Svenska Cellulosa Aktiebolaget : 2021 Q2 Half-Year Report Download

Q22021

January-June 2021 compared with January-June 2020

• Net sales amounted to SEK 8,982m (9,480). The lower sales level was related to the discontinued publication paper operations (see page 5) and the divestment of Wood Supply UK (see page 7). Excluding these effects, net sales increased by 17%, driven by higher selling prices in all product areas.
• EBITDA improved 78% to SEK 3,619m (2,031). The increase was mainly attributable to higher selling prices in all product areas, but also to good production and a stable, low cost level. EBITDA margin was 40.3% (21.4).
• Operating profit increased to SEK 2,927m (1,228)
• Operating cash flow amounted to SEK 1,581m (614)
• Earnings per share increased to SEK 3.25 (1.34)

April-June 2021 compared with April-June 2020

• Net sales amounted to SEK 4,810m (4,687). The increase was mainly attributable to higher selling prices, which were offset by the discontinued publication paper operations and the divestment of Wood Supply UK.
• EBITDA amounted to SEK 2,260m (1,001) and EBITDA margin increased to 47.0% (21.3)

April-June 2021 compared with January-March 2021

• Net sales increased by 15% to SEK 4,810m (4,172). The change was mainly attributable to higher selling prices.
• EBITDA amounted to SEK 2,260m (1,359) and EBITDA margin increased to 47.0% (32.6)

KEY FIGURES

		Quarter					Jan-Jun
SEKm	2021:2	2020:2	%	2021:1	%		2021		2020	%
Net sales	4,810	4,687	3	4,172	15		8,982		9,480	-5
EBITDA	2,260	1,001	126	1,359	66		3,619		2,031	78
EBITDA margin (%)	47.0	21.3		32.6			40.3		21.4
Operating profit	1,881	600	214	1,046	80		2,927		1,228	138
Net Profit	1,483	459	223	802	85		2,285		942	143
Earnings per share SEK	2.11	0.65		1.14			3.25		1.34
Operating cash flow	1,106	273		475			1,581		614
Net Debt / EBITDA (LTM)	1.4x	2.1x		1.5x			1.4x		2.1x

SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ), Skepparplatsen 1, 851 88 SUNDSVALL. www.sca.com. Corp. Reg. No. 556012-6293

S C A H a l f - y e a r R e p o r t - J a n u a r y 1 - J u n e 3 0 , 2 0 2 1

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SUMMARY OF THE SECOND QUARTER OF 2021

Earnings for the second quarter of 2021 were the highest since the distribution of Essity in 2017 and represent a significant improvement compared with the preceding and year-earlier quarters. Higher selling prices, higher production and stable, low costs in all product areas had a positive impact on earnings.

The supply of wood to SCA's industries was stable throughout the quarter. Prices for timber and pulpwood were stable compared with the preceding period.

The market situation for solid-wood products continued to strengthen, driven by increased global demand in the building materials trade and construction industry. Sustained strong demand has led to a continuation of low inventory levels and significantly increased market prices.

During the period, selling prices for pulp increased further, especially in Europe and the US. Delivery volumes increased slightly compared with the preceding quarter. Global inventory levels were normal.

Demand for kraftliner continued to strengthen, driven by high box demand. The average selling price was higher than the preceding quarter.

Operating cash flow was strong and has financed SCA's ongoing growth projects - to expand kraftliner manufacturing in Obbola and to increase production of chemically pre-treated mechanical pulp (CTMP) at the Ortviken site. The investment projects are progressing on time and on budget.

Higher transaction prices for forest assets in northern Sweden

SCA has based the valuation of its forest assets in Sweden on forest transactions in the areas where SCA owns forest assets. The market value of the forest assets increased during the first six months of 2021. At June 30, the average market price applied to SCA's forest assets was SEK 300/m³fo. When applied to SCA's standing timber volume, the total value of SCA's forest assets was SEK 76.6bn. At December 31, 2020, the market price was SEK 291/m³fo and the total value of SCA's forest assets was SEK 74.9bn (see Note 3, page 17).

SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ), Skepparplatsen 1, 851 88 SUNDSVALL. www.sca.com. Corp. Reg. No. 556012-6293

S C A H a l f - y e a r R e p o r t - J a n u a r y 1 - J u n e 3 0 , 2 0 2 1

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Net sales

SEKm
5,000
4,000
3,000
2,000
1,000
0
2020:2	2020:3	2020:4	2021:1	2021:2
​EBITDA & margin	%
SEKm
2,500				50
2,000				40
1,500				30
1,000				20
500				10
0				0
2020:2	2020:3	2020:4	2021:1	2021:2

Note: EBITDA 2020:3 and 2020:4 shown excluding the

discontinuation of publication paper

Change in net sales (%)

GROUP

SALES AND OPERATING PROFIT

January-June 2021 compared with January-June 2020

Net sales amounted to SEK 8,982m (9,480), a decrease of 5%, of which price/mix accounted for 17%, discontinuations -13%, divestments -9%, volume 4% and currency -4%. After excluding the negative effect from the discontinuation of publication paper operations and the divestment of Wood Supply UK in the fourth quarter of 2020, net sales increased by 17%. Higher selling prices for all product areas and higher delivery volumes had a positive effect on sales, partly offset by negative exchange rate effects.

