure for sawlogs is an increase of around 15%. Pulpwood prices in the Baltics continue to fall, they are still higher in comparison with average cost for Swedish supply, counted as free delivered to Swedish mills. When we compare quarter-on-quarter, sales were up 18%, EBITDA was up 25%, that is mainly due to high prices, but also due to higher harvesting level in our own forest. I turn over to business area wood.
In general, we have a continued weak underlying market for solid- wood products. DIY activities has had a seasonally positive effect on demand in the second quarter, but will slow down in the third quarter. Professional building activities remained on an okay level in the second quarter, but new housing starts are in a decreasing trend. I estimated a solid price increase with high single digits in % in Q2 in comparison with Q1. That was also delivered. We increased the average price by approximately 8% during the second quarter. The underlying consumption is, as already said, weak, and despite lower production, and also despite the rather normal stock level, prices will come down again in the third quarter, as we have no strong positive seasonal impact from consumption in the third quarter.
I guess that we will be back close to where we were in the first quarter in terms of prices in the third quarter. Sales and the EBITDA were substantially down due to price and cost of wood raw material when we compare quarter on quarter. Today's stock level of solid- wood products in Sweden and Finland is in relation to the average for the last five years, described at top left on this slide. One can note that the inventory volumes are now back on a normal level. SCA has also maintained normal deliveries during the second quarter, and by that, we have a balanced stock and also a normal stock level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on a rather normal level.
Outside the Nordic countries, we have seen production containment, not the least in Germany and Canada, and today, we can't really see any Russian or Belarusian wood in the European market. I think that we can expect further production curtailments during the coming quarter, not only maybe in Canada and Central Europe, but also in Scandinavia. When looking at the diagram to the top right, we can note that the price peaked in the third quarter, 2021 on a historically high level. Prices have come down substantially since then, and at the same time, the prices for sawlogs have increased with a major negative effect on the profitability. I turn over to segment pulp. First, I'm happy to say that our CTMP expansion continues according to plan regarding production ramp-up and also sales growth.
In general, sales and EBITDA were down 9 and 55% respectively when comparing the second quarter this year with the same period last year. We note lower prices and higher wood raw material costs on the negative side, while currency had a positive impact in this comparison. We have seen another quarter with a very weak demand for pulp. Europe and U.S. are still slow, while we have started to see an improving demand in China since May. I forecasted the price bottom to be reached and a price level to be set in China during the second quarter, and that also came in May, but on a very low level, around $610-$620 per ton. Pulp prices in Europe and U.S. are on high levels, but still in a decreasing trend.
The European PIX price for deliveries in Europe in July is now set to $1,200 per ton, which is a price decrease of $50 per ton. We expect pulp prices to continue down during the third quarter in Europe and U.S. I still believe that we will reach the price bottom in these areas in the second half of this year. High-cost producers no longer cover their costs, and therefore, prices shouldn't stay on these levels very long. However, on the negative side, as you can also see in the graphs, inventories for both hardwood and softwood pulp are on record high levels, which indicates that a positive turn in the market might take a while. Moving over to containerboard. The ramp-up of the new kraftliner paper machine in Obbola is running according to plan.
The new recovered fiber line, which is a necessity to reach full capacity, is also progressing according to plan, and the ramp-up of this line has started successfully. As earlier communicated, we expect to reach full capacity in Obbola in 2026. Sales were down quarter-on-quarter by 19% due to lower prices, while EBITDA was down by 71%, mainly due to lower prices and higher wood raw material costs. During this period, we had a planned maintenance stop in Obbola and that had a negative result effect of between SEK 1,900,000,000 . Box demand has continued to decline in the second quarter, mainly related to lower retail sales and destocking effects.
European demand of kraftliner have decreased by around 15% in the first quarter this year, slightly higher than box demand of 11%, indicating a destocking effect at box plants. We believe in a stronger demand for containerboard in the second half of this year. There is additional supply in testliner coming on stream in the next quarters, which will put some pressure on the supply-demand balance. Prices for brown kraftliner have decreased with EUR 30 per ton in the second quarter this year, that indicates now a price gap between kraftliner and testliner of around EUR 190 per ton. Prices for white top also decreased with EUR 30 per ton in Q2.
