Earnings call: SCA reports mixed Q1 results, forecasts price increases

SCA (Svenska Cellulosa Aktiebolaget), the leading provider of sustainable forest products, reported a mixed first quarter for 2024, with a sequential improvement in the market for fiber-based products. Despite a decrease in sales by 5% and EBITDA by 22% compared to Q1 of the previous year, the company has begun implementing price increases across all areas. The forest segment performed strongly, while the wood segment faced challenges due to a slow market and increased raw material costs. The pulp segment experienced lower prices but saw an uptick in demand, particularly in Europe and the US. The containerboard segment dealt with higher volumes but lower prices, and the renewable energy segment achieved strong profitable growth. SCA expects further price increases and positive developments in the future.

Key Takeaways

• SCA's sales decreased by 5% and EBITDA by 22% compared to Q1 2023.
• The forest segment saw increased sales and EBITDA due to high demand for wood raw materials.
• The wood segment struggled with lower volumes and higher raw material costs.
• Pulp prices are on the rise, leading to improved demand.
• Containerboard experienced higher volumes but lower prices.
• The renewable energy segment showed strong profitable growth.
• The company's net sales were just below $4.6 billion, with an operating cash flow of $677 million.
• SCA has a net debt of $11.7 billion.
• The company is nearing the completion of major investment projects and does not foresee further restructuring costs.
• SCA expects stronger prices in Q1 and momentum for further price increases.
• The Obbola mill's ramp-up is ongoing, with full capacity expected by 2026.
• Kraftliner prices have increased, with further hikes planned.

Company Outlook

• SCA anticipates further price increases across all product areas.
• Wood costs are projected to rise in Q2.
• The company is the largest private forest owner in Europe, contributing to self-sufficiency in raw materials.
• A sharp increase in demand from the US market is noted.
• SCA plans to focus on ramping up existing projects rather than making new investments.

Bearish Highlights

• Lower prices and higher costs for raw materials and energy negatively impacted earnings.
• The wood segment experienced a slow market.
• Kraftliner prices declined compared to the previous quarter.

Bullish Highlights

• The forest segment benefited from high demand.
• Pulp segment demand improved in Europe and the US.
• Renewable energy segment had a strong quarter.
• Kraftliner prices have increased due to low stock levels and healthy demand.

Misses

• EBITDA margin was at 10%, a decline from previous quarters.
• A provision of $26 million was taken for an ongoing reorganization.
• The Gothenburg refinery's net profit contribution is expected to be lower due to market conditions.

Q&A Highlights

• CEO Ulf Larsson discussed the Obbola mill ramp-up, expecting to reach a capacity of 725,000 tons by 2026.
• Kraftliner prices increased by 60 euros per ton in April, with another increase announced for June.
• The company's capital allocation will prioritize ramping up existing projects.
• Low volumes in Q1 are attributed to low stock levels, but an increase in prices and volumes is expected in Q2.
• The company does not foresee a significant impact from M&A activity in the containerboard market.
• Chemical costs are expected to remain stable, while maintenance costs follow normal inflation.
• The impact of increased Kraftliner exports from the US to Europe is uncertain, but SCA does not expect a major effect on their operations.
• The tight supply for softwood pulp and a more consolidated market for hardwood pulp are seen as positive from the producer's perspective.

SCA's mixed first-quarter results reflect the challenges and opportunities within the sustainable forest products industry. With strategic price increases and a strong position in raw material self-sufficiency, SCA remains optimistic about future performance despite current headwinds. The company's next half-yearly report is scheduled for presentation in July.

Full transcript - None (SVCBF) Q1 2024:

Operator: Good morning and welcome to this presentation of SCA’s First Quarter Results for 2024. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz to go through the results and take your questions. Over to you, Ulf.

