Earnings Call: Q2 2021

Jul 23, 2021

Welcome to this presentation of SCA's Second Quarter Results for 2021. With me here today, I have our President and CEO, Olif Larsen and CFO, Toby Lawton. Please go ahead, Mr. Larsson. Thank you, Anders. Good morning, everyone, and also from my side, a warm welcome to the presentation of our result for the Q2 2021. When I summarize this quarter, I'd like to start by saying that in terms of result, The Q2 this year is the best quarter since the split in 2017 and we delivered an EBITDA margin of 40 7%. A strong market, strong demand, gradually increasing prices within all product areas of SCA have of course contributed to this, but the decision to wind up the publication paper business completely is perhaps even more important. In addition to price and mix, we have also had a good production level and a stable costs during the quarter. When comparing our EBITDA level for the Q2 2021 with the outcome for Q2 20 20, we note an improvement of 126 percent and this is as mentioned earlier mainly due to increasing prices for wood, pulp in Kraftliner, but also good production level, stable costs as well as our decision to exit publication paper. On the other hand, the currency development contracts to positive earnings development during the period and give a negative effect of more than SEK200 1,000,000. Our turnover during the Q2 increased by 3% compared with the Q2 2020 despite the closure of the publication paper business together with the divestment of our wood distribution operations in UK. Toby will come back to this, but we also see that we have an upward trend for forest value in general and by that also for SCA Forest and Batovi will come back to that later on. Last but not least important, I would like to conclude the Summary of the Q2 by stating that our 2 major investment and growth projects in Obel and Ootviken are progressing on time and budget. Turning over to some financial KPIs. We've had a very strong second As mentioned, we delivered SEK2.26 billion on EBITDA level and as I already also mentioned, This represents the best quarter since the split 2017. Our EBITDA margin reached 47% for the quarter which is if you look to the right hand side you can see that this is substantially higher than previous quarters. When it comes to our industrial return on capital employed, in our case calculated as a 12 months rolling average that one amounted to 14%, but if we then look into the level for the Q2 it was 31%. Our leverage decreased to 1.4 despite our ongoing investment program and despite the fact that we paid dividend during the Q2. And I'm really happy to say that we continue to finance our strategic investments with our operating cash flow. So I would now like to make some comments for each segment starting with Forest. And here we can state that we've had another quarter of stable supply of Woodstar Industries. Sales was up due to higher volumes whereas we have noted decrease in pulpwood prices mainly due to our exit from publication paper and by that of reduced share of imported wood. And when it comes to sawlog prices they are stable and you can see the price development on the left hand side in the graph in the bottom. EBITDA increased by 51% when comparing quarter on quarter and this is partly due to higher share of harvested volume from our own forest and partly due to revaluation effect of the biological assets equivalent to approximately SEK100 1,000,000 for the quarter. Wood, there is still a level of high global demand in the wood area. However, right now we see declining CLS prices in the U. S. And a certain restraint in China while other markets, not least Europe are still on a very, very strong level. The demand for wood products are still supported basically by the economic recovery post COVID with increased industrial construction and house buildings as well as the increased sustainability focus. When I presented the Q1 report, I estimate that the price increase for the 2nd quarter versus the Q1 to be between 15% 20% and what we know just now is that the actual out For SCA was a bit over 20% for the 2nd quarter. At present, We forecast that the prices will continue to increase sharply and I personally believe that the price increase for the Q3 compared to the second will be up to 50%. Sales was flat when comparing quarter on quarter. The rise in prices is contracted by the divestment of Wood Supply UK. And when it comes to EBITDA, it was up as much as 3 39%, mainly due to higher prices, but also due to a very good production and a stable cost level. Today's stock level of solid wood products in Sweden and Finland is in relation to the average for the last 5 years described at the top left on this slide. And we can note that the inventory volume are still at a very low level, funding period last year. At the same time, the underlying consumption continues to be good. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill's production slightly exceeds the 5 years average and the production is now running at full capacity to meet the increased demand. When comparing the production rate year to date 2021 with the corresponding period last year, we can see that the production level is approximately 10% higher this year, a volume that is completely assimilated by the market. So when looking at the diagram to the top right, we note Steep increase in prices for solid wood products and our estimate and as I also mentioned earlier the price development will be even stronger now during the Q3 and best guess up to 50% for the Q3 in comparison to what we've had in the second quarter. The pulp market is also still strong with a good demand and increasing prices during the Q2 as you can see in the diagram to the bottom left. When we peak price wise in the end of 2018 we had a fixed price of $12.30 per ton. We then reached the bottom during the Q1 20 20, as you can see, at that time the pigs price had dropped to $8.20 per ton. Then we had a rather flat price development during the major part of 2020 and the pulp prices start to increase significantly. And today We have an official fixed listing in Europe at $13.40 per ton, but of course with a less favorable currency relation and also with a higher discount rate comparing with 2018. We feel that the demand in Europe continues to be strong. However, the price levels in China and the U. S. Are now starting to fall a bit. And we can note that today the net price in China is approximately US50 dollars per ton lower than in Europe and also in the U. S. The net price is somewhat lower in comparison with Europe for the moment. As you might know, we've also seen sharply increasing overseas transport costs which impact the profitability on these markets negatively. Sales were up 43% and