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

Good morning, and welcome to this presentation of SCA's third quarter results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Toby Lawton. Please Ulf, go ahead.

Thank you so much, Anders, and also from my side, good morning and a very warm welcome to this presentation. Yes. When I summarize the first quarter, I can state that we delivered our strongest quarter ever. We made SEK 2.7 billion on EBITDA level and a profit EBITDA margin of 53%. We have seen a very strong market during the quarter, underlying strong demand and in all product areas, more or less. And not the least important, we took the decision to leave publication paper last year, and that has also been very contributable to our good profit this quarter. On top of that, we have had a stable cost level and also good production. During this quarter, we have performed 2 maintenance stops, and we have also started out the third one, and I will come back to this later on, but the impact during this quarter has been around SEK 170 million in comparison with SEK 60 million third quarter last year. Our net sales went up, and the main reason for that is the price and mix. On the other side, as already mentioned, we took the decision to leave publication paper last year. And we also took the decision to divest our supply operation in wood for U.K. During this quarter, we have also announced that we will invest SEK 700 million in a joint venture together with St1. So we will take a stake in their biorefinery in Gothenburg. Total capacity in this biorefinery is 200,000 cubic meters and 80% -- 40% out of that can reach the quality of bio-jet. And just to give you some kind of relation, that is approximately 50% of what's needed for the Swedish domestic air flight. In this agreement, we have also said that SCA shall annually deliver 60,000 tonnes of tall oil into this JV. Finally, I'm happy also to say that we continue to run our 2 big investment projects in -- strategic investment projects in kraftliner, Obbola; and CTMP, Ortviken, according to plan when it comes to time and budget. So if we take a closer look at some KPIs, as already mentioned, we delivered SEK 2.7 billion, which gave us a strong EBITDA margin of 53%. And if you look to the right-hand side, you can see that, that is substantially higher than previous quarters. Our industrial return on capital employed calculated as an average for the past 12 months reached 25% during the third quarter. And if we just look at the third quarter, our industrial return on capital employed was 46%. Our net debt, in relation to our EBITDA, went down to 1, and that is, of course, due to strong cash flow. And I'm pleased to say that we continue to finance our big strategic investments through our operating cash flow. Then I walk over to our segments and starting with the Forest. And I can just state that we have had another quarter of stable supply of wood to our industries. And if you look to the bottom left, you can see that the price development for pulpwood is rather flat. We had a positive effect when we decided -- and when we took the decision to leave publication paper. But since then, it's been quite flat. When it comes to solar prices, we have seen gradually increasing prices during the third quarter. We will see it also in the fourth and maybe also in the first quarter next year. Our EBITDA is in line with last quarter. It's positively impacted by higher revaluation of biological assets that gave around SEK 70 million for the month. On the negative side, we can no strong -- we had a strong harvesting level in last year. And just now also, we have a very strong external supply to our industry, so. If we then turn over to Wood, we can also here state that we have a high level of global demand. We have seen strong markets in Japan, U.K. and also Scandinavia. Slightly less good demand in China, also in Middle East, North Africa and also maybe in U.S. Nevertheless, if you look in the bottom left, you can see that we have had a significant price increase during a couple of quarters now, and we have reached a definitely a top record level when it comes to prices for solid wood products. I said last quarter that I thought that we should in Q3 -- reach 50% better prices in Q3 in comparison with Q2, and that was exactly the outcome during this period. Then I will come back to our forecast for coming quarters. Sales was up 37% due to higher process -- due to higher prices and also due to the fact that we -- even if we took the decision to divest our supply unit in U.K. EBITDA was also substantially up, and we have EBITDA margin of 54%, which I think is highly competitive. Here are some graphs. And if we start in top left, you can see the stock level in relation to the average