76 slides from Svenska Cellulosa Ab Sca Class A's investor day presentation, May 31, 2017
Slide 1: A leading industrial ecosystem, driven by the force of the forest
A leading industrial ecosystem, driven by the force of the forest Investor presentation May 31, 2017 1
Slide 2: Today’s agenda
Today’s agenda 08.00 – 08.30 Registration and coffee Introduction to SCA – Ulf Larsson, CEO Financial overview – Toby Lawton, CFO Forest – Mats Sandgren, President Forest 10.00 – 10.15 Coffee break Wood – Jonas Mårtensson, President Wood Pulp – Ingela Ekebro, General Director Project Helios 1) Paper
Slide 3: Investor presentation 2017
Investor presentation 2017 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 understand
Slide 4: Introduction to SCA
Introduction to SCA Ulf Larsson, CEO
Slide 5: Executive Management
Executive Management From left to right. BJÖRN LYNGFELT JAN SVEDJEBRANT TOBY LAWTON ULF LARSSON MATS SANDGREN MAGNUS SVENSSON SVP, Communication SVP, Legal CFO CEO President, Forest SVP, Purchasing Employed since: 1986 Employed since: 2001 Employed 1995-2014, Employed since: 1992 Employed 1982-2002
Slide 6: Key rationale to the split
Key rationale to the split Increased strategic focus Well-positioned stand-alone company Increased shareholder value in the long term 6
Slide 7: Strong and integrated value chain
Strong and integrated value chain Europe’s largest private forest owner World class wood operation 15.4 SEKbn sales 3.3 SEKbn EBITDA Erecting world’s largest softwood pulp line 3.0 m m3 fo net growth Leading Kraftliner producer 2.6 m ha forestland Maximizing energy potential ~4,000 FTEs Note: Financ
Slide 8: Global trends favoring fiber based renewable materials
Global trends favoring fiber based renewable materials Increased demand for renewable materials E-commerce Growing demand for virgin fiber More packaged goods Eco-awareness 8
Slide 9: Strong integrated value chain secures long term profitability
Bollsta Bionorr Strong integrated value chain sawmill pellet mill secures long term profitability Wind power Bogrundet tree nursery Östrand pulp mill District heating Tunadal sawmill R&D Ortviken Centre paper mill Tunadal harbor 9
Slide 10: Strong integrated value chain secures long term profitability
Strong integrated value chain secures long term profitability The base for all our business and operations is the forest. On this unique natural Bionorr pellet mill resource, we have built an entire industrial ecosystem. At the Bionorr pellet mill in Härnösand, sawdust is turned into fuel pellets fo
Slide 11: The forest is our source for value creation
The forest is our source for value creation Harvesting Growth Land value 10
Slide 12: Highly efficient wood operations with profitable growth for more than 20 years
Highly efficient wood operations with profitable growth for more than 20 years Attractive market outlook with strong global softwood demand Driving demand through innovations and value added products Close cooperation with customers Well invested sites with world class efficiency 11
Slide 13: Östrand – world class pulp operation
Östrand – world class pulp operation to meet increasing demand Meeting long-term growth in tissue and white packaging World-class competitiveness Cost efficient supply of raw materials 7.8 SEKbn investment Increases value of the forest 12
Slide 14: Publication paper – focus on innovation and cash flow
Publication paper – focus on innovation and cash flow Operational excellence and cash flow focus Fast product renewal – 35% of current products did not exist 5 years ago Upgrade product portfolio and grow key products in selected segments 13
Slide 15: Leading Kraftliner producer focused on high quality fresh fiber
Leading Kraftliner producer focused on high quality fresh fiber No.1 independent producer of Kraftliner in Europe White top Wet strength Heavy duty Increasing demand for packaging solutions and fresh fiber products Improved product mix Strong focus on creating customer value through innovation and c
Slide 16: Energy, biofuel and green chemicals offer additional growth opportunities
Energy, biofuel and green chemicals offer additional growth opportunities One of Europe’s largest supplier of forest based biofuels with 9 TWh produced in 2016 320 wind turbines on SCA’s forest land with an average annual production of 2.5 TWh Future growth opportunities within liquid biofuels and g
Slide 17: Paving the way for a renewable future
Paving the way for a renewable future Responsible forest management Our forests will be as rich in timber, biodiversity and nature experience as today Net forest growth binds ~4m tons CO2 annually Mitigating climate change Carbon dioxide emissions from fossil fuels reduced by 60% over the past 5 yea
