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

Good morning, and welcome to this presentation of SCA's First Half Year Result for 2022. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz to go through the results and take your questions. Over to you, Ulf.

Thank you for that, Anders and also from my side, good morning, and a warm welcome to the presentation of the results for the second quarter 2022. We have delivered another strong quarter. In fact, this is the best ever, and our EBITDA reached SEK 3.1 billion during the quarter, and that gave an EBITDA margin of 53%. And actually, this is the fourth quarter in a row with an EBIT margin over 50%. In the turbulent time, we can state that we benefit from our unique control of the supply chain. And here again, I'm thinking about wood, energy, but also logistics. On top of that, we can just point out that we have had a very strong quarter for all our products during the second quarter when it comes to market. As already said, we have no operations or direct exposure from sales or purchasing in Russia, Belarus or Ukraine. Nevertheless, our product markets have and will continue to be influenced in different ways. Short term, so far mainly positive. Long term, of course, a big question mark. Sales increased 23% versus Q2 2021. Main reasons for the sales increase are generally high demand and, of course, higher prices in all product areas. When comparing our EBITDA level for the second quarter this year with the outcome for the second quarter last year, we can see an improvement of 38%. Apart from higher sales prices, we have delivered a high level of sales to define core markets, generating a good profit for us. With a high degree of self-sufficiency, we have also been able to mitigate some of the cost inflation, which has helped to build this solid profit. SCA has based the valuation of the forest holdings on completed transactions in the region and the market in this area continues to be strong. And during the first half of year 2022, the value has increased another 4% or between SEK 3 billion and SEK 4 billion. Last but not least important, I would like to conclude this summary by stating that our 2 major investment projects in Obbola and Ortviken, both are progressing on budget. In addition, I can mention that the project in Obbola is ahead of time, and the startup of the new paper machine is now planned to be during the fourth quarter this year instead of the first quarter next year. The OCC line, which is needed to reach full capacity in Obbola is scheduled according to the original plan, and that one will be up and running during the first half of next year. Then I turn over to some financial KPIs. And as already mentioned, we delivered SEK 3.1 billion on EBITDA level. And that corresponds to 53% EBITDA margin. And as I said, if you look to the right-hand side, you can see that this is the fourth quarter in a row where we reached a margin over 50%. Our industrial return on capital employed came out of 54% for the second quarter and calculated for the last 12 months, 46%. The leverage went down to 0.8% despite a large ongoing investment program. And by that, we continue to finance all our investments, including strategic projects with our operating cash flow. I will now make some comments for each segment, starting with Forest. And due to the Russian invasion of Ukraine between 8 million and 10 million cubic meters on a yearly basis, mainly pulp wood and wood chips will no longer come to Europe. And that, in combination with the fact that the Finnish strike now is over, we'll generally put an increase in pressure on the wood supply. As we and SCA harvest around 50% of what we need from our own forest. And as we also buy the main part of the remaining volume from private forest owners in our region, we are not heavily impacted by this situation. During the second quarter, we have had a stable supply of wood to our industries. And as you can see in the graph on the bottom left, prices have started to come up, not the least for pulpwood. When we compare quarter-on-quarter, EBITDA has decreased 10% in Forest. And the main reason for that is lower harvesting volume on our own forest during the second quarter. But we also see higher transport and harvesting costs mainly related to higher fuel prices. We have had stable deliveries from business area wood in the second quarter. Prices went up approximately as much as we guided for when comparing Q2 with Q1. Customers have decreased the stock levels during the second quarter because they did expect lower prices in the third quarter, which we also will see, and I will come back to that. Price levels for solid wood products peaked in Q3 2021 at the historically high level, which you also can see in the graph on the bottom left. Average prices dropped by us down to 15% during -- between Q3 and Q4. The seasonal low demand during the winter period pushed down prices by another 12% during the first quarter 2022, and during the second quarter, prices went up again by approximately 18%, but will now decrease during the third quarter by between 25% and 30%. We have had and still have turbulent market in wood. On the one hand, we all know that sanctions against Russia and Belarus have been effective from July. On the other hand, we can see increasing interest rates, cost inflation and so on. Nevertheless, we have during the second quarter seeing a weakening market in all regions, more or less. However, in the U.S., it seems at least for the time being to have bottomed out on a relatively good level when it comes to demand and price. Generally, we believe that reduced Russian supply in combination with the need from customers to fill up inventories will stabilize the market during the autumn. As for SCA, we have had a good production during the second quarter at the same time, somewhat slower deliveries since we had a lower stock level this year in comparison with the same period last year. The profit level was very good in the second quarter, and we reached SEK 933 billion on EBITDA level, and that was up 49% in comparison with the same period last year. In comparison with the second quarter last year, we have seen sharp increase in log price. On the other hand, for us, the negative effect has partly been mitigated by a higher raw material yield in the production in our sawmills. Today's stock level of solid wood products in Sweden and Finland is in relation to the average for the last 5 years, described at the top left on this slide. And we note that the inventory volumes are now on a normal level. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on the high side. On the other hand, Canada as an example, is 11% behind when comparing year-on-year up till May. And we also know that the sanctions against Russian and Belarusian would have been effective since July. When looking at the diagram to the top right, we can see that the price peaked in the third quarter 2021, but that prices still are on a historically high level. But as already said, we believe that prices will decrease with 25% to 30% in the third quarter. So during the second quarter, we have delivered our best quarter ever in terms of result in business area in Pulp. We have seen a continued strong market with successively higher prices, combined with a high demand and also strong deliveries. Sales were up -- sales were up during the second quarter by 23% and EBITDA increased by 44% during the same period. And on the positive side, we have seen increasing prices, increased earnings from renewable byproducts and also positive currency effect. On the negative side, we have seen higher cost for pulpwood chemicals and so on. As mentioned already at the beginning, our ongoing project to build up the CTMP line at Ortviken is progressing on time and budget, and that one will be -- that one will start up in the first quarter next year. The pulp market in Europe and U.S. is tight today with a good demand and limitations on the supply side due to logistical challenges, production disturbances, et cetera. On the other hand, we can see a weaker market in China. SCA has a very low direct exposure to the Chinese market as Europe and U.S., are our core markets in pulp. Today, we have a similar price level in Europe and U.S., but a slightly weaker price picture in China. As you might remember, we went into this year with an official European peak price of USD 1260 per tonne. We have stepwise seen higher prices, USD 1,400 for deliveries in May, USD 1,435 for June, USD 1,485 for July, and we have now informed our customers that our position for deliveries in August will be USD 1525 per tonne. As you also can see, inventories for softwood pulp have come down. And by that, we have a normal stock level for both soft and hardwood pulp. Turning over to containerboard. And the sales and EBITDA for the containerboard business are up 32% and 84%, respectively, in the second quarter 2022, when comparing with the same period last year. And this is mainly due to increase in prices, where we now have reached an all-time high level, as you can see in the graph in the bottom left. The prices for OCC have almost tripled since the bottom in November 2020, and this affects the result negatively, but together with a large increase in prices for energy, it also supports the price development for testliner and thereby also indirectly for kraftliner. During the quarter, we have performed the planned maintenance stop in Obbola. Among other things, we have prepared the mill for the coming startup of the new paper machine. The negative result effect on the stock is calculated to around SEK 70 million. We see a stable underlying short and long-term growth in kraftliner and the demand for boxes has continued to be solid and the demand has flattened out on a high level. Inventories for kraftliner are on a higher level than last year. We continue to note lack of shipping capacity for deliveries outside Europe, leading to higher inventories, although this has had a minor impact on SCA. SCA has a balanced stock level and has only limited exposure to markets outside Europe. We have seen slightly increased prices during the quarter since the price has bottomed out in Q4 2020. The price for unbleached kraftliner has so far risen by approximately EUR 400 per tonne, while white top kraftliner has increased by EUR 275 per tonne during the same period. So I said initially that the expansion project in Obbola is on budget and ahead of time. And we have already delivered for subprojects, as you can see on this slide. The most complex and challenging subproject by far is, of course, the new paper machine. And that subproject was scheduled to be finalized during the first quarter next year. We now see that we will be able to start up in the fourth quarter this year. However, the OCC line is needed to reach full capacity in Obbola, and that one will be built according to the original plan, and by that, be up and running during the first half of next year. With this early start of the new paper machine, we have, I would say, created extremely good conditions for a very successful project. As we are building up the new paper machine in parallel with the old one, this project will be unique in a way that we will have almost no downtime due to the project. By that, we will also have a strong cash -- positive cash flow as well as an uninterrupted customer service throughout the whole expansion. On top of that, we will have a high production volume already next year in comparison to previous years. So by that, I hand over to you, Andreas.

