Investor Presentation Investor Relations October 2018
A strong and integrated value chain Sales 1) (SEKbn) EBITDA 1) (SEKbn) 18.1 4.8 EBITDA margin 1) Industrial ROCE 2) Forest Wood Renewable 27% 15% energy Forestland Net growth 2.6 m ha 3.0 m m 3 fo Pulp Paper Note: 1) LTM. 2) ROCE for the industrial segments; Wood, Pulp and Paper. 2
Europe’s largest private forest owner Kraftliner mill Forestland Paper mill 6% Pellet production 2.6 m ha Pulp mill Saw mill of Sweden 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 Biorefinery optionality Östrand – further capacity increase 2019 2021 ROCE Kraftliner expansion 2019 2021 2019 2021/22 SEK 50m pilot Biofuel production plant Leverage from CTO Opportunity to Environmental 2020 further increase permit capacity at 5.0 TWh wind Östrand power on SCA land 2018 2019 Pre-project to Credