Logo
Log in Sign up


← Back to Stock Analysis

Earnings Transcript for SVCBF - Q4 Fiscal Year 2023

Operator: Good morning. And welcome to this Presentation of SCA’s Year End Results for 2023. 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.
Ulf Larsson: Thank you for that, Anders, and good morning also from my side. A warm welcome to the presentation of our result for the full year and fourth quarter 2023 and I will start with this slide to summarize 2023. During last year, SCA showed that we can deliver good profitability even in a challenging world. Despite higher wood raw material costs and despite that a weakened market has led to substantially lower prices, SCA reached SEK6.8 billion on EBITDA level and by that also an EBITDA margin of 38% for the year. During the year, we have had ongoing efforts to start up and gradually increase production insights where strategic investments recently have been carried out. This has resulted in higher delivery volumes in comparison to last year due to the new paper machine in Obbola and due to the new CTMP line at Ortviken. These investments will successively contribute to increased productivity and also increased cash generation during coming years. SCA’s growth in Renewable Energy which became a separate segment during 2023 continued and the result doubled in comparison to 2022. Continued increasing harvesting level from our own Forest and high degree of self-sufficiency in wood raw materials, energy and logistics have also contributed to strong results. The book value of SCA Forest assets increased by SEK9.6 million -- billion during the year and was SEK107.5 billion at the end of 2023. And as you already know, SCA bases the valuation of the Forest on completed transactions in the region where SCA owns land. So turning over to some financial KPIs related to the full year 2023. As already said, our EBITDA reached SEK6.8 billion for last year, which corresponds to a 38% EBITDA margin. Our industrial return on capital employed came out on 7% for the full year, which of course, was slower than our record year 2022. The leverage is at 1.6 and we have now finalized our big strategic investments in Obbola, Ortviken and Gothenburg, which will all contribute positively coming years. The proposed dividend for the AGM to decide on is SEK2.75 per share and this is in line with our aspiration to provide a long-term stable and increasing dividend to our shareholders. Last year we gave SEK2.50 per share, and finally, earnings per share was SEK5.23. This slide will give you an overview of KPIs for the fourth quarter 2023. Our EBITDA reached SEK1.64 billion during the fourth quarter, which gave us an EBITDA margin of 37% for the quarter. Our equity continues to increase and despite the fulfillment of several large strategic projects, net debt to equity remains on a solid level of 10%. Then I will give you some comments for each segment, starting with the Forest. In general, we can note the continued high demand for wood raw materials. Even so, we have had a stable supply of wood raw materials to our industries during the fourth quarter. As can be seen in the graph in the bottom left, prices for both pulpwood and sawlogs have steadily increased over a long period. In the Baltics, prices have been stable during the fourth quarter. When we compare Q4 2023 with Q4 2022, sales were up 13% and EBITDA was up 56%, mainly due to higher prices and the positive effect of a revaluation of biological assets. Turning over to business area Wood, in general, we have had a continued slow underlying market for solid wood products, in addition to a seasonally slower fourth quarter. Despite the general low demand, we can see an uplift in housing stocks in the U.S. and also good demand in North African countries. Last quarter, I estimated a stable price in the fourth quarter in comparison with the third quarter. Including currency effects, we saw a minor price decrease of 3% in the fourth quarter. Sales and EBITDA were down with 11% and 8%, respectively, in the fourth quarter 2023 in comparison with the same period last year and that was mainly due to lower prices, higher wood raw material costs and also somewhat lower volumes. Today’s stock level of solid wood products in Sweden and Finland is in relation to the average for the last five years described at top left on this slide. As you can see, the stock level is on a record low level and also in a decreasing trend. SCA has maintained stable deliveries during the fourth quarter and due to some planned production curtailments over Christmas, SCA stock level is on a very low level today and that might have a small negative effect on deliveries for the first quarter this year. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been substantially below normal level. Outside the Nordic countries, we have also seen continued production curtailments, mainly in Canada and Germany. If you look to the top right in the diagram there, we can see the price development and due to low production in many regions, we estimate stock levels to stay low for a while. Based on that fact, we also forecast the price to increase with mid-single digits during the first quarter this year and if inflation continues down in the interest rates level out or even decrease, we might see an increased activity in the repair and remodeling sector giving support for further price increases in the second quarter. So over to Pulp. First, I am happy to see that our CTMP expansion has been well received in the market and production ramp up continue according to plan. Sales and the EBITDA were down 11% and 89%, respectively, when comparing the fourth quarter this year with the same period last year. We can note lower prices and higher wood raw material costs on the negative side, while currency and volume have had a positive impact in this comparison. The yearly maintenance stop at Östrand took a bit longer time than planned, which had an additional negative impact of SEK10 million to SEK15 million during the fourth quarter. The strong demand of Pulp in China continued in the fourth quarter and the import of Pulp was on a record high level. This offset the somewhat weaker demand we still saw in Europe and U.S. and consequently producing inventories of Pulp are on a good level as you can see here. In Europe, we saw increasing prices on all grades of Pulp with NBSK increasing from US$1,150 per ton in September to US$1,250 in December. The price then continued up in January to US$1,300 per ton and SCA is now informing customers about the new base price for NBSK Pulp of US$1,350 per ton valid from February. CTMP is following the same pattern with increasing prices in Europe. In U.S., prices were still on the bottom in October and November before starting to increase in December. Prices in Europe were partly offset by increasing rebates from 1st of January this year. So over to Containerboard. The ramp up of the new kraftliner paper machine in Obbola is running according to plan. The new recovered fiber line which is a necessity to reach full capacity is also progressing according to plan, and as we have communicated earlier, we expect to reach full capacity in Obbola in 2026. Sales was down by 10% in the fourth quarter in comparison with the same period last year due to lower prices, while EBITDA was down 48% mainly due to lower prices and also higher raw material costs. On the positive side, we saw high volumes and a positive currency effect. Box demand has stabilized during Q3 and Q4, while retail spending and manufacturing remain weak due to the economic situation in Europe. European demand of kraftliner has also been stable to slightly positive in the fourth quarter this year, which indicates stability and also stopped to decline in demand. We believe that market will gradually improve during 2024 driven by stabilization and lower inflation and interest rates, which will impact the consumer spending in a positive way. On the other hand, there is additional supply in testliner ramping up in the coming quarters, which will put some additional pressure on the supply-demand balance. Prices for Brown and White Kraftliner have remained stable from May and including fourth quarter 2023. Testliner prices have declined with €20 per ton in the fourth quarter. Despite lower demand for the full year, inventories have been stable with the normal seasonal increase in December and the current stock level will support a rather sharp volume and price recovery when end user demand picks up again. Availability of OCC is still good because of lower current demand of testliner. Prices of OCC have remained stable in Q4 and today’s PPI index is around €75 per ton, which is €110 per ton lower than the peak in July 2022. Since we see demand to be stable to somewhat positive, moving into 2024, we can assume that OCC prices will start to increase again based on limited supply. Then over to business area Renewable Energy and we have continued with another quarter of strong profitable growth in this area. We have higher prices in comparison with the same period last year. Due to increasing prices and high demand, the sales were up 17% and EBITDA level by 48% when we compare Q4 last year with the same period 2022. The market for solid biofuels is stable and the demand is high. Continued high volumes are expected in the coming quarter, not the least due to positive seasonal effect. SCA continues to grow in leasing out land for wind power and has reached 9 terawatt hours of wind power on SCA land by the end of Q4 and that is equal to 20% of installed capacity of wind power in Sweden. Finally, the biorefinery in Gothenburg is under commissioning and is currently ramping up, and I am happy to say that first product to tank was produced during January. So, by that, I hand over to you, Andreas.
Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I will start off with the Forest valuation and Forest prices in Northern Sweden decreased in 2023. In the graph, we have the Forest prices development in SCA’s region according to average of Ludvig & Company and Svefa, and the prices decreased 5% to SEK398 per cubic meter. In SCA’s Forest valuation, we use the three-year average which increased by 8% to SEK395 per cubic meter. The valuation of Forest -- SCA’s Forest asset increased by almost SEK10 billion to SEK107 billion in 2023. The increase was driven by both the price increase of 8% and the increase in standing volume of 1.5% to 271 million cubic meters. Approximately SEK2.2 billion of the increase went through the P&L. If we move on to the income statement and focus on the full year to the right, net sales