EBITDA 230% in the Q2 compared to the Q2 2020 and this relates to higher prices and lower costs. For us good and stable production volume also led to a better yield in terms of lower consumption of wood and chemicals, high energy generation and so on. And finally, I can also mention that our ongoing project to build the CNT P line CTMP line the Toth Vickers industrial site with a total capacity of 300,000 ton is progressing according to time and budget. Inventories have now come down to normal levels both for softwood pulp and for hardwood pulp as you can see in these graphs. The lack of capacity in the logistical chain, especially to Asia but also to U. S. Still affects the supply situation, which results in increased distribution costs, but also some disturbances in supply. During the coming autumn a number of planned maintenance shutdowns will be carried out and for SCA this means that the Ostrand will stop for a full 20 days at the turn of the month September October. When we move on to Business Area Containers, I would like to start by stating that our expansion and growth project in Obbola is progressing very well and we are on time and budget. The sales and EBITDA for the containerboard business are up 19% and 75% respectively in Q2, 'twenty one when comparing with last year. And this is mainly due to increasing prices, but again also due to good production level, stable costs also contribute positively. We have also seen that prices for OCC have more than doubled since November 2020 and that will of course affect the result negatively, but at the same time they also support the price development for testliner and thereby indirectly for Kraftliner. So all in all this development is positive for SEA. The Global Kraftliner deliveries from Europe continue to increase also in the Q2 this year And we can conclude that the demand for boxes has been very strong also during the Q2 and is now on the level above the trend line before the outbreak of the pandemic. And this has led to inventories being on a very low level for Kraftliner as you can see in the graph bottom left. Since the bottom position in terms of price Q4, 2020, the price for unbleached craft has so far risen by approximately €200 per ton. And as of August 1, SCA have announced a €50 per ton increase for kraftliner grades and these Price increases will successively take effect during the Q3 and giving full effect during the Q4. So with the present situation the delta between kraft and testliner prices is approximately €150 per tonne and that is historically a rather normal level I would say. So by that I hand over to you, Toby. Thank you, Ulf. Good morning, everybody. I will start off here with the income statement and on the top line here with net sales. You can see that we have a net sales in the quarter of SEK4.8 billion. We have actually lost Around SEK1 1,000,000,000 in net sales from both the exit of publication paper and the divestment of Wood Supply UK since the Q2 last year. But you can see here that that's more than compensated then by around SEK1.2 billion of additional sales from the effects of price and mix from the effects of the increased volume and then net of currency effects. So that SEK1.2 billion underlying growth in top line has Fallen down to the EBITDA in the next line and that shows that it falls down to basically a SEK1.2 billion, SEK1 point SEK3 billion increase in EBITDA shows the good stable cost development that we have as well. So the EBITDA has increased from SEK1 billion in Q2 last year to SEK2 point to SEK 6,000,000,000 in Q2 this year with an EBITDA margin then of 47% which is of course a very good level. Then coming down that falls through the same increase to EBIT. Financial items very stable on SEK26 1,000,000 for the quarter, Stable in terms of interest rate and net debt, which I will come back to. Then we have a profit before tax of SEK 1,850,000,000 and tax SEK 372,000,000 which represents effective tax rate of just under 21% in line with the Swedish tax rate, which means we have also a strong net profit for the period of just under SEK1.5 billion in the quarter and an earnings per share in the quarter therefore of just over SEK2 per share. If I move on to give a little bit description per segment and starting on the left hand side with the forest top left with the net sales. You can see we're Trending slightly lower level of net sales than we were a year ago and that's basically the effect of reduced wood supply due to the exit of publication papers that reduced would supply to Oortviken which we don't have anymore in publication paper. And then on the bottom line you can see a strong quarter from Forest. That's basically due to the fact that we are optimizing wood sourcing through Exit publication paper, but the largest reason is also that we harvested a significant amount of own forest this quarter and we have a seasonal pattern with harvesting of own forest. So next quarter, quarter 3 we normally don't harvest and we won't harvest as much own forest. So we won't see a strong effect from that in quarter 3. Then moving across to the Wood segment, here You can see that we have a significant increase in sales this quarter despite the fact that we sold Wood Supply UK in quarter 4. Q2 is also a seasonally strong quarter for the Wood business, but obviously the very strong pricing development has a big impact here and especially when you come to the bottom line EBITDA, where the margins really come from the very strong price development and also good production with a 36% EBITDA margin for wood in the quarter. On the pulp business, you see the effect of both Increased prices, but also increased volumes with increased production and delivery volumes this quarter and the good performance. You can see also on the bottom line here with an increase in EBITDA margin to 38% in the quarter. We've now had 2 quarters Just to mention quarter 1 and quarter 2, which are clean with good production with no maintenance stops. And as Ulf mentioned, we will have a maintenance up at the end of Q3 and mainly in Q4. And then in containerboard paper you see the impact we had Publication paper up until the end of Q4. So from Q1 we have it as a clean containerboard Net sales and the containerboard EBITDA and so the bottom line you can now see is a clean containerboard margin from quarter 1. We have a positive price development in containerboard, which has led to the improved EBITDA picture. And here we've also had 2 clean quarters with no maintenance stops and also with good deliveries during quarter 1 and quarter 2. And then we will have maintenance stops in both Obbola and Mogsund in the quarter 3 which will have an impact. If I move on to the bridge of net sales, here you can see the significant