66 slides from Svenska Cellulosa Ab Sca Class A's investor day presentation, May 22, 2018
Slide 1: A leading industrial ecosystem, driven by the force of the forest
A leading industrial ecosystem, driven by the force of the forest Capital Markets Day May 22, 2018
Slide 2: Today's agenda
Today’s agenda 08:30 – 09:15 Registration and coffee Strategic direction – Senior Management Team Growing forest asset – Jonas Mårtensson, President Forest 10:45 – 11:00 Coffee break Increased value from each tree – Toby Lawton, CFO Concluding remarks – Ulf Larsson, CEO Q&A 12:00 – 13:00 Lunch Fores
Slide 3: Strategic direction
Strategic direction Ulf Larsson, CEO
Slide 4: A strong and integrated value chain
A strong and integrated value chain Sales (SEKm) EBITDA 1) (SEKm) 16,664 3,761 EBITDA margin 1) Industrial ROCE 2) Forest Renewable Wood energy 22.6% 13% Forestland Net growth Pulp Paper 2.6 m ha 3.0 m m3fo Note: 1) Adjusted EBITDA and EBITDA margin. 2) Adjusted ROCE for the industrial segments; Woo
Slide 5: Global trends favoring fiber based renewable materials
Global trends favoring fiber based renewable materials Increased Growing demand for demand for Eco-awareness renewable virgin fiber materials More packaged E-commerce goods 5
Slide 6: Cash flow funded growth opportunities
Cash flow funded growth opportunities Value 2025? Biorefinery 20192021/22 optionality 20192021 Kraftliner expansion ROCE Biofuel production 2020 from crude tall oil Leverage 20182019 Increase share of 5.0 TWh wind power on SCA land SEK 50m pilot plant Environmental permit 2015
Slide 7: Profitable growth strategy
Profitable growth strategy 1 Forest – the source for value creation 2 Increased Paper – Kraftliner expansion value from each tree 3 Pulp – start-up of a SEK 7.8bn investment Growing 4 forest asset Renewable energy – the next value creator 5 Wood – moving forward in the value chain 7
Slide 8: Forest – the source for value creation
Forest – the source for value creation Jonas Mårtensson, President Forest
Slide 9: The forest is our source for value creation
The forest is our source for value creation Growth Harvesting Land value 9
Slide 10: Profitable growth since 1950
Profitable growth since 1950 Standing volume Growing Harvest plan Increasing Increasing Land value 1) Increasing million m3fo asset base million m3sub cash cashflow flow SEK/m3fo (real value) land value +60% +120% +260% 232 4.3 396 146 2.0 109 1950 2017 1950 2017 1950 2017 Note: 1) Average price Swe
Slide 11: Forest – strategic direction
Forest – strategic direction Maximize growth Increase sustainable harvesting level Secure raw material supply Secure biodiversity for future generations Prevent further restrictions in ownership rights 11
Slide 12: Paper – Kraftliner expansion
Paper – Kraftliner expansion Mats Nordlander, President Paper
Slide 13: Kraftliner – strategic growth area; Publication paper – maximize cash flow
Kraftliner – strategic growth area Publication paper – maximize Munksund – grow the share of value-added cash flow products: white-top, heavy duty and wet strength Positive cash-flow through operational excellence Obbola – increase production capacity and and optimized product and market mix improve
Slide 14: Prepare for profitable growth in Kraftliner
Prepare for profitable growth in Kraftliner 1. Increase share of White-top in Munksund SEK 196m investment White-top Kraftliner capacity increased from 150k tonnes to 200k tonnes Expected completion in May 2019 2. Transfer mid-grammage brown products from Munksund to Obbola Investment enables co
Slide 15: Favorable long-term trends for Kraftliner
Favorable long-term trends for Kraftliner Favorable long-term trends... ...driving demand for virgin fiber E-commerce – 20% growth CAGR Kraftliner demand Europe / Growth CAGR k tonnes 6,000 ~2% Increasing world trade ~2% 2.7% 5,000 4,000 Substitution of plastics White 3,000 Unbleached 2,000 Shelf re
Slide 16: Increased capacity needed to meet demand
Increased capacity needed to meet demand Kraftliner growth limited by shortage of supply 100% Operating rates (shipment-to-capacity) Not enough supply to satisfy demand +800kt 98% capacity needed by 96% 2026 94% Virgin 92% 90% Recycled 88% 86% 2012 2013 2014 2015 2016 2017 Source: Numera. 16
Slide 17: Opportunity for increased capacity
Opportunity for increased capacity Obbola one of few brown field Pre-project to prepare Kraftliner expansion at Obbola initiated opportunities in Europe Access to fresh fiber Total capacity Obbola (ktonnes/year) New ~800 kt paper machine Technical requirements Expansion of existing pulp line • V
Slide 18: Pulp – start-up of a SEK 7.8bn investment