Ulf Larsson: Thank you, Anders. Good morning also from my side. A warm welcome to the presentation of SCA’s result for the first quarter 2024. We can now state that the market for all fiber-based products has turned up and that we have a sequentially stronger position in comparison with Q4 2023. It has started to drive price increases in all areas but it's always with a delay effect. In general, we see a high demand on wood raw materials and by that continued increasing prices. In addition, we have increased volumes from our own forests, which in comparison with the first quarter last year substantially, has strengthened the resulting business area forest. We continue our efforts to gradually increase production in the sites where strategic investments have been recently carried out and this has resulted in slightly higher delivery volumes in comparison with the first quarter last year. These investments will successfully contribute to increased productivity and cash generation during coming years. Sales decreased with 5% and EBITDA with 22% versus first quarter 2023. Increased volume and currency are on the positive side in this comparison, while price is negative. This slide will give you an overview of KPI's for the first quarter 2024. Our EBITDA reached 1.6 billion SEK during the fourth quarter, which corresponds to an EBITDA margin of 35%. Our industrial return on capital employed came out on 4% for the first quarter 2024 counted for the last twelve months. The leverage is at 1.8 and we have now finalized a big strategic investments in Obbola, Ortviken, Bollsta and Gothenburg and they will, as mentioned, all contribute positively to the coming years. I will now make some comments for each segment starting with forest. In general, we can note the continued high demand of wood raw materials in SCA. We have nevertheless had a stable supply to our industries during the first quarter. As can be seen in the graph in the bottom left, prices for both pulpwood and sawlogs have continued to increase and in the Baltics, wood raw material prices have started to increase again after a period of stability. When we compare first quarter 2024 with first quarter last year, sales was up 12% and EBITDA was up 24% and that is mainly due to higher prices and also higher harvesting level in our own forests. Turning over to business area, wood. In general, we have a continued slow underlying market for solid wood products. Despite generally low demand, we see some early signs of improvement in the repair and remodeling segment. Stock levels are still low in the market and in a decreasing trend, especially in spruce. Last quarter I estimated that the price should increase in the first quarter with the high single digit, which also happened in SCA. We saw an increase of about 8% between the two quarters. As we forecasted when we released the Q4 report, our deliveries during the first quarter have been slow due to the very low stock levels when entering into the quarter. Sales was down 16% and EBITDA was down 10% in the first quarter 2024 in comparison with the same period last year, and the reasons behind this were mainly lower volumes and higher cost of wood raw material. The EBITDA margin anyway increased with close to 1%. 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. As mentioned earlier, we note that the inventory is on a low level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been below normal levels since mid-year 2023. And finally in the diagram to the top right, we can see that price has started to increase during the first quarter 2024. Due to low production and low stock levels, I estimate that the price to increase with another at least 10% as we enter the second quarter. We have seen some early signs of improved activity in the repair and remodeling sector and when interest rates start to decrease we might see further improvements giving support to positive development going forward. So over to pulp; first, I'm happy to say that our CTMP expansion has been well received in the market. The production ramp up optimization work continues according to plan. Sales and EBITDA were down 6% and 46% respectively when comparing the first quarter this year with Q1 2023. We can note lower prices on the negative side, while currency and volume have had a positive impact in this comparison. I can also mention that we have an ongoing reorganization and efficiency improvement program in business area pulp and the program will impact approximately 70 employees with full effect end of 2025. After a rather weak 2023, demand for pulp improved in Europe and the US during the first quarter of 2024. Export volumes to China normalized during the first quarter from a very high volume in the fourth quarter last year but are still on a good level. Global supply of NBSK was substantially reduced due to the four week strike in Finland in March. In Europe, we saw increasing prices on all grades of pulp, with NBSK increasing from $1250 in December to $1400 in March. The price then continued up in April to a little bit more than $1450 per ton and the supply demand balance looks promising from a producer point of view and we expect further price increases in this area. CTMP is following the same pattern with increasing prices in Europe while prices in China and India are almost flat. In the US, NBSK prices had a similar price trend as in Europe. So moving over to Containerboard and to ramp up for the new Kraftliner machine in Obbola is progressing fine, although we have taken a few stops to adjust the machine line during the quarter. We see high operational costs during the quarter which is expected in the phase of the ramp up. As earlier communicated, we expect to reach full capacity in Obbola in 2026. Sales was up 4% in Q1 in comparison with the same period last year due to higher volumes and positive currency effects. On the negative side was again lower prices. EBITDA was down as much as 69% mainly due to lower prices and ramp up cost effects. Volumes and currency effects had a positive impact. So Containerboard market development; well, we can see an emerging growth in box demand in Q1 compared to last year. As inflation and interest rate ease, we expect retail spending to improve. European demand of Kraftliner has improved in the first quarter compared to last year following the box demand. We believe that the market will gradually improve during 2024 driven by improved consumer spending. On the other hand, there is additional supply and test line ramping up in the coming quarters, which will of course put some further pressure on the supply demand balance for containerboard. European prices for brown and white Kraftliner have declined in first quarter by 25 euro per ton for brown and 15 euro per ton for white top. From April prices have increased by 60 euro per ton for unbleached and 40 euro per ton for white top and we have this morning announced another increase of prices from 1st of June by 60 euro per ton for both brown and white top Kraftliner. Prices for testliner have already increased with 60 euro per ton in the first quarter and another price increase of 60 euro per ton is announced from 1st of May. Container body inventories have been on an average level fourth quarter and we have seen stocks declining in the first quarter due to improved demand. OCC is still in good supply but lead time is expected to be longer as demand continues to increase during 2024 and we can assume that demand will exceed supply for OCC in the second half of the year and with that probably increasing prices. So finally, renewable energy, the biorefinery in Gothenburg is under commissioning and is currently ramping up. Full design production capacity with products and specifications was reached already at the end of first quarter. It is of course still at an early stage, but so far everything looks promising I must say. We continue with another quarter of strong profitable growth with higher prices and deliveries in comparison with the same period last year. Due to increasing prices and high demand, sales was up 24%, the EBITDA level decreased by 2% and that was mainly due to the higher prices for raw materials in our solid biofuel business, mainly sawdust. The market for solid biofuels remains stable. Lower volumes are expected in the coming quarter due to a normal negative seasonal effect. SCA continues to grow in leasing out land for wind power and reached 9.4 terawatt hours of wind power on SCA land by the end of Q1 which is again equal to 20% of the installed capacity of wind power in Sweden. The execution of our Fasikan project is progressing according to plan and we will see the first startup in 2025 in this project. So by that I hand over to you Andreas.