for the past 5 years in Sweden and Finland, and we can now see that we have come back to some kind of normal situation when it comes to the stock level. Bottom left, you can see the production. And also here, we can see that we are more or less on a normalized level. And the top right, you can see the price development. And as I said, prices in the third quarter in comparison with the second one, this year is 50% higher. We've reached some kind of record level. And I think now when we have a combination of a balanced stock, a normal production, and then a seasonable lower consumption in Q3 and in Q4 and the first quarter, I believe that we will reduce prices now in the fourth quarter by 15% to 20% from a very, very high level. So if we then turn over to pulp, we have had during the third quarter a good demand in Europe. We have also had a okay demand in U.S. and slightly weaker in China. Nevertheless, we also here are on a record level when it comes to pulp prices. The official PIX listing price now is USD 1,340 per tonne. We reached the bottom Q1 2020 on USD 820 per tonne, with a different discount rate, with a different currency, but nevertheless. We have [ in SA ] higher volumes during this quarter in comparison with last year due to stronger production and our EBITDA was up as much as 380% due to higher prices, due to higher volumes. On the other hand, we had a negative currency effect of about SEK 90 million for the quarter when we compare year-on-year. Here, we have also started up a planned maintenance stop. We will -- it's a quite long stop, 22, 23 days in Östrand and we had a negative effect in the third quarter of SEK 20 million, and the main part -- major part will come in the fourth quarter. Here's some words about the pulp market development. And as I said, we have seen decreasing prices in China. And if we compare now China with Europe, one can say that in Europe, we have a net price of USD 900 per tonne. U.S., slightly weaker, USD 800 per tonne and then China around USD 700 per tonne. So it's quite a substantial spread as it is today. We have seen that in China now, we have an energy crisis, and it's also very expensive to move products from China over to Europe. And I think that's one reason why we feel that the European market is still strong, and we see somewhat weaker market in China. For SCA, we are almost 100% focused on the European and the U.S. market. As you also can see, inventories are today, on a normal level for hardwood and on the slightly high side for softwood. On the other hand, we know that now we will see a couple of rather long maintenance stops during the autumn, and I think that will change the situation somewhat in the coming months. And as you also all know, supply is impacted by global logistical challenges. But for us, focused on Europe, we have managed that quite well. Turning over to containerboard. And here, we have performed 2 big planned maintenance stops, 1 in Obbola, and as you know, we have our ongoing big investment project in Obbola. So I can say now the mill is prepared for the startup of the new kraftliner machine in the beginning of 2023. So everything has went very well there. And we had a 12 days stop in Munksund, plant stop. All in all, the negative impact during the quarter has been for these 2 stops around SEK 150 million. Sales was up substantially during this quarter when we compare year-on-year, and that is due to higher prices. Volume, of course, lower due to this maintenance stops and EBITDA also substantially up, but again, negatively impacted by lower volume, of course. If we then take a look at the containerboard market development, we can see that we continue to have a steady growth of European deliveries and if you look at the bottom left, you can see that inventory days, they are below average. And also here, we will see a couple of big maintenance stops coming in during the autumn. Prices has since bottomed November last year, increased by EUR 250 per tonne. We have had another price increase announced from first of October, and that one will come through 50 -- another EUR 50 per tonne for unbleached kraft. We see that it's still a very good demand for containerboard. Underlying consumption is good. We know that prices for OCC in Europe has went from EUR 70 up to EUR 170 per tonne. And also at the same time, we see that the energy prices is rising. So I mean, that is good conditions for further price increases also for kraftliner. The delta between kraft and testliner today is EUR 150 per tonne, which is quite on a normal level. On the top right, you can see also that we have still a strong box demand and that I mean this demand continue well above trend since we had this drop during the first phase of the pandemic. So by that, Toby, I hand over to you.

