Investor Presentation Investor Relations July 2018
A strong and integrated value chain Sales (SEKm) EBITDA 1) (SEKm) 16,664 3,761 EBITDA margin 1) Industrial ROCE 2) Forest Wood Renewable 22.6% 13% energy Forestland Net growth 2.6 m ha 3.0 m m 3 fo Pulp Paper Note: 1) Adjusted EBITDA and EBITDA margin. 2) Adjusted ROCE for the industrial segments; Wood, Pulp 2 and Paper. ROCE adjusted for capex invested in the Östrand project. Financial figures refer to 2017.
Europe’s largest private forest owner Kraftliner mill Forestland Paper mill 6% Pellet production 2.6 m ha Pulp mill Saw mill of Sweden Saw mill, partly-owned Productive forestland Munksund 2.0 m ha Obbola Rundvik Stugun Bollstabruk Standing volume Härnösand Gällö Östrand Tunadal 232 m m 3 fo Ortviken 3
Global trends favoring fiber based renewable materials Increased Growing demand for demand for Eco-awareness renewable virgin fiber materials More packaged E-commerce goods 4
Cash flow funded growth opportunities Value 2025? Biorefinery 2019 2021/22 optionality Kraftliner expansion 2019 2021 ROCE Biofuel production 2020 from crude tall oil 5.0 TWh wind 2018 2019 Leverage power on SCA land SEK 50m pilot plant Increase share of Environmental permit 2015 2018 White-top Kraftliner Pre-project to prepare for Credit rating expansion at Obbola Östrand expansion Joint venture with St1 signed Integrated value chain Agreements signed for construction in 2018-2020 SEK 196m investment +50kt white-top kraftliner SEK 7.8bn investment Production began in June Further growth potential Time 5
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 6
Forest – the source for value creation
The forest is our source for value creation Growth Harvesting Land value 8
Profitable growth since 1950 Growing Increasing Increasing Standing volume Harvest plan Land value 1) Increasing asset base cash flow land value million m 3 fo million m 3 sub SEK/m 3 fo (real value) cash flow +60% +120% +260% 232 4.3 396 146 2.0 109 1950 2017 1950 2017 1950 2017 Note: 1) Average price Sweden, real price (2017 price level). Source Lantmäteriet. 9
Significant real growth of 3.5% Forest growth metrics (m m 3 fo) 9.5 Gross growth of standing forest -1.3 Natural losses and pre-commercial thinning 8.2 Real growth rate of 3.5% (in relation to the standing Available growth of standing forest volume of 232m m 3 fo) Current cash flow (1) -5.2 Annual harvesting New harvesting plan every 8-10 years Harvesting increase to >7m m 3 fo in 2114 3.0 Annual net increase of standing forest Future cash flow Note: 1) Corresponding to approximately 4.3m m 3 sub. 10
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
Paper – Kraftliner expansion
Kraftliner – strategic growth area Publication paper – maximize cash flow Munksund – grow the share of value-added products: white-top, heavy duty and wet strength Positive cash-flow through operational excellence and optimized product and market mix Obbola – increase production capacity and improve efficiency 13
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 contribution optimization of Obbola paper mill Cost savings in addition to increased share of White-top at Munksund 3. Expand capacity and reduce costs of goods in Obbola Environmental process initiated Pre-project to prepare for Kraftliner expansion at Obbola initiated 14
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 ~2% 6,000 ~2% Increasing world trade 2.7% 5,000 4,000 Substitution of plastics White 3,000 Unbleached 2,000 Shelf ready packaging 1,000 0 Food safety 2012 2017 2022e 2026e Source: Numera. 15
Increased capacity needed to meet demand Kraftliner growth limited by shortage of supply Operating rates (shipment-to-capacity) 100% +800 kt Not enough supply to satisfy demand capacity 98% needed by 2026 96% 94% Virgin 92% Recycled 90% 88% 86% 2012 2013 2014 2015 2016 2017 Source: Numera. 16
Opportunity for increased capacity Obbola one of few brown field Pre-project to prepare Kraftliner expansion at Obbola initiated opportunities in Europe Total capacity Obbola Access to fresh fiber (ktonnes/year) New ~800 kt paper machine Technical requirements Expansion of existing pulp line • Virgin fiber 700-800 Infrastructure • Recycled fiber 450 Chemical pulp Potential investment decision based on outcome of pre-project Leading non-integrated Present New capacity supplier 17
Pulp – start-up of a SEK 7.8bn investment
W orld’s largest NBSK pulp line in operation Production began in June according to plan 7.8 • On budget and on time SEKbn Ramp-up period of 12-18 months investment • 2018 – volumes in line with 2017 2020 – first full year at full capacity • World-class competitiveness and cost position Meeting long-term growth in tissue and white packaging 19
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 TWh Present 900,000 • Wood supply secured , but with potentially higher NBSK transportation cost • Leading pulp quality for tissue products 430,000 CTMP 100,000 100,000 20
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 26 150 1.8% 0.1 Tissue production Growing tissue demand, CAGR 4 140 shrinking supply of high +3.4% 2 0.9% 23 grade recycled fiber from 130 Printing & Writing 22 26 120 Total: 66 110 100 Printing & Writing consumption BHK 90 34 CAGR -1.8% 80 70 2007 2012 2017 2007 2009 2011 2013 2015 2017 Bleached Softwood Kraft Bleached Hardwood Kraft Sulfite Unbleached Kraft Mechanical pulp Source: CEPI, RISI, PPPC, SCA. 21
Pulp – strategic direction 1 Start-up 2 Ramp-up 3 Quality 22
Renewable energy – the next value creator
Östrand investment enables biofuel potential Energy 60,000 Synergies surplus tonnes Energy and Doubled tall oil production Net energy producer 1) production optimization Note: 1) Net energy producer at Östrand. 24
SCA and St1 to start a joint venture for the production of biofuels from tall oil Development of HVO volume in Sweden Reduction of CO 2 by blending biofuels 160 • Sweden: 21% diesel and 4.2% gasoline by 2020 • EU: 7% renewable energy in transport 140 Monthly HVO volume (k m 3 ) The HVO market is growing rapidly due to 120 its compatibility with fossil diesel 13% share 100 in Swedish Joint venture with St1 for the production of liquid biofuels HVO transport sector 80 • Moving forward in the value chain • SEK ~0.5bn investment by JV 60 • Annual production of ~100k tonnes HVO or biojet 40 • SCA to supply ~60k tonnes CTO out of ~170k tonnes 20 • Additional products include LPG, Naphtha, Turpentine HVO drop in and Pitch bioenergy 0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Source: SPBI. 25 Note: HVO = Hydrogenated Vegetable Oil.
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 application for two full scale biorefinery lines initiated Investments enable debottlenecking of the recovery boiler 26 –
Doubled wind power production by 2020 5.0 TWh Land with excellent wind conditions Construction scheduled to start in 2018-2020 Land available through leasing 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
Wood – moving forward in the value chain
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 2.2 m m 3 2007 1.8 m m 3 Boden Vilhelmina Munksund Munksund 11 5 sawmills sawmills Holmsund Jämtlamell Rundvik Rundvik Gällö Gällö Bollsta Bollsta Graninge Tunadal Tunadal 2007 2017 Tjärnvik Average capacity/ 160k 430k mill: (m 3 /year) 29
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