Thank you Ulf, and good morning, everybody. I will start off with the Forest valuation. Forest prices in Northern Sweden continue to increase and the average 3 year price in SCA's region increased by about 6% from SEK 324 to SEK 342 per cubic meter. The valuation of SCA's forest assets increased by over SEK 3 billion to SEK 88 billion. And of this, approximately SEK 900 million went through the P&L in the first half year. If we move on to the income statement for the second quarter. Net sales grew by 23% to SEK 5.9 billion, mainly driven by higher prices and improved mix. And the majority of the sales increase went through to EBITDA. EBITDA increased to just about SEK 3.1 billion, corresponding to a margin of 53%. And this is the fourth straight quarter, as Ulf mentioned, with an EBITDA margin of above 50%. The EBIT margin increased to 46% and financial items totaled minus SEK 5 million. We had an effective tax rate of around 20%, bringing net profit to SEK 2.2 billion or just above SEK 3 per share. On the next slide, we have the financial development by segment. Starting with the Forest segment to the left. Sales decreased slightly compared to the previous quarter, mainly due to lower volumes to SCA's industries because of the planned maintenance stop in Obbola. EBITDA increased to SEK 675 million mainly due to seasonally higher harvest from SCA's own forest compared to the previous quarter. Both pulpwood and solvent prices have increased the last couple of quarters, but effects have been offset by increased fuel costs. In the wood, we have had several strong quarters at the beginning of 2021. In Q2, both price and volume increased compared to the previous quarter. Sales increased to SEK 2.2 billion, and EBITDA increased to SEK 933 million, corresponding to a margin of 42%. In Pulp, the price have continued to increase since the beginning of the year. In Q2 both price and volume increased compared to Q1 and sales totaled just above SEK 1.9 billion. EBITDA increased to SEK 866 million, corresponding to a margin of 45%. Higher income from renewable byproducts has helped offset increasing wood and chemical costs. In Containerboard, kraftliner prices have increased since the end of 2020. In Q2, the planned maintenance stop in Obbola impacted both sales and EBITDA. EBITDA was SEK 756 million, corresponding to margin of 43%. Adjusting for the effects of the planned maintenance stop of minus SEK 67 million, EBITDA increased compared to the previous quarter. On the next slide, we have the sales bridge between Q2 last year and Q2 this year. Higher prices had the largest impact, 27% and prices increased in all segments. We had slightly lower volumes, again, mainly due to maintenance stop in containerboard. Currency had a positive impact of 3% and exit publication paper had a negative impact of 3%. In the EBITDA bridge, we see the effects of our integrated value chain. We had a big impact from price/mix of SEK 1.25 billion, while effects on higher raw material costs was more limited due to a high degree of self-sufficiency. The higher raw material costs related mainly to higher wood costs and higher costs for chemicals. Energy cost had a slight positive impact which really shows our high sales efficiency post exit publication paper. We had a positive impact from currency and negative impact from the planned maintenance stop and higher fuel prices. In total, as I mentioned before, EBITDA increased to 38% to a record high SEK 3.1 billion. We continue to have a strong operating cash flow SEK 1.9 billion in the quarter and over SEK 3 billion for the first 6 months, almost double compared to last year. This means we are continuing to fund our strategic investments with operating cash flow. Looking at the balance sheet, the value of the Forest increased to SEK 88 billion. Working capital increased to SEK 3.8 billion due to higher prices, but in terms of days, working capital was unchanged. Total capital employed increased to SEK 96 billion and net debt stood at SEK 9.5 billion or 0.8x EBITDA. The net debt increased compared to Q4 last year because of the dividend but decreased compared to the previous quarter. Equity increased to SEK 86 billion and net debt to equity was 11%. With that, thank you, and I'll have back to you, Ulf.