decreased 13% to SEK18.1 billion driven by lower prices, which was offset by higher volumes from the new paper machine in Obbola and the new CTMP mill at Ortviken. EBITDA reached SEK6.8 billion despite a weak market, driven by almost double results in Renewable Energy and high results in our Forest division. EBITDA margin was 38%. Depreciation increased to SEK1.95 billion due to activation of strategic investments. The EBIT margin declined to 27% and financial items totaled SEK414 million. We had an effective tax rate of just below 20%, bringing net profit to SEK3.6 billion or around SEK5.23 per share. If we look at the fourth quarter to the left, EBITDA declined to SEK1.6 billion, driven by mainly lower prices. Net profit for the quarter totaled SEK833 million or SEK1.22 per share. Looking at the dividend, we have a proposed dividend of SEK2.75 per share, a SEK0.25 increase compared to the dividend last year, which is in line with our target to have a long-term stable and increasing dividend over time. On the next slide, we have the sales bridge for the full year. Prices declined 23%, with lower prices in Wood, Containerboard and Pulp. Volumes increased 4%, driven by the new paper machine in Obbola and the new CTMP mill at Ortviken. And lastly, currency had a positive impact of 6%, bringing net sales to just above SEK18 billion. Moving on to the EBITDA bridge, price mix had a negative impact of SEK4.7 billion and higher volumes had a positive impact of SEK186 million. High cost for mainly wood raw materials had a negative impact of SEK410 million, while energy had a positive impact of SEK71 million, which shows our high sales efficiency in both energy and wood raw material. We had a positive impact from currency and a positive impact from higher revaluation of biological assets and lower distribution costs. In total, EBITDA decreased to approximately SEK6.8 billion, corresponding to a margin of 38%. On the next slide, we have the financial development by segment and starting with Forest to the left, net sales increased to SEK7.7 billion and EBITDA increased to SEK3.5 billion, driven by higher pulpwood and solar prices, as well as high revaluation of biological assets. In Wood, prices declined with over 20% in 2023 compared to 2022, while prices for wood raw materials increased. Net sales decreased to SEK5.2 billion and EBITDA declined to SEK550 million corresponding to a margin of 11%. In Pulp, prices have bottomed out after several quarters of declining prices and increased somewhat in the fourth quarter. For the full year, net sales declined to SEK6.9 billion, where lower prices were partly offset by higher volumes. EBITDA declined to SEK1.2 billion, corresponding to a margin of 18%. And as Ulf mentioned, the fourth quarter we had planned maintenance stops, which impacted results with SEK147 million. In Containerboard, kraftliner prices declined significantly in the end of 2022 and the beginning of 2023, but have now been stable since May. For the full year, net sales declined to SEK5.9 billion, driven by lower prices, which are partly offset by higher volumes from Obbola. EBITDA declined to SEK1.2 billion, corresponding to a margin of 21%. In Renewable Energy, we almost doubled EBITDA from the previous year to almost SEK700 million corresponding to a margin of 37%. On the next slide, we have the sales bridge between Q4 last year and Q4 this year. Prices declined 25%, with lower prices in Wood, Containerboard and Pulp. Volumes increased 10%, driven by the new paper machine in Obbola and the new CTMP mill at Ortviken. And lastly, currency had a positive impact of 5%, bringing net sales to SEK4.4 billion. Moving on to EBITDA bridge and again starting to the left, price mix had a negative impact of SEK1.2 billion and higher volumes had a positive impact of SEK202 million. High cost for mainly wood raw materials had a negative impact of SEK66 million, while energy had a positive impact of SEK86 million, which shows our high sales efficiency in wood raw material and energy. We had a positive impact from currency and the quarter was also positively impacted by one-off items of approximately SEK270 million, SEK340 million from high revaluation, which offset by SEK70 million in one-off costs. In total, EBITDA decreased approximately SEK1.6 billion, corresponding to a margin of 37%. We had another year with strong operating cash flow, almost SEK3 billion for the full year despite a weak market. For the quarter, we had an operating cash flow of minus SEK55 million, mainly relating to the timing effect of working capital between Q3 and Q4. In Q3, we released SEK700 million working capital, which we got back in Q4. And as you know, our operating cash flow of SEK398 million relates mostly to working capital, currency hedges and should therefore be seen together with changes in working capital. Looking at the balance sheet, again, the value of the Forest assets increased to SEK107 billion, working capital increased to SEK4.3 billion and total capital employed increased to SEK115 billion. The net debt stood at SEK10.8 billion and we have now almost finalized our large ongoing investment projects in both Obbola, Ortviken, Bollsta and Gothenburg. Equity increased to SEK104 billion and net debt equity was 10%. Thank you. With that, I will hand back to you, Ulf.
Ulf Larsson: So, thank you for that, Andreas. Well, we are aware of two reports that were released yesterday and I like to clarify some facts here. We have not digged into detail, we will of course do saw coming week and then we will disclose something. But if we say some words about what we disclose regarding standing volume on SCA land. I can just state that this is 100% in line with statistics from Swedish National Forest Inventory what we in Swedish call Riksskogstaxeringen. So that is by other words, the official statistics from Sweden. The second item was the Forest valuation and I think we have a very clear transparent model that is used from many companies within Sweden and I think that the main part of you already know how we work with this, but we based the price on official price statistics in the areas where we have our Forest holdings. And the third thing was about the harvesting rate and I can guarantee that SCA harvest less than 70% of available annual growth and -- but on the other hand, we can say that we are happy to say that we had a record level when it comes to harvesting on our own Forest last year close to 5 million cubic meters and that will continue to increase coming years up to 5.4 million cubic meters. The policy in SCA is by the way also to manage our Forest in the way that we should never have to reduce the annual harvesting level and that has been successful policy since 1929 I would say. When it comes to net debt, I’d like to state that utilized commercial papers are reported in the net debt as current financial liabilities. Unutilized credit facilities are reported in net debt as non-current financial liabilities. So that this by other words just to take a look in our financial statements. So and then I’d like to summarize the quarter, and again, I must say that we have had a rather challenging time during 2023. We are happy to deliver a solid result of SEK6.8 billion on EBITDA level and EBITDA margin of 38%. We have seen already now an effect of our strategic investments and we deliver higher volumes than we have done before in Pulp and also Containerboard. We are also happy to say that our segment Renewable Energy, which was closed first time 1st of January 2023, has delivered a very good result and we reached almost SEK700 million on EBITDA level during this year. And as already mentioned, we had a record high harvesting volumes from our own Forest during the past year. The EBITDA level is down and that is, of course, due to tougher conditions in the market and it is related to lower prices and also higher wood raw material costs. So, by that, I think that we can open up for some questions, please.
Operator: [Operator Instructions] We will take now our first question from Charlie Muir-Sands from BNP Paribas. Your line is open now. Thank you.
Charlie Muir-Sands: Yeah. Thank you. Good morning, gentlemen. Thank you for taking my questions. I will stick to three, please. Firstly, on the Containerboard segment, you were commentating about stability in the price of Containerboard. I think according to at least some sources, such as, RISI, there has been a material slip in the kraftliner pricing Europe in January. I just wonder whether you would agree with that. I appreciate it’s kind of developed on a polling basis? The second question relates to the revaluation. Just in terms of the biological component, which you passed through the P&L, that was obviously a bigger number in the fourth quarter than we have seen so far in the earlier quarters of this year or last year. Were there any changes in assumption in particular that drove that larger biological revaluation gain in Q4? And lastly, could you give some guidance on the amount of total CapEx you expect for the business in 2024? Thank you.
Ulf Larsson: I think we can start with revaluation, Andreas.
Andreas Ewertz: Yeah. I can start with revaluation. So going forward we expect around SEK1.8 billion to SEK1 point billion [ph]. We had, as you know, a quite large price increase in this year, also driven by higher raw material prices both on sawlogs and on pulpwood, which goes into the DCF model for the biological assets. On the CapEx side, this year we had current CapEx of around SEK1.6 billion and we expect something similar next year with some inflation. And if we talk about strategic CapEx, then we have almost finalized our ongoing projects. We are around SEK200 million left in payments on Obbola and CTMP, we have around SEK450 million, SEK500 million payments of our Fasikan windmill next year, and we have just below SEK100 million in our Gällö sawmill and then we have some minor projects, and of course, if it depends on if we do any Forest acquisitions in the Baltics.
Ulf Larsson: And I didn’t catch your first question about -- I heard it was something about the Containerboard market, but if you can please repeat that question.
Charlie Muir-Sands: Yes. You were commentating that you had seen a stable pricing in the kraftliner market in Europe. It appears from RISI pricing that there has been a slip though in January. Do you recognize that decline as we enter the first quarter of 2024?
Ulf Larsson: Yeah. And I mean, we have seen it in testliner and that was minus SEK20 per ton and now we -- I mean, one can expect maybe a small price decrease also for kraftliner. Typically, they follow each other and so that might be the case for the first quarter. And -- but all in all, I mean, we saw that demand picked up in the end of last year. And again, I say that we are in the bottom. You might see some small volatility for a while. But we have a reasonably positive view on Containerboard market going forward anyway. But it might be so that we see minus SEK20 in the beginning of this year.
Andreas Ewertz: And we mainly -- our land prices are mainly linked to OIVID [ph] and I think that index will come…
Ulf Larsson: Yeah.
Andreas Ewertz: … shortly and probably next week.
Ulf Larsson: Yeah.
Charlie Muir-Sands: Thank you.
Ulf Larsson: Good.
Operator: We will take our next question from Robin Santavirta from Carnegie. Your line is open now.