Pulp – start-up of a SEK 7.8bn investment Ingela Ekebro, President Project Helios
Slide 19: Start-up of the world's largest NBSK pulp line
Start-up of the world’s largest NBSK pulp line Sequential start-up mitigates risk • Control center – Q3 2017 7.8 SEKbn investment • Wood handling unit – Q3 2017 • Evaporation plant – Q4 2017 • Drying and baling – Q1 2018 Market preparations • Expand market and sales organization • Training and sim
Slide 20: 1mt pulp mill with enhanced competitiveness
1mt pulp mill with enhanced competitiveness Total capacity (tonnes/year) World-class competitiveness Post completion • Doubled NBSK capacity • Fixed cost reduction of SEK 350 per tonnes compared to pre project level • Improved energy balance – from a net consumer of 0.1 TWh to a net producer of 0.5
Slide 21: Growing demand for pulp
Growing demand for pulp …driving increased tissue demand Strong market growth… and shortage of virgin fiber Global market (m tonnes) CAGR Index (global market) BSK 1.8% 26 150 0.1 Growing tissue demand, Tissue production CAGR 4 140 shrinking supply of high +3.4% 2 0.9% 23 grade recycled fiber from 2
Slide 22: Pulp – strategic direction
Pulp – strategic direction 1 Start-up 2 Ramp-up 3 Quality 22
Slide 23: Renewable energy – the next value creator
Renewable energy – the next value creator Mikael Källgren, President Energy
Slide 24: Östrand investment enables biofuel potential
Östrand investment enables biofuel potential 60,000 Energy Synergies tonnes surplus Energy and Doubled tall oil production Net energy producer 1) production optimization Note: 1) Net energy producer at Östrand. 24
Slide 25: SCA and St1 to start a joint venture for biofuels from tall oil
SCA and St1 to start a joint venture for the production of biofuels from tall oil Development of HVO volume in Sweden Reduction of CO2 by blending biofuels 160 • Sweden: 21% diesel and 4.2% gasoline by 2020 • EU: 7% renewable energy in transport Monthly HVO volume (k m3) 140 The HVO market is growin
Slide 26: Biorefinery potential enabled through the Östrand investment
Biorefinery potential enabled through the Östrand investment Energy surplus and byproducts from pulp Long-term potential production create opportunities in biorefinery 2025? SEK 50m invested in a pilot plant in Obbola for the production of liquid biofuels from black liquor Environmental permit appli
Slide 27: Doubled wind power production by 2020
Doubled wind power production by 2020 Land with excellent wind conditions 5.0 TWh Construction scheduled Land available through leasing to start in 2018-2020 2.7 Target of 5.0 TWh by 2020 will be exceeded Current wind power on SCA land 2.3 EBITDA contribution of SEK 60-70m by 2020 27
Slide 28: Wood – moving forward in the value chain
Wood – moving forward in the value chain Jerry Larsson, President Wood
Slide 29: One of the largest and most efficient sawmill operations in Europe
One of the largest and most efficient sawmill operations in Europe From 11 to 5 highly automated and efficient sawmills 2007 2017 SEK ~2.0bn invested since 2.2m m3 2007 1.8m m3 Boden Vilhelmina Munksund Munksund 11 5 sawmills sawmills Jämtlamell Holmsund Rundvik Rundvik Gällö Gällö Bollsta Bollsta G
Slide 30: Long-term profitable growth with focus on value added products
Long-term profitable growth with focus on value added products Wood sales (SEKbn) +9% p.a. Profitable growth 6.0 4.7 Higher and more stable margins over a business cycle Customized products 1.1 based on customer insights 1997 2007 2017 Wholesalers Wood Industry Building Materials Trade 30
Slide 31: Product innovation
Product innovation Pine heartwood decking Outdoor cladding with concealed fitting 31
Slide 32: Wood – strategic direction
Wood – strategic direction Continued profitable growth through focus on: • Building Materials Trade in Scandinavia, UK and France • Industrial customers with high demand for customized products Optimized production sites for world-class efficiency: • Well invested large scale units • Focus on automa
Slide 33: Growing forest asset
Growing forest asset Jonas Mårtensson, President Forest
Slide 34: Swedish forest transformation
Swedish forest transformation Exploitative selective logging of the 1920’s 1) The forest landscape of today Note: 1) Source SLU, Skogsbilder. 34
Slide 35: Europe's largest private forest owner
Europe’s largest private forest owner Kraftliner mill Forestland Paper mill Pellet production 6% 2.6 m ha of Sweden Pulp mill Saw mill Saw mill, partly-owned Productive forestland Munksund 2.0 m ha Obbola Rundvik Stugun Bollstabruk Standing volume Gällö Härnösand Östrand Tunadal 232 m m3fo Ortviken
Slide 36: Significant real growth of 3.5%