Thank you. Thank you, Ulf. Good morning, everybody. I will start, as usual, with a bit on the income statement. And here, you can see on the net sales line, we've had a growth in net sales of 17% versus Q3 last year. And this is also to remember that last year, we had around SEK 1 billion of sales from publication paper per quarter. So we've obviously taken away the publication paper business, but the strong top line development driven also by the strong pricing environment has more than compensated. And then bottom line, we have an EBITDA of SEK 2.684 billion this quarter. So a very strong profit development, EBITDA margin, 52.9%, so a record level. Coming further down the income statement, you can see financial items very stable at SEK 24 million this quarter. And then tax at SEK 453 million, which is an effective tax rate of just under 20%. Earnings per share, you can see also strong development earnings per share driven by the net profit for the period at -- more than SEK 1.8 billion in the quarter of net profit and then SEK 2.59 per share. And that means that year-to-date, we're also SEK 5.85 per share -- earnings per share. So a good development also, earnings per share and net profit. If I just give a bit more detail by segment. And here you see the different segments. And if I start on the left-hand side with Forest and the top left, you can see the net sales is down a bit this quarter versus last quarter. That's a bit due to the maintenance stops that we had during the quarter and at the end of the quarter for pulp as well, which reduces the deliveries of wood into the industries during the quarter from Forest. The bottom line here on the bottom left is driven then mainly by the share of our own forest. That's where the profit is driven by, and we have a seasonal pattern here that we normally have less harvesting from our own forest during quarter 3, which we had also this year. So that's the reason for the seasonal pattern, the drop versus quarter 2 in the Forest division. In the Wood division, you can see a strong growth in net sales, obviously driven mainly by the strong price development that Ulf has already mentioned, and that really drops through to the bottom line as well, where we had an EBITDA in the Wood division of more than SEK 1 billion, SEK 1.180 billion this quarter, which is an EBITDA margin of 54%. So very strong delivery from the Wood division. The Pulp division top line we have is slightly down, SEK 1.522 billion a little bit lowering the deliveries ahead of the maintenance stop to keep a stable delivery. Also during the maintenance stop, but bottom line, also a strong increase in margin up to 42% EBITDA margin and SEK 659 million in EBITDA. And then on the Containerboard division, in the sales, well, you can really see, of course, the effect from exiting publication paper, which came from between Q4 and Q1 this year and then basically pretty flat in top line. We've had price increases, but again, here, it's smoothing out the effect from the maintenance stops, so slightly less volume compensating. And then in the bottom line, you can see also the EBITDA margin has been impacted by those maintenance stops, which had around SEK 150 million of impact in the Containerboard division. So -- but despite those, EBITDA margin, 27%. If we come just to the bridge on net sales, you can really see the impact of prices, the 44% impact on basically higher prices in all product areas, all segments, so 44% in total. We've had a bit positive impact from volumes, 3% mainly from the Pulp division, with a higher volumes versus quarter 3 last year. Currency, slightly negative, minus 3%, and then we have the impact, which is in total 27% from publication paper and also the divestment of the Wood Supply division in the U.K., which we made in the autumn last year as well. So overall, a 17% increase in top line. And then when it comes to EBITDA and you can really see the strong drop-through from the price here, SEK 1.9 billion impact from price and mix, a small contribution from volume as well. Raw material, a slight negative. This is partly due to -- it's also partly due to that we saw a little bit less from our own forest this quarter, but also a bit the OCC prices, which have a -- we have a limited exposure to. Energy is a positive impact. We have increased sales of energy, mainly from Östrand this quarter. Negative currency impact, as I mentioned, and then other is mainly the maintenance stops impact, which we've mentioned already, which has a negative impact of SEK 149 million. So -- and I think when we see this bridge, I think, just one reflection is that the decision to exit publication paper, we're certainly happy that we took that decision last year because without that, we wouldn't have seen anything like the same positive impact on price and the stable cost development. So I think that really supports the strong delivery through the bottom line here. When it comes to cash flow, I'll start on the left-hand column here in the quarter. And we have even -- if we take the EBITDA and we take away the impact mainly from the revaluation of the biological assets in the EBITDA, that means we have an operating cash surplus of more than SEK 2.2 billion this quarter. I'm happy with a strong or tight working capital management despite the price increase environment, which impacts on the working capital, of course, we've managed to hold working capital a bit lower this quarter at -- with a positive impact of SEK 61 million. Restructuring costs, which is really related to the closure of publication paper, we had SEK 65 million in the quarter. And then after taking off the current CapEx of SEK 365 million, we have an operating cash flow of SEK 1.872 billion. So again, a strong operating cash flow delivery. And then when you look to the next line on strategic capital expenditures, you can see that once again, both in the quarter, but then also in the year-to-date numbers, you can see that we're funding basically the growth of the company and the strategic capital expenditures from our operating cash flow with some margin. And here, of course, the strategic capital expenditures are -- the largest project is the Obbola expansion, but we also have the growth in -- the investment in the CTMP expansion in Ortviken as well. So all being funded from self-generated cash flow. All right. A few words on the balance sheet. We have the top line, the Forest assets, which are now valued to SEK 77.5 billion. This is valued at basically the market price according to market statistics, which is SEK 300 per cubic meter. Working capital, here, you can see we have just under SEK 3.2 billion of working capital. And even though that's increased since the end of last year, you can see the working capital to sales ratio has come down, and that's what I was talking about with the tighter -- tight management of working capital. Then when including the other capital employed and deferred tax, we have a total capital employed of SEK 84 billion, just under. And net debt, very stable at SEK 7.6 billion. So we've delivered then a deleveraging down to 1.0x net debt to EBITDA through the strong cash flow. I'll just come back on that in a moment. And then equity, SEK 76 billion, just over SEK 76 billion. And then finally, just a few words on the operating cash flow, and we've now had actually more than 4 quarters, but we show 4 quarters here of strong operating cash flow, delivery more than SEK 1 billion per quarter on average and this quarter, especially getting closer to SEK 2 billion in operating cash flow. So really strong development in the financial position of the company, and you can see that really from the deleveraging line, we've gone down now to 1.0 net debt to EBITDA. So a very strong development in the balance sheet. And I think the right-hand side of this picture is also very nice to be able to show, and this is the new paper machine hall and paper machine under construction in Obbola, and that's what all this cash flow is helping us to finance from own cash flow and at the same time, deleverage the company. So it's a good performance. And with that, I will -- yes. I hand back to Ulf for a summary and Q&A.