Robin Santavirta: Thank you very much, and good morning, everybody. Three questions. First of all, in terms of the Pulp segment, what kind of order intake activity is you sell mainly into Europe and a bit into North America? What is the order intake activity now in January versus what you saw in December and at the end of Q4? Is there any improvement or is it still at the low level? Related to Pulp, can you share the increase in the discount on the list prices? Is it a couple of percent or is it more?
Ulf Larsson: Well, first, I think, it’s a rather stable market. As I said we had record, not SCA, but all in all, it was a record volume to China in the fourth quarter. Then we have the Chinese New Year now, so it has come down a little bit. On the other hand, we see increasing activities in Europe and also in U.S. So and as you saw in the graph, I mean, the inventory level is on a very normal level, I would say. So we are rather optimistic there. When it comes to discount rates, I can say that in U.S. there were no further discounts for this year. In Europe, you had something and again it differs a little bit between different customers and so on. But some extra discount will come in from January in Europe.
Robin Santavirta: Okay. Thank you very much. Related to cash for -- a second question, your working capital seems to probably you did not have a decline in the working capital, a release and we could see, for example, one of your peers there reporting quite a significant release and we also see sales prices coming down during last year. What is the reason for the working capital remaining at a bit of an elevated level and what should we expect going into 2024?
Andreas Ewertz: Yeah. So if we talk about working capital, I think, it’s several effects. The first effect is that you have a higher wood raw material cost, which of course, increases the value of the inventories. The second one is the biggest one and that’s that we are ramping up both our CTMP mill, our Obbola mill, our Bollsta mill and now we are also starting a ramp up of our biorefinery, which of course, has impact of working capital. So I think those are the two biggest reasons.
Robin Santavirta: I understand. And the final question I have is related to the Forest segment. If we deduct the re-evaluation gains, you have a quite massive increase in the cash EBITDA, 70% in 2023. It probably reflects the increases in pulpwood and log prices, so what you sell out of the Forest have surged. First of all, how do you expect log and pulpwood prices to develop in your areas in 2024 and how do you expect the cash EBITDA in the Forest? Will it remain at these much higher levels than you have seen in history or are the elements cost increasing that might take it down?
Ulf Larsson: Yeah. What we can answer on is, the price development and as it is just now and that is a little bit of an unusual situation. But I mean what we have seen in the market is that, both prices for sawlogs and pulpwood has continued to increase and recently we saw in the very northern part of Sweden and also in the very southern part of Sweden an additional increase both for sawlogs and pulpwood. And that is probably it’s an effect of what we have talked about before, reduced flow from Russia over to Finland and also it is announced that the state on foresting in Sweden, Sveaskog, they will reduce the harvesting level. I mean, that might have an impact of course in the market. So just now, yes, raw material prices, they has -- they have continued to increase and we saw the -- we see nothing else going forward. They will at least I think remain on this level for a while and so that is the situation. In that perspective it’s good for us. I mean, we are big forest owner and by that we can handle our supply, but it puts an extra pressure in the market for sure and we don’t give forecasts. I mean, you know what we had to this year in the Forest and I think you can expect what we will have coming year also based on that.
Robin Santavirta: Good. That is clear. Thank you very much.
Ulf Larsson: Thank you.
Operator: We will take now our next question from Johannes Grunselius from DNB Markets. Your line is open now.
Johannes Grunselius: Yes. Good morning, everyone. It’s Johannes here. I have a question on how we should think about your strategic investments Obbola, the CTMP mill, et cetera. Is it possible to quantify the positive impact in the fourth quarter from these and how should we be thinking about the coming quarters? Will you get a benefit just from the fact that you will absorb more fixed cost? That’s my first question.
Ulf Larsson: We can take that one first, and I would say, in fourth quarter, I don’t believe that you saw too much. I mean, we had an increase in volume that you could see. But on the other hand, when you ramp up these big mills, you have lots of extra costs. But of course, step-by-step it will improve and what we have said about Obbola is that we would reach full capacity in 2026, and I guess, that will be more or less the same case for the CTMP line, so...
Johannes Grunselius: Yeah. Would it be fair to assume that the benefit will be sort of coming off through in 2024 or is it more backend loaded, the positive step up in earnings?
Ulf Larsson: I think it’s more backend loaded to be honest. I mean, it is the biggest kraftliner machine in the world, and I mean, we have different challenges and for me it’s more important to do it the right way than to be in a very hurry. So I think it’s so important now that we find the right quality, and I mean, if we find some problems now, then we are stopping and we rebuild or we repair or we do things and then we start up again. So, but we -- I think, it’s good timing also to get it right just now when the market is a little bit slow. So we are not in a hurry in that perspective.