EBITDA increased to SEK 3,619m (2,031), corresponding to an EBITDA margin of 40.3% (21.4). The change was mainly attributable to higher selling prices in all product areas, which was partly offset by negative exchange rate effects. The cost of planned maintenance stops amounted to SEK 0m (68).

Operating profit amounted to SEK 2,927m (1,228).

April-June 2021 compared with April-June 2020

Net sales decreased 3% to SEK 4,810m (4,687), of which price/mix accounted for 25%, discontinuations -13%, divestments -10%, volume 7% and currency -6%. The increase was attributable to higher selling prices in all product areas and higher delivery volumes. The discontinued publication paper operations, divestment of Wood Supply UK in the fourth quarter of 2020 and exchange rate effects had a negative impact on sales.

	2106	2021:2
	vs		vs
	2006	2020:2
Total	-5		3
Price/mix	17	25
Volume	4	7
Currency	-4	-6
Divestment	-9	-10
Discontinuation	-13	-13

Operating cash flow

2021:2	EBITDA amounted to SEK 2,260m (1,001), corresponding to an EBITDA margin of 47.0%
(21.3). The increase mainly relates to higher selling prices in all product areas. The cost of
vs
2021:1	planned maintenance stops was SEK 0m (68).
15

18 Operating profit amounted to SEK 1,881m (600).

4	April-June 2021 compared with January-March 2021
-1
0	Net sales increased 15% to SEK 4,810m (4,172), of which price/mix accounted for 18%,
discontinuations -6%, volume 4% and currency -1%. The increase was mainly attributable to
-6

higher selling prices in all product areas and higher delivery volumes for solid-wood products. The discontinued publication paper operations and exchange rate effects had a negative impact on sales.

SEKm 1,200

1,000

800

600

400

200

0

2020:2 2020:3 2020:4 2021:1 2021:2

EBITDA amounted to SEK 2,260m (1,359), corresponding to an EBITDA margin of 47.0% (32.6). The change mainly relates to higher selling prices in all product areas and a seasonally higher share of harvesting from SCA-owned forest. The cost of planned maintenance stops amounted to SEK 0m (0).

Operating profit amounted to SEK 1,881m (1,046).

CASH FLOW

January-June 2021 compared with January-June 2020

The operating cash surplus amounted to SEK 2,937m (1,458). The cash flow effect of changes in working capital was SEK -691m(-297) Restructuring costs amounted to SEK -271m (0) and related to the discontinuation of publication paper operations. Current capital expenditures, net, totaled SEK -439m(-513). Operating cash flow was SEK 1,581m (614) (see Note 9, page 19).

Strategic capital expenditures totaled SEK -1,679m(-844) (see page 5). Cash flow after dividend for the period was SEK -789m (213) (see page 16).

FINANCING

At June 30, 2021, net debt totaled SEK 8,236m, an increase during the quarter of

SEK 1,193m. The increase mainly relates to ongoing investment expenditure and dividends paid. Net debt in relation to EBITDA, excluding one-off items related to the discontinuation of publication paper operations, amounted to 1.4x compared with 1.5x in the preceding quarter.

At June 30, 2021, gross debt amounted to SEK 10,985m with an average maturity of 4.8 years (including the lease liability). The loan structure consists of commercial papers, bonds and bilateral bank loans.

SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ), Skepparplatsen 1, 851 88 SUNDSVALL. www.sca.com. Corp. Reg. No. 556012-6293

S C A H a l f - y e a r R e p o r t - J a n u a r y 1 - J u n e 3 0 , 2 0 2 1

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Unutilized credit facilities amounted to approximately SEK 8.9bn at June 30, 2021, of which the largest portion falls due in 2026. In the April-June 2021 period, financial items totaled SEK -26m compared with SEK -31m in the same period last year.

TAX

January-June 2021 compared with January-June 2020

The Group's tax expense amounted to SEK 588m (231), corresponding to an effective tax rate of 20.5% (19.7).

EQUITY

January-June 2021

Total consolidated equity increased by SEK 2,365m during the period, to SEK 74,528m at June 30, 2021. Equity increased due to comprehensive income for the period of SEK 3,745m and other items of SEK 25m, and decreased due to the dividends paid of SEK 1,405m.

