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

Good morning, and welcome to this presentation of SCA's 2026 Half Year and Second Quarter Report. 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, Anders. Good morning, and also from my side, a warm welcome to the presentation of our results for the second quarter. During the second quarter, SCA's market conditions were mixed between the segments. Pulp and solid Wood products faced a continued challenging market with weak demand, while renewable energy delivered a record result. During the quarter, we saw improvements in both demand and pricing for the Containerboard segment. Price increases will impact our results for Q3 and Q4. High fuel prices driven by the conflict in the Middle East affected the result within the Forest and Industry segments negatively, while the liquid biofuels business within segment, Renewable Energy, benefited in terms of increased margins. SCA reached SEK 1.3 billion on EBITDA level, and by that, an EBITDA margin of 25% for the second quarter. Turning over to some financial KPIs for the second quarter. As already said, our EBITDA reached SEK 1.3 billion, which corresponds to a 25% EBITDA margin. Our Industrial return on capital employed came out close to 0, accounted for the last 12 months. And the leverage was at 2.1% with -- while on net debt to equity reached 10.7%. I will now make some comments for each segment, starting with Forest. During the quarter, SCA continued to process windfall volumes for Forest owners in the areas affected by the storm at the end of last year. Harvesting level of our own forest was stable, but at a slightly lower level compared to the same period last year. Harvesting of own forest has contributed to a balanced supply of wood raw material or indices during the first and second quarter. We've seen a continuous long-term trend of increasing prices for both Pulp, Wood and sawlog as can be seen in the graph on the bottom left. However, during the second quarter, both Pulp, Wood and sawlog prices decreased. When one compares Q2 '26 with Q2 '25, sales down 2%, while EBITDA was down 19%, mainly due to increased fuel costs and a lower harvesting volume in our own forest. In general, we still have a slow underlying market for solid Wood products. Demand has remained stable over the last period, and we expect that situation to continue. The production in Sweden, Finland, Germany and also Canada has decreased given support to price increases in local currencies. Stock levels remain on the high side among producers for pine, but are normal for spruce. Stock levels at customers continue to be on the low side. Delivery volumes were lower in Q2 '26 in comparison with Q2 '25. But Q2 '25 was, on the other hand, a record quarter in terms of deliveries for SCA. Our stock level of strong goods within SCA is at a balanced level. The price for solid wood products increased by 5% in the second quarter of '26 in comparison with the first quarter this year. The cost for sawlogs in the second quarter continued to be at the high level. We expect now to see decreases in low costs when moving into second half of this year. Sales were 12% lower in comparison with the same quarter last year. EBITDA margin decreased from 18% to 6% due to higher raw material costs, lower deliveries and also due to negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the general inventory level is on the high side, especially for pine, while I judge SCA level to be rather balanced. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill production has been below the 5 years average during '26. In the diagram to the top right, we can note that the export price index increased in the second quarter. And as already mentioned, SCA prices have also moved in the same direction. Going into the next quarter, I estimate that price in the market will be close to unchanged. Looking forward towards the end -- year-end, we will probably see a stable development with a fairly good balance between supply and demand in solid wood products. Moving over to the Pulp. When comparing Q2 '26 with Q2 '25, sales were down 3%, mainly due to lower prices and the negative currency effect, while delivery volumes increased. EBITDA was down 59%, which was also driven by lower prices and negative currency effect. During the first quarter of '26, demand was rather weak, and net prices decreased from previous quarter due to high yearly rebates in Europe and the U.S. Net prices on NBSK then improved during the first quarter and in the beginning of the second quarter due to earnings being below cash costs for many soft food producers. In China, demand for NBSK Pulp was normal during the second quarter, but prices decreased further due to Pulp port inventories being higher than normal. The conflict in Iran continued to increase complexity and costs for the Pulp industry. Looking at CTMP, demand and prices remained on a low level during the second quarter. However, prices increased partly driven by increased prices on eucalyptus hardwood pulp. Inventories of softwood pulp were on a high level during the first and second quarters. Hardwood inventories on the contrary were below average level. And finally, CTMP inventors have been on a rather normal level. Moving over to Containerboard. Sales were in line with the same period last year, driven by higher delivery volumes, but mitigated by lower prices and the negative currency effect. EBITDA decreased by 70%, driven by the planned maintenance stop at Obbola Mill, lower prices, negative currency effects and higher energy costs. The planned maintenance stop in Obbola had a negative result impact in the second quarter of SEK 147 million. We've seen box demand improving during the second quarter. The manufacturing industry developed positively during the period, supported not the least by continuously growing retail business. European demand of kraftline has improved during Q2, following the box demand, and we forecast positive demand development of Containerboard also in coming quarters. There is no new Containerboard capacity started up in the first half of '26. During the last quarter of '26, we can expect ramp up of the new capacity started in 2025 as well as some closures to balance some of the increased supply. Kraftliner inventories have moved down to historical average levels, driven by both improved deliveries and limited supply. During the second quarter, the availability of OCC has been in balance with supply and demand, which in its turn has led to minor upwards price adjustments. Prices for brown Kraftliner in Central Europe increased during the second quarter with EUR 60 per tonne and for white kraftliner with EUR 40 per tonne. The improved underlying demand in combination with strong cost pressure and lower global supply have supported the second price increase for kraftliner. With gradual implementation as mid-June, prices for brown kraftliner in Central Europe will increase with additional EUR 60 per tonne and for white kraftliner with another EUR 40 per tonne. And the price increases will gradually be reflected in the earnings during the second half of the year. So finally, I will say some words about Renewable Energy. In Renewable Energy, we've had a stronger quarter compared to the same period last year, mainly driven by high margins in our with ST1 jointly owned biorefinery in Gothenburg. Electricity prices were volatile during the quarter, but higher in comparison with Q2 previous year. SCA's land lease business is stable at 10.6 terawatt hours according to plan. This is equal to 20% of installed capacity of wind power in Sweden. The market for solid biofuels was stable with slightly higher prices together with normal seasonal effects on deliveries. For liquid biofuels, we have seen continuous higher margins compared to previous quarters, driven by high fossil fuel prices, together with relatively stable renewable feedstock prices. However, in June, refinery margins returned to pre-Middle East conflict levels, mainly due to lower fossil prices and higher feedstock prices. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both in HVO and South implementing RED III. In addition, we see impacts from conflicts in energy markets adding to this volatility. And by that, I hand over to Andreas.