Johannes Grunselius: Right. Then my second question is on your Renewable Energy business, which is showing good momentum. Is it fair to assume that this sort of growth will continue in the foreseeable future and will it be a big change when the bio refinery in Gothenburg is fully ramped up?
Ulf Larsson: I think we will continue to grow this segment. But then, again, we always work with the market prices. I mean, when the sawmills, when they are selling the sawdust to Renewable Energy, they have to pay a market price and we see also that the price for sawdust will come up quite substantially in this year. But I mean, that is internally, but for me it’s so important that we keep solid market price between different segments. So, but I mean the growth will…
Johannes Grunselius: Okay.
Ulf Larsson: … continue and we are very happy now that we see that the biorefinery in Gothenburg has -- it is under commissioning now, and yeah, it looks very promising.
Johannes Grunselius: And final question is on the line you have in the accounts called intragroup which was unusually negative SEK150 million. It’s sort of typical is below SEK100 million negative. Was there anything unusual in the fourth quarter, and yeah, if you can comment what we should take in in our modeling going forward?
Andreas Ewertz: You mean in the segment other?
Johannes Grunselius: Yeah. Segment other, correct.
Andreas Ewertz: Yeah. We are a bit one-off cost around SEK70 million in the fourth quarter which we don’t expect in Q1.
Johannes Grunselius: Okay. Yes. That’s good. Thank you.
Operator: We will take now our next question from Linus Larsson from SEB. Your line is open now.
Linus Larsson: Thank you very much and a good day to everyone. Returning to capital allocation, it’s been quite a few busy years. You have been very active actively investing in your assets. It seems to me, maybe correct me if I misheard you, the line wasn’t perfect, but I think you said current CapEx SEK1.6 billion and then some additional SEK800 million of strategic CapEx in 2024, correct me if I misheard that. But is it fair to think that CapEx is coming down somewhat here? And also, generally, your thinking is that different given a changed interest rate environment or doesn’t that really impact your capital allocation decisions?
Ulf Larsson: I can just start, general, I mean, just now we are 100% focused on, well, ramp up what we have already built. We have the kraftliner machine in Obbola. We have the CTMP line in Ortviken. We have also done a rather big investment in Obbola sawmill, the biggest pine sawmill in Sweden. And that ramp up is also progressing according to plan and we have this biorefinery and we are just now also building a new wind park. So, I mean, we have a lot of ongoing projects. I think it’s fair to say that now we will be very focused on these projects and secure what we have promised when we have got the money for these investments. So that will be the main focus.
Andreas Ewertz: Yeah. On the CapEx side, I mean, you are right, Linus, but that SEK800 million is excluding any potential forest acquisitions in the Baltics.
Linus Larsson: All right. Great. Thanks for that clarification. And then just on St1 Gothenburg, could you just -- what’s the status and maybe more importantly, how does it enter into your P&L accounting-wise and is there kind of any startup costs that we should be aware of that would be helpful?
Ulf Larsson: We can start with the startup. I mean, it’s under commissioning now. We have had the first product to tank. Typically, the startup curve would be much steeper than in comparison with the sawmill or pulp mill or paper mill. So I mean, I think, we will have a rather sharp startup curve now.
Andreas Ewertz: And accounting-wise, it’s a joint venture, so we will get the net profit from the JV in our books or our share of the net profit in our books.
Linus Larsson: Right. So no depreciation or anything like that?
Andreas Ewertz: No. No. No. Just the net profit.
Linus Larsson: Great. Thank you very much. And then maybe just one final question on Forest valuation. Could you please remind us when you last did your Forest survey and when the next one is coming up?
Ulf Larsson: I mean, typically, I think, we had the last one between 2016 and 2018, I mean, it takes a while. And then we did some extra survey back in 2019 I think and that was also when we calibrated our own survey to Riksskogstaxeringen. So that’s why I am very sure that the standing volume that we have today, it’s not overestimated at least, it’s not overestimated. And typically, we do it every 10th year, but as you know, we have seen that the growth is just now a little bit faster than we thought in the past and that might be due to the climate change. We have had a little bit of warmer climate for a while and in order to find the right timing also for thinning operations and things like that, we have done it a little bit more with a little bit higher frequency, so -- but typically so.
Linus Larsson: And when do you think the next one is due?
Ulf Larsson: Yeah. I think it -- I am not 100% sure. I have to come back on that one. But if we said 2016 to 2018, I suppose it will be 2026, around 2026 or something like that.
Linus Larsson: Great. Perfect. Thanks a lot.
Ulf Larsson: Thanks.
Linus Larsson: That was very helpful.
