Svenska Cellulosa Aktiebolaget SCA (publ) (SCAB) Earnings Call Transcript & Summary

Good morning. My name is Björn Lyngfelt. Welcome to this press conference, where our President and CEO, Ulf Larsson; and CFO, Toby Lawton, will present and comment upon SCA's report for the third quarter. And after the presentation, there will be an opportunity to ask questions. Well, Ulf, would please take the floor. Thank you.

Thank you, Bjorn, and also from my side, good morning to everyone. When I summarize the third quarter, it looks like this. We have during this quarter finally taken the decision to leave publication paper, and we will do that sequentially during the first quarter 2021. And at the same time, we have also taken the decision to increase our production of CTMP pulp. Today, we do 100,000 tonnes at Östrand site. We will move that production over to Ortviken. And also add another 200,000 tonnes, so all in all, total production will be close to 300,000 tonnes. During the third quarter 2020, we have, in comparison with last year, declined sales of 13% and also, our EBITDA was down 24%. And we have during this quarter, clearly been impacted by the decision to exit publication paper. Obviously, customers, they have found other suppliers, and we are also hit by our colleagues and competitors in the business, of course, and that was expected. As I mentioned already in the Q2 presentation, we have also been negatively impacted by the unplanned stop that we had in Östrand, Östrand pulp mill. At that time, we estimated maybe around SEK 150 million. The negative impact was slightly lower, a little bit more than SEK 100 million for the quarter. Otherwise, when it comes to prices, we have lower selling prices in all areas except from solid wood products. During this quarter, we have also acquired 20,000 hectares of land in Latvia. And we have, as we have earlier announced, a long-term program to acquire 100,000 hectares in 5 years, and we have now done 50% of that program in 1.5 years. And last but not least, we have set a new target for -- a new group target for our contribution to fossil-free society. And we will, by 2030, reach 15 million tonne carbon dioxide per year in comparison with what we have today, 10 million tonne per year. When we look at our EBITDA level, we are 24% lower than same period last year. But on the other hand, 3% higher than last quarter. That give us a stable EBITDA margin of 24%. And obviously, it's not the industry for the moment being that contributes to our business. And these days, we are very happy to have our Forest Holdings, which give a stable and strong support to our EBIT and EBITDA level. Our net debt in relation to our EBITDA has went down from 2.1 to 2.0 due to a strong cash flow during the period, but also due to the fact that our net debt has been reduced this quarter in comparison with last quarter. If we then walk into each segment, starting with the Forest. We can summarize by saying that we have a very stable supply to our industries, for the moment being. Sales was down this quarter in comparison with last year and reason for that is of course, as I said the decision to exit publication paper. And by that, the capacity utilization at that mill has been substantially lower this year in comparison with last year. We also are negatively impacted by the unplanned stop at Östrand. That was around 50,000 tonnes, which is similar to around 250,000 cubic meters. During this period, we have also seen lower pulpwood prices. On the other hand, EBITDA is up 33% due to a higher degree of harvesting from our own forest land. But also, we have a higher earnings from revaluation of biological assets. In business area Wood, we have seen a rather stable market. And as I said earlier, this is the business area where we haven't really been negatively impacted by the COVID or corona pandemic. We feel that we have a high demand in the market, and we have this quarter, had 1% higher prices, including currency in comparison with Q2 2020. And we forecast also for the fourth quarter another price increase. So I believe that prices will be up 3%, Q4 in comparison with the third quarter, which is, of course, positive. And the driver behind this is mainly the builders merchant sector. We have really strong market in Scandinavia. But in general, total, Northern Europe is very strong and also, U.S., while we see a little bit slower market at least price-wise in China and Japan. EBITDA was up 7% quarter-on-quarter. In Pulp, as I said, we were negatively impacted by the unplanned production stop in July. But on the other hand, since we were up and running, we have had really strong production after the restart. Sales, anyway, was down 13% due to prices, but also due to lower volumes related to this unplanned production stop. EBITDA was down 49% due to the stop, but also due to slower prices, lower energy prices. And we have also started up now a planned maintenance stop, and we had a negative impact in Q3 of SEK 20 million. We will have another SEK 125 million in the impact in the fourth quarter, but we started in the end of September with this planned stop. We have also rather interesting pulp market for the moment being. As you can see on the left-hand side, deliveries has come down to more normal level. We had, as we mentioned in Q2, a buffering effect in the beginning of the pandemic, but now we are back on a normal level. Prices has been for a while quite flat here. When we look into hardwood pulp inventories, they are on an average level. If we look at softwood pulp inventories, they are a little bit high. On the other side, we know that maintenance stops has been moved from the spring to the autumn, and normally, 50% of the stops will be performed in the spring, 50% in the autumn. And the majority of producers have 5 to 30 days stops. So we think that the inventory will, just due to that fact, come down between 5 and 10 days here. We feel positive price signals in the market. China has improved, and the spot prices there are close to $600 per tonne for the moment being. We and also other producers have now announced a $40 per tonne price increase from 1st of October, and I'm quite positive that, that will come through. In Paper, we are still hit by a lower publication paper demand. Structurally, we have had a declining market for many, many years, 5%, 10% per year. But during the pandemic, we saw that consumption went down 30% to 40%, depending on what kind of degree -- grade we are talking about. And that is still the situation. And that was also maybe the reason why we took the decision to leave publication paper just now. As I said, due to that decision, we have had an even lower capacity utilization and sales was down 24%. But as you can see on the left-hand side, prices for kraftliner has also step-by-step went down from the top -- from the peak in Q3 '18. And in publication paper prices, they have been quite flat here. But EBITDA, nevertheless, down 58% when we compare quarter-on-quarter. We have a really strong containerboard market. If you look to the left-hand side, we can see that deliveries now are very strong and prices have been flat for a while. When we then look at the right-hand side, we can see that European box demand has come back to the level before the pandemic, and we have a very strong and positive trend here. Kraftliner inventories are more or less down on average level. And still, we could expect more or less the same effect as we had in pulp -- the maintenance stops, they will be performed during the autumn, and that will have a positive impact when it comes to kraftliner inventories. We had a small price decrease in the kraftliner during the third quarter, EUR 20 per tonne. And now we have announced a price increase from 1st of November, EUR 50 per tonne, and we know that testliner producers, they have already come through with EUR 30 per tonne for October. So all in all, a rather strong market for containerboard, as we see it. Yes. We've been talking about the transformation of Ortviken, and as you can see on the right-hand side, we said already back in 2017 that we should continue to grow our pulp business, and that is exactly what we are doing now. And at the same time, we should reduce our exposure to publication paper. And we have, in 8 years, gone from more or less 2 million tonnes in this segment down to next year, close to 0. So we have followed the strategy here. We have finalized the negotiations with the union. So that means that we will sequentially close our paper machines during the first quarter next year. At the same time, as I also said, we will invest SEK 1.45 billion to increase our CTMP pulp production at Ortviken site. And we can use the equipment that have a Ortviken, not the least rather new TMP equipment. So CapEx will be SEK 5,000 per tonne in comparison with the greenfield that should cost around SEK 15,000 to SEK 20,000 per tonne. So investment CapEx cost will be very cost efficient, and we also feel that we will be really cost-efficient when it comes to cash cost for the production going forward. We have already started up the project, and the startup is estimated to the first quarter of 2023. And at the same time, we have also found an agreement with Renewcell to establish a textile recycling site at Ortviken. And we will let out the space and also supply utilities. So that is good in that perspective, but also it's good because we can, in this way, also offer 100 to 150 people a possibility to a new job in the region. So we're very happy for this cooperation with Renewcell. Last but not least, we have set a new target when it comes to our contribution to fossil-free society. Today, we contribute with 10 million tonnes of carbon dioxide per year, and that will increase to 15 million tonnes per year by 2030. And that we have 3 components in this calculation. The first one on the left-hand side is the Forest. We continue to invest a lot in our forests, and that give higher growth, and the higher growth will also bind up more carbon dioxide. At the same time, we will also continue with the program for buying more forest land, not the least in Latvia. That will also have a positive effect, of course. By 2030, we have also increased our production quite a bit. And by that, also possibilities to subsidation, and we will replace, in a higher degree, plastics with paper, fossil-based fuels with biofuels and concrete and steel with solid wood constructions. And now last but not least, when we invest, we always look for the best available technology. And we will, during this period, continue to reduce our emissions. So by that, I hand over to Toby.