Thank you, Ulf, and good morning, everybody. I will start off with the income statement for the second quarter. Net sales decreased 4% to SEK 5.15 billion, driven by lower prices and negative currency effects, which was partly offset by higher delivery volumes. EBITDA decreased 36% to SEK 1.3 billion, driven by lower prices, negative currency effects, higher cost for planned maintenance stops and higher cost for raw materials. EBIT decreased to SEK 724 million and financial items totals minus SEK 90 million. An effective tax rate of below 20% bringing net profit to SEK 523 million or EUR 0.74 per share. On the next slide, we have the financial development by segment. And starting with the Forest segment to the left, net sales decreased somewhat to SEK 2.5 billion. EBITDA decreased slightly compared to the previous quarter and totaled SEK 866 million. Lower prices for Wood raw materials, higher fuel costs and seasonally higher costs for forest management were offset by seasonally high harvest from SCA's own forest. In Wood, prices increased compared to the previous quarter. Net sales increased to SEK 1.5 billion due to high delivery volumes and higher prices compared to the previous quarter. EBITDA increased to SEK 89 million, corresponding to margin of 6%. Higher prices and lower cost for wood raw materials were partly offset by higher distribution costs. In Pup, net sales increased to SEK 1.7 billion compared to previous quarter, while EBITDA increased to SEK 107 million, corresponding to margin of 6%. Increase was mainly driven by higher prices, high deliver volume and lower cost for wood raw materials, which was partly offset by higher distribution costs. In Containerboard, kraftliner prices increased during the quarter. Net sales increased to SEK 1.8 billion, while EBITDA increased to SEK 135 million, corresponding to margin of 7%. Results was positively impacted the high prices and lower raw material costs, which offset by higher cost of planned maintenance stop of SEK 147 million and higher distribution costs. In Renewable Energy, we had another record quarter driven by higher fuel prices. EBITDA increased to SEK 217 million, corresponding to margin of 42%. Higher fuel prices and high delivery volumes of tall oil were offset by seasonally lower demand for solid biofuels. On the next slide, we have the sales bridge between Q2 last year and Q2 this year. Prices decreased 4% with lower prices in Pulp and Containerboard. Volumes increased 4%, driven by higher volumes in Pulp and Containerboard, which was offset by lower volumes in Wood. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 5.15 billion. Moving on to the EBITDA bridge, starting to the left, price/mix had a negative impact of SEK 229 million and higher volumes had a positive impact of SEK 32 million. High cost for raw materials had a negative impact of SEK 154 million, with a positive impact from energy of SEK 21 million, a negative impact from currency of SEK 204 million, and lastly, with a negative impact from planned maintenance stops and higher distribution costs. In total, EBITDA decreased to SEK 1.3 billion, corresponding to a margin of 25%. Looking at the cash flow, operating cash flow decreased to SEK 446 million for the quarter and SEK 1 billion for the first half year. And as you know, other operating cash flow relates mostly to working capital currency hedges and should therefore be seen together with changes in working capital. Look at the balance sheet. The value in forest assets totaled SEK 104 billion, working capital decreased to SEK 5.1 billion, capital employed totaled SEK 112 billion and net debt stood at SEK 11 billion. Equity totaled SEK 101 billion and net debt to equity was 11%. And we have now almost finalized our large ongoing investment projects. Thank you. With that, I hand back to you, Ulf.