impact Basically our price which is 25% quarter on the same quarter last year, 7% impact from volumes and here In all areas actually, but just to mention the biggest impact in pulp where the continued The Ostrand ramp up is now at a good volume level by us in terms of deliveries and production as I said. And then the 2 big impacts on the right hand side here from the divestment of Wood Supply UK and Exit publication paper. On the EBITDA bridge, again you can see the big impact from price mix of SEK1.28 billion, The improvement in volume of nearly SEK 200,000,000 and then the other largest part here is the effect of currency which is negative versus last year due to a stronger SEK 200,000,000 impact. Moving on to cash flow and if I focus on the right hand side here where you can see the half year cash flow You can also see the quarterly figures on the left hand side, but the operating cash flow for the half year is SEK 1,600,000,000 SIG and this is including effects. We have an increase in working capital in the half year and the quarter. So in the half year it's 691,000,000 And that really is the impact of increased prices in working capital. So we've absorbed that effect in that operating cash flow. We've also had the restructuring costs from the exit publication paper, which we funded in the half year, but we still come out with a strong operating cash flow of SEK1.6 billion, which basically means, as Ulf mentioned, we're funding the strategic capital investments from operating cash flow. Just coming on to the balance sheet and maybe I'll start here On the bottom line you can see the market price applied on forest assets and this is the 3 year average market price that we take from Independent sources of market transaction prices in now including the data for the first half of twenty twenty one. And that means that the price level is now SEK300 per cubic meter compared to SEK291 per cubic meter at the end of December. So the increasing trend continues and it's that price increase that leads to on the top line here then the value of the forest assets has increased from SEK 74,900,000,000 at the end of last year to a value now SEK 76,600,000,000. Working capital in absolute values you can see has increased as I mentioned due to the higher Prices and seasonal higher sales in Q2 from some businesses, some wood business in particular. And but When you look at relative to net sales, we've come down from 18% to 17%. So good development relative to sales. Moving down we have deferred tax and then we have other capital employed which has increased mainly due to the ongoing construction of the new mill in Obbola. Net debt has increased versus the end of last year slightly from SEK7.7 billion to SEK8.2 billion. We also paid the dividend of course this quarter, But we've delevered primarily due to improved EBITDA, but a deleverage down to 1.4 times debt to EBITDA. And then net equity increased from SEK72,000,000,000 to SEK74,500,000,000 Just to mention on the operating cash flow, we've had a strong period of Delivery on operating cash flow as you can see here over SEK 3,500,000,000 of operating cash flow delivered in the last 12 months and not least in this Q1 despite the fact that we've also increased working capital due to the higher prices. We funded the restructuring in Oortviken And we've had the strategic CapEx of all despite funding all those we've managed to deliver and reduce leverage down to 1.4 times. So It's a strong delivery in terms of cash flow. And finally just To also highlight we issued a green bond in the quarter, the first green bond we have issued And we issued SEK1.5 billion at a 7 year maturity which we're very happy to increase and have a long maturity on SCA's average debt with 4.8 years on average. So we have a very secure financing position. The Green Bond is well aligned with SEA sustainability platform and especially helping to support the positive contribution to the climate that SEA brings. And then finally, the rating on the green bond is also the best possible rating of dark green. So I think that's an interesting development in the quarter. And with that I will hand back to Ulf for summary and Q and A. Thank you, Toby. I will not start to repeat everything again, but we can state that we deliver our best quarter ever, 47% EBITDA margin and also that we have we can see a big positive effect from the decision that we took last year to leave publication paper. So I think by that we can open up for questions. Thank Your first question comes from the line of Einist Larsen from SEB. Please ask your question. Thank you very much and good day to everyone. Congratulations on A strong quarter. I'd like to start on the forest side and with the high harvesting levels that You've had at least in this quarter. Could you please update us on the remaining quarters or if you like the full year, What kind of level of harvest should we expect compared to last year please? Good morning, Linus. Yeah, we had a strong harvesting of rainforest this quarter and as I mentioned it is Seasonal, we do have a high level in normally quarter 4 and quarter 2. For the full year, we expect harvesting to be Around the same level or perhaps even slightly less than last year, but around the same level. And so therefore, yeah, You'll see that in the second half of the year then we'll have a normally have a less in quarter 3 and then a bit more in quarter 4. Okay, thanks. And then on wood, which was Very strong and from the sound of things will be even clearly stronger in the Q3 given the Price indication that you mentioned. What's happening on other parameters like How do you see saw log costs developing for instance in the Q3? Yeah, it's hard to say, but Honestly, I think we will remain or more or less the same level as we have just now for sawlogs. No big differences. I mean some small increases, but not any major. And so it's an extremely favorable market for Sonos In the current business environment, how do you see this playing out? I mean, do you see any supplier responses coming through? Do you see any signs of any softening in the Order books or any type of other market indications? I mean as it is just now we see no signs of softening market. As I said, I mean we've seen that CLS price In U. S. They went down from an incredible level to something which is quite good. We are not too present in the U. S. Market, but the US market of course have an impact on all other markets, but still the demand is strong also in US. We heard that Canfor they will now take curtailments due to wildfires in British Columbia and that might impact also the future needle would in the U. S. China has been a little bit hesitant during the whole cycle I would say, but I mean we do some good volumes in China, but the driver us now is the European market and I mean The Q3 I would say is we have done all agreements now and we have both in terms of volumes and price and that one will be Close to where I said I believe. Then always you have a seasonal effect in Q4 and from time to time also Q1. But I mean no, It seems to be a continued rather stable market as it is just now. And then just now that you mentioned seasonality, how do you how are you planning to run or how are you running production in your In your saw notes in the Q3, what level of production compared to the Q2 given holiday seasons, etcetera? Okay. In SCA we have since 20 years we have always been running our sawmills at full capacity. So I mean we will run also Last year we had some we took some curtailments during the summer due to I mean the COVID situation, but normally we run assume is as much as we can. It's 4, 7, I mean you have to stop 5, 6 hours each tonight and depending on conditions for different mills and where you have bottlenecks and things like that, but I mean we run them for full capacity. Thank you very much. Your next question is from the line of Robin Sandeberta from Carnegie. Please ask your question. Yes. Thank you very much for taking my question and hello to everybody. Now first related to the pulp division, If I look at the ASP, the average sales price you reach in Q2 is obviously up quite significantly but far less than the price statistics show. I do understand that there is A bit of a lag in the P and L impact from price statistics. But could you just remind us or explain the Dynamics, how it works? Is it all on a lag of 1 or 2 months To the ForEx price or is there some spot sales as well? And in what markets are you operating In terms of pulp, is it only Europe or a bit of North America and China as well? Yeah, I mean if we start with the market, Price changes will be gradually implemented and of course and so that is one reason why you don't Really see that the result in the P and L follow the fixed prices announcements and things like that. So I mean but we follow In many cases and in most cases we follow the fixed price. Then again you have currency effects, you have Yes, different discount rates and things like that and you know the structure behind that. For us we are very much focused on Europe as our main market And we will continue to be that and we also today we feel that that is a favorable place to be in. Yes, it was maybe better to stay in China during the Q1 and also during the Q4, but just now I think Europe is the best place to stay in. U. S. Is a good market for us and I don't know if we release Some big volumes we do there, Toby. But we do have sales to U. S. But very little to Asia. Thanks. I do understand the lag, but you don't have any sort of rule of thumb That could help us sort of understand the lag sort of compared to the fixed prices in Europe? I mean a rule of thumb, I mean it takes probably 2 to 3 months in terms of time lag. Overall, when you take into compared to when maybe Pyxis published or prices are published. Good. That is helpful. And then maybe for you, Toby, to sort of financial question. First of all, the Paper Business, you still report some losses, some of the drag in the other division. What is the amount and how long should we expect that to continue? And then number 2, could you just give some kind of indication about CapEx levels for this year and maybe some indication for next year as well? Thanks. Yes. I mean as we've described, we don't have costs for the paper division anymore. That's I mean at the end of Q1 that was finished. But we do have costs for maintaining the Oortviken site up until we start the CTMP, which are SEK 20,000,000 to SEK 30,000,000 SEK per quarter which we've guided for and that's the same this quarter. So we're in line with that. And then The CapEx, yes I think we yes I mean the guidance we've given before is we have an annual current CapEx level of SEK1.2 billion to SEK1.3 SEK1 1,000,000,000 and that's I think we stick with that guidance for the year. And then of course Strategic CapEx is I don't know if you're interested in that as well, but we have the Obbola project is the biggest one and CTMP In Autvik and other 2 large strategic CapEx and there, yes, we expect, as we said before, around SEK 3,000,000,000 to SEK 4,000,000,000 in strategic CapEx for the year. For the year? And what about next year? Just give me a moment. I mean this year is the biggest year by far. So there's a significant So I think it's around. Here we go. Yeah, more like NOK 2,000,000,000 to NOK 3,000,000,000 next year depending a bit on the outcome this year. All right. That is helpful. Thank you very much, Oles and Toby. Next question comes from the line of Martin Melby from ABG. Please ask your question. Thank you. Regarding the transaction price on the Forrester, you used a 3 year rolling average and is now at 300. What is the last data point in that exercise? I mean we give the 3 year average margin, but I mean it's been basically a steady development during those 3 years which we've seen continue. We add data then for the 1st 6 months. I think it's also Most of the transactions do happen in the second half of the year. So it's not that many transactions in the first half year, but we've seen the trend continue with Positive price development. There are market statistics published also so you can see Ludwig and Company for example published market statistics and they follow the same. So if you want to see the public market statistics that's a good place to turn. Okay. And you gave the quarter to quarter price change on the sawmills. Could you try to indicate the same on pulp and containerboard please? Yeah, I mean The answer is no. I mean we know in pulp as I said, I mean the official pigs price today is 34 to U. S. Dollar per ton. And we are just now in negotiations for July. So we don't know really the outcome of that. But as I said, I mean we feel it is a rather stable situation in Europe. It has been a little bit weaker in China and the U. S. Seasonally you normally have a slightly weaker situation in the summer. But on the other hand we also know that we will see a lot of Maintenance stops coming on stream now and as I said also for Ostrand we will have a stop in September, October more than 20 days. So that's a quite big one. In containerboard I said that We have seen a total price increase of €200 per ton and we have another announcement now from August 1 of €50 per ton increase for kraftliner grades and I think they will come through and I think they will success simply take effect during the Q3 giving full effect during the Q4. So that's my best guess just now. I could also add Martin, you can I mean in the graphs we give in the