So thank you for that, Andreas. And well, the summary again, we made a record result. And I think structurally, we have improved SCA by focusing very much on growth areas. The closure of our publication paper business is a very strong reason for us now performing as we're doing just now. We also feel that we benefit very much from our strong supply chain. We've been talking about good energy, but not the least, I would say, our logistical company that helps us very much to perform in a good way to our customers. And last but not least, our big project in Obbola is on budget, but ahead of time. So by that, I think that we open up for questions.

The first question comes from Linus Larsson at SEB.

Maybe starting off on the wood division and you continue to guide very helpfully on the price aspect of the business outlook. How do you see the volume outlook in the third quarter? And how are you planning to run your own operations, please?

I mean, I can just talk for myself than for SCA and we have normal stock level in our mills and the plan, I mean, the plan is to run our sawmills in a way that we normally do. So we run our sawmills during the whole summer. As I said, we feel now that the stock level among our customers are on normal to low -- on the normal to low side. And we also think that all customers, they did expect the price decrease in the third quarter, which they also will see now. On the other hand, so we also know that from 8th of July, we will see the full effect of the Russian sanctions. So I think we will have a rather balanced market from now on.

Okay. Great. And then maybe quickly switching to Containerboard. It's been a fantastic market for quite some time now. We're seeing some signs of normalization in different ways and recycle-based containerboard price declines taking place. How do you see that outlook in the second half for kraftliner for your business that you try to describe the market outlook, price trends, order situation and so forth.

Yes. I mean, we see a rather stable market for kraftliner. And I mean, we came through with the price increases that we did announce in the second quarter. And maybe we haven't really seen the full effect of that up until now. I think that development in -- I mean, underlying, we have a good consumption. I would say that the stock level is more or less on a normal level. And the price development will be very much dependent on the price for energy but also for OCC. And again, if we look at the OCC market, we have seen that the price, as I said, tripled in a rather short time. And it is on a rather stable level as far as I can understand. And I think you can judge maybe better than I can do the energy price development going forward because that will -- energy and OCC together will set the price for testliner. And of course, you know that we have a dependency between testliner and kraftliner prices.

Yes. Great. And maybe finally on that note when it comes to the European energy situation and potential natural gas availability constraint even more than it already is going into the later part of this year. I mean, as you have highlighted, you don't have much direct exposure, you're highly self-sufficient on energy. But when it comes to the indirect exposures, how do you see, a, your exposure when it comes to suppliers in chemicals, for instance; and, b, exposure to customers in pulp and maybe other businesses as well where there might be indirect exposure risk of closures, et cetera, later this year?

I mean that is very hard to predict. I mean, I cannot talk about overall situation. And as you say, I mean, we are -- we have 100% self-sufficiency here, and we are very happy for that. And it's not really easy to foresee what's going to happen now during the autumn. Okay. I don't know if you'd like to add something Andreas or...

No, I mean, we think the chemical costs have peaked now. But we had a project where we try to look at where do we have most risk in chemicals and try to secure all those chemicals. I think we have a good position to secure the supply.

Okay. Great. That's helpful.

The next question comes from Robin Santavirta at Carnegie.

First, a question related to the input cost. Now you have quite a nice integrated setup, which helps you a lot, but still, we can see when I put in the Q2 numbers in the model that you have some increases in cost per tonne in your industrial operations. What is the outlook when we go into Q3 related to the input cost? And I think about wood raw material costs, OCC, chemicals and logistics.

In terms of pulpwood, we see some continued price increases in Q3. In terms of sawlogs, we think that the prices will be quite stable. Also for OCC, the prices will be quite stable. In terms of chemicals, I think the costs have peaked but you have some lag effects within sodium hydroxide. Otherwise, it's stable and some chemicals are coming down. In transportation, we also think that the costs have peaked, but there we see quite volatile oil prices, which, of course, will affect transportation.