Yes. Well, I don't really have too much to add. I mean it was, for us, a super strong quarter. It's the best quarter ever, 53% profit margin for the total company heavily contributed by the decision to leave publication paper. And I think we'll leave it there and open up for questions.

Thank you all. Thank you, Toby. And today, we are moving into the Q&A session. But first, we do have some questions or one or two here in the studio in Stockholm. So we'll start with that, and then we will hand over to our operator, Maria. Please go ahead.

It's Linus Larsson with SEB. I'd like to start on the Pulp division. You gave some color, but maybe first on volumes, you were somewhat constrained by the pending or the planned maintenance shut in the fourth quarter. But looking at volumes in the fourth compared to the third quarter, given that planned maintenance shut, are you expecting stronger volumes? Or how will that work out?

Maybe I can -- I mean, we try to smooth out the effect of the volumes in delivery volumes. So we do have, of course, significantly lower production when we take a maintenance stop, but we smooth that out. And we've had -- so we've taken a bit of that effect in Q3, but we would expect it also to come in Q4. So I think it will be tough to have a positive volume development in Q4 versus Q3. But we -- it's not the full effect of the production stop.

And then, Ulf, on price. And, Ulf, you described the discrepancy we've seen now between Chinese and European prices. And one would at least under normal circumstances, expect that to translate into redirection of volumes into Europe because prices are obviously higher. Are you seeing that? And are you seeing price concessions taking place in Europe in the fourth quarter?

I mean, first, as I said, I mean, we have some kind of energy crisis in China. And we also have substantially higher cost for going from China over to Europe and vice versa. So I mean, I think we see less of paper and other products in Europe. So that creates some kind of a stronger market for pulp, at least for us in Europe. We are not too present in China. I mean we do the main part in Europe and then some of it in the U.S. So I mean, as I said, I mean, we felt really good demand from Europe in the last quarter. And of course, long term, I think that price is still -- they will come together in one way or another. So -- but I mean, we don't know. We have had the same price now for 4 quarters in a row and negotiations are ongoing just now.

Okay. And then just one question on the star performer in the quarter. Would -- I think you had a return on capital employed of 122% in the quarter? And Ulf, you again make a forecast for the wood price in the fourth quarter. But could you describe a bit more what you're seeing among your customers right now? I mean what's their behavior? Is there a destocking cycle we're entering into? What's real underlying demand? What's the 2022 outlook, do you think?