report you can see basically for the last quarter The net mill price development for pulp and containerboard in those index graphs? So and the reason we I mean, the pricing is relatively public for containerboard and pulp. So and I think the other reason is also that when it comes to wood, we have Relatively good visibility on the coming quarter, which you don't have quite the same level for Yeah, a bit longer out for containerboard and pulp. I see. And what is the key reason why the saw volume price is not increasing in this dramatic saw milling market? Why isn't the forest owner paid? Yes, I mean we are the biggest forest owners. I think that is one reason. We are the biggest private forest owner in Europe and we can I mean we can secure a safe and stable supply and I think for all parties it's the best thing is to have a Stable price on raw material because then you can plan your activities in the forest due to what's needed in the forest The innings clear cut and things like that? So I think that is the main reason. One good thing for us just now as I mentioned is the decision to leave cut publication paper and by that decision we haven't been forced to import any wood more or less during the first in the Q2 and that has contributed well also. But we have a stable supply and Do you quantify that effect? Not really, but I mean it is substantial effect I would say. Okay. Thank you. Your next question comes from the line of Cole Hathorn from Jefferies. Please ask your question. Just following up on the Wood Products. You're calling out the kind of the sawn timber business Potentially up as much as 50% quarter on quarter. Could you give us a little bit more color on kind of the trade side where I imagine pricing will be Up less than the saw and timber, just so that we can understand the dynamics of that part of the market. And just remind us How much of the Wood division, your traditional kind of sawn for construction is versus the other components? And then The European market has announced a number of things with the new EU forest strategy, the Fit for 55. Could you give us your initial thoughts on how you're thinking the new forest strategy will impact your business, firstly, from Ability to harvest versus the forest sink debate. And then secondly, the prioritization of The EU on using wood in construction because my outlook there is of using wood in construction is very positive. Thank you. Yeah, if I start with the strategy from the European Commission And Toby can say some words about the good business. I mean, first of all, we welcome of course the idea to achieve a 55% emission reduction, But we do not fully share the Commission's view of the rule of the forest and the forest industry. I think the most important thing and the best contribution we can give from the forest side is to continue to manage the forest as active as we can. I mean it is a fact that it is the growing forest that can contribute with the net binding capacity of carbon and for us it's more than 5,000,000 ton per year. And I mean the reason behind that is for every tree that we harvest we replant 2 to 3 new ones and for each new generation that comes up we will have a 30%, 40% higher growth and all that kind of things. But the other and even more important thing is that we can supply more raw material to the market when we increase the production in the forest and the growth in the forest and by that we can replace plastic with paper, we can replace for surface fuels with biofuels and we can replace steel concrete with solid wood constructions. And here for us only that give another 5,000,000 tonne per year. And then of course we should always try to reduce our emissions from our Industry and that we also do every time when we look into new investments and things like that. So I think that is the basics. I don't like the idea that you can maybe see and read about when it comes to looking upon the forest as a carbon sink. That's not the right utilization of the forest. We have the best forestry in the world in the Scandinavian countries and let us continue to do that in the best way. And I think that is also what will happen now. We don't know really to be But I mean this is not a decision from the commission. Now it will be discussed in a lot of I mean nationally It will be discussed in different working groups and things like that and the devil will be in the details. I mean it's really important for us now to follow I mean what's inside special, yeah, but when you say We started with clear with no clear cutting, but I mean that will not be the case of course, but what kind of restrictions will occur and how can we handle that. I think also one important thing is to see that there is no basis for having to choose between the use of forest and the protection on biodiversity. We can and we have balanced that in a good way in many years. And if you look into Swedish forest Today you have more dead wood, you have more broad leaf trees. It hasn't really disappeared any species from the Swedish forestry the past 20, 30 years. We have more than doubled the standing volume in Swedish forest since 1950 and at the same time we have more than doubled the harvesting level annually. So I mean that is a true success story and I believe that we will When we start to discuss this into details we can also show the good thing by actively continue to manage our forests. Yes, I can add just on to clarify on the wood business call. We have Around 70% of the sales from the wood businesses, the sawn products and 30% roughly is the what we call wood supply, which is more like a traded type business like you say, but with some Maybe some kind of additional conversion operations on the wood before it's sold. So the price Development that Ulf mentioned is really applied to the sawn products. The traded products go at much more lower trading margin even though we have had A strong Q2 from wood supply is normally quite seasonal. So we have a strong Q2 and then it tends to It has a weaker period in the second half of the year just due to seasonal reasons. Thank you. Your next question is from the line of Oster Lindstrom from Danske. Please ask your question. Good morning to you all. Three questions from me. The first one is on what's called force majeure. I mean, are you seeing any impact From the threat of closure of Sweden's last cement plant due to not getting its Environmental permit renewed or likely not getting it renewed. And or do you see any similar impacts in other countries causing sort of a shift from or an acceleration of the shift from cement to wood? And then also, any impact on either demand and or supply from the flooding in Central Europe? That's my first question. Do you want me to take the other ones? No, can we start there? So yeah, it's a very good question Oscar and I mean We are I think all a little bit surprised about the cement plant and It's really hard to judge what's going to happen there, but if it will be closed down I think that will have Big impact on the Swedish building industry and I mean I heard some figure here that between 200,000,300,000 jobs were threatened if this will come through. But I don't I cannot really believe that this will happen. It would be 100% crazy of course because you need to replace that cement with cement from places where you don't produce it in the same environmentally friendly way that we do in Sweden. So I cannot really believe that this will come through. But if it comes True, I believe that it will have a negative impact of course when it comes to building activities definitely so. Structurally it's yeah, I don't like really to speculate. We need in many cases a combination between wood and cement and I think the important thing is to find the right balance and the right combination. So far and that was the last part of the first question, we haven't seen any negative effects of the flooding in Central Europe. Not material. I mean it has logistics is more problematic around but it's not material. No major things. If I can just follow-up here actually on this. Are any of your sites facing renewed environmental permits that we should be aware of? No. Okay. My second question is on capital allocation. I mean, you're now in the middle of the Obla project CapEx and CapEx is going to be high this year and then come down a bit next year as Toby mentioned. But you already have a strong balance sheet. You have very strong cash flow at the moment. You must be thinking about what to do with the money sort of once Obla is completed in terms of strategic projects or acquisitions. So what's your own thinking here about growth opportunities beyond I lost you a little bit, Oskar, but growth opportunities, was that the question? Exactly. I mean, given how strong cash flow you're now getting, More money in the bank usually sort of gets one thinking about what one could possibly buy with that money. That's my question. I mean the first thing is now is that we are 100% focused on delivering on the 2 big growth projects that we are performing just now. I mean Obbola is super big project and the CTMP project is also a big one and at the same time we are So performing a big SEK 1,000,000,000 project in Bolstad. So I mean we are 100% focused on delivering on these projects. And I mean I think we are all a little bit surprised of the Strong cash flow and the strong market situation that we have just now. I mean last autumn We were not really sure of what kind of market we should meet for 2021 and now we have this market. So I mean of course we Look into different opportunities and when we have something to talk about we will do that and announce that. Do You would like to add something to Obior? No, I mean I think just that we're very focused on delivering The projects and on time on budget and that's I think the important focus and they deliver a significant growth for SCA. I mean it was also quite a big thing to do to divest or to close down the publication paper business. We had to take away 800 people in this region and I mean one thing of course the people at mill site, but From my perspective if we reduce the sales by 20% we have to reduce the manning all over the place by 20%. So that goes also for headquarters and staffs and everything and we are just now we're just now doing that and that is also what you can see in our figures. I mean we have been very focused on also delivering on that, let's call it an exit project. So we have had a lot of we have a lot of things to do just now just to deliver on what we have promised. Yes, that sounds good. A final question, I mean, you're growing forest bind about 5,000,000 tonnes of CO2 per year as you mentioned and then your products substitute as well. But what would be the level of sort of CO2 thinking every year if you stopped harvesting and stopped replanting? I think that would be negative because I think But this is an important part of the debate, because I mean if you just stop harvest short term you will continue to grow and maybe add some more carbon in the forest for a short while. But If you then include the I mean the product side then it will be negative because if you cannot really supply the market with renewable the renewable fiber then you have to increase the use of fossil based materials and fuels. I think it is already from the day 1 a negative thing. But I think we are lousy in the debate. We don't have the ability to come through with our arguments, but the thinking and the debate in Brussels always stop at the forest side, which is not the right thing to do. You have to include the possibilities and the potential we have when it comes to substitutes. And so we have to improve in that in the communication here. So even short term I think it's negative. And I mean the argument about again about Biodiversity that's not an argument. I mean you don't have to choose between the use of forest and the protection of biodiversity. You can do it both. And I mean we can always do things better and we will always look into possibilities to do things better, but we can do it both. Yes. That's an important debate, no doubt. Thank you. I mean, those were my questions. I think Oskar you had an very interesting article in Svenska Auroblad at the other day written by Bjorn Heglund And he was the economist of the Swedish Forest University, but he's been the CEO of Stora and so on. But I mean that was very well written and well structured. So I think you have a lot of Good facts in that one. So we will try to spread that article really. I think that is the best one written in this field. It was very good. Yes, I agree. Thank you. Your next question comes from the line of Justin Jordan from Exane. Please ask your question. Thank you. Good morning, Ivan. Good morning, Olof and Tobey, and well done, Tobey. I say, including for a very strong first half performance. I've got Three separate questions. Firstly, just kind of from Cole's earlier question. We've now we're now 3 months on from, I guess, the first Deliberations from the EU on taxonomy, can you just give us an update as to what that might mean for SCA and potentially the The conclusion of your revenues that may be taxonomy aligned. And then secondly, just on Forests, Clearly, I know you're constrained from being a net purchaser of forest assets in Sweden, but can you update us on where you are in 1st purchases in Estonia and elsewhere across Europe. And then I've got a follow-up question please. I can take the first. I mean Obviously it's becoming some it's a moving picture and developing picture with taxonomy, but we do expect to I have to then do some reporting from the beginning of next year. But I think one thing it's important to note is in the first stage We'll be reporting what's how much of our business is eligible for taxonomy according to the two environmental targets which have been worked through by the European Commission so far. So there's still 4 which remain which will come in the future. And according to those 2 then we will as we understand we will then identify How much of our company in terms of sales and OpEx and CapEx is eligible. That doesn't mean They're aligned. It will come later than how much of that business is aligned. And that's really the kind of measure of whether you're environmentally sustainable or not in your operations. So the first Stage is really just to identify eligibility. So it's not a key if more or less your business is eligible, it's just really how much of your business covered by the parts which are established today. So I think it's important to recognize that in the first stage. And that's how it will be for the 1st 2 years basically. And we expect With the 2 climate targets and particularly climate change mitigation which is one of them that the forest is really meets that target very clearly. The rest of the business is still unclear today. The main probably the main Climate target which is still to come around sustainability will cover our other businesses very clearly. But with The targets as they are today is not clear whether they will cover the industrial businesses or not. But when they come, we expect them very much to be part of the circular the transition to a circular economy. So I think It's still hard to give clear answers I'm afraid Justin. But I think in summary No, I think we'll expect to be reporting on basically only on eligibility, but clearly the forest will be part and we'll have to work through to see if the rest of the business is covered in this first wave or will be covered later on. Okay. And then we have the question about I don't know if I get you right, but what's the question how much we are in our program for buying? Can you repeat Justin? Can you repeat the question? Sure. So clearly you're the largest merchant power center in Europe. You know, concluded from being a net first purchaser in Sweden, but clearly you have really clear plans to expand elsewhere in Europe, particularly in Estonia. Can you just update us as Where you are on your previously announced plans to be a net first purchaser elsewhere? No, I guess We have a plan to acquire 100,000 hectares of forest land in the Baltic States. So that's Estonia and Latvia which are the and we are at around due today. So we're around halfway. Okay. Thank you. And just one final question, third question for me. Clearly, SCA, anyone who's tracked you as a shareholder or an analyst for a number of years will know you're incredibly prudent in capital allocation. But If I was, I don't know, private sawmill operator in Europe or North America right now, I'd be sorely tempted to run the maximum number of shifts I could or potentially add some more capacity to my milling production. I guess, Given the strong demand we're seeing and what seems like exceptionally strong pricing outlook for wood in Q3, What's the stop there being less disciplined peers adding more capacity to ultimately, I suppose have a supply response. I appreciate it won't be SCA doing it, but not everyone else in the industry is interested. Maybe I can take it first and then but I mean it all comes down in the end to the raw material. If You can't add capacity if you haven't got access to the raw material and that's why our I mean our sawmill businesses is very closely linked to the forest sourcing the forest and the raw material sourcing we have. So Of course right now in a strong market there is yeah everyone's making good money and No, we're optimizing our production of course to optimize. But I think in the long run there's no point building extra capacity if you haven't to sawlogs to be able to saw. Yes. And I mean I think also that might be the big question Mark going forward, I mean to get access to sawlogs and for sawmill 75% of the cost is related to the raw material. So if you don't control that one then you're lost definitely. And that's the reason also yes now I think why we cannot really I mean we run at full capacity but you cannot really add too much volume to the market as it is just now. Okay. Thank you both and best wishes for the second half of the year. Your next question is from the line of Johannes Gramtilius from Kepler Cheuvreux. Please ask your question. Yes. Hi, everyone. So most of my questions have now been answered. But maybe you could help me on the CapEx side what to expect in numbers for this year and also 2022? Any changes from the last update there, please? Hi, Johannes. Yes, I can just update. So for current CapEx we expect SEK1.2 billion to SEK1.3 billion for the year and that's our normal level. And then for strategic CapEx, we expect SEK3 1,000,000,000 to SEK4 1,000,000,000 this year And that's the largest is the Obla project of course and then we expect NOK 2,000,000,000 to NOK 3,000,000,000 next year. Okay, okay. Same as Before. Same as before, yes. No significant change. Yes. And Also on the cost side and the cost inflation theme, it seems to me that you will have quite stable cost here Q3, Q4. Could you talk a little bit about this? Are there any sort of areas where you see a big cost inflation at the moment for you? And also, If this could hit the industry what in terms of your competition? Thanks. I mean as I said we had a very Stable cost level Q1 to Q2 where we can see increases of course is in the logistic gear part. And there you can see quite substantial cost increases. But then again you have Questions about mix and things like that and the worst scenarios you've seen when you go overseas and we're Not too present overseas, so we have been a little bit protected from that one. And otherwise I I think we've done a good job in our we have a central purchase organization and as I said when we took the decision to leave publication paper We also put very clear targets for each part of the company and they have all More or less delivered on that and one thing was of course to really keep an eye, close eye on the cost side. And what is maybe a little bit, yeah I think the biggest cost For us is of course the raw material and I mean we have as I said earlier good situation when it comes to Wood supply and which is good. We might see some small increases in so log prices and things like that, but no major things. I think we are in good control for the coming quarters now. I don't