Significant real growth of 3.5% Forest growth metrics (m m3fo) Gross growth of standing forest 9.5 Natural losses and pre-commercial thinning -1.3 Real growth rate of 3.5% (in relation to the standing Available growth of standing forest 8.2 volume of 232m m3fo) (1) Current cash flow Annual harvestin
Slide 37: Improved practices has increased growth
Improved practices has increased growth Growth plan at different taxations (standing volume / hectare) m3fo/ha 1 130 2017 232m m3fo Silviculture 2.0m ha 120 Tax IX vs 2014 Tax VI 2 110 +14 m fo/ha 3 Fertilization 100 Tax VI vs 1984 3 Tax II Improved seedlings 90 +7 m fo/ha 3 80 4 70 Introduction of
Slide 38: Young forests and lodgepole pine drive biological growth
Young forests and lodgepole pine drive biological growth High share of young forests currently in a strong growth phase Age classification Tree species Standing volume, % 0-20 Standing volume, % 1% Deciduous 21-50 Strong growth phase 15% Lodgepole pine Spruce 33% 33% of volume 36% 9% 9% of volume 80
Slide 39: Planning, planning, planning
Planning, planning, planning i Calculation of sustainable yield – 100+ years • Inventories, recalculations every 6-10 years Planning key ii to increase Ecological landscape plans – 100+ years • Set aside areas, areas for special management growth iii Stand selection for harvesting plans – 10 years F
Slide 40: Improved seedlings
Improved seedlings The world’s largest forest tree nursery with capacity to produce 100 million seedlings per year >25% faster growth potential than natural regeneration Selective breeding bring seed with higher quality, survival rate and growth On site R&D to improve growth and protection Innovativ
Slide 41: Global climate change
Global climate change Global warming will have a significant Increased growth in northern Sweden Increased risk impact on the climate in northern Sweden Significant longer growth period – Increased risk for storms, fire, earlier in spring, later in autumn × infestation and snow damage 25-30% incre
Slide 42: Increase in both standing volume and harvesting level
Based on Increase in both standing volume current practices and harvesting level Harvesting from own forest (m m3sub) Standing timber volume (m m3fo) +165% +75% 6 300 5 250 4 200 3 150 2 100 Increasing cash flow Growing asset base 1 50 0 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950
Slide 43: Nature conservation impacting current harvesting level
Nature conservation impacting current harvesting level Forest holding by age class (by area – ha) 30% Large share of the forest in harvestable age 25% is saved for nature conservation 20% High share of young forests currently in a strong growth phase Nature conservation 15% • Harvesting will rise wh
Slide 44: Responsible forest management
Responsible forest management % of productive FSC 21% Nature conservation areas currently forest land requirement excluded from harvesting Voluntary set-asides 5-8% ≥5% Nature considerations during harvesting operations 10-15% ~5-10% Alternative forms of forest management 3-5% – Sum (over the rotati
Slide 45: Technological and organizational development drives productivity
Technological and organizational development drives productivity Productivity development (m3sub/ day’s work) 1 Organizational development 70 Technical development 60 2 50 Instruction, training and feedback Storm felling 40 3 Ownership structure 30 Technical revolution 20 4 Coaching and business dev
Slide 46: Efficient wood sourcing organization secures wood supply
Efficient wood sourcing organization secures wood supply Europe’s largest private forest owner Terminal 50% self Kiruna 2.6 Industry (pulp wood) sufficiency Industry (saw logs) m ha Forest district Murjek Wood supply unit Plant nursery Wood sourcing Train/truck boarder Railway to industries Luleå SC
Slide 47: Attractive offering for local forest owners
Attractive offering for local forest owners Relationship i with 14,000 Harvesting services – leading cost position forest owners ii Silviculture and advisory services iii Strong financial and industrial partner iv SkogsvingeTM – a digital tool 47
Slide 48: Europe's largest private forest owner
Europe’s largest private forest owner Sustainable forest management Significant growth through young forest and active management Stable and long-term increasing harvesting rate High productivity and efficient value chain Securing timber and biodiversity for future generations 48
Slide 49: Increased value from each tree
Increased value from each tree Toby Lawton, CFO
Slide 50: Capital allocation