It's very hard to say. I mean, as you saw, I mean, stock level has now normalized when it comes to -- we have statistics from Sweden, Finland. And at sawmills, I mean, we have a normalized stock level more or less. Production is also reasonably normal because I think the [ sawmill ] can't really produce more, you have a limited availability of sawlogs and also, I mean, you have a limited capacity. So that is what we see there. Underlying, the consumption is good. But as you all know in Q4 and Q1, normally, we have a seasonally lower demand. And I mean that is what is just now creating some kind of adjustment of the price level. But I mean, from a record level, we moved down 15% to 20%. So it will still be a very strong profitability in the sawmill business for the coming -- at least for the coming quarter.

Thank you. And with that, we will hand over to the operator. Maria, please go ahead.

[Operator Instructions] Your first question comes from the line of Robin Santavirta.

First off, I would like to ask about the containerboard market prices are quite significantly up year-to-date, and you said one additional increase in October. Now what do you see in that market going into the winter? Is this now sort of the peak price in October? Or is there a potential for further increases in the winter in Europe?

I definitely think that we will see further price increases in containerboard. And I mean the underlying demand is still very good. And that is one thing. But the other thing is when we -- I mean, to some extent, we are dependent on the testliner market. And I mean testliner producers today, they see really high energy cost level, and they also see a very high cost level for OCC. As I said, from -- I think it's November last year and up till today, the price increase has went from EUR 70 per tonne up to EUR 170 per tonne. And it is a problem for testliner producers to get availability of OCC in the market. So I think it's a really strong market and I see that we will -- I forecast that we will see further price increases in this segment.

All right. That is clear. Then in terms of the Wood division, you commented on demand and prices. Thank you for that. What is the outlook when it comes to costs now in Q4 and in 2022?

I think it differs a lot, depending on where you are in Sweden. I mean for us, as being the biggest private forest owner in Europe, I mean we have a high degree of self-sufficiency when it comes to sawlogs. So that is very positive for us, of course. Nevertheless, we buy some volumes from the, let's say, open market. And I mean, in that case, and for that part, we see some slight increase in prices during the fourth quarter and that might continue also into the first quarter. It's nothing substantial, but still the direction is north here, of course.

Good. Good. And then for Toby, could you comment about the CapEx for this year and potentially for next year, what is the sort of your estimate on all this?

Yes. I can say we expect current CapEx still to be in line with our guidance of SEK 1.2 billion, SEK 1.3 billion for the full year, and strategic CapEx also to be still in line with our guidance that we -- yes, we expect SEK 3 billion to SEK 4 billion of strategic CapEx for the full year. That means we expect quite a big strategic CapEx in the fourth quarter, primarily related to Obbola as well.

Sure. And 2022 is that around similar numbers to be expected?

Yes, we expect slightly less in 2022 because I mean, we'll see where we actually come out this year for Obbola, but we expect this year is basically the heaviest year of the investment in Obbola. And then it should come down a bit next year. But obviously, if we -- yes, if we don't take as much in the fourth quarter this year, that will roll forward into next year. So it depends a bit on how things land in the fourth quarter.

The next question comes from the line of Oskar Lindstrom.

I have three questions. And the first one is kind of a general question. I mean we now have or you have record price levels for both pulp and sawn timber and we're probably heading there for containerboard as you said, I mean, these are the best earnings that you ever had. I mean, in your opinion, and I suppose this is for you Ulf, how much of this is a temporary boom driven by very special market conditions after COVID and money supply increases and all that? And how much of it is underlying structural change? And also why [indiscernible] what you want?

Yes. It's very hard to answer on that one. But I mean, fundamentally, I think we are in the total portfolio we have now, when we have -- when we get rid of the Publication Paper business, I mean, we are in growth areas, and we are also favored by the sustainability trend. I mean, to move from plastic to paper from concrete over to solid wood construction and from fossil fuels to liquid biofuels, and that has also been the -- or we have been striving to reach that position. So we are very happy about that. So fundamentally, I think over time, you will have steady growth in these segments. I mean, structurally, it's so hard to say. I feel that we can give you some view for the fourth quarter, I feel that we are -- I mean, we have a strong order book. We are very well booked. We will see -- we will have some -- I already said that we will have some small adjustment in solid wood products, but we will continue on a record level when it comes to profitability. Containerboard will be even stronger than it is just now. And pulp, we don't know yet. I mean, we are, as you say, on a good level. But again, we feel a reasonably strong demand in Europe. But long term, we will not see the spread from 700 up to 900. And -- but what will happen, I mean, I cannot really say.