know if you'd like to add something to be here or? Maybe I could just to give a little bit more. I think as Ulf mentioned the wood supplies So it's the main raw material. When it comes to other materials or chemicals, we do see increases, but we have relatively limited maybe Compared to others more in publication paper and other segments more intensive in terms of other materials and chemicals. And then we also do have the logistics area where We have seen maybe around €30,000,000 higher logistic costs versus Quarter 2 and we expect an increase also quarter 3 from a bit restricted. Yeah restricted access to containers and higher container prices and so on which. But I think more disturbing in that perspective is the service level. Yeah. Okay, understood. Maybe a final question from my side. I mean, you have an interesting chart there on Page 11 Showing that also the deliveries of Kraftliner had increased pretty dramatically, I would say, over the last year in Europe. I mean, Where are we now in terms of sort of capacity constraints in Europe? And at this point, are you actually seeing that there is a lack of material kraft line of materials in the market, is that something you see now? Or is that something that could happen in the coming months? I mean, It seems that deliveries have come up so much, but I suppose there is a capacity constraint at some point in Europe? That's my question. Yeah, that's a good question because we don't really know. I mean what we saw when Ullo came on stream and added 400,000 tons of annual capacity that was immediately assimilated in the market. And we see less import to Europe from U. S. Just now. So that can be one explanation. But I feel that when we had capacity in kraftliner that is immediately assimilated in the market and So maybe we don't know the real need. It's always a combination between Kraftliner and Testliner and we use Kraftliner for certain purposes and Testliner for certain purposes. And many times it's just a question of Material efficiency and that is also what drives prices and the mix between kraft and test. But in some areas you need kraft, when you need When you need wet strength and you need some other things then you need to use kraftliner of course. But we feel Just now you could sell much more kraftliner from SCA if we just had the production and in 2023 we will add capacity and today we feel very confident that that will be needed and demanded from the market. Okay. Got you. Thank you. Your last question is from the line of Mikael Doepel from UBS. Please ask your question. Thank you. Just briefly following up firstly on the Fit455 and Fora strategy. What's the time schedule there To take a decision for EC to make a final decision on that one? That would be my first question. Secondly, on So on timber, I think everybody is scratching their heads a bit given the quite significant price increase that we have seen and continue to see. And I guess the question there is that how much can the market take before it starts to impact demand negatively? Do you think we are Close to that level in Q3 given the hikes? Or do you think there's still room for more? And then finally, on the Bulk markets in Europe, in particular, as you pointed to, seems to be a good demand situation here. Prices have Still gone up in June. At the same time, we do see China prices having come down quite a bit. Do you think that's going to have any impact on the European market, I. E, are the European prices coming under pressure now? Or do you see a situation where Europe can actually remain quite stable despite China coming down? Thank you. If we start with the market for Sonntime, I mean it's very hard to As you know, normally it's a volatile market and I even if you're fundamental and structurally you see some positive Long term effects when it comes to sustainability and things like that which is favorable for wood as a material. But I mean short term it's always a question of supply and demand. And as I said I mean for the Q3 no doubt We've already set prices and volumes. I also feel that I think it will be stable in the Q4, not too much happens in the Q4. But I mean after that we don't know really what kind of I mean we have a 4th wave of COVID, what kind of support from governments will we see And can we start to travel or do we have continued to spend a lot of money on DIY and things I mean all these kind of questions will have an impact on the sawn timber market. But structurally I think it is a better Step by step a better position for SON timber for sustainability reasons and things like that. But short term it's always a question about supply and demand and I cannot really give you a better answer than that I think. Then I mean, yeah, you had some questions about Fit for 55 and I mean The strategy that we have now been presented from the commission is not the decision, it's more like a vision or something like that. And After that we will see more detailed suggestions and I'm 100% convinced that we have to put in a lot of effort in that process. Otherwise we will come out with legislation and things like that that will not be positive for the industry And much more important it will not be positive for the climate because it will be negative if we have any Big restrictions on how to manage the forest and how to provide the market with renewable materials from the Scandinavian Forester then it's not good for the climate. And we will see different timelines in different areas. And as said before, the devil will be in the details and we will put in a lot of efforts from SCA side, But we will also do that from the industry from Swedish Forestry Industry, but also from the European Federation, SEPI and so on. So I think it will be a couple of interesting quarters coming from now on. And then you had a third I could maybe take the third one. Yeah, was on the pulp you asked about basically the pulp Prices, Michael, and I'm sure we can give much more color. But basically with the in Europe is now at $13.40 per tonne as I've mentioned and Similar level to U. S, China is always a more volatile market with the spot prices which go up and down. Sometimes there's more or less volumes also sold and it's Also sometimes reflects the logistics situation to China, but I don't think you can really draw any sort of directional conclusion. But the momentum in Europe is still up and is really catching up with the level in certainly in U. S. And where it's been in China. So So we have to see. Okay. Thank you very much. There are no further questions at this time. Please continue. Okay. Thank you very much. And this concludes this presentation of SCA's 2nd quarter results and I would like to welcome you all back by the end of October. Thank you for listening in.