Ulf Larsson: And just to add to that…
Operator: We will take now our next question from -- sorry.
Ulf Larsson: Yeah. No. Sorry. Just to add to that, Linus, I mean, also, I mean, we do the check all the time when we harvest. I mean, then we compare what we had in a certain stand with what we had in the register. So I mean that’s also a sanity check. Every time when we do a harvesting operation, then we compare what we had in the register, so.
Linus Larsson: And just now that you say that, what’s your conclusion from that those interest surveys? What conclusions can you draw when you make those benchmarks?
Ulf Larsson: We underestimate the standing volume that we have. Continuously, we underestimate which I think is the case…
Linus Larsson: In a significant way or...
Ulf Larsson: No. No. But I mean, we underestimate the standing volume. But maybe we have also step-by-step a little bit more of nature conservation. So I think that is plus and minus. So it’s more or less zero effect.
Linus Larsson: All right. Perfect. Thanks.
Ulf Larsson: Thanks.
Operator: We will take now our next question from Andrew Jones from UBS. Your line is open now.
Andrew Jones: Hi, all, and yeah, thanks for taking the questions. I have got a few here. Firstly, just on the Forest valuation aspects and some of the aspects of this report. I mean they were referencing much higher Forest density compared to payers. I was just wondering what your view is on what’s driving that. And then also just on heart of the state, I mean, you have been very clear that either you grow more than you harvest in 70% sort of rate sounds pretty reasonable. But you obviously highlight that proportion of harvesting done by yourselves compared to the proportion of your land is higher implying that like there a harvesting relatively less and given the high price of sawlogs and pulpwood. How do you explain why some of the peers are not harvesting at the same rates as yourselves and could you try to explain both two discrepancies between yourselves and peers referenced in the report?
Ulf Larsson: I will start with the second one, I mean, I cannot really talk from my colleagues. But I think when we have read through the report, we can see a lot of things that are not correct. So, I mean, but we have to answer for ourselves. And as I said, we know pretty exactly what we have in our Forest both the standing volume, what we harvest and what we will have in the future. We have done this since 1929 and we have step-by-step been underestimating the standing volume, but also the harvesting potential and I am 100% sure that that is the case also going forward here. So, but I mean our peers, they have to answer for themselves. But as I said, we haven’t really bought it to -- get into details yet, but we will do that and we will release something in next week or the week after.
Andrew Jones: Okay. And just on another topic, the Red Sea shipping issues and increased freight rates. As far as your business is concerned, how do you see them, what are the biggest impacts there. Are you having a major impact in terms of shipping Pulp to China or is it impacting your sales channels for some of the sort of kraftliner. Can you just talk about some of the potential impacts you are seeing from that issue?
Ulf Larsson: From our -- for us it’s, I would say, only Pulp, mainly Pulp, that is impacted here. And I mean, of course, if you have to go around Africa that will cost you an extra $40 per ton or something like that. But again, then it’s always a discussion who should pay for that and I don’t think SCA will pay for that. But on the other hand, you have some disturbances in the supply chain just now, of course, short-term, that is problem long-term that will create some kind of lack of volumes, of course, and that might have a price impact in one way or another. So but just now, and we are not doing big volumes to Asia. We do it in part, we do some in solid wood products and there, of course, we have some disturbances, that’s for sure.
Andrew Jones: Understood. Okay. And just on Wood and the -- in the timber market, I mean, in terms of the outlook for 2024, I mean, we have seen rates starting to come down at least on the 10-year, maybe we should get some follow-ups from Central Bank, say of late one of the year. I mean how optimistic are you about recovery in the Containerboard, and say, in the timber market over the next few months or in 2024 or is it likely to stay relatively depressed levels for longer than maybe it’s more of a 2025 story. What’s your best suitable guess on when we see the recovery?
Ulf Larsson: Was it for the solid wood products, was that -- is that…
Andrew Jones: Yeah.
Ulf Larsson: Yeah. Okay.
Andrew Jones: Okay.
Ulf Larsson: Yeah. But as I said, I mean, we see that we will have solid price increase in the first quarter now in at least for SCA but also in Sweden and Finland. According to statistics, we are on record low level when it comes to inventory level. Maybe we were a little bit lower in 2022 when we had the pandemic. So that will create some kind of price increase in the first quarter. And again, it’s not an increase in consumption, that is the reason for that. It is the supply-demand balance and the supply has really went down, and I mean, so it is, I think, in some areas for some products, it is a problem now to get access to wood, that’s one case. And by that, I also think that this will remain over the second quarter some. I am positive for the second quarter in solid wood products. But again, you cannot really, it is a very special geopolitical situation just now. So if you have something that will happen in that area. I mean that we cannot really forecast that of course. But otherwise, I believe that we will see a rather positive development in solid wood products. On the other hand, as we said, we have also seen that log prices has -- they have went up now and they continued up in the beginning of this year. So I mean, and the raw material is 70% of the cost for sawmills. I mean, that will have an impact on the profitability for sawmillers. But for us again as being having 50% of what we need in our own Forest, we will of course not be too badly impacted by that.