Andreas Ewertz: Thank you, Ulf, and good morning everybody. I'll start off with the income statement for the first quarter. Net sales declined 5%, just below 4.6 billion, driven by lower prices which is partly offset by higher volumes from the new paper machine in Obbola and the new CTMP mill at Ortviken. EBITDA reached 1.6 billion, despite the weak market, driven by high results in our forest division and continued strong results in renewable energy. EBITDA margin was 35%. The EBIT margin declined to 24% and financial items totaled minus 123 million with an effective tax rate of below 20% bringing net profit to 789 million or 1.12 SEK per share. On the next slide we have the financial development by segment and starting with the forest segment to the left. Net sales increased to almost 2.2 billion driven by higher volumes and higher prices for wood raw material. EBITDA decreased to 970 million driven by low revelation of biological assets and seasonal lower harvest of SCA's own forest compared to the previous quarter. Continued increase in wood raw materials and a capital gain of 128 million had a positive impact on earnings. In wood, prices increased by 8% compared to the previous quarter, while the cost for saw logs continued to increase. Net sales declined to 1.1 million driven by lower volumes. The delivery volumes were negatively impacted by low inventory at the year end. EBITDA increased to 111 million corresponding to a margin of 10%. In pulp, prices continued to increase throughout the quarter. Net sales increased to 1.8 billion and EBITDA increased to 323 million, corresponding to a margin of 18%. In the quarter, we took a provision of 26 million for the ongoing reorganization to reduce headcount. In containerboard, Kraftliner prices declined compared to the previous quarter. Net sales increased to 1.6 billion, driven by high volumes and EBITDA decreased to 141 million, corresponding to a margin of 9%. Lower prices, higher cost for raw materials and energy, partly relating to ramp up, had a negative impact on earnings. Renewable energy had another strong quarter with an EBITDA of 177 million, corresponding to a margin of 28%. On the next slide we have the sales bridge between Q1 last year and Q1 this year. Prices declined 11% with lower prices in pulp and containerboard. Volumes increased 3%, driven by the new paper machine in Obbola and the new CTMP mill at Ortviken. And lastly, currency had a positive impact of 3%, bringing net sales to just below 4.6 billion. Moving on to the EBITDA bridge and starting to the left, price mix had a negative impact of 570 million and higher volumes had a positive impact of 67 million. Higher cost for mainly wood raw material had a negative impact of 24 million, which shows a high degree of self sufficiency. We had a negative impact from energy and a positive impact from currency and, in total, EBITDA decreased to approximately 1.6 billion, corresponding to a margin of 35%. Looking at the cash flow, we had an operating cash flow of 677 million in the quarter, which means that we're continuing to fund our strategic investments with operating cash flow. Looking at the balance sheet, the value of the forest assets totaled just below 108 billion. Working capital stood at 4.4 billion and capital employed totaled 115 billion. Net debt decreased to 11.7 billion due to the dividend, and we have now almost finalized our large ongoing investment projects in Obbola, Ortviken, Bollsta and Gothenburg. Equity totaled 103 billion and net debt-to-equity was 11%. Thank you. With that I'll hand back to you, Ulf.