We have seen unchanged prices for both brown and white kraftliner from May until today. Probably we have reached the bottom in this segment. containerboard, especially Kraftliner inventories, have been very well balanced by reduction of supply. Despite significantly lower demand, inventories have been stable or slowly decreasing in the first two quarters of 2023. We would estimate production of containerboard to be 12.5% lower in the first 6 months compared to last year, same period. The current stock level will support, I think, a rather sharp volume and price recovery when the demand comes back. Availability of OCC is still good because of historical high supply of corrugated boxes and lower current demand of testliner. Today's price is around EUR 75 per ton, which is EUR 110 per ton lower than peak in July 2022.
Since we are seeing demand decline to level off and strong demand in second half of the year, we can assume that OCC prices will start to increase again based on limited supply. Finally, segment Renewable Energy. In Renewable Energy, we continue with another quarter of strong, profitable growth and higher prices in comparison with the same period last year. Due to increasing prices and high demand, the income were up 22% and the EBITDA level by 153% when we compare with the same period last year. The market for solid biofuels is estimated to be continued strong due to an underbalanced market. In wind power, land lease agreements on SCA land has now reached 8.2 terawatt hours in the second quarter, and that is also in line with our communicated plan.
Our newly acquired wind farm Skogberget, is also delivering according to expectations. Finally, the biorefinery in Gothenburg is under construction, and the first product to tank is planned Q4 this year. We still see a strong market development for HVO and also for sustainable aviation fuels, SAF. By that, I think I hand over to you, Andreas.
Thank you, Ulf, and good morning, everybody. I'll start off with the forest valuation. Forest prices in Northern Sweden declined slightly during the first half of 2023, from just below SEK 420 per cubic meter to approximately SEK 400 per cubic meter. Fewer than normal transactions were made in the first half of the year, and we have therefore left a three-year average price used in the forest valuation flat at SEK 366 per cubic meter. By that, we maintain a healthy headroom to current prices. The forest valuation increased to SEK 1 billion to SEK 99 billion, mainly driven by the growth in standing volume. If we move on to the income statement for the second quarter, net sales declined 22% to SEK 4.6 billion, driven by lower prices.
EBITDA reached SEK 1.7 billion, despite a weaker market, driven by growth in renewable energy and higher results in our forest division. The EBITDA margin was 37%. Depreciation increased to SEK 471 million due to the activation of the new paper machine in Obbola and the new CTMP mill at Ortviken. The EBIT margin declined to 27%. Financial items totaled minus SEK 103 million, with an effective tax rate of around 20%, bringing net profit to SEK 0.9 billion or SEK 1.3 per share. On the next slide, we have the financial development by segment. Let's start with the forest segment to the left. Net sales grew to SEK 1.9 billion, driven by a continued increase in prices.
EBITDA increased to SEK 870 million, driven by higher prices and seasonally higher harvest from our own forest compared to the previous quarter. In wood, prices increased in the second quarter compared to the first quarter due to seasonally stronger demand. Net sales increased to SEK 1.35 billion, and EBITDA increased to SEK 201 million, corresponding to a margin of 15%. In pulp, prices continued to decrease, and net sales declined to SEK 1.8 billion, and EBITDA decreased to SEK 380 million, corresponding to a margin of 22%. Pulpwood raw material prices continue to increase, while chemical costs are decreasing. In containerboard, kraftliner prices are bottoming them out, with stable index prices since May. In Q2, net sales declined to SEK 1.4 billion, and EBITDA totaled SEK 217 million, corresponding to a margin of 15%.
The planned maintenance stop in Obbola had a negative impact of SEK 94 million. In renewable energy, we had another strong quarter, with EBITDA stable at around SEK 180 million, despite seasonally lower volumes compared to the previous quarter. The EBITDA margin increased to 49% and was positively impacted, not the least, by strong tall oil demand. On the next slide, we have the sales bridge between Q2 last year and Q2 this year. Prices declined 25%, with lower prices in wood, containerboard, and pulp. Volumes declined 5%, driven by weaker wood market, which was partly offset by higher volumes in containerboard and pulp from the ramp-up of the new paper machine in Obbola and the new CTMP mill at Ortviken. Lastly, currency had a positive impact of 8%, bringing net sales to SEK 4.6 billion.