Yes. That's fair enough. A second question, which is maybe a little bit easier, but not that much is on capital allocation. You already have a very strong cash balance sheet, and you've got also very strong cash flow at the moment. Where are you going to -- where can you spend the money that's attractive? I mean, what significant earnings growth opportunities do you have? Is there a possibility to expand capacity in your existing facilities? I mean, is there enough wood supply for that in Sweden? Or would you need to look at byproducts more or expansion abroad? Where do you see the most attractive capital allocation opportunities at the moment?

Yes. I mean, first, just to remember, I mean, we are just now in the middle of a very big project in Obbola, SEK 8 billion. And we shall -- I mean the project is perfectly on time, and we are very satisfied with the development that we see there. But I mean, we have to finalize that one. The second one is the new CTMP line in Ortviken. We are also in the middle of that project, running according to plan, but it should be finalized. We are also in the middle of a big project in Bollsta sawmill, that is SEK 800 million, that shall also be finalized. We also, during this the third quarter, took the decision to invest SEK 700 million into liquid biofuels. So I mean, I think we do a lot of things there. I mean going forward, of course, I mean, we can further increase capacity to Östrand. We've said it before. And when we have -- fine-tune the production line in Östrand, we will take that decision. But I mean, it's too early to say when. We see lots of opportunities in -- I mean, we continuously buy forest. We have our program in the Baltics. We have done 50,000 hectares there. We have said that we should reach 100,000 hectares in 5 years. If we can buy more forest, we will do that. We will also look into new investments in energy. Wind power is one thing, and I think we will maybe start to invest some more money ourselves into wind power. But we also have a lot of ongoing pre-projects and things like that in the area of liquid biofuels. I mean we have a lot of things to do here. But first and most important is to really deliver on the projects that we now have started.

Yes, sounds wise. Just a final question from my side, and this is more concrete, is on the pulp. You talked about long maintenance stops this fall. And I believe you were not only referring to your own stop, but to the market in general that, that would potentially or maybe you said it will change the situation in coming months. Could you expand a little bit on that? It sounded as if you were expecting the pulp market to tighten a bit?

Yes. I mean, as I said, I mean, for us, in the third quarter, we have had a rather, if not tight market, but a balanced market. Europe has been quite balanced, and that's the reason also why we have kept prices unchanged for 4 months in a row. We know that -- I mean, we will -- ourselves, we will perform a 22, 23 days stop in Östrand, which is quite substantial. And which is planned and which we have to do for regulatory reasons and things like that. We know that many others, they have to do exactly the same thing. And I think, again, also this year that some maintenance stops they have been postponed from the spring over to the autumn due to the risk for pandemic. So I think that will have an impact on the stock level for softwood.

Maybe I could just add. But when you look at that graph that I showed of the softwood inventories, I think you've seen the last couple of years have had more stocks concentrated in the fourth quarter, and you see mean it's the trend also previous year is that the stock has gone up over the summer ahead of the stops and then come down obviously in Q4, when the stops have taken place. So I think we're seeing the same trend this year that we've seen in previous years.

And do you believe that the market can handle this? Or is that something that you think might cause at least a short-term squeeze in the market?

We don't believe we [ ask to sell ].

Okay, that's great. Yes.

But I think we and others, I mean, we -- as I said to Linus' question early, we smooth out our deliveries so that we -- if you like, we take an impact in Q3 and Q4 and Q1 basically from the lower production volumes in Q4, so -- and others do the same. So it doesn't create a sort of short-term impact in the same way, it's more smooth effect. But of course, it's volume that's not there in the market.

The next question comes from the line of Cole Hathorn.

I got three questions on my side. I'll take them one at a time. The first one is around the containerboard market, and I'm hoping you can give a little bit of color, potentially what you're seeing from the competitors on the recycled side. I mean, Ulf, you talked about higher energy prices OCC availability, causing a bit of problems for some of those recycled producers. Are you hearing of any of the smaller players taking downtime because of energy just not making it worthwhile for them to produce, tightening the market there? And if there's any color you can give on the recycled containerboard inventory levels? I know you've given very helpful data on the kraftliner is the first question. The second question...