Ulf Larsson: So thank you very much. And I mean to summarize, we see stronger prices in the first quarter in comparison with the end of last year and we also feel that we have good momentum for further price increases in all product areas. Increasing wood raw material costs and by that also, of course, also for us a little bit higher cost for wood raw materials as we buy 50% of what we need from private forest owners and other companies. But still we benefit again from our integrated value chain with a high degree of own supply in wood, in energy, and also in logistics. When we compare this quarter with the same period last year, I mean, in all areas, we see lower prices. So by that I think we can open up for questions.

Operator: [Operator Instructions] And our first question comes from Charlie Muir-Sands from BNP Paribas (OTC:BNPQY) Exxon (NYSE:XOM). Please go ahead.

Charlie Muir-Sands: Good morning, gentlemen. Thank you for taking my questions. I've got two topics, really; one volumes and one on operating costs. Firstly, on the volume side, can you tell us how much volume contribution the new CTMP line contributed in Q1, or how much more you think it can contribute in Q2 versus Q1? And similarly for the biorefinery, how much was already recognized in Q1 versus how much more in Q2? The second question is really around costs. Obviously you have flagged that wood costs are up again. Can you just remind us of the lag into the P&L, presumably the recognition in the forest segment is very immediate, but I just wondered if there's a lag to whether the cost increase will be further recognized into the industrial segments in the coming quarters, and if there's any other particular cost elements we need to be thinking about in major moving parts. And finally, sort of within costs, obviously there was a small restructuring cost booked in the pulp segment in Q1. Do you anticipate further costs in that regard in Q2? Thanks.

Andreas Ewertz: Yes, maybe I'll start with volumes. If we start with pulp, I mean, if you look at NBSK, we have no real difference there, so, the change, the increase in volume has come from the ramp up of the CTP mill, and we expect that to reach around 300,000 tons in 2025, 2026. We'll continue that ramp up and that will contribute more to the volumes in the quarters ahead. And then I think the next question was on biorefinery, and I would say that we didn't get any contribution from, in terms of EBITDA results for the first quarter as we have started up cost that had a minus contribution to our profits in the quarter. And then in terms of our cost base, we see that the wood cost is continuing to increase and we expect that the wood cost will continue to increase somewhat also in Q2 compared to Q1. On the chemical side, we saw some cost increases in Q1 compared to Q4, but now I think that the chemicals will be fairly flat going into the next quarter with, of course, some currency effects. I don't know, Ulf, if I missed anything.

Ulf Larsson: I think that was complete.

Charlie Muir-Sands: Just on the restructuring costs?

Andreas Ewertz: Yeah, restructuring cost, yes, so we took restructuring cost of 26 million in the pulp division in the quarter. but we don't expect anything further during the next quarters, so we took for all those 70 employees.

Charlie Muir-Sands: Many thanks.

Operator: We will now move to our next question from Gaurav Jain from Barclays. Please go ahead.

Gaurav Jain: Hi, good morning and thank you for taking my questions. So, a couple of questions is, one is on the structural sort of tightness in the Scandi wood market, which we are hearing from a lot of companies. So wood prices are structurally higher then does it mean that the biological value gain that you book every year from the forest, can it be higher than the number you had indicated, which is around 1.8 billion?

Andreas Ewertz: Yeah. So if we look at biological assets, we expect it to be somewhere between 1.8 billion to 1.9 billion this year and we have a long term average price in our DCF model for calculating biological assets and that has gradually increased. And with those price increases, of course, that will help. But we expect somewhere between 1.8 billion to 1.9 billion this year.

Gaurav Jain: Okay. And second is you are clearly one of the largest forest owners, so if this Scandi wood market is tight, like what can be done? Like can you increase your own production or do you think -- how will this -- construction activity hasn't even picked up yet, so once it picks up, you could argue that the market will get even tighter. So what are the options that then all the industries, your customers would have to essentially source wood? Yourself are a player in pulp and Containerboard, so how would that work?

Ulf Larsson: I mean, wood will be a limited resource for all players in this field. We all know that one impact is from the fact that the Russian flow has stopped now. We have seen a lower harvesting level from the state-owned forest in Sweden and so on. So, I mean, let's hope that the legislation that is now more or less set in the European Union, that we can handle that in a clever way in Sweden when it comes to the national implementation, and I think we will do that in a good way for the business and for the climate and so on, continue to operate the forest in a good way. But I mean, if we have a scarce situation, that means that capacity has to close down sooner or later. But we feel rather confident in that perspective. I mean, as we've said many times, we are the biggest private forest owner in Europe and by that we have a high degree of self sufficiency in raw materials, which is beneficial in a situation like we have just now.

Gaurav Jain: Okay. And if I could just sneak in a last one. So clearly, the Chinese pulp market demand has been very, very strong over the last 18 months, while the end market, if you look at any macro indicator in China, it is pretty weak. So what do you think has happened in China? And if it is really just restocking, then it will end at some point of time. So if you were to look out for Chinese demand over the next twelve months, what would be your best sort of estimate?

Ulf Larsson: It's hard to say. I mean, more or less, we don't supply almost nothing to the Chinese market, but I mean, we had record deliveries to China in Q4 last year. And you're right, it has been a slightly slower market in the first quarter, but still on an okay level. On the other hand, we see rather sharp pickup in demand from US and also what we feel is that the European market has established stabilized quite a lot. I mean, this is a global market. So I think the situation for pulp is stable just now. And I mean, we have increased -- as I said, I mean, we have increased prices from 1250 in the beginning of this year up till a little bit more than 1450. And we will see further price increases in pulp.

Gaurav Jain: Thank you so much for taking my questions.

Operator: Well, now take our next question from Oskar Lindström from Danske Bank. Please go ahead.

Oskar Lindström: Yes, a couple of questions from me. First, on Obbola, you mentioned that there were a few stops there and I thought I heard also something about negative impact from the ramp up on earnings. What's been the quality of your production in Obbola and how is the ramp up going? That's my first question.

Ulf Larsson: Yeah, we take that first and I think -- what about -- if we start with the quality, we have a good quality from Obbola, so that is as good as we had in the past, which was very good, so we are happy with that. But of course, we struggle with availability, which is absolutely normal when you have a ramp up like this. So step by step we increase the volume, but it is a tough period when we ramp up a big mill like Obbola. And as we also said, I mean, we will reach design capacity in 2026, 725,000 tons, but we take step by step. But again, if we see that if something is wrong then we stop and we correct and then we start up again. But just now it's more a question of availability. Quality is good and well also perceived in the market, I would say.

Oskar Lindström: Thank you. My second question is on Kraftliner. I mean you now announced this morning another 60 euro per ton price increase from 1st of June on top of the, was it euro 80 for April? What's driving this market given that there's new capacity out in the wider sort of Containerboard segment and end markets don't appear to be very strong if you look at the macro. So what is driving this market and can it continue?

Ulf Larsson: We increased the prices by 60 euro per ton from 1st of April and then we have announced another 60 from 1st of June, so that's the case. And as I said, testliner, they are one month ahead of us, so 60 from 1st of March and another 60 from 1st of May. And I think if you look at the stock level, well it's on a normal to low level, I would say. And if we also look at the demand side, so can we now state that the consumption has started to pick up and we are back to the level where we were before the pandemic. So I mean, you have not super strong but you have a healthy demand in these markets. I mean, as always, it's a supply demand balance that gives the conditions for price increases or price decreases. And just now we have a stable market in this area.

Oskar Lindström: All right, thank you. My final question is on the -- you have a very strong balance sheet and you have positive cash flow even at the sort of trough of the cycle and you've got now sales prices improving, you say, and most of your large CapEx projects have been finalized. What are your capital allocation plans for the coming years?

Ulf Larsson: Yes, now we will sit on our hands for a while. I mean we feel that we have a number of good projects, but still now we need to stay focused on ramping up what we have already started. I mean we have four really big projects that we have to take care of and we are happy with the ramp up so far. But again, it's 100% the question of focus, to focus on what we have started now. So we will be very cautious for a while now with new investments.

Oskar Lindström: All right, thank you. Those were my questions.

Ulf Larsson: Thanks.

Operator: We'll now move to our next question from Robin Santavirta from Carnegie. Please go ahead.

Robin Santavirta: Thank you very much and good morning. First, in terms of pulp, can I ask what was the least price in Europe in April and what are the current price increases that are out there for May?

Ulf Larsson: I think the official fixed price for Europe was around -- I think it was up to 1515, 1456 and then back to 1455 or something like that. And I mean we don't really give forecasts in solid wood products, but maybe not in pulp, but we already now know that we will have a substantial price increase again in May.