Moving on to the EBITDA bridge, starting to the left, price mix had a negative impact of SEK 1.5 billion, lower volumes, mainly due to a weaker wood market, had a negative impact of SEK 167 million. High cost for mainly wood raw materials had a negative impact of SEK 142 million, while energy had a neutral impact, which really shows our high sales efficiency in both energy and wood raw material. We had a positive impact from currency and a positive impact from lower distribution costs. In total, EBITDA decreased to approximately SEK 1.7 billion, corresponding to a margin of 37%. We continued to have a strong operating cash flow, SEK 650 million for the quarter and SEK 1.85 billion for the first six months.
This means we're continuing to fund our strategic investments with operating cash flow. Look at the balance sheet. The value of the forest assets increased to SEK 99 billion. working capital is SEK 34 billion, and total capital employed increased to SEK 108 billion. Net debt was stable at around SEK 11 billion, corresponding to 1.3 times EBITDA. We have now almost finalized our large ongoing investment projects in Obbola, Ortviken, Bollsta, and Gothenburg. Equity increased to SEK 97 billion, and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf.
Thanks. Well, if I try to summarize the second quarter, one can say that I think in a challenging market, we have delivered a very strong result, SEK 1.7 billion on EBITDA level with a margin of 37%. I think that we have seen a very strong result in and good growth in Renewable Energy, here we have had a strong market, but we also continued to develop the business that we have here, not only wind power, but also what we do in liquid biofuels. Of course, also a strong result in the forest as wood raw materials continue to increase.
I think also that we can see in this rather challenging environment that we are favored by our strong integrated value chain with a high degree of self-sufficiency in wood raw materials, but also in energy, last but not least important, also in logistics. I think by that, we can open up the line for questions. Please.
As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. Again, you can press star one to ask a question. We are going to take now our first question from Johannes Grunselius from DNB. You can go ahead now. Your line is open. Thank you.
Yes. Hi, everyone. It's Johannes here. Sorry if I missed some parts in your presentation because of other reports today, but the results in renewable energy was kind of strong. Could you expand a little, you know, provide some color on why this is a great, you know, consecutive quarter? I got the feeling that Q1 had some positive seasonality in it, but could you explain it and maybe, you know, give us an update on perhaps pricing for biofuels here?
Maybe Andreas, later on, can give you some more figures, but I think we have a strong development in renewable energy. I mean, as you say, typically, we should have a stronger Q1 than Q2, but the market is strong here for solid biofuels, as I said. Step by step, we increase the leasing fee from wind parks, but we also now see the effect of the wind park that we acquired in this last quarter, last year. But maybe the most important thing is that we start to see some positive effects of the business that we're now doing in liquid biofuels with tall oil and things like that. Andreas, maybe you can give some more color on the figures.
Yeah, I think the biggest increase from last year is the tall oil and the fatty acids. We've seen a good price increase this year compared to the last year, but we also see price increases on solid biofuels, as Ulf mentioned. I think it's a mix, but the largest contribution is from increased tall oil prices and fatty acids.
Okay, that's helpful. In other words, the Q2 is kind of representative for upcoming quarters?
I would say that, you have a normal seasonality effect. Usually, Q1 and Q2 is, you know, Q1 and Q4 is stronger in biofuels and in wind power, while I would say tall oil is more stable throughout the year.
Okay. My second question is on wood products, and again, sorry, apologies for maybe missing the information at your call. I mean, how do you assess the export market versus the kind of the domestic market? Maybe you can then repeat what you think about average prices there. Do you feel that you can, I mean, if you could give some comments on the order backlog and if you think you can still run the business with decent volumes despite of sort of local construction weakness and global construction weakness?
Yeah, I don't know what you heard, but again, I mean, we increased prices in the second quarter in comparison with the first quarter by 8%, and that was also my guess when we did the presentation on the 1st quarter report. I said today that I think that the price will come down in the 3rd quarter, maybe close to the level we had in the 1st quarter, and that is, of course, due to some kind of seasonal effect. Q2 is normally the strongest quarter, not least in our DIY business, but also now we see that, I mean, big building projects, they are finalized, of course, but we see some cancellations, and we also see some delays in other big projects, and that will have a negative impact on the demand coming quarters.