Thank you for that, Andreas. And I mean, to summarize the second quarter, I mean, we can state that the market is still in general, rather weak, but we increased the result in the second quarter in comparison with the first quarter. And by that, as we said already in the first quarter, I guess that we have increased the bottom now. And we have also, during the quarter, performed rather big planned maintenance stop in Obbola. The market is a little bit different in different segments. Pulp solid wood products, I mean, more sideways, we can expect lower raw material prices in this third and fourth quarter. Energy, record results. Containerboard, well. We know now that we have done substantial price increases, and we will see the impact from those in the second half of this year. And the main focus for SCA for us now is really cash flow. So by that, I think I open up for questions.

[Operator Instructions] And our first question is from Linus Larsson from SEB.

Ulf, you were entirely correct in calling the trough in the first quarter. Now we're seeing a stronger second quarter. Are you also seeing a sequentially stronger third quarter? That's my first question. And then also if you could add maybe some color on your order inflow, your order book as of now? What are you seeing? What kind of tendencies are there in the market? You mentioned some improvements in Containerboard, for instance. Any more on the order book situation would be very helpful.

Yes. Linus. And typically, we don't do forecast. But yes, I think that Q3 will be a little bit stronger than Q2. That's my thinking. And why? Well, you talked about the order inflow. And I mean, again, we've talked about Pulp, and it is little bit disappointing that we are still going sideways in the Pulp business. On the other hand, we now see some closures. Canfor closed mill -- announced that they will close 1 mill. The announcement came last week, and we also see that we have curtailment, not the least on the Finnish side and so on. Solid wood products. I guess, where -- it's a rather balanced supply-demand situation. And as I said, I mean, the inventory level for SCA is on the mid- to low side. So we are pretty confident with that. In containerboard, we feel rather strong markets. And the question is, of course, if it's caused by prebuying or if it's a real demand. I start to think that we see an okay demand now for coming quarters, and we feel that the order inflow is quite good. And in combination with that, we also know that ourselves, but also other companies, we will start to perform rather big planned maintenance stops now both in the Pulp and Containerboard business. So I'm cautiously positive for the autumn.

That's great to hear. And then maybe if I can pick up on what you said on the Canfor closure. I mean are you already seeing some dynamics in customer behavior markets? Or is it still too early? I mean the closure hasn't yet taken place. So is that still to come? Or is that already affecting sentiment?

As you say, I mean, it's very early, but we saw the futures in China, they went up $20 immediately. So I mean, of course, if this situation remains, I mean, then we will see further closures and curtailments taken. So I mean, sooner or later, we will come to some kind of balanced suply-demand balance. And I think we are closer to that point now.

Great. And then maybe one final one for me on the variable cost side. What are you expecting for the third quarter compared to the second quarter? You mentioned log costs coming down. I think what about out Pulpwood. Did you also mention that? Is that also a tailwind? And are you also seeing some headwinds from what's going on in oil markets, et cetera? And what is net of all those variable costs sequentially?

Yes. If we start with the wood cost, we saw that the wood cost went down in Q2 compared to Q1 with around 2% to 3% and we expect both Pulpwood and sawlogs to continue to go down in Q3, maybe roughly speaking, another 3% to 5%, and then we expect it to go expect go down further in Q4. In terms of chemicals, hey went up a bit in Q2 compared to Q1. We expect them to be fairly flat, but, of course, it depends on the oil price. OCC, as Ulf mentioned, they have been slightly increasing and they could increase a bit further. And in terms of oil costs, it's hard to say. I mean, it went up, of course, in Q2 compared to Q1 quite a lot and then it went down and now it's gone up again. So that we'll have to watch and see. But net, of course, the wood cost is our biggest cost, so that will be a lower cost we expect in Q3 compared to Q2.