Please. Can we start with the first one?

Go ahead.

Otherwise, we will not remember. I mean we are not to -- we are not into details when it comes to the testliner market. But again, I mean, what they've done so far, I think, is to drive the price. And that's the reason why I think we will see another price announcement coming up here. And as I said, I mean, the delta between kraftliner and testliner prices, there are still EUR 150 per tonne, which is quite a normal level. But if they won't come through with further price increases, then I think that you will see curtailments taken. So that's my view on that. And it's not easy today to get access to recycled fiber, I think, in Central Europe and in these regions. Like to add something, Toby?

Yes. Only to say, I mean, it's the -- I mean, the testliner suppliers are, I mean you read they are struggling with both the OCC prices but also a number are exposed to gas and energy prices. So they, yes, they need price increases.

And I think another thing for us, it's, I think, important to underline that because we've had some questions about the impact from increasing energy prices. But I mean, we are totally neutral -- since we closed down our publication paper business, we produce as much as we consume, which is just now a very favorable position. So we are not impacted at all by the energy price. It will change slightly when we have Obbola in production and the CTMP plant in production. But as I said, then we will continue to invest in energy production. So we like that balance.

And then if I take the second question, if I look at your business medium term, I mean you've now completed the Östrand expansion, you've got Obbola and some other projects out there. Is there any color you can give on the EBITDA level you're going to be at or margin level, you're going to be at on a medium-term basis? I mean if I think about normalized pricing levels, I have SCA on potentially a SEK 7 billion EBITDA business, 25 medium term, and that is 20% to 30% above your 2019 EBITDA levels, I mean that's a good medium-term growth outlook. Is there any color you can give on how you thinking medium term on a normalized pricing environment?

I mean, I think we don't give forecast, Cole. I mean maybe the color I can give a little bit is we have said, obviously, the Obbola project drives bottom line improvement. And we've talked about a SEK 800 million to SEK 1 billion EBITDA impact from the Obbola project on a trend pricing level, of course. Yes, of course, prices vary, but on a trend pricing level. From the CTMP, we expect around a SEK 300 million impact. So those are both positive impacts in terms of bottom line development that we expect to have an impact. And also closing, if you look at kind of on a margin basis, we've also talked about closing publication paper and the exit of the U.K. Wood Supply business drives a margin improvement, maybe not obviously a bottom line improvement, but a margin improvement of around 5%. So I think all those things we expect to have an impact, but we don't give forecasts, of course. I don't know if you -- no.

And then just the final question is on how you're thinking about the forest business medium term. There have been some questions around kind of voluntary carbon credits and with Europe would ever be able to get voluntary rather than being official EU ETS scheme carbon credits. Is there any discussion you're having around voluntary carbon credits on the forest business? Just some color there would be helpful.

I mean you have a lot of discussions around the forest and the European Union. And I mean, we saw that it was presented new forest strategy from the union during summer. It's not a legislation. It is a strategy. And now we are looking forward to see what will come now during the autumn here when -- suggestions for legislations and things like that. But I mean we feel confident in this situation. We are the biggest private forest owner in Europe. We have a high degree of self sufficiency of -- when it comes to raw material supply to our industries. So we are in a good position. So I mean, I don't think we should have too much view on it. I think personally that -- and we also see a lot of politicians now, they say that forest and forestry, that is the national competence and from Sweden, from Finland, from France, Germany and other countries, I think it will be a balanced solution here at the end.

And the next question comes from the line of Johannes Grunselius.

It's Johannes here. Most of my questions have been answered, but I can ask you maybe on the cost inflation side, how you think -- look at things for the fourth quarter and next year? You have this very useful picture on Page 16 in your presentation deck, minus SEK 75 million, that's a year-over-year impact from raw material. I mean how do you sense that this will develop this component in the coming quarters?