No doubt about that. On the positive side, I must say that we have seen production curtailments, maybe not too much in Sweden and Finland so far.
We have seen them in Canada, we have seen them in Germany. By that, we have a rather balanced stock level, and that also goes for SCA, both in terms of qualities, but also volumes. Again, when the market, it's always a question about supply, demand, and, I mean, the demand is coming back, then I think we are rather well prepared, and I think that the upturn will come quite fast when it turns. Again, the demand must, of course, increase before we can see some price increases. Is that an answer?
Absolutely. That's very helpful. Thank you.
Now, we'll take our next question from Oskar Lindström, from Danske Bank. You can go ahead now. Your line is open. Thank you.
Good morning. couple of questions from my side. I'll take them one by one, I think. I mean, first on the, on the wood volumes outlook, I mean, we talked about this just now with Johannes, but I mean, you mentioned expectations of production curtailments in H2, also in the Nordics. We've seen them in Canada and continental Europe so far, but now also in the Nordics. Do you see that as being driven by sort of a lack of wood, or weak demand, or both? Are you expecting to make significant production curtailments during the second half of the year?
I mean, I think it's with the market you have today, with rather high cost for sawlogs and rather weak market for solid- wood products, I mean, you don't really force the production to increase. You don't take extra costs in order to produce an extra volume. During the summer, I think that many companies now, they will stop for one, two, three, four weeks due to this market situation. I think that we will, probably, we will see some kind of effect of that in the third quarter. That's my best guess. When it comes to SCA, I mean, we will more or less run the production according to normal, a normal year.
I think the reason for that is that we have a rather low cash cost in as we have invested quite a lot of money into our sawmill business. I mean we will not add extra costs just to try to force the production to increase, but we will continue with a, let's say normal pace I would say, during the third quarter.
All right. On the pulp side, I guess a fairly similar question. I mean you mentioned the high global producer inventories as being something that's gonna probably hold the market back for some time. What's your inventory situation on the pulp side? How are you handling sort of the ramp-up of the CTMP line in this tough market? I mean are you gonna be able to continue that ramp-up? To which kind of markets are you expecting to, or are you selling that CTMP?
As I said, I mean in general, the stock level for pulp, both in short fiber and long fiber, is on a more or less record high level, which is of course, challenging. For SCA, I think that we are more or less on a normal level. By that, we will not take no curtailments, we will continue to run the mill, and again, it's a question of cash cost, of course, and we are, again, well invested in the industry. When it comes to the CTMP ramp-up, I mean we are at the very early stage, by that it's not a problem with the volume.
Again, I think you, in a market that you have today, I mean, you stop and you do what you need in order to prepare for the future, and no need to take extra costs just because you like to have more volumes. I mean, we follow the plan, more or less, and we are at an early stage, so to say. The production so far has been, it is good, both in terms of volume and also in terms of quality from the new mill.
Thank you. My final question is on containerboard and the market outlook. You talked a little bit about the sort of relatively good inventories in the market, but also expecting new capacity to come on. Then you mentioned that you thought there might be sort of a situation where prices could recover, but did you mean that perhaps we could see this price recovery later this year already, or is this something, like, further into the future?
I mean, that is hard to say. We first, we need to see the consumption is coming back, and what I said was when we see an increase in consumption, then I think that it might be a rather sharp and fast return because the stock level is on a normal to low level. In containerboard, we have seen that many producers, they have taken curtailments, and that's the reason also, of course, why we have this balanced stock level. The consumption in the first quarter this year was 12%-15% lower than the same period last year, but we have seen a good, let's say, reaction among producers, so the production has also been lower.
If that will happen, half of this year, or if it happens in the beginning of next year, I mean, it's hard to say.
You're not worried about the capacity outlook for kraft or for in your segments in kraftliner or?
No. I mean, not.
Do you expect a spillover from the testliner capacity additions already coming up here soon?