All right. Another question I have related to the Wood segment, which has been exceptionally strong now. And then you guide for a bit lower prices now in Q3. The question I have is I understand the structural trends out there supporting wood building and the usage of wood raw material in construction. But isn't there still some risk that we go back to quite low levels? Is it sort of the history supporting this a bit boom bust of pricing in this segment. Certainly, we have even an economic recession in your export market. I would assume that construction activity and DIY activity would be quite low. So how do you sort of see if we go into sort of 2023 a bit further out. Could you sort of -- could you provide some kind of reflections of where do you think the prices will essentially bottom out?

We will not give you a forecast. But I mean, again, fundamentally, we believe in wood long term, and I mean we have a healthy growth in wood, and we can also see that we gained market shares in wood in comparison with other materials. So we believe that will continue. But of course, I mean, short term, the price will be set related to the supply-demand balance and short term we feel -- as I said, I mean, we feel still a rather good demand out there, even if we have to decrease prices now. . But interest rates and cost inflation and things like that, I mean, that might give for a short time a different situation in the market. And -- but I mean we are -- we have to handle that in a good way. Long term, we believe in Wood, we believe that is a growth area, and we will continue to invest and in that business area, do you think it's strategically right to stay in Wood, of course.

I understand. And final question I have is related to the ramp-up of the machine -- kraftliner machine in Obbola, very well done on sort of even coming in before expected time, the machine start-up. Now how should we model Q4, Q1 in terms of any additional costs and maybe perhaps sort of focus on Q4, which is closer now already on the SCA side?

We will have quite a limited impact on volume for the start-ups. I think we'll have similar deliveries to last year in both Q3 and Q4. So the effects would be quite minor.

And I mean that is the unique thing with this project. I mean we are building up a new line in parallel with the old one. And by that, we can continue to run the production. If something goes wrong, I mean then we also have a possibility to swap over to the old machine again. And by that, we will have a strong positive cash flow during the whole ramp-up period. And we believe that already next year, we will produce substantially higher volume than we do this year, than we did the year before. So I mean this is a really strong project.

The next question comes from Justin Jordan at BNP Paribas Exane.

Really, well done and a record Q2 and welcome Andreas to the new CFO role. I just got one quick question that [indiscernible] quite covered. Just firstly, on the pulp market outlook. I think, Ulf, in your prepared remarks, you talked about an additional USD 40 a tonne increase [ you already talked about ] for August to USD 1525 from USD 1485 in July. Can you just help us understand, I suppose, your confidence in achieving that given as you quite rightly stated, Chinese wood prices look like they're easing and clearly Chinese wood futures have been easing of late. Can you just help us understand how that's possible to get further price increases in Europe against that backdrop of easing Chinese wood prices?

I mean we are -- as I said, I mean, we are mainly focused on the European and U.S. market, and we feel that we have rather strong demand in this market. It is in -- actually, it is a tight supply situation in Europe. So I mean, if we could then we could deliver much more pulp than we do today. So I mean, that's the reason why we go for another price increase in Europe and U.S. We have a slightly different situation in China. And I mean that is maybe due to logistical challenges, we have seen that some parts of China has been closed down for while due to COVID and that might happen again in some areas, we don't know. But as it is just now, I mean, we have a super strong market in pulp in Europe. And in addition, we have seen some disturbances for other producers, and that have also contributed to this, I would say, favorable balance as we have just now.

Great. And just one quick follow-up, probably for Andreas on FX. You had a EUR 179 million positive FX tailwind in EBITDA in Q2. Can you just sort of remind us where the key FX exposures are? I'm assuming it's probably in pulp. Is there some in containerboard as well and just how should we think about that given the recent FX movements for the second half of '22, please?

And if we start with pulp, I mean there, we are -- the main currency is dollars, there we have a large impact of change in U.S. dollar. In containerboard, the prices are mainly set in euro. So that's euro in terms of wood, I mean, it's euros, SEK and British pounds, depends on what segment, but the largest exposure is in dollars and in euros. In our report, you can find we have hedged around 70% to 85% of our exposure in the coming 6 months. We can find the figures in the report.

The next question comes from Martin Melbye at ABG.

My questions have been answered now. But one on the Forest side, there, we have some lower harvesting and higher costs, yet prices are moving up in Wood. So how should that segment progress into the second half?