Andrew Jones: But timber margin net-net should improve in the first quarter with...
Ulf Larsson: It depends on your log supplies. I mean that differs between different place. But for us it will, yes.
Andrew Jones: Yes. Okay. Okay. Thanks very much.
Ulf Larsson: Thanks.
Operator: We will take now our next question from Oskar Lindström from Danske Bank. Your line is open now.
Oskar Lindström: Thank you. This is Oskar Lindström. So three questions from my side. Starting off with the Forest and Forest valuation. You gave us the average price here for Northern Sweden or your areas in Northern Sweden based on Svefa and Ludvig & Company data minus 5% year-on-year. What were the number of transactions included in that sample? And couple of questions, are you still seeing interest from corporate buyers or are these being the private buyers and are your own transactions included in that sample? That’s my first question.
Andreas Ewertz: Yes. Number of transact -- yeah, and if we start with number of transactions, we usually have on average around 200, just below 200 transactions both for Ludvig & Company and also for the Svefa, so just below 200. And then on corporate activity. Ulf?
Ulf Larsson: I don’t think we have had too many. I mean, again we are limited by the legislation, you don’t have too many corporate transactions.
Andreas Ewertz: And the third question, we do some selling, we tried to sell off less non-productive land far away from our industries and by closer to our industries. So we do some transactions in Sweden as to sell far away and by closer, but most of our transactions are in the Baltics.
Oskar Lindström: Okay. Just to follow up on that last one. In the case where you do sort of land swaps as I understand that you do with other Forest owners. Are the prices quoted in or decided on in those land swaps, are they part of the sample when you do your Forest valuation?
Andreas Ewertz: We don’t do land swap. Usually, we sell to one buyer and then we buy from someone and what we do is, what we do swap is, Wood volumes to reduce transaction and the transportation costs. But in terms of land, we usually sell land by some reals. But, yes, in some regions we are a big players, so some -- we will have some transactions in those…
Ulf Larsson: But they are included, that’s the answer.
Andreas Ewertz: Yeah. Yeah.
Ulf Larsson: They are included.
Oskar Lindström: They are included. All right. Thank you. And just a final question on capital allocation, if I may. I mean you have a strong balance sheet, as you say, you have no big CapEx projects decided ahead of you and the share is now trading at quite a bit below where the -- just the book value of the Forest lands is per share. Would you consider a share buyback at this at this point?
Ulf Larsson: No.
Andreas Ewertz: No.
Oskar Lindström: All right. Quick answer. Good. Thank you. Those are all my questions.
Operator: We will take now our last question from Christian Kopfer from Handelsbanken. Your line is open now.
Christian Kopfer: All right. Thank you very much. Just some quick follow-ups here. Just trying to get a little bit grip on the cost base going forward for Containerboard and for Pulp. I mean, I guess, you have taken on a lot of your fixed cost with new factories and so on. Just trying to understand a little bit more, how much the cost will increase when you are fully up and running, if you could just give some picture on that?
Andreas Ewertz: Yeah. The indirect cost per ton will decrease as we ramp up, since we have, I mean, we have the same number of people to run the mill regardless if we are ramping up or at full capacity rather than when your full capacity in the mill run smoother than you usually have, now we have startup costs. So the cost per ton will decrease as we reached ramped up mill.
Christian Kopfer: Yeah. That’s fair. That’s perfectly fair. I am just trying to get a little bit more understanding on the absolute cost level how much it will decrease?
Andreas Ewertz: Yes. The absolute cost level will, I mean, you will have some inflation, but we don’t need any more personnel as we ramp up and we don’t need anymore. I mean you have an annual maintenance stop as before. I think we have more sort of cost base in now, but then we will start ramp up volumes. So the cost per ton will go down.
Christian Kopfer: Yeah. Okay. Okay. Fair enough. Thank you. That’s good.
Operator: Currently we are not taking any more questions, so I will hand you back to the host of today’s conference. Thank you.
Ulf Larsson: And that concludes our year-end report presentation and welcome back on April 26 for the first quarter report. Thank you for watching and listening in. Thank you.
Andreas Ewertz: Thank you.