Thank you, Ulf. Good morning, everybody. I will start here with a slide showing the impact from the exit of publication paper, which was decided in quarter 3 here. And this impact, Ulf has presented the underlying results, but the one-off impacts of the exit of publication paper is the biggest effect in the result this year. So I set out the effects here for you to see. You can see, firstly, on the left-hand side, we have an impact on EBITDA of SEK 1.12 billion. And this is 2 components. The first component is the provision for restructuring, which is SEK 870 million, and that's the part that impacts on cash flow. Then we have an impact, which is the write-down of working capital of SEK 250 million as well with no cash flow impact, but impacting EBITDA. And then further to that, we're also writing down fixed assets of SEK 671 million, which has an impact then on EBIT. And then, finally, we have a positive impact in terms of deferred tax from these effects of SEK 359 million. So those are the onetime effects from the exit of publication paper. We have taken the effect now all in Q3. There may be some fine-tuning as we go through Q4, as we're confirming some of the amounts, but we don't expect any significant changes. This is the onetime effect from that decision that we've taken now in quarter 3. And then, finally, you can see at the bottom on the left-hand side, also giving some information now that the publication paper EBIT loss, which has been there since the start of this COVID crisis, has been SEK 40 million to SEK 50 million of EBIT loss in -- basically in both quarter 2 and quarter 3. So that's the loss rate we have in publication paper, which will continue until we close the operation, as Ulf said, successively in Q1 next year. So then you can see the impact of all these figures on the right-hand side. And if I focus on year-to-date on January to September, you can see on the right-hand side and on the EBITDA line, you can see our underlying EBITDA for the first 9 months is SEK 3.063 billion. But then when we take the impact of the EBITDA one-off items, we have EUR 1.9 billion. Then on the EBIT level, our underlying EBIT is SEK 1.85 billion. And then there's a bigger impact on EBIT with the write-offs of fixed assets. So that comes down to SEK 61 million. No impact on financial items, then a positive impact on the tax line due to the deferred tax impact. And then basically on -- down on the net profit for the -- also for the year-to-date, we have an underlying net profit, SEK 1.4 billion for the first 9 months within earnings per share then underlying of 2 -- just over SEK 2 per share. And with the one-off impacts, then we have a small negative, minus SEK 16 million on the net profit line. So that's the impact of all these one-off items, just to set that out for you. Then here, you have basically the income statement underlying. So without these one-time effects, and as Ulf has presented here, you can see the EBITDA we have of SEK 1,032 million. So we have an EBITDA margin of 23.80% in Q3, and that's a 24% drop versus Q3 last year, which is primarily the effect of pricing. Then on EBIT, we're at SEK 624 million for the quarter. Financial items very similar to last year, very stable, SEK 28 million. Tax charge of SEK 121 million, which is an effective tax rate of 20%. And so net profit for the period of SEK 475 million , underlying, which is then an earnings per share of SEK 0.68 per share. Okay, if I just then give a bit of guidance per segment and focus most on this, the trend versus the previous quarter. And here, starting on the top left, on the forest business, you can see here, you can see the effect from the lower publication paper volumes, which have an impact. But we've also, this quarter, we are flat versus the last quarter. We've also had an impact from the unplanned production stop in Östrand. So that's kept the internal net sales from the Forest division a bit lower than they would otherwise have been. And in the terms of bottom line, we're also slightly up versus Q2. We have had less harvesting of own forest this quarter, which means a lower profit contribution from the harvesting of own forest, but we have a compensated by higher revaluation effect in Q3. When we move across to the Wood sector, we have a lower top line, lower sales in Q3, which is a seasonal impact. We produced less in Q3, and we've had some less production over the summer period in Q3 this year with an impact on then, net sales. The bottom line, we have a higher profit margin this quarter, which is really the impact, as Ulf mentioned, of the higher prices coming through in Q3 and the stronger demand, particularly in the building material supply sector, which has been strong this quarter. Then when it comes to Pulp, of course, the unplanned production stop was the main effect when it comes to the top line. We had lower volumes due to the unplanned production stop that we had in Q3. And then on the bottom line, you can see we had an -- we were lower than we were in Q2, which is basically the unplanned production stop had an impact of around SEK 100 million. So it was less than we previously thought, but an impact around there. And then we compensated with a good level of production during -- basically during August and September, after we started up after the unplanned production stop in July. So that compensated back around SEK 50 million of the SEK 100 million loss, so we ended up yes, just under SEK 50 million lower in the quarter versus previous quarter. And then when it comes to