I mean the reason for harvesting less volume on our own forest, it's just say mix. We have to harvest what we buy from small private forest owners and that has been prioritized now for the first half of this year, but the balance will be, as we've said, on the whole year. Then I didn't catch maybe the second question. Was that about the price development or?

Yes. Have you catched say the price increase on Wood in that segment in this quarter? Or is that yet to come in Q3?

Yes, maybe. But I mean as Andreas said, I mean, when it comes to log prices, we believe that the price will be rather flat in coming quarters now. And in pulpwood, as you also saw on the slide, you could see that prices has come up and will come up a little bit further in the third and fourth quarter. That's the best -- yes, we can have just now. Yes, I think I'll stop there.

The next question comes from Oskar Lindstrom at Danske Bank.

Yes. So 3 questions for me. First off, maybe I didn't hear quite clearly, but in the -- on Wood, did you say that you expected the market to stabilize during the autumn? And does that mean that we should expect prices to stabilize during Q4 as well? So that's my first question. Do you want me to go ahead with the other ones?

I take them one by one. I mean what we have said is that we know that prices will come down 25% to 30% in the third quarter. And what will happen in the fourth quarter I don't know, and it's hard to say. But what I say -- what I was saying was that we have a rather -- the stock level is quite okay out there. We believe that customers, they have a rather low stock because they -- of course, they did foresee that this price decrease would come in the third quarter. So I mean they are on the low side when it comes to the stock level. And in addition, we also know that the Russian sanctions will be valid from July and that will also have a negative effect on the supply side. But on the other hand, as I said, I mean, now we see that the interest rates, they are coming up. We know that the DIY sector has been quite slow this year in comparison with last year. And I mean that will not recover in the fourth quarter, of course. As we feel professional building activities are on a rather high level. But long term, if we see a completely different interest level and strong cost inflation that might have an impact on building activities. So I mean, I think that you can just better than I can do. But I mean for the third quarter 25% to 30% down. And for the fourth quarter -- we don't know the price development for the fourth quarter. But we feel at that time that the market should be more stabilized.

All right. That's a clear answer. My second question is on investments in capital allocation. I mean, with Obbola project coming to an end, a little bit earlier than expected and Ortviken set to start up next year, you have a strong balance sheet and at the moment, you're making very good cash flow. Where do you see opportunities for attractive investments? And where are your priorities? I mean I know you're looking at -- you've talked about possible pulp debottlenecking in Östrand, buying forest land in the Baltics, wind power, buy refinery, where do you see these also in terms of time line? I mean are some of these more immediate, others further away? Yes.

Main focus just now is to fulfill the investments that we have started up. I mean you have Obbola. But as I said, that one will now be started up a little bit earlier than we thought, but the Bollsta project, big project in the grading mill in Bollsta, which is the biggest pine sawmill in Sweden. That one will also be finalized during the autumn. I mean, the CTMP project, we have talked about that one, and that will be up and running latest first quarter next year. And then we also have the big project together with St1 that is planned to be up and running in the second half of next year. So I mean we have 100% focus on delivering on what we have promised in this area. So that is absolutely the main focus. And then you mentioned, I mean we have no really big projects that we are looking into just now. But you mentioned some of the areas where we are interested. And I mean we have said that if we see opportunities in wind, then we will try to take them. Continuously, we are buying forest land in the Baltics, and we will continue to do that of course. And we are also looking into some -- as you call them bottleneck projects and -- but short term, we will not announce anything big in this field.

Okay. Good. And my final question, also a bit of a general question is on the overall industry. I mean the sector in Europe, the overall pulp and paper sector in Europe has been hit by, as you mentioned, higher fiber and energy costs. And something that you've been able to largely avoid. I mean do you believe that the higher fiber costs, especially for recovered fiber is a structural change and that this trend in that case, would sort of hold up or set a higher floor for paper and board prices in Europe even if demand weakens.

It's really hard to say. The only thing we can say is that this war will create I think different conditions for many years to come now. And the first thing we have to do is to reduce the dependency on Russian oil, gas and raw materials in general. And that is what we can say. And otherwise, it's hard to predict OCC prices and so on. I cannot really do that.

The next question comes from Johannes Grunselius at DNB Markets.