Slide 18: A leading industrial ecosystem, driven by the force of the forest
A leading industrial ecosystem, driven by the force of the forest Rising demand for renewable fiber-based products Efficient integrated value chain close to the forest Well-invested asset base positioned to capture growth opportunities People behind the results Strong and stable cash flow 17
Slide 19: Financial overview
Financial overview Toby Lawton, CFO
Slide 20: Strong and stable performance
Strong and stable performance Net sales (SEKm) EBITDA (SEKm) and EBITDA margin 1) 18,000 4,000 5% -5% 16,000 3,500 3,683 3,741 16,152 15,412 15,373 14,000 3,269 3,000 12,000 2,500 10,000 2,000 8,000 24% 23% 1,500 21% 21% 5% 20% 6,000 1,000 4,000 3,793 3,969 813 807 2,000 500 0 0 2014 2015 2016 Q1 20
Slide 21: Contribution by segment
Contribution by segment Forest Wood Pulp Paper Net sales (SEKm) 8,226 8,548 7,744 5,187 5,108 4,978 5,114 5,315 5,441 2,518 2,760 2,492 1,998 2,046 1,187 1,312 1,264 1,364 600 641 2014 2015 2016 Q1 Q1 2014 2015 2016 Q1 Q1 2014 2015 2016 Q1 Q1 2014 2015 2016 Q1 Q1 2016 2017 2016 2017 2016 2017 2016 2
Slide 22: Stable cost structure
Stable cost structure 2016 Timber, Chips, Recycled fiber, 14% 14% 25% Other raw materials and consumables, 12% Personnel, 16% 12% Transport and distribution, 19% 7% Energy, 7% Depreciation, 7% 16% 7% Other costs 1), 25% 19% Note: 1) Other costs comprise mainly of goods for resale, maintenance, rents
Slide 23: Currency exposure
Currency exposure Sales by country (2016) Net currency inflows (major currencies, 2016) 1) SEKbn 5% EUR 17% 11% UK, 17% USD Germany, 16% GBP Sweden, 14% JPY 16% 0 1 2 3 4 5 6 7 8 9 10 11 Other Europe, 37% Asia, 11% Sensitivity analysis Currency Change vs SEK Effects on earnings (SEKbn) 37% Other, 5%
Slide 24: Limited seasonality effects
Limited seasonality effects SEKm 5,000 25% 4,000 20% 3,000 15% 2,000 10% 1,000 5% 0 0% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Net sales Adj. EBITDA margin • Largest maintenance stops usually occur in Q2 • Forest division sources more wood externally during the winter season 23
Slide 25: Well invested asset base with low maintenance capex
Well invested asset base with low maintenance capex SEKm 3,500 3,000 • Increased capex in 2015 and 2016 2,500 primarily relates to the Östrand investment 2,000 2,231 • Stable maintenance capex 1,500 946 1,000 184 500 876 869 959 515 388 73 126 0 2014 2015 2016 2016 Q1 2017 Q1 Current capital expendi
Slide 26: Östrand investment on track
Östrand investment on track Investments NBSK capacity (tonnes/year) • Planned start-up in June 2018 +109% • SEK 3.1bn invested as per Q1 2017, out of SEK 7.8bn in total 900,000 Extended stop in 2018 (preparing for start-up) 430,000 • In 2018, lost production volumes by extended stop compensated by h
Slide 27: Working capital throughout the year
Working capital throughout the year SEKm 8,000 20% Net working capital 6,000 15% % of sales 4,000 10% Other current receivables (incl. VAT receivables) 2,000 5% Accounts receivables Inventories 0 0% Accounts payables -2,000 -5% Other current liabilities Other -4,000 -10% -6,000 -15% Q4 2015 Q1 2016
Slide 28: Strong operating cash flow
Strong operating cash flow SEKbn Operating cash flow Forest revaluation (IAS 41) 0.5 2.5 0.5 Adj. operating profit excl. forest revaluation 0.7 2.1 1.9 1.9 1.5 1.5 0.8 0.3 0.2 0.3 0.3 0.1 2014 2015 2016 Q1 2016 Q1 2017 • Track record of delivering operating cash flow ahead of operating profit exclud
Slide 29: Balance sheet structure
Balance sheet structure SEKm Dec 31, 2016 March 31, 2017 Forest assets (gross value before deferred taxes) 30,770 31,001 Deferred tax relating to Forest assets -6,769 -6,820 Forest assets, net of deferred tax 24,001 24,181 Working capital 2,740 3,031 Other capital employed 13,386 13,601 Total capita
Slide 30: Financing arrangements
Financing arrangements SEK 9.5bn • Two financing agreements amounting to SEK 9.5bn • A syndicated revolving credit facility with four Swedish banks 1.5 with a total financing of up to SEK 8.0bn ̶ Maturity of 3 years (SEK 4.5bn) and 5 years (SEK 3.5bn) ̶ Handelsbanken, SEB, Danske Bank and Swedbank •
Slide 31: Forest
Forest Mats Sandgren, President Forest
Slide 32: Europe’s largest private forest owner with 6% of Sweden’s land area
Europe’s largest private forest owner with 6% of Sweden’s land area Net sales (SEKm) Forest holdings 4,978 2.6 m ha Total land acreage 2.0 m ha Productive forest land 230 m m3fo Standing timber volume Adjusted EBITDA (SEKm) 1,238 Growth 9.5 m m3fo Annual gross growth 3.0 m m3fo Annual net growth Cap