Paper, you can see over a longer period, you can here also see the impact of the lower publication paper volumes, and that's probably particularly between Q1 and Q2. That was the main impact this quarter. We have slightly lower prices in Q3, slightly worse [ FX ] so that's a slightly lower top line versus Q2. The bottom line is slightly up, which we have the lower, as I say, slightly lower prices, but you're offset by a slightly lower cost for maintenance during Q3 than we had in Q2. And here, just to then give you the bridge for sales first and then EBITDA on sales. Basically, we have a total decline of 13%. The price impact is 4%, which is basically across all segments, even though you saw wood pricing is now increased versus previous quarter, but versus -- this is versus last year. We are slightly lower in all segments in terms of pricing quarter versus quarter last year, same quarter last year. And then in terms of volumes, we have a 10% impact, and this is primarily paper volumes and primarily publication paper effect driving that. And then a small positive currency and then, yes, 0 on acquisitions divestments. And then when it comes to EBITDA, you can see the same effect on price/mix on the left-hand side having an impact on EBITDA of some SEK 291 million. Then we have the impact of the volume, which again, it's paper volumes or mainly publication paper volumes. We have a good positive contribution coming through from the lower external raw material costs from the lower wood prices that we now have, which compensates for a part of that price and volume impact. Then we have a negative energy variance of SEK 84 million, which is primarily the energy sales from Östrand has an impact as well with lower electricity prices. We don't get the same income on electricity this quarter, where prices have been particularly low for electricity in our -- particularly in our area of Sweden. And then currency is a positive quarter, and then in other, we have an impact. We have to remember in Q3 last year, we sold the Rotterdam terminal, and that had a positive impact of over SEK 70 million in the result, and then we also had the unplanned production stop in Östrand, which I mentioned before. All right. Then as Ulf also mentioned, we had a strong operating cash flow this quarter. Q3 seasonally, is usually a good cash flow quarter, but it was particularly strong this year. We had SEK 1.1 billion of operating cash flow this quarter, as you can see. And the biggest contribution here is really the change in working capital, where we had plus SEK 821 million. And that's -- there's basically the -- it's a seasonal effect partly, but we also have some effect from the lower volumes feed through to a positive effect in terms of working capital. But we've also had a very tight control in terms of working capital this year with the -- particularly with the underlying environment being so uncertain to keep a tight control on the working capital, which has led to a stronger cash flow here as well. So year-to-date, we've delivered SEK 1.7 billion of operating cash flow and also, then that funds the strategic capital expenditure, yes, well within our operating cash flow. So we've had SEK 1.15 billion of strategic capital expenditure this year so far, which is predominantly the Obbola investment. And here, because of the strong cash flow, we've had a good deleveraging effect this quarter. We've reduced debt by over SEK 1 billion during the quarter. So from quarter 2, which you see on the left-hand side here, we've had the SEK 1.1 billion of operating cash flow, which have reduced net debt. Then we've had strategic CapEx in the quarter of some SEK 300 million. And then we have basically a small effect from tax charge and then also a positive effect from revaluation of pension assets. But overall, then it's the one -- over SEK 1 billion improvement in net debt, which has driven the deleveraging in the quarter and also an improvement in the net debt-to-EBITDA ratio, where we were at 2.1x 3 months ago, now we're down to 2x debt to EBITDA. And finally, then just to show the balance sheet. Our forest assets, you can see on the top line are valued now at the end of September at SEK 71.5 billion. Valued according, of course, to the new method market valuation of forest assets. Our working capital, you can see it's over SEK 1 billion less than it was at the end of last year, which is the strong effect I talked about in working capital, but a strong focus on working capital. And then total capital employed then is SEK 77 billion. Our net debt versus the end of last year, our net debt is down some SEK 200 million at 8, yes, nearly SEK 8.3 billion and 2 net debt-to-EBITDA are 2x. We were lower at the end of last year, which is primarily the run rate on EBITDA because the net debt has come down a bit. But so our run rate on EBITDA has come down, so the ratio is affected by that. Net equity is SEK 68.9 billion or SEK 69 billion. And then the market price for forest assets. I'll remind you here, it's the same figure we had in the half year report. We haven't done any update of the market price of forest assets. We still have the latest number of SEK 281 per cubic meter, which was the latest statistic we had at the end of June, and we will update that again at the end of the year when we get the latest market price of forest assets. But it was -- it's slightly up at the end of June versus the end of December last year in terms of price per cubic meter. All right. I think with that, I can hand over to Ulf for a summary.