I mean I think, we think that all kraftliner produce is needed in the market. Of course, we see some increase in capacity now coming on stream from testliner, and that might put pressure for a while, but by that, we will also see increasing OCC prices. I think that we also will see increasing energy prices when we, yeah, coming into the late third, beginning of fourth quarter, and that will put an extra pressure on testliner pricing, and that will, of course, also help the pricing for kraftliner. I think we have reached more or less the bottom now in kraftliner for the moment being.
My best guess is that we will see increasing OCC prices and also energy prices, and, by that, we might see a push upwards.
All right. Very clear. Thank you very much. Those were all my questions.
Thank you.
We'll take now our next question from Robin Santavirta from Carnegie. You can go ahead now. Your line is open. Thank you.
Thank you very much, and hello, everybody. I have two questions. The first question is related to wood raw materials, so sawlog prices and pulpwood prices. We have seen a quite significant increase over the past one to two years, and we saw some price increase announcement still during the second quarter in Sweden. That obviously is good for your forest segment but then burdens the cost on for the industrial segments. How do you see the price trend, the market dynamics now for the reminder of the rest of this year when it comes to sawlog prices and pulpwood prices?
Yeah, it's hard to say and I mean, we are a little bit surprised ourselves, because in a rather tough market, we have seen steadily increasing prices for both pulpwood and sawlogs. Well, my best guess for sawlogs is that I think they will maybe stay on this level, and it is a high level, and that you can also see when you look at the result for many sawmills today. I think maybe we start to see some kind of balance in the pulpwood market. Again, it's a question of supply, demand. If that comes, then it might be so that prices start to come down again.
I mean, we see, we've seen increasing prices in our part of Sweden for a while, and when we compare with the first quarter this year with what we had last year, I mean substantially price increases as mentioned. In the Baltics, we have, on the other hand, seen that the prices is now coming down. Still, it's more expensive to bring wood from the Baltics up to our mills when you calculate free delivered, but we start to reach some kind of balance point here.
All right. Thank you.
Robin, we have some lag.
Yes, thank you tonight.
I would add, you have some lag effects. You will see slightly higher pulpwood prices in Q3 while the chemical costs are decreasing.
Right. Yeah. The P&L impact, yeah some lag. The second question I have related to the pulp market, it probably is true that pulp prices in Europe are still on a declining trend, where do you see from that EUR 1,200 least price, the euro, where could we bottom? I know it's difficult to estimate, I want to keep you accountable for it, I guess your view is better than anybody else's. Related to that, how do you see sort of how high-cost producers now acting? Are they still producing or have they curtailed production, to those on pulp?
To be honest, I think it's quite easy to forecast where we will land, but I will not give you the numbers because that you can guess yourself. I mean, we have already now started to see that many producers, they are taking curtailments now. I mean, because I think we will see a further price decrease, that then we will also see more of curtailments. I think that we now start also to see curtailments in Europe and also in Scandinavia, in some areas. I mean, again, we need to find a balance. With this stock level, it will take a while before the market can turn. The consumption might come back.
I mean when we look at some reports from some customers, I mean the demand is rather okay in the tissue business, for example, but still with this stock level, we have to wait a while. I think we have a short way to go in Europe, U.S. I think maybe prices in China might come up and when they meet, then of course we have a much more stable market, I think that will happen in the second half of this year.
Good, thanks. Maybe if I could squeeze in a third one, for Andreas, related to forest, transaction prices. That SEK 400 level, do I understand it correctly? You used a three- year average prices, when you sort of set your book value, and the book value is at SEK 366 per cube. If the full year now would be SEK 400, I guess we're looking at a quite significant increase in the book value. You didn't want to do that now already because a few transactions. Is that the case or?
Yes, that's correct. We left the price flat at SEK 366. If we hadn't done that, I mean, the prices would have gone up. If the price stays at around SEK 400 level, that everything else equal, the 3-year average will increase.
Yep. All right. Thank you very much.
We currently have no questions coming through. As a final reminder, if you would like to ask a question, you can press star one now. As there are no further questions, I will hand you back to Nicholas to conclude today's conference. Thank you.
Anders?
That concludes the presentation of the half year report for SCA 2023. Thank you very much for listening and contributing with questions. Thank you.