It's Johannes here. I have 2 questions. And the first one is the -- on the Forest, the value uplift on your own forest land. Because you have the methodology to roll 3 years transaction data in the relevant areas, yes. Have you now included your expectations of 2022 in that 3-year period? Or could you comment on that? Maybe I missed it before. I'm sorry for that, in that case.

We have included the transaction that happened for the first half of this year. So we have a 3-year average applied on our total volume. So this year, the prices has gone up, have been quite small volumes, but then we'll see how it develops towards the end of the year. But we have included a [ free ] average from second half of this year and 3 years back.

Understood. Am I right that you are indicating a similar value uplift as things looks at the moment by the end of this year?

Yes. So I mean our changes in biological assets have been SEK 900 million for the first half year, and we expect something similar for the second half year.

Okay. Okay. I was also wondering about the -- how higher electricity prices are impacting your Pulp division because you have this big, long position there, is it 500 gigawatts or 600 gigawatts or something like that. Did you see a positive delta here in your Q2 numbers? Can you comment on that? And how should we think about Q3, Q4, let's assume electricity prices stays where there or something for the sake of simplicity.

We have in our Pulp division, we are a net producer of electricity around 500 to 600 gigawatt hours. So when the price -- electricity prices in Q2 was fairly high, so that gave a positive impact in offsetting some of the other cost increases we saw in chemicals and wood raw material.

But how should we think about that in the dynamics? Are you exposed to market prices? And should we then look at the sort of regional prices in Northern Sweden and assume you're fully exposed on that pricing on your excess volume on electricity in Pulp?

We are fully exposed for next quarter to the market prices in region Northern Sweden in that price region. In terms of if you look at entire SCA, I mean we are basically neutral in electricity. So we've felt higher prices in pulp, pulp benefits. But then we have a higher cost in containerboard. So in total, we're quite balanced.

Yes. And the final question, I mean you mentioned it yourself that it's a big positive to have your own logistics operations. Could you just remind about -- us about -- I know you talked about the long-term contracts you have with sort of external parties when it comes to logistics. So we assume that those long-term contracts will simply continue for the next few quarters at same levels or any uplift potentially on the new contracts coming or the renegotiated contracts?

They will be on the similar level.

The next question comes from Cole Hathorn at Jefferies.

When we're thinking about the wood products prices, if we assume 25% to 30% decline, does that take you broadly in line with the U.S. futures prices for lumber?

Yes, I would say so approximately. I mean, it is different products really. So you cannot really compare them like-for-like but similar level, I would say.

And then just a follow-up on the containerboard market. You alluded to the recycled players getting cost support and energy and OCC. How do you see the producers taking commercial downtime to kind of manage softer demand and inventory levels at the moment.

Yes. I mean it's always a question about cost curve. And I mean, for us, with the investments that we have done and the status that we have on our mills, I mean, we are on the left hand side with a very low cost level. You have other producers which are not there. And I mean, they have -- at some stage, they have to take some -- they have to take some downtime due to profitability, I would say. So I mean we haven't really seen decreasing energy prices, in Europe up til now we haven't seen decreasing OCC prices. And the underlying consumption, again, it is good for -- at least for kraftliner, and I believe the same for testliner and we look at boxes, I mean, the demand has flattened out, but on a very high level. So I think the demand is still there.

[Operator Instructions] The next question comes from Harri Taittonen at Nordea.

One question. A lot of ground has already been covered. But just sort of the St1 project, I remember you talked about alternative potential feedstocks with different technologies. Just sort of if you could give an update or if there's sort of development on that, I mean, crude tall oil versus solid biomass versus other potential raw materials? Is there anything to kind of highlight?

Well, I mean what we are doing just now in building up in Gothenburg, together with St1, that one will be based on tall oil, of course, it's perfect, but you also can use used cooking oils, vegetal and animal fats and things like that. So that is the feedstock for that mill. When it comes to solid biomass, I mean then that we are talking about in the project that we have discussed in Östrand. And -- but again, that one is further away. So different techniques, yes.

[Operator Instructions] There are no further questions at this time. Please go ahead, speakers.

Anders?

Thank you very much. And that concludes this presentation of the half year results, and we'll come back at the third quarter results in October.