Well, when we summarize the quarter, then we can say that we are fundamentally reshaping the company. We have now finally taken the decision to leave publication paper. And at the same time, we have also taken the decision to further improve our pulp capacity. EBITDA was down during this quarter. We are clearly impacted by the decision to leave publication paper. Long term, it's the right step to take. Short term, it will have somewhat negative impact. We had this unplanned production stop in Östrand, as we have earlier talked about. Start-up was very good, so we are happy about that. We have had during this quarter, in comparison with last year, lower selling prices in all areas except from solid wood products. We continue our program for buying forest land in the Baltics. We have done 20,000 hectares during this period. And by that, we have reached 50% of the total 100,000 hectares that we have announced in 1.5 years. And we have also set the new climate target for the group 2030, reaching 15 million tonnes of carbon dioxide per year. So by that, I think that we open up for questions and maybe start here.

Nothing in the room, I think.

Nothing in the room?

Yes.

Then operator, we can open up the line if we have some questions from the audience.

[Operator Instructions] And your first question comes from Johannes Grunselius from Kepler.

It's Johannes Grunselius here. A few questions, may I start on, yes, kraftliner, that side. You're pretty positive here, Ulf, on the pricing prospects. Have you -- can you confirm that you have these price hikes you're pushing through, have they been accepted? Because we can't see this at least in the statistics so far, but I know the statistics are lagging. And also, if you could sort of highlight, is this very much demand driven or what's behind it?

I think you saw that pretty well on the slide that I did show. But I mean, the announcement has been down from 1st of November, so you cannot see it in the statistics yet. What you can see in the statistics is that testliner prices has already went up with EUR 30 per tonne. And the announcement from our side has been EUR 50 per tonne, and that has also been done by other producers, some from 1st of November, some from 15th of November and so on. So I mean, it's a negotiation ongoing here. But as you could see on the slide, we have just now a very strong -- we have strong deliveries and we also have a rather strong box demand. We are more or less back on the trend level as we were before the pandemic. So I feel that we have, for the moment, being a very strong market for containerboard.

So we should basically pencil in higher prices for the fourth quarter already?

Still, we are negotiating with our customers. But I mean, our view is that the balance is strong. Then, of course, we know that we will have additional capacity coming on stream from the first quarter next year. And I mean, it's hard for me to judge what kind of impact that will have. But the balance is good just now and prices is, I mean, they are increasing now for testliner, which normally is a strong sign also for kraftliner.

Yes. I can also see that you had, at least compared to my expectation, pretty favorable OpEx, but only in the pulp business. Is it a lot of lower input cost that is coming through there? Or what's behind the low cost? And also, how should we be thinking about costs for the Pulp division for the coming quarters?

I can take that. I mean, I think we saw -- obviously, we had the significant impact from the unplanned stop, which came in in July. And then -- but then we had good production in August and September, and that feeds through to then also a good -- I mean, a good production feeds through to a good cost position. So yes, we had -- we've seen that effect come through in August and September.

Okay. Okay. That's useful. Then a final question. If I look at the forestry division and take the EBITDA, I strip out the revaluation effects, the EBITDA per cubic meters is relatively low in the third quarter compared to previous quarter. Is this mainly effect of price? And can you help us in understanding the price decline year-over-year or quarter-over-quarter and how we should be thinking about the next few quarters?

Like I said, you also have to factor in always the amount of own forest harvest in that calculation as well. We have a -- when we harvest more of our own forest, we have a significant profit effect from that because that's where the profit is delivered from basically and vice versa, when we have a low harvest on forest that has a negative effect. So that's one thing you need to factor in. And then, of course, the pulpwood prices and the timber, sawlog prices have come down, as you saw in the graph that we showed as well -- so those -- so over a longer period, that has an impact as well.

Yes. How should we think about timber prices, log prices Q4, Q1 here with Q3 as a base? Do you still see a pressure on prices? Or is it more flattening in out now?

I would say that we have a rather stable market out there. I mean, if we look more into detail, it is a little bit over -- we are a little bit oversupply -- we have a little bit of oversupply in pulp wood for the moment being. And as we have a very strong market for solid wood products, I mean, in some areas, I think some companies, they might have a lack of sawlogs. For us as a big forest owner, I mean, we can adjust a little bit on how we harvest. So we are in a rather balanced situation. But all in all, I think in the Northern part of Sweden, we have a rather stable situation. We have, as it is just now, no impact from the spruce beetle disease and so on. So I mean, stable in our area, I would say.

Your next question comes from Martin Melbye from ABG.

So the prospects [ are good on top in ] containerboard, not to go overboard in Q4. What kind of price change do you see on kraftliner for Q4 realized, given that prices dropped in the previous quarter? And then also same question on pulp, if you will, realized price is for Q4?

We don't give forecasts, as you know. So I mean, it is exactly as I say. In containerboard, we have announced a price increase of EUR 50 per tonne from 1st of November. Then we have different agreements. I mean, some of them are related to index movements, and some of them are direct agreements by us and customers. What we know, just now, we are negotiating. And what we know is that in testliner, they have come through with EUR 30 per tonne. And then you have to do your own judgments of the possibility for us here. In pulp, we can also just follow what we know. I mean, in China, now prices, they have went up USD 30 per tonne and have reached around USD 600 per tonne as it is just now. That is the spot price. We know that many suppliers or producers in Europe, they have announced increasing prices from 1st of October, and we are just now negotiating prices for October. So I mean, we don't know really the outcome of that. But we can look at the statistics and you can do the same and see that we have a rather balanced situation. I think when you look at the inventory days, just now in NBSK, you have to take into consideration that more or less all maintenance stops, they are moved from the spring to the autumn, as I said, and that will have a rather big impact on the inventory level going forward from now on.

And I would add, Martin, I think, Johannes had the same kind of question, but there's always a time lag when the prices come through to the bottom line, of course, it's a time lag for it to come through to index. So those -- that takes a bit of time. So it always comes through a bit later in the results, both up and down than it does directly in the market, so to say.

Okay. But to rephrase, [ you factored ] the lower kraftliner price. Did you capture everything here in Q3? Or is there more to come from that in Q4?

No, it was pretty much all captured in Q3.

Great. And then last question on the potentially higher forest asset values. How much is that price increase you're looking at for the first half compared to what you had in your numbers?

You mean -- I mean, we have the price per cubic meter SEK 281. Is that...

Yes. And then you said you had seen higher transactions than that.

I said -- no, the SEK 281 is where the market prices were at the end of June. So that's up versus where it was at the end of December is what I said. So we -- so you can see them as a SEK 5 per cubic meter increase there. And we've -- what we do so far is we estimate SEK 281 in for the end of the year, so until we see updated statistics. But we have no -- a lot of the transactions do come through in Q3, Q4. So there's a lot more statistics coming through now. And we see no indication that is on the negative side, but we have to wait for the statistics to come in and see where it ends up.

Thank you. Your next question comes from Linus Larsson from SEB.

Thanks for providing the guidance on the Ortviken, EBIT drag that we've seen the past couple of quarters. Could you also say what the depreciation has been, i.e., what has the EBITDA drag been in Q2 and Q3? And also, just to understand this correctly, is all of the depreciation going away now as from the 1st of October in relation to Ortviken?

The -- basically, the depreciation we have -- we've given the EBIT then of SEK 40 million to SEK 50 million EBIT loss in Q2 and Q3. There's a small depreciation in Ortviken, around a little bit over SEK 10 million per quarter. So that's then -- you can add that back to find the EBITDA impact. But basically, that depreciation will continue up until -- pretty much up until the machines are closed. So there won't be a big impact from -- in Q4, Q1.

Great. That's very helpful. Then also regarding the Ortviken site. I mean, you've already announced that you're making a significant investment into CTMP production. You have this cooperation with Renewcell. Are you also looking at other potential options for this site is in your own business or as a landlord?

Well, I think -- I mean, we have a lot of big projects going on just now. So we are very focused on delivering on all these. And I mean, it was very, for us, very positive that we could find an agreement with Renewcell and that is mainly regarding our personnel that can be very helpful, I think, for Renewcell when they are starting up the new line and so we are very happy for that. Otherwise, we are not in a hurry. So I mean, we will start up now the big -- the project with CTMP, and we are in a very good position here. We can utilize the old TMP equipment that was integrated back in 2007. And by that, we will have a very low investment cost. And also, I didn't mention that, but the fact that we now can close down 2023, the CTMP production at Östrand, that gives us an opportunity for further capacity increase in Östrand. So that is also part of the picture, really. And also part of the over -- the strategic picture, where we say that we shall continue to grow our pulp business and also, as I said, also leave the publication paper business. But as it is just now, we are focused on delivering on the projects that we have announced. We have a fantastic site there. And we will continue to have activities on Ortviken site. And for the moment being, we are not -- we are not planning anything else for the moment being. But I mean, long term, it's a fantastic infrastructure that will be used for something.

And [ perfectly shared ], does that mean that, also on the next leg of the Östrand expansion, that's not something that is imminent? You will now focus on what's going on the Ortviken site and the previous project at Östrand and Obbola and the next potential expansion of Östrand is not in focus for the time being?

I mean, we have done a lot of pre studies and feasibility studies when it comes to Östrand, and we know that we can and will continue the journey at Östrand. We shall do that, of course, as we have already, today, the biggest line in the [ world ] at site. And -- but again, it's a question of market. It's a question of cash flow, and we don't know really what kind of impact the second wave of the COVID pandemic will have and so on. So I mean, for the moment being, we are focused on what we are -- what we have announced.

Yes. That's clear. And then just short-term also on pulp shipments, I guess, were negatively affected by the Östrand boiler breakdown in the third quarter, our inventories on the low side now that you're going into -- the fourth quarter, you have a bit of maintenance? And in other words, does that mean that shipments to capacity will remain somewhat suboptimal in the fourth quarter as well?

I mean, we will be impacted by the planned maintenance stop. We did start in September. And as I said, we had a negative impact of SEK 20 million in September, and we know that we will have another negative impact of SEK 125 million in the fourth quarter. So -- and by that, production will be lower for a while. We feel that we have a strong market as it is just now. So I mean, we have no limitation in the market for the moment being. But still, we have to do this planned stop.

Right. And then just one final question. On the -- there are a lot of structural changes going on in the company, Obbola, the CTMP, the closure of Ortviken, the acquisition of Forest Land in the Baltics. Once all of this has been completed and the dust has settled, what would self-sufficiency will we be looking at?

Yes. I mean, depending on -- I mean, Obbola, CTMP and so on, you will remain on around 50%, I would say. And the good thing with the CTMP project is that 50%, I mean, that 300,000 tonnes of CTMP is around 600,000 cubic meter of wood, but more or less 50% out of that will be birch, which is good. I mean we are oversupplied when it comes to birch. So in birch, it will be more than 100% coming from -- we will be fully supplied from our own forest. So you also have a little bit different mix going forward.

Your next question comes from Cole Hathorn from Jefferies.