Slide 33: Young forests drive biological growth
Young forests drive biological growth High share of young forests currently Yearly growth million m3fo in a strong growth phase 5 4 LODGEPOLE PINE 35-40% faster growth 3 PINE, 2 SPRUCE, BIRCH 1 9.5m m3fo gross annual growth – 0 corresponding 0-20 21-40 41-80 81+ Age (y): to >4% p.a. Strong growth ph
Slide 34: Sustainable and increasing harvesting provides stable cash flow
Sustainable and increasing harvesting provides stable cash flow • Current felling corresponds to 50-60% of the Planned felling million m3sub available annual growth +40% • Felling will rise when the younger forests reach 7 harvestable age around 2035 ~6 6 5 ~4.3 4 3 2 4.3m m3sub current felling 1 0
Slide 35: Continued increase in standing volume
Continued increase in standing volume • Current net growth of approximately Standing volume million m3fo 3m m3fo per year 250 1.4% net growth in 2016 • Standing volume has increased by nearly 50% over the last 50 years 200 Continued increase • Increasing land value in standing volume for the next 10
Slide 36: Efficient sourcing and logistic network
Efficient sourcing and logistic network • Multiple external wood sources m m3sub 10 • Timber exchange to minimize logistic costs Externally Sawmills sourced • Efficient logistic network with own terminals 8 6 Chips from Pulp and own sawmills paper 4 Own forest 2 50% self sufficiency 0 SCA wood SCA w
Slide 37: Steadily rising prices over time
Steadily rising prices over time Access to high performance long fiber wood Price development (northern region) at competitive cost SEK / m3sub 600 SAWLOGS 500 400 300 200 PULPWOOD 100 0 1996 2001 2006 2011 2016 Source: List prices from Skogsstyrelsen, excluding premiums on top of list prices. 36
Slide 38: Sustainable and efficient forest management
Sustainable and efficient forest management Harvesting productivity development Forestry with long-term 65 Efficient forest management productivity improvements m3sub/ 20 day’s work drives competitiveness 1985 2016 Index Optimization and efficient forest 206 Operational excellence 1985 100 100 121 m
Slide 39: World’s largest plant nursery
World’s largest plant nursery Capacity to produce 100 million seedlings per year ~50% sold externally Innovative seedling design 25% faster growth than natural Research and development – in-house and in regeneration collaboration with research institutes 38
Slide 40: Growth opportunities for wind power
Growth opportunities for wind power Land with excellent wind conditions Strategy to make land available 320 wind turbines through leasing or partnership 320 wind turbines on SCA’s land Average annual production of 2.5 TWh Ambition to double wind power production to 5 TWh by 2020 39
Slide 41: Europe’s largest private forest owner
Europe’s largest private forest owner Sustainable forest management Significant growth through young forest Stable and long-term increasing felling rate High productivity and efficient value chain Securing timber and biodiversity for future generations 40
Slide 42: Wood
Wood Jonas Mårtensson, President Wood
Slide 43: Highly efficient operations
Highly efficient operations Net sales (SEKm) Value added materials Modern and well 5,441 invested sites Adjusted EBITDA (SEKm) 531 Capital employed (SEKbn) 2.9 Note: Financials as of 2016. 42
Slide 44: Attractive market outlook for wood products
Attractive market outlook for wood products Strong global softwood demand Global trends favoring wood-based renewable materials m m3 ~3% 350 CAGR Strong European construction market 300 250 200 Increased building activity in the US 150 100 Increased R&R in Europe and the US 50 0 Strong softwood dema
Slide 45: Increased exposure to selected export markets
Increased exposure to selected export markets Wood sales by region (2016) Scandinavia Europe USA Asia MENA 44
Slide 46: Focus on building material trade and wood industry
Focus on building material trade and wood industry Building Material Trade Wood Industry Wholesalers (standard wood) Grow with high value added products Increased value through customization Maximize wood recovery Distribution solutions Industrial solutions Traditional sales Higher and more stable m
Slide 47: Profitable growth for more than years with focus on building material trade
Profitable growth for more than 20 years with focus on building material trade Wood sales (SEKbn) Wood sales split (2016) +10% p.a. 5.4 Building Material 43% Trade 3.9 33% Wood Industry 0.8 Wholesalers 24% (standard wood) 1996 2006 2016 Wholesalers Wood Industry Building Material Trade 46