CURRENCY EXPOSURE AND CURRENCY HEDGING

Due to a high proportion of exports, SCA's operations are sensitive to changes in exchange rates. Approximately 85% of sales are priced in currencies other than SEK, primarily EUR, USD and GBP. Most purchasing is conducted in SEK, but some purchasing is carried out in foreign currencies. SCA's currency exposure and currency management are described on page 70 of SCA's Annual and Sustainability Report for 2020.

The company has hedged about 50% of the expected EUR net exposure from sales minus purchases up until the end of the fourth quarter of 2021, as well as approximately 25% for the first quarter of 2022 and 10% for the second quarter of 2022, at the average EUR/SEK exchange rate of 10.31.

The company has hedged about 60% of the expected USD net exposure from sales minus purchases up until the end of the fourth quarter of 2021, as well as approximately 45% for the first quarter of 2022 and 20% for the second quarter of 2022, at the average USD/SEK exchange rate of 8.55.

The company has hedged about 45% of the expected GBP net exposure from sales minus purchases up until the end of the fourth quarter of 2021, as well as approximately 25% for the first quarter of 2022 and 10% for the second quarter of 2022, at the average GBP/SEK exchange rate of 11.78.

PLANNED MAINTENANCE STOPS

No planned maintenance stops were carried out in the second quarter of 2021.

The estimated effect of the planned maintenance stops on earnings, calculated as the sum of the direct cost of the maintenance and the effect from lower fixed cost coverage from reduced production during the stops, is shown in the table below.

			Actual
SEKm	2020:1		2020:2		2020:3	2020:4	Total
Pulp	0		0		20	130	150
Containerboard	0		68		42	0	110
Total	0		68		62	130	260
	Actual			Forecast
SEKm	2021:1		2021:2		2021:3	2021:4	Total
Pulp	0		0		20	130	150
Containerboard	0		0		150	0	150
Total	0		0		170	130	300

SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ), Skepparplatsen 1, 851 88 SUNDSVALL. www.sca.com. Corp. Reg. No. 556012-6293

S C A H a l f - y e a r R e p o r t - J a n u a r y 1 - J u n e 3 0 , 2 0 2 1

5

KEY EVENTS

Changes at the Ortviken site

The publication paper market has been structurally declining for a long time and has had an accelerated negative trend since the outbreak of Covid-19. SCA decided in September 2020 to discontinue the publication paper operations which consisted of three paper machines at the Ortviken site. The paper machines were permanently closed in the first quarter of 2021.

From the first quarter of 2021, the Paper segment consists only of kraftliner and has changed name to the Containerboard segment. The sale of the remaining inventory of publication paper following the discontinuation is recognized in Other as of January 1, 2021. Costs related to the maintenance of the Ortviken site between the discontinuation of the publication paper production and the start of CTMP production (see below) are expected to be about SEK 20-30m per quarter and are recognized in Other.

SCA issues green bonds

In the second quarter, SCA issued green bonds for a total amount of SEK 1.5bn with a maturity of seven years. The issuance will enable investors to contribute to the transition to a low-carbon economy by increasing the positive impact of SCA's climate benefit. The bonds are listed on NASDAQ Stockholm Sustainable Bonds. The proceeds will be used in accordance with SCA's green bond framework which has received the highest rating possible from CICERO Shades of Green.

STRATEGIC CAPITAL EXPENDITURES

SCA invests in the Obbola kraftliner mill

SCA is building a new paper machine for the production of kraftliner at the Obbola paper mill in Umeå. Production in Obbola will increase from the current 450,000 tonnes of kraftliner to 725,000 tonnes per year to meet an expected increase in demand for renewable packaging.

The total investment will be approximately SEK 7.5bn over a five-year period. The investment includes environmental investments of approximately SEK 1bn, which include a reduction in oil consumption by 8,000 cubic meters per year and an improved water treatment capacity. The project is progressing on time and on budget. Production is expected to start on the new machine at the beginning of 2023.

SCA invests in increased CTMP production capacity

SCA is investing SEK 1.45bn to achieve an annual production volume of 300,000 tonnes of chemically pre-treated mechanical pulp (CTMP) at the Ortviken site, where some existing infrastructure and mechanical equipment will be utilized. Production is expected to start at the new facility at the beginning of 2023.

SCA invests in forest land in the Baltic region

SCA acquired approximately 2,000 hectares of forest in the Baltic region during the quarter, in line with the ongoing investment program to acquire 100,000 hectares of forest land in the region. At the end of the second quarter of 2021, SCA had a land area of about 43,000 hectares of forest land in Estonia and Latvia. The acquisitions strengthen SCA's long-term opportunities to source timber in the region.

SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ), Skepparplatsen 1, 851 88 SUNDSVALL. www.sca.com. Corp. Reg. No. 556012-6293