Robin Santavirta: All right. And what is it that drives the European pulp market? Is it improved demand? And if so, is that because of the Red Sea situation, less import of end products to Europe, or is it the underlying demand or restocking, or then is it the supply side of things with the Finnish strikes and the problems in chemi [Phonetic] for meta fiber?

Ulf Larsson: Yeah, I think you have mentioned all reasons now. Yeah, but again, of course the Finnish strike that have impacted the market, I mean the problems from one of our colleagues, I mean that is of course also impacting the market. We have seen closures in NBSK, so I mean also an impact, but also we feel that we have an underlying increase in demand, but not substantial. But I mean the total balance just now is from a producer point of view very positive. So I mean that is what we will see in the price development going forward from this point for a while at least.

Robin Santavirta: All right, I understand. And finally, just in terms of growth projects down the road, I saw in some of the industry press that you would be contemplating a growth expansion in Munksund. Is that something you could comment on already? Now, would that be a major expansion or a smaller expansion? What kind of investments are we talking about?

Ulf Larsson: Again, I mean, that depends on how you count. We will look into possibilities to put in a new saw line in the Munksund sawmill. That is not a major thing, but still it is an investment and let's see when we will do it. And then on the Containerboard side, we feel that we can increase the capacity but also increase the flexibility and use somewhat more recycled fiber in the production in that area. So I mean, in comparison to what we have done, they are rather small investments. But as I said just now, we are 100% -- it's also a question about personal resources and just now we are 100% focused on ramping up what we have already started, so that will be the case for a while now.

Robin Santavirta: I understand. Thank you very much.

Ulf Larsson: Thanks.

Operator: The next question comes from Johannes Grunselius from DNB Markets. Please go ahead.

Johannes Grunselius: Yes, hello everyone, it's Johannes here. Going back a bit to Oskar's questions on the Obbola ramp up. I'm not sure if you're able to answer it, but is it possible to give any kind of financial guidance, how much the ramp up cost amounted to in the quarter and how you see basically the positive delta from you being more efficient on Obbola over the next few quarters.

Andreas Ewertz: Yes. So we had some, it's hard to say exactly, but as Ulf mentioned, it's about availability when high speed, and then we have to fix something and it goes down and then you increase the uses of chemicals, things like that. I would say that the ramp up costs are maybe around 70 million, something like that in the quarter, and they're a bit more this quarter then compared to the previous quarter. That's hard to say exactly.

Ulf Larsson: But in general, I would say that we have a tendency to underestimate ramp up costs. I mean, we are, first you like to come to the right volume and after that you have a period where you need to fine tune cost and I mean, can be yield when related to raw material, it can be chemicals, it can be energy and all these kind of things. I mean, big lines and they are all individuals and we have to tackle them in different ways. I mean, you have a period with high ramping up costs, but the main focus is to get the volume and then we can start the next phase to fine tune the cost level.

Johannes Grunselius: Right. Then my second question is on you are pursuing -- you're looking into the opportunities of allocate capital into wind parks, obviously. Are you still in active discussions about acquiring some wind parks? How should we think about sort of the capital allocation per year? I understand it's difficult, but any thoughts here.

Ulf Larsson: Oh, that is easy. We have said that we shall stay on 100% degree of self sufficiency in energy. And when we have Fasikan up and running, the new project in Bräcke, then we have 100% supply, so in that perspective, we are also willing maybe to sell the first wind park. So we will not allocate more capital into wind parks, I mean, if we don't increase the consumption of energy, then we will find out how to secure the supply. But as it is just now, when Fasikan will be up and running, then we are oversupplied for a while and we don't like to stay there.

Johannes Grunselius: Okay. All right. So you don't want to go into a position being significantly -- being long electricity generation?

Ulf Larsson: Not for the moment. Not for the moment.

Andreas Ewertz: And as we said before, we have three business models in terms of wind power. The first one is lease that we continue on to maximize. We also have project development. And the third one is, as mentioned, on wind power and there we are at 100% self sufficiency now.

Johannes Grunselius: Okay, thank you.

Operator: Thank you. We'll now take our next question from Andrew Jones from UBS. Please go ahead.

Andrew Jones: Andrew Jones, just focus on products business. Can you just give us some guidance around the second quarter and how much you expect prices to lift there? My line is a bit bad, apologies if I missed that. And also just on the volume side, I think I was definitely expecting a bit more in the first quarter on volumes. Were there any one-offs or kind of timing of shipments which might have distorted that? And could you give us a bit of a steer for kind of how much you expect volume or demand to pick up in the second quarter with the seasonality? And furthermore, just on CapEx guidance [Technical Difficulty] you said about 2.7 billion for this year. Is that still valid or could we come in lower than that? Thank you.