Slide 48: Strong market position within building material trade
Strong market position within building material trade Distribution markets SCA wood operations/ Strong market position in all 3 core markets distribution centres # Market position #2 #2 Local presence through own distribution network and refining facilities #4 Strong focus on key segments Source: Ma
Slide 49: High value solutions for the wood industry based on customer insights
High value solutions for the wood industry based on customer insights Customized products and full service supply-chain solutions • Premium priced, value added products • Long term customer relationships • Barriers to entry Close cooperation with • Secured volumes priority customers 48
Slide 50: Successful innovations driving demand
Successful innovations driving demand New product launch Innovative solutions Increased share of sales 99% pine heart wood generated from new innovations Efficient innovation process Innovative solutions driving both customers’ and SCA’s Better performance Services such as bar code labeling sales an
Slide 51: 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 Located close to SCA’s certified forest MUNKSUND SEK ~2.0bn 420k m3 investment since 2.2 m m3 2006 BOLLSTA 1.8 m m3 560k m3 RUNDVIK 11 mills 5 mills 320k m3 GÄLLÖ 320k m3 2006 2016
Slide 52: From by-products to profitable bio products
From by-products to profitable bio products Sawdust converted into pellets, contributing both to sustainability and profitability 3 pellet facilities strategically located close to sawmill operations 300k tonnes 1.5 TWh green energy whereof 35% used in own operations and pellets produced 65% sold th
Slide 53: Highly efficient operations with attractive market outlook
Highly efficient operations with attractive market outlook Strong position in core markets Continued growth in high value added products Well invested and highly efficient sawmills Innovative solutions driving sales and margins 52
Slide 54: Pulp
Pulp Ingela Ekebro, General Director Project Helios
Slide 55: One efficient operating unit strategically located close to our forest
One efficient operating unit strategically located close to our forest Net sales (SEKm) Östrand Pulp Mill 2,492 Adjusted EBITDA (SEKm) 530 Capital employed (SEKbn) Tissue and white NBSK / CTMP packaging Energy 4.8 applications Note: Financials as of 2016. 54
Slide 56: Focus on the high strength Bleached Softwood Kraft segment
Focus on the high strength Bleached Softwood Kraft segment Current capacity 430 kSoftwood tonnes Northern Bleached Kraft Pulp (NBSK) 100 kThermo tonnes Chemical Mechanical Pulp (CTMP) % used internally in SCA paper 15% None production Key product value addition Strength, environmental profile Bulk,
Slide 57: Celeste – attractive customer offering
Celeste – attractive customer offering with leading environmental performance Quality: Strong and easy to process, reduces Celeste – leading in customers’ production costs environmental performance (WWF - Environmental Paper Company Index, 2015) Company EPCI ECO-labelling: Celeste strengthens custom
Slide 58: Investment doubles capacity and further enhances competitiveness
Investment doubles capacity and further enhances competitiveness Total capacity (tonnes/year) Rationale: • Expected market growth Post completion • Cash cost leader • Superior environmental footprint • Flexibility • Supports forest value Present Planned start-up in June 2018 900,000 NBSK Normal ramp
Slide 59: Strong demand for Bleached Softwood Kraft
Strong demand for Bleached Softwood Kraft Strong market growth Favorable market drivers Global shortage of fresh fiber 70 Growth CAGR (2004-2016) Demand for softwood growing faster than supply 60 50 Strong market growth in tissue and packaging 3.5% Million tonnes 40 Bleached Hardwood BSK demand by e
Slide 60: Strong footprint in the growing tissue market
Strong footprint in the growing tissue market Celeste deliveries by end product (2016) Split by volume Tissue Printing & Writing Specialty Papers & Other Tissue market growth >5% p.a. 1) Note: 1) CAGR 2010-2015. Source: PPPC. 59
Slide 61: Cash cost leader through operational excellence and expansion
Cash cost leader through operational excellence and expansion tonnes/employee (indexed) + ~100% Attractive position on global cost curve Significant + ~40% Cost competitiveness productivity 280 increase 100 137 1st Quartile 2005 2016 Post completion (best) Strengthened cost position post completion
Slide 62: Biorefinery optionality through capacity investment