Just a follow-up on the kraftliner market. We've seen the U.S. market calling out good demand and box demand, and then pulling back on some of the exports to Europe. Firstly, can I get a little bit of your comments on what you're seeing from the U.S. players on their exports, and they also commented around stronger [ produce ] demand. And I know that's not really where much of your volumes go, but hoping you can give a little bit of commentary on that. And following up on wood products, you talked about better construction demand and some exports to the U.S. are you still seeing that strong pull in the export markets for wood products?

I mean if we start with the import of kraftline to Europe, normally, it's rather stable. It is a couple of 100,000 tonnes going to Spain and Italy and down there, and I feel it's on a rather stable level here and will continue to be. When we just...

You mentioned produce as well-being strong, on kraftliner is -- a lot of kraftliner goes to the produce market. So it's an important segment also for the kraftliner. So that's -- we see that effect as well.

When it comes to the U.S. market, I'm maybe not the right person to ask. I mean, we do 70,000 cubic meters per year and have done so for 25 years to a few customers there and we feel that there is a strong demand. We are -- I'm personally a little bit surprised of the strong demand that we still have in Scandinavia and Northern Europe and so on. And -- but I mean, that is what we have just now. And as I said before, see another price increase in the fourth quarter. And we also see that we will have a strong market in the beginning of next year. So -- and U.S. has been a strong driver for that because big volumes from Europe has went over to U.S. as prices has went up. SCA is maybe more stable with our customer base. So we haven't really acted on that. We have our more or less the same volume in U.S. today as we had before the price increase. So we are quite stable in the mix. I didn't catch the second question. What was that?

Well, I suppose, something, just following up on the kraftliner side would be -- do you have any more color what's driving this acceleration in demand? Is it industrial coming back that you're seeing in your customers?

Yes. I mean, again, first, we -- I can -- I believe that we have also, during the pandemic, seen a good demand from the e-commerce business. That has been strong. And what has been negatively impacted is the industry. And we feel that it is a much stronger demand, and you also saw the statistics that the box demand is now up on a more or less higher level than it was before the pandemic, which might be a little bit surprising, but that's the case just now. Inventories are also low, and deliveries are super strong in kraftliner. And I think very much is now depending on the second wave, what kind of impact will that have on the industrial production. And I mean, we saw in the first wave that production of cars in Germany, not the least, went down and spare parts and things like that, and a lot of our kraftliner is used for that kind of industry. So -- but as it is just now, for the moment being, it is a strong demand. And let's hope that, that will continue. But I think that will be pretty much dependent on the development now of the pandemic.

Your next question comes from Justin Jordan from Exane.

I've got 2 completely different questions. Firstly, on the 50 -- sorry, $40 a tonne softwood pulp price hike that you're targeting. I'm just coming to the fact that some of your Nordic peers have been cautious on this in what they've said in their Q3 results in recent days. And secondly, clearly, there is a very elevated difference between softwood pulp prices in excess of the hardwood pulp prices globally. Does that make it quite a challenging environment to get this softwood pulp price hike through unless you see hardwood pulp prices moving up also? And then my second question is just buried away in your results release, you're having a Capital Markets Day on December 3. What should we expect from that, please?

Yes. I mean, on the -- I think Ulf has said that really on the softwood pulp price hike, I don't think we can comment anything on what others' comments. But we feel a strong market with these maintenance stops also shifting to the fourth quarter. So I think -- I don't think there's really much more we can add to that. That's our -- I think the feeling we have is, how Ulf has presented that. So I don't know what more I can add to help you there, Justin. But I think that's our take on the market situation and the prospects on the NBSK side. And then the second question, I think, yes, we -- I think we gave a little bit of a flavor in the -- yes, we'll give a bit more flavor going forward for the Capital Markets Day, but we expect to show basically the strategy going forward and the vision for SCA over the next 5 years is basically the theme of that Capital Markets Day. And we've taken a number of big decisions here, and we want to show how that transforms SCA and then potential route after that as well.

Okay. And just one quick follow-up on your new 15 million tonnes of CO2 target [ as award for ] 2030. Can you envisage at some point in future that you can monetize this carbon capture through, I don't know, some sort of regulatory system or something? Because clearly, you've been doing this, I don't want to say for centuries, but clearly, you naturally do this to some degree because you're [ being course ] owner. But clearly, you don't get, frankly, any revenue or profit from it directly. But is there in any sort of revision of the future where this might become a potential revenue or profit stream for you?

Maybe I can start. But I think it's still extremely early or hard to answer that question. I mean, I think it's becoming more talked about in terms of the benefit that forest has in terms of carbon dioxide. But there are no real kind of concrete proposals that we see for monetizing that. There's a few ideas, but it's still very, I would say, very preliminary and how those kind of ideas might work or might -- yes, might pan out in the future. I don't think anyone -- it's too uncertain to draw any kind of conclusions or any kind of viewpoint at this stage, I would say, then. Yes.

Your next question comes from Mikael Doepel from UBS.

Just a question on the publication paper business. I appreciate the additional details you've given on Q2 and Q3. But these are quite extreme quarters, I would say, from a [ starts ] perspective. And I wonder if you would mind giving some indication on the long-term EBITDA, that business has generated before the pandemic. Maybe just a ballpark figure would be great.

We don't give separate figures for publication paper. But I think what we've always said is basically, is the day when publication paper stops contributing, then we will take action, and that's what we've done here. So publication paper during Q2 and Q3 has been a loss-making business and has been then a negative effect on SCA and on the group, and then we've taken the decision to exit publication paper. Before that, publication paper is -- you have to go back a long time before you get a -- basically, a strong bottom line from publication paper, but it's been -- it's -- before that, it wasn't a negative impact. It was a neutral or a small positive impact, you could say. But I don't -- we -- I think that's about all I can say, Mikael, of that.