Capital allocation High return M&A projects Stable and Strategic Investment increasing Grade Rating Investments Creating Creating Shareholder Dividend Shareholder Capital Structure Value Value Supported Net Debt by strong Forest Asset to EBITDA cash flow Real growth Integrated of 3.5% value chain 50
Slide 51: Value creation for the forest owner
Value creation for the forest owner Price Revenue Volume Price Revenue Volume ~510 63% 48% ~280 37% 52% Saw logs Pulp wood Note: Price in SEK/m3sub. 51
Slide 52: Integrated value chain creates significant value add from one tree
Integrated value chain creates Increased significant value add from one tree value from each tree Income / m3sub 4) Wood raw material 1) Saw logs ~510 Growing (m m3sub) forest asset Pulp wood ~280 ~9 Forest owner + Wood products ~390 + Pulp EBITDA margin 2) + Publication paper 22.6% + Kraftliner + C
Slide 53: Investment in value chain drives profitability
Investment in value chain drives profitability Increase value from byproducts Utilization of land 2025? Increase Biorefinery Value value add 20192021/22 optionality Kraftliner 20192021 expansion 20192021/22 Increased 2020 HVO production from CTO value from 5.0 TWh wind SEK 50m pilot 20
Slide 54: Forest seasonality
Forest seasonality Net sales (SEKm) EBITDA (SEKm) Harvesting of own forest (k m3sub) 1,312 1,298 1,296 1,287 1,468 1,261 1,261 1,234 1,210 364 1,368 1,187 1,353 358 1,322 338 325 312 316 30% 304 293 295 28% 26% 964 25% 25% 25% 25% 898 23% 23% 695 664 511 Revaluation of forest – lower revaluation Hig
Slide 55: Factors affecting relative profitability
Factors affecting relative profitability ~40 & ~60 80+ Thinning Final harvesting i Price to industry Income / m3 Index Income / m3 Index Income • Market prices, externally sourced wood sold at cost Price 80 Price 100 Harvesting cost -40 Harvesting cost -25 Gross profit 40 Gross profit 75 ii Harvesti
Slide 56: Internal market prices
Internal market prices m m3sub Wood sourcing 2017 Wood sourcing post Östrand Supplies industry segments with wood 12 12 Central Sawmills Sold at market price suppliers • Prices based on market prices in SCA’s 10 10 Central Sawmills region suppliers Locally 8 8 purchased Price premium for certified f
Slide 57: Leading cost position
Leading cost position Harvesting cost (index) 220 1 Consumer price index 200 Optimization and efficient 180 forest management Storm felling 160 2 140 SCA harvesting cost 120 Industry leading cost position 100 80 3 Economies of scale 60 • Europe’s largest private forest owner 40 • Relationship with 1
Slide 58: Forest portfolio optimization through buying and selling land
Forest portfolio optimization through buying and selling land Stable price at ~270 SEK/m3fo 1 SCA’s land purchases 2014 2015 2016 2017 1Move forest closer to the industry Volume (thousand m3fo) 1,655 185 123 261 2 Price (SEK/m3fo) 264 273 263 259 2Improve forest consolidation Value (SEKm) 437 50 32
Slide 59: Improving forest consolidation
Improving forest consolidation Forest land swaps Acquisition of land to create larger consolidated areas SCA’s forest land SCA gains Counterparty’s forest land SCA gives to counterpart Forest ownership in Roggsjön 1955 Forest ownership in Roggsjön 2017 59
Slide 60: Wood swaps drive both financial and environmental gains
Wood swaps drive both financial and environmental gains Wood swaps totaling 1-1.5m m3sub annually SEK 60 m annual saving Cost saving from lower transportation costs Reduced emissions Collaboration with several large forest owners 60
Slide 61: IAS 41 valuation
IAS 41 valuation Book value 135 SEK/m3fo Price assumption (nominal SEK/m3sub) Accounting valuation and regulations 500 CAGR +2% Forest valuation is divided into two components 450 • Actual land – IAS 16 Property, plant and equipment − At acquisition cost (acquired long ago) and road investments 400
Slide 62: Market valuation of forest assets
Market valuation of forest assets Value of forest land (2017, SEK/m3fo) Assumptions • WACC / required return 276 270 259 • Price Forecast harvesting plan • Growth and harvesting • Improved seedlings 135 • Silviculture and fertilization • Technical development • Climate change Land value • Land value
Slide 63: Concluding remarks
Concluding remarks Ulf Larsson, CEO
Slide 64: Profitable growth strategy
Profitable growth strategy 1 Forest – the source for value creation 2 Increased Paper – Kraftliner expansion value from each tree 3 Pulp – start-up of a SEK 7.8bn investment Growing 4 forest asset Renewable energy – the next value creator 5 Wood – moving forward in the value chain 64
Slide 65: Q&A
Q&A
Slide 66: Forward-looking statements
This presentation may contain forward-looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read SCA’s most recent annual report for a better understanding of these risks and unce