Biorefinery optionality through capacity investment Future Options Energy surplus and residues create opportunities in bio refinery operations • Renewable fuels • Green chemicals Currently developing technology for converting biomass residues into sustainable biofuels and bio chemicals SEK 50m inves
Slide 63: Key priority – securing the expansion of Östrand
Key priority – securing the expansion of Östrand Focus on delivery on time – in full • Time schedule • Cost • Quality • Production and environmental performance Sequential start-up mitigating risk • Training and education plan • Wood handling • Evaporation • Drying machine 62
Slide 64: Paper
Paper Mats Nordlander, President Paper
Slide 65: The leading supplier of Kraftliner in Europe
The leading supplier of Kraftliner in Europe Net sales (SEKm) Kraftliner Publication paper 7,744 Adjusted EBITDA (SEKm) 1,128 Capital employed (SEKbn) Munksund & Obbola 865k tonnes Ortviken 775k tonnes 7.2 Note: Financials as of 2016. 64
Slide 66: Ortviken – one of the largest and most cost efficient publication paper mills
Ortviken – one of the largest and most cost efficient publication paper mills European publication paper mills by capacity k tonnes One site mill with 3 paper machines 1,200 1,000 ORTVIKEN 800 775k tonnes Operational excellence 600 400 200 Cash flow focus with limited investment needs 0 0 1 2 3 4 No
Slide 67: Publication paper – focus on high quality paper
Publication paper – focus on high quality paper Clear focus on premium priced high quality products Price Fresh spruce fiber from our forest enables Expanding high- competition with high value wood free products quality offering – competing with wood free products Wood free products Wood containing
Slide 68: Strong demand for sustainable packaging solutions
Strong demand for sustainable packaging solutions Growing middle class Increased demand for Globalization high-performance E-commerce packaging solutions Environmental awareness Increasing demand for Food safety fresh fiber products Scarcity of recovered fiber 67
Slide 69: Strong long-term trends for Kraftliner
Strong long-term trends for Kraftliner Containerboard market size (2016) Market growth Europe (% of tot. Containerboard) Europe (CAGR, %) Kraftliner Containerboard 7.0% 17% Containerboard excl. Kraftliner Kraftliner 5.8% 4.6% 3.4% 2.6% 83% 0.4% 2010-2014 2015-2016 Q1 2016-Q1 2017 Source: Cepi Contai
Slide 70: Product portfolio focused on high performance fresh fiber products
Product portfolio focused on high performance fresh fiber products Leading products – best in class • Access to long and strong Nordic fresh fiber enables high quality products with excellent environmental performance • Focus on high-value white-top Kraftliner with excellent printability and high pe
Slide 71: Two of Europe’s largest and most efficient Kraftliner paper machines
Two of Europe’s largest and most efficient Kraftliner paper machines • #1 and #3 Kraftliner paper machines in Europe Production increase in Munksund Tonnes/day (indexed) • SEK 3bn invested in recent years 130 • Munksund: Increased capacity and improved quality Increased share of higher value, white
Slide 72: Focus on creating customer value to drive profitability and loyalty
Focus on creating customer value to drive profitability and loyalty Recognized by customers as the leading and most reliable supplier of high quality Kraftliner products Innovation in close collaboration with customers to meet performance demand Focus on Central and Northern European customers with
Slide 73: Innovation to boost top line and margins
Innovation to boost top line and margins Enhanced product features – lightweighting NEXT GENERATION CUP STOCK KRAFTLINER Changing lifestyle Material efficiency New applications – paper cups, paper bags PAPER BAGS ARCWISE New business models – Arcwise Competition with plastics Round shaped corrugated
Slide 74: What if you could do more with less?
What if you could do more with less? Eurokraft 165 Kraftliner NG 150 Arcwise solution Kraftliner NG 150 Same Weight CO2 Strength Weight CO2 Reference strength -6% -5% +2% -35% -35% 850g 800g 550g 73
Slide 75: Strategic priorities
Strategic priorities Kraftliner Publication paper • Build on market leading position and favorable growth trends • Operational excellence & cash • Leverage investments made to further focus product mix on flow focus high value products • Upgrade product portfolio and • Optionality for further capaci
Slide 76: A leading industrial ecosystem, driven by the force of the forest
A leading industrial ecosystem, driven by the force of the forest 75