I would say it's been extremely volatile because it's also dependent on the currency and so on. So I mean -- and the industry has been, I think, quite good at closing down capacity. But as always, a little bit too less and a little bit too late. And I think that again, I think we have reached a new normal, and I don't think it's enough now with what's done. I mean, a lot of capacity closures that's now being announced, but we will see more.

Yes. Yes, for sure. For sure. And then a question on, still on the pulp market. I appreciate you not wanted to give too much comments on the pricing. But if you think about the European and Chinese pulp markets right now, if you compare it to what we did see are the key difference is right now in terms of demand trends and in terms of inventories and so on. Anything you could comment on that?

I mean, just now, we see that China was -- I mean, they had a pandemic effect a little bit earlier, and it was a little bit earlier recovered from the pandemic and some in the consumption in China, as I see it been quite good. We don't do too much to China, and we are more focused on Europe and secondly, on U.S. But still, as we have seen that prices now has come up already in China, and I think that Europe will come after. And I don't know to comment so much more about that.

I mean, we have most of our customers are in Europe. So that's the market that the vast majority of our sales, and so that's our main market.

Yes. And how would you characterize the demand in Europe? I guess the tissue demand hasn't been that strong and graphic papers remain quite weak. How have you seen the -- I mean, just looking at the statistics, but how have you seen the demand of pulp in Europe, yes?

I mean you saw it on the slide, more or less. It -- I mean, first, you had a buffering effect in the beginning of the pandemic. It was a really strong market out there and strong demand. Then it has come down to what you can more see like a normal level, I would say, and that's where we are just now. In the tissue business, when you also look at tissue companies, I mean, presenting their results, they have a rather stable demand in tissue. So I think the big impact, of course, also in the pulp business has been, I mean, the effect of the publication paper business decline, so.

Okay. Okay. Sure. Good. And then just finally, on the working capital. Maybe, Toby, if you can give a comment on that. I mean, we saw quite a significant release, as you pointed out, in Q3. What do you expect to be going into the last quarter of the year? Do you expect to see some further release? Or how should we think about that?

I think we don't give forecast either on working capital. I think Q3, as I said, was seasonally is a strong quarter and was particularly strong this year because of the tight control and also, the lower volumes in Q3 have an impact on working capital. I don't think we'll see that effect twice, if I put it that way. But I wouldn't, at this stage, give a forecast of what we expect in Q4.

Your next question comes from Markku Järvinen from Handelsbanken.

Kind of a few more clarifications, I suppose. So to start with the containerboard business. Testliner, you said there is a EUR 30 price increase that has passed. Can you just remind us what was the increase that was [ sought when that passed ]?

Sorry, what was the last part? What was the...

The increase that was...

What kind of -- yes.

I think they also went for EUR 50 per tonne in most cases, yes. Sorry.

Okay. Very good. And then kraftliner, when you announced [ standing ] pricing in October compared to the Q3 average?

So kraftliner pricing in October...

For you.

Yes. Again, that's forecast information that we don't give out. But basically, there's not a big difference. I would say, basically, we haven't seen the increase coming through. And as I mentioned earlier in the call, basically, the time lag effect has come through now during Q3 of the previous drop in kraftliner prices. So that's now fully in.

The drop was EUR 20 per tonne in Q3.

Okay. Very good. Very good. And then this price increase you've announced for this -- sorry, November, does that impact the P&L primarily from December? How should we think about that?

Yes. It has this time lag effect. So I think it will be a small impact before December, yes. So it be December 1 that we see any -- we see the impact of that on bottom line, yes. And then it'll be more than in Q1.

Good. Good. And then looking into next year, there's quite a bit of capacity increases in testliner and then in the kraftliner. All we know that Stora Enso is converting their [ older ] plant, and that will come online sort of early next year. How does the supply balance in that market look to you?

It's really hard to say. I mean, first of -- I mean, Obbola will not go from 0% to 100% in 1 quarter. It will be a ramp-up period, of course. And again, we don't -- I think the biggest question mark will be the demand. And as it is just now, and as I did show you on the slide, I mean, the box demand is back. It's on a higher level today than it was before the pandemic. Deliveries are on a really high level for the moment being inventories are on the low level. So I mean, fundamentally, you have a really strong balance in the market just now. But of course, I mean, the big question mark for all of us just now is what kind of impact the second wave of the corona pandemic will have on the business. I think we, in some areas, might have learned something from the first wave. And as it is just now, we don't see too many signs of companies closing down the production. But I mean, if things get worse, then no one can really answer.

Sure, sure. And the industrial demand in containerboard or kraftliner, has that now fully recovered from the pandemic impacts of [ relative sites ]?

I mean it seems so -- or if -- I mean, the e-commerce and e-business is super strong. And maybe the industry part has not fully recovered yet. So that is yet to come if we -- when -- if and when we come over this.

Okay. Very good. And then pulp, I still had a few questions on that as well. So you have now -- I know, pulp price increases from 1st of October and that those negotiations are ongoing, I suppose, Södra followed that increase. We haven't seen an increase from Metsä have you seen increases from other players for the European market?

We don't talk with other players. We talk with our customers, and we feel that they understand that prices will come up a bit. And -- but I mean, we just talk to our customers.

And the increases from 1st of October, but I suppose that could then impact November for all the shipments?

Again, we have some customers that are related to the fixed price development. And other customers, they have -- I mean, they will have direct agreements. I mean, it differs. But again, it will -- you will have a lagging effect also in pulp.

Okay. Okay. Good. And China was talked about quite a bit. But where does the sort of net price spreads stand at the moment in NBSK between China and Europe after discounts?