That's very helpful. And you said 3% to 5%, is that for the aggregate of pulpwood and sawlogs? Or how should I understand that?

Yes.

Our next question is from Gabriel Simoes of Goldman Sachs.

So my first one would be on the Containerboard prices. So earlier this week, you saw an announcement of a new conversion from newsprint to testliner. And even though actually late last week, right, even though costs are up, and prices have been following the cost increases, do you think the additional capacity coming online in the coming months could lead to a weakening of the current market momentum? Given the tighter kraftliner market at the moment, would you expect the premium for kraftliner versus testliner to be higher than what it was historically? So that's the first question. And the second question will be on the Pulp market. So we've been observing lower softwood prices in China, which are only starting to translate into lower prices in Europe as well. And I just wanted to understand if you're experiencing some additional weakness in demand in your sales in Europe. And as we've seen other Nordic players announcing curtailments as well, on top of the Canfor closure that you mentioned, is that something you've also considered to try and improve the market balance? And then finally, still on this topic, like with the ongoing substitution that we see from softwood to hardwood pulp, how much capacity do you estimate would need to be closed to rebalance the softwood market here? Because you mentioned the Canfor closure spin as a step in the right direction, but I wanted to gauge your understanding of how much more would be needed.

Okay. Now we have 3 questions, but I'll try to remember the first one, and that was what will happen in the Containerboard market. And as you said, I mean we are already today at the historical high delta between kraftliner and testliner. And we feel a strong demand for kraftliner as it just now. And I don't believe that you can -- I mean, we know that you cannot substitute everything because if that would have been possible, then it would have been done already with the price delta that you have today around SEK 280 million. So that is on the historical high level. Can it be further? Can it be more? I'm not sure. Let's see. We feel that a lot of capacity is taken out already in kraftliner, not least in the U.S., 3 million, 4 million tonnes. And that has created some good space for kraftliner. And we also know that you have substantial oversupply of testliner in the market. And yes, we will be surprised, I guess, all of us to see another conversion from publication paper over to testliner. But I guess, we will also see some closures that they will not be announced in forwards. I mean -- of course, they will come and sooner or later, you will find some kind of balance. So no, I feel that the Containerboard market, kraftliner market is strong as now. And I guess that we can look forward to the price increases announced already that they through in the second half of this year. If we can get more, it's too early to say. The second one was Pulp. And again, what we have seen just now short term is maybe substitution from hardwood over to softwood. So we have felt a little bit stronger demand in the softwood business. Nevertheless, now we have seen that hardwood prices, they come down a bit. And as I said, the market is small or less sideways in Pulp for the moment being. We have seen some announcements of closures and curtailments. We have not announced anything. And as we are -- I mean, we have a rather stable situation. We have a new mill in Östrand, highly efficient and a rather strong cash cost position. So we have no plans for curtailments in Östrand. And the third question, what was that? You have to repeat that one.

And the third question was basically how much capacity do you think would still need to shut down for the market to actually go to its balanced levels?

It's hard to say. I mean it's more a question of demand. I guess long term, we believe that softwood pulp will be scarce resource. I mean, I think the problem will be the raw material supply to softwood. So we believe strongly in the softwood pulp market. And it's hard to say. I've heard some figures, 300,000 tonnes or something like that, that we should take away from inventory levels now to get the balance, might be a little bit more, might be a little bit less. So let's see what we will face now in the coming quarters. But I mean, as you can see now when you have those curtailments taken, I mean, that's a clear message that we have reached the bottom. I mean, some producers, they cannot manage this price level.

And as Ulf mentioned before, we see also large maintenance stops usually during the autumn and including ourselves, we have a large maintenance stop at Pulp beginning in the end of Q3 and in the beginning of Q4.

Ioannis Masvoulas from Morgan Stanley.

A few questions from my side. I'll take them one at a time. Starting with the Pulp business, you just mentioned, Ulf, that you wouldn't consider any capacity changes on your side, especially at the restaurant. How do we think about given the much more difficult CTMP market, weak pricing and overcapacity that feels more structurally challenged than Austrian. Maybe some comments would be very helpful.

Again, I mean, you're absolutely right. I mean in CTMP, we have already -- we have taken curtailments during the spring, and we will continue to take curtailments if that's needed. I mean we have no margin when we produce for Asia while we have rather good margins when we produce for Europe. So I mean, we will not -- and also, we have, of course, a high marginal cost for wood raw materials, and we have to also keep an eye on the electricity price and so. So I mean, CTMP is a different story. And we don't run our CTMP facility at full capacity, not at all.