Ulf Larsson: The first part was that about solid wood products, was it?

Andrew Jones: Yeah, that was that pricing in solid wood.

Ulf Larsson: Yes, I think I said that -- but I mean, again, we saw an 8% increase of prices in the first quarter in comparison with the fourth last year. And we will increase prices by another, at least 10% during the second quarter. Volumes will be higher in the second quarter as they always are because that is a seasonal effect. I think we guided already when we released Q4 that it should be low volumes in the first quarter because the stock level was very, very low. So that was also a reason for slow deliveries in the first quarter. But again, we are on the low side when it comes to the inventory level. Both prices and volumes will be increased in the second quarter definitely. CapEx?

Andreas Ewertz: Yeah, if we start with current CapEx, we previously got 1.6 but as you know, we had a divestment this quarter of 1200 million. So with that we expect current CapEx to be just below 1.4 billion for the year. In terms of strategic CapEx, our ongoing strategic projects are just below 1 billion. But then we have still some acquisitions of forest land in the Baltics, so I would suggest about 1 billion, 1.1 billion, something like that, but it depends on how much forest we buy in the Baltics.

Andrew Jones: Okay, that's clear. And just to clarify, on the volume side, could we see volumes go back up to the 4Q level or we thinking they're sort of weaker just given the ongoing issues in construction market?

Ulf Larsson: You're still in solid wood products?

Andrew Jones: Solid wood.

Ulf Larsson: Solid wood, yeah, okay. Yeah. I mean, we will see substantially stronger deliveries in the second quarter. I mean, as I said, that's the seasonal effect and we also start to see signs of an improving market for solid wood products and not least in repair remodeling sector, where we are present. We are not too much present in new housing and things like that, but I suppose that will also come if we find the stability when it comes to interest rates and so on. But I mean, in the repair and remodeling sector, we see signs of improvements, which is good, the season will support us, and also the fact that we have had a good production in the first quarter and so we have increased the stock level a bit and that gives us more room for deliveries.

Andrew Jones: Understood. Understood. Okay. Just finally, on the Kraftliner, you called out 70 million of costs associated with the ramp up. I wasn't sure what you were saying about -- you were talking about it being higher this quarter. Are you saying in the second quarter it should be more than 70 million negative impact from a ramp up, or were you referring to this quarter? You've just reported it being higher than 4Q.

Andreas Ewertz: This quarter was higher than 4Q, but it's hard to predict. I mean, as Ulf mentioned, you have capacity increases and they have to fix something and then you drive costs, and that's normal for ramp up, but it's hard to predict the exact amount, but for this quarter, it was slightly higher than the last quarter.

Andrew Jones: Okay.

Ulf Larsson: We will not stress the ramp up, we never do that. We like to do it right and we like to focus on quality, volume, and then we will fine tune the cost side. And if we need, then we will stop. I mean, we are not focused on volume either, to be honest. It's more -- this is long term. I mean, this machine will stay here for 30 years. I mean, it's so important that we do it right from the very beginning now.

Andrew Jones: Yeah. Okay, that's great. Thank you very much.

Operator: Linus Larsson, SEB, please go ahead. Your line is open.

Linus Larsson: Thank you very much. Good morning, gents. On the Gothenburg refinery, how far have you come in terms of ramp up qualifications, et cetera? What do you expect in terms of contribution into your own P&L once fully up and running, fully optimized?

Ulf Larsson: If we start with -- the biorefinery is something completely different to what we are used to. So we started up in the end of the first quarter, and I think after one week we reached perfect quality for SAF and HVU [Phonetic] and whatever. And we also -- some days we reached more than designed capacity. And then we had some breakdowns, of course, with some pipes that was corroded already up to two weeks, we had to stop for one or two weeks and so on. But this is, I think, will be a different journey. So still we have a lot of start to stop and so on. But when we run, we run at design capacity already now, and we run with perfect quality according to specifications, so that is where we are.

Andreas Ewertz: Yeah. In terms of what we previously guided, when we took the investment, is that over the cycle it should give around 200 million in EBITDA and then account wise, we take in the net profit of that, that would be a bit lower currently. I would say that you have a weaker market at the moment, but we think that in 2025, when the new SAF manners will kick in, that will improve a bit.

Ulf Larsson: But we are absolutely impacted by the decision from the Swedish government to reduce the blending this year.

Linus Larsson: Right. And then, Andreas, the net profit contribution would be what?

Andreas Ewertz: So it's EBITDA depreciation, so that's 200 million and that's over a cycle. Of course, you have to deduct depreciation, deduct tax, basically.

Linus Larsson: Right, okay, thanks. And then just to follow up on the Containerboard margins and the decline that we saw in the first quarter and the 70 million that you are estimating as a ramp up impact in the first quarter, if I understood you right. I mean, thus far into the second quarter, are you back on track, so to say, or are there certain impacts lingering?

Andreas Ewertz: We will continue to have rampage, as we had last year as well, and we'll continue until we are up at our full capacity and trimmed in the machine. And then it sort of said it will vary between different quarters depending on what we do, of course.

Linus Larsson: Great. Thanks.

Operator: [Operator Instructions] The next question comes from Cole Hathorn from Jefferies. Please go ahead.

Cole Hathorn: Good morning. Thanks for taking my question. I'd just like to follow up on the Containerboard market and I've got three kind of longer term questions. The first one is around the M&A that's been happening in the industry now with International Paper effectively being the front runner for DS Smith and indicating that they're going to integrate some more containerboard volumes. I'm just wanting to see how that impacts SCA. I mean, you're a very low cost producer, so just wondering how you'll adapt to that, the market adapts. Secondly, staying with containerboard, but that's just as relevant to pulp, there's been a lot of commentary around the non visible costs for maintenance services of these products over time going up, particularly in the US, and people being forced to raise prices. I'd just like to hear what your views of over the years, how have you seen those kind of, those costs develops and how do you manage that? And then I've got one follow up after that. Thanks.

Ulf Larsson: Maybe I'll start with the M&A. And I think we will be more or less not impacted at all by this acquisition. I mean you can always speculate what kind of impact a more consolidated market will have and if it will have an impact on the pricing for imported volumes from US and things like that. But as we see it just now, we will have more or less no impact from that merger. That's my view.

Andreas Ewertz: Then in terms of cost, raw segments, the biggest cost is of course wood raw material and that has gone up significantly in the last couple of years. But there, I mean we benefit from our integrated value chain where we get half of that from our own forest. And of course it gets higher earnings in our forest segments. And then our second biggest cost is of course chemicals and energy in our Containerboard division. And in terms of chemicals, they went up a bit in Q1 compared to Q4, but expect fairly flat in Q2. And in terms of maintenance cost, I think that follows more normal inflation. Inflation has been a bit higher in the last couple of years and also the maintenance cost has followed that inflation.

Cole Hathorn: Maybe I'll just follow up on the Containerboard. I mean if International Paper or the US decides to export more volumes of Kraftliner into Europe, is it a case of we just need more of the virgin grades for food contracts etcetera? Or will the European industry need to potentially react a little bit to that by maybe sending some volumes back to the US if they get too aggressive on the exports? And then on software pulp, I just like your thoughts. It's been, in my mind, a tighter market considering greater level of supply disruptions, but it's really been hardwood pulp that's seen greater increases of the lows. I'm just wondering if there's any difference between the softwood and hardwood markets. I would have thought softwood would be a tighter market whereas hardwood is where all the LATAM producers are pushing prices more aggressively. Thank you.

Ulf Larsson: I mean it is a global market. So I mean, as I said, it's hard to predict really. I mean where we will meet the high ph [Phonetic] on high grammage products and it might be food content but we also be boxes for fruits and things like that. And of course, I mean -- but I mean for us no major things if it will be -- I mean in the bigger picture, well it's really, it's hard to say really. It's a weak answer, but I don't know -- for us, I don't think we will have a major impact anyway. When it comes to softwood and hardwood, I mean, yeah, we also see that it is a tight -- and will be a tight supply for softwood pulp, and I believe that will be the case also when [Indiscernible] is up and running and in hardwood. I mean, we see new capacity coming on stream, and it is a bigger supply, and maybe the balance is not as good as in softwood, but on the other hand, it's more consolidated market and, as it looks like just now, I think the producers, they are keeping an eye on the balance, which is, from a producer point of view, a positive thing.

Cole Hathorn: Thank you.

Operator: Thank you. And it appears there are currently no further questions at this time.

Ulf Larsson: And that concludes our first quarter report presentation and I welcome you all back on July for our half yearly report. Thank you very much for tuning in today.

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