I mean, again, if you have China net price now on [ SEK 600 ], more or less. And I mean, official fixed plus sales now is [ SEK 840 ]. And then if you take 70% out of that, then you can do the calculation.

Okay. Very good. And I suppose you mentioned this, I missed part of the call. But where do you see sawn timber pricing going to Q4? How much was it up in Q3 now? And what's the sort of move to Q4?

Yes. I mean for SCA, that's our own figures. I mean, you have no statistic. But for SCA, we had a 1% price increase, the third quarter in comparison with the second quarter, including currency. And then in the fourth quarter, I believe that prices will increase another 3% in comparison to the level that we have had now in the third quarter. And we feel also that we have a surprisingly strong market when we also come into 2021. So the demand is still there. Of course, somewhat slower activities in the builders merchants sector, but still a good demand and a stable demand.

[Operator Instructions] And we will now take our next question coming from the line of Oskar Lindstrom from Danske Bank.

All right. And I have a couple of questions on the pulp side, which I thought was a very strong result here in the quarter. It seems like you had very strong pulp production in August and September. And you said that you lost some 50,000 tonnes in July because of the boiler problems. Now if I add back the 50,000 tonnes, that would -- to what you actually delivered in the third quarter, that would indicate that it's a record level for the Pulp division now in Q3. Does this reflect in any way sort of a new normal, new higher production level for Östrand? Or were you more sort of you had a very good 2 months, and that's the way we should see it?

I certainly hope that we have reached a new normal, so to say. And as you said, we have a good production in August and September, and one of these months was also record months. And -- but again, it's now, I feel, on a stable level. We have now just performed planned stop, and we have done also some work with some bottlenecks and so on. So I mean, step-by-step, it's getting better and better. But still, it is a tough job to ramp up a mill like that. And -- but just now we are confident with what we have, and we have reached some kind of a new level there now.

All right. Very interesting. And a follow-up. I mean, you talked a little bit about the CTMP project that you have in Ortviken. How are you progressing on the project of expanding the chemical pulp capacity in Östrand, which you've previously mentioned would be made possible by moving the CTMP line to Ortviken. What's the progress on that project?

Yes. Again, I mean, just now, we have taken the decision to invest SEK 1.45 billion to build up CTMP in -- at Ortviken site, and that will be, of course, a big project. But I mean, we have to do -- we have to close down the CTMP production Östrand in order to be able to continue to develop the Östrand site and we will do that. I mean, definitely, we will do that. We will utilize the infrastructure that we have not created around Östrand. So that will happen. But again, now it's more a question of, I mean, cash, of course, and what kind of impact will the pandemic have on the future market for a while. And so I mean, timing is important just now. We have a couple of big projects going on now. We have Obbola perfectly on time and budget, will be up and running in the first quarter 2023. We have the big project in Bollsta, slightly less than SEK 1 billion, but still a lot of money. We invest now in the closure of publication paper, also in cash, slightly below SEK 1 billion. And we put in EUR 1.45 billion into the CTMP production. And in addition, we have also taken another step in the Baltics. I mean we have a lot of cash out for a while just now. We have done a lot of work Östrand, just to understand the most clever way to take the next step. There's some -- I mean, we are pretty sure on how to do it. So just now, it's more a question about timing, I would say.

I mean I appreciate that you have a lot of things going on at the moment, including some rather expensive ones. Just on that expansion in Östrand. And again, I realized your -- it's some time away. Would expanding that capacity necessarily cost a lot of -- what would be the CapEx associated with that? Or is it something you would be able to do with a rather small debottlenecking investment?

I don't like to speculate in that. But I think that will be -- I mean, if the CTMP project, that will be a very cost-effective one because then we can use the TMP line already. So I mean that will be 1/3 of a greenfield. But Östrand, I mean, I believe we will be more in line with what a normal cost for expanding pulp mills, so.

And I mean, it does depend on what kind of technology. There are a few options still. So it's not that we know exactly which option is.

I mean, still, the problem for us Östrand is recovery boiler. We need to find a way to release that bottleneck, and you can do that in different ways. And it's also related to what you can do with the lignin. You can always do energy, but can you do something else? And how can you do it? So I mean, we have some options, and we also have some time now, I think, to figure out what will be the best for us and the safest way to do it.

Just finally on this topic, when do you think you will be able to tell us about what that next step Östrand will look like?

Maybe when we know about pandemic and things like that. So let's see. We will come back on it, Oskar.

Yes. And then just a question on the CTMP project in Ortviken. I know you had a separate press conference on this, but something that's I've thought about since then. To what extent will you be having selling this increased CTMP volume to existing customers? Or to what extent will you need to find new customers? I mean, it's quite a niche product in a relatively small market. I was just wondering about that.

Yes. It's a good question. I mean we have a -- CTMP is not -- you have different grades of CTMP, and we are rather specialized in the CTMP that we produce today from Östrand, and we feel that we have a strong customer base already today. And many of these customers, they like us to increase the volume. And that is, of course, the first option. But we also see an increase in demand, not the least from China and so on, mainly due to the restrictions when it comes to taking recycled material to China. So I think -- but as you say, I mean, technically, it is a much more easier project then when we compare, for example, with Östrand and the chemical pulp production. But the challenge will -- might be in the market for a while. But again, that's also why we haven't really calculated on a fast ramp-up. We will take it step by step, and we will also try to continue with the balanced market, of course.

We have no further questions at this time. I will now hand back to the speakers for closing remarks.

Then thank you for the interest you have shown in this press conference and in our quarterly report. We hope to see and hear from you again. First, on our Capital Markets Day, which will take place on the 3rd of December; and then at the year-end report on the 29th of January next year. Thank you.