We usually try to take curtailment when we have high electricity prices. So then we -- it much easy for CTMP pulp -- it is easier to start and stop. So when you have high electricity prices, then we stop production for a couple of hours or a day or how long is needed and you start up again and they can close down again.

Understood. And maybe a second question on capital allocation. With strategic CapEx now winding down, what's the current thinking on potentially supporting the shares via buyback? Is there a certain level of tiering that you would consider as the balance sheet being in a good shape to support the buyback? Or is that not something you are sort of considering at this point in time?

I mean our main focus just now cash flow, of course. And as it is now, I mean, we still have a little bit to go in Obbola. Otherwise, we are more or less up running at design capacity in all other new investments. And our focus just now is to continue the ramp-up. and then, of course, that will generate a good cash flow, especially when the market is turning. And then it's more a question for the Board and our owners to decide about the capital allocation. As we've said before, I mean, we have no big projects coming up just now. So I mean, that's the case. You would like add something on the...

No. As Ulf said, we are focusing on ramping up our investments. And now our additional volumes that will be placed on the marginal markets with fairly low profitability. But once the market returns, I mean, those extra volumes will be placed in better markets. So we get effects from that. But we're focusing on ramping up our production.

And the third question on forest, where SCA traditionally has been always looking for opportunities to increase the forest ownership over time, especially when the balance sheet would allow you to do so. From today's perspective and given that the stock trades at a discount to forest NAV, would you consider selling part of your forest that is potentially not integrated with your own mills to accelerate the deleveraging path and to showcase the true value of the forest? Or is that not something that management or the Board is considering?

I mean, typically, forest and the forest resource will be a scarce resource going forward. We can be 100% sure on that. And what we are doing just now is that we sell pieces in the West, far away from the industry and also, in some cases, it's harder to run them in a, let's say, way due to different reasons. And then we try to buy the same volume close to our industry. So we try to move our forest holdings closer to the industry. But to be a net seller forest land in Sweden, I mean, that is not on the agenda.

Our next question is from Johannes Grunselius from SB1 Markets.

It's Johannes here. I have 2 questions. The first one is on the Containerboard business. I can see here that your implied sales price went up pretty nicely quarter-over-quarter. Is that a reflection of higher market prices? Or is it a combination of higher market prices and you have reduced discount on incremental volumes coming out from Obbola? That's my first question.

I think it's both that we have increased prices, but it's also a question about mix. And Andreas said earlier that if we are forced to deliver new, so to say, new volumes in overseas market, I mean, for a while now, we have had more or less no margin at all. But if we can -- and we see now an increase in demand in Europe and by that, we can also place lower volume in Europe and that will give us a better mix.

Yes, sure. Sure. Do you see a large potential here in the coming quarters? Or is this more of a long-term play, something for next year to see the big potential from this?

I think first, we will see the impact from increase, but that will come now in Q3 and also in Q4 as price increases they lag a couple of months. So that will be the main effect we will see next coming months. But then it depends on, of course, how the demand will develop. But as it is just now, we feel a rather stable demand in Europe, not the least in the retail business, but also -- that we've also heard from other reports now that the order inflow has been also in the industry quite good in many areas, and that will, of course, also benefit the kraftliner producers.

Sure. That's helpful. And the other question I have is on your Renewable Energy business. Obviously, very nice print there in the second quarter. But you also talked about high volatility. But did I get you're right that June was a good month for you in Renewable Energy? And as things looks now, can we assume that Q3 will also be sort of very, very high compared to history?

If you look at renewable energy, normally, you have a seasonally weaker quarters in Q2 and Q3 because we deliver less in our bioenergy pellets, things like that and usually have lower electricity prices. But in Q2, I mean, that was compensated with very high liquid biofuel price because of the high fuel prices. And then it depends on how the fuel prices develop in deferred quarter. But I mean, it all depends on the fuel prices. So if they stay on a high level, of course, that will benefit our Renewable Energy business. If they go down, it will be more normalized. So it depends on that development. But as you say, we had very high prices in -- both in June, but also in May and April.

Okay, okay. And it sounds like the lead times are quite shorter between liquid -- your sort of energy price and the traditional fuel prices.

Yes, it's fairly -- if you compare to our other segment, Renewable Energy then is a lower lag effect compared to Containerboard or Pulp is much quicker.

We'll now move to our next question from Martin Melbye from ABG.