Yes. I think we have maybe -- relative others, we have a more limited sort of impact to input prices in that our wood we partly source or largely source from our own forest. With energy, we have a balanced or are a net seller. So -- and we have relatively maybe fewer chemicals or other input chemicals, is a fairly small share of our input costs. So we are -- we don't today see a big sort of impact from input cost inflation. Probably the -- of course, the biggest one for us is when we source wood from third parties. We've seen fairly stable this year. But as Ulf mentioned earlier, at least on the round sawlogs, we do expect to see some -- not huge, but some price increases during Q4 to Q1 in particular. But as I say, not huge. So that's probably what we have visibility of currently going forward.

Yes. That's helpful. Maybe I can also ask you about the wood products that's been quite discussed already. But still, do you sense that there is a risk on the volume side here since it seems to be quite much of a wait-and-see mood in the market where price has gone ahead. Or you're confident that you will sell out all your production there?

I mean, as always it's a question about supply and demand. I mean for the fourth quarter, as I said, I mean, we are more or less sold out. We are on a -- we have a rather strong -- we have a strong order book and the price is more or less set in the market. I mean, otherwise, I wouldn't have said that we will reduce prices by 15% to 20%. So I mean by that, then we have the floor there. And I feel that there is a good demand. As I said in -- it differs a little bit between different markets now, but Japan, U.K., Scandinavia is still very strong. I mean we have seen U.S. recovered a bit, still rather slow in China and also in the MENA region. And I think again, China is maybe hit by this energy crisis and they have been forced to close down some industry and things like that. So -- but all in all, it is a stable underlying demand for wood products.

Okay. That's very useful comments. Can I just finally ask you on wood products, how much, roughly speaking, are you exporting out of the Nordics? I mean ship -- overseas market, if you could give us some rough numbers there?

Out from Europe, you mean?

Yes, yes.

Let's say, 25%, 30% or something like that. It differs between -- I mean, if it's a good demand in Japan, China, U.S., then it's a little bit more, but I would say, in that region. Yes.

And the last question comes from the line of Mikael Doepel.

I have three short questions. First on the capital allocation side of things. And regarding the biofuels project that you have ongoing, what kind of revenue and earnings contribution would you expect from this to flow through into your P&L? And when could that happen?

Yes. I mean we don't -- well, it's -- the investment is around -- in total, around SEK 700 million, we expect into the biofuel joint venture project with St1. So that's the investment. We don't give a forecast of the profitability of all investments, but we expect this to have a good return and good payback. But it will come -- it won't come before -- 2023 is the first year that we expect operations to be running. So it won't come -- the profitability will come obviously when the operations are up and running. So I think that's about all I can give for the time being.

Okay. And on that same topic, what kind of capital return requirements do you have in general when you are considering growth projects?

Maybe I can start again. But we don't have one number that we say in every project must have a 15% return, tick, and a 15% [ cross. ] It's not that simple. I think we look across the profile of the risk involved in the project, how long term the businesses and the forecast is -- and so I think -- I mean, if you take the energy project we just mentioned, for example, there we would have a higher demand on return because we want to have a quicker payback on those kinds of projects. When it's a long-term asset like a forest asset, then we don't have the same view on return and we don't have the same view on risk either. So it depends. But I think we need to get a good return based on the profile of risk.

Okay. Good. And then just finally, coming back to the containerboard market. You said that the demand continues to be good. Is there any particular end-use segments you could point to? I mean, for example, do you continue to see e-commerce being strong? Is it the industrial part of the end user that is driving it? Or any color on that front would be great.

I mean we know that e-commerce has increased substantially during the pandemic, and I think that will -- it's a changed pattern so that will remain also going forward, I think. And I mean, if you compare with the first, second phase of the pandemic industry is up and running nowadays, even if they are -- yes, some of them struggle with the supply chains. But still it's a good pace in the industry just now. So I think it's a combination on -- in different areas. So it's -- I mean, containerboard and packaging just now seems to be very strong. And also in combination, as I said, I mean you have in some areas problems to get access to OCC and you have increasing energy prices and things like that. So that will also push prices, I think, for a while. Add something, Toby? Or...

No, nothing.

Thank you very much. And Maria, we don't have any further questions, do we?

There are no further questions at this time. Please continue.

Thank you. And then that concludes our presentation of the third quarter results, and we'll come back for the presentation of the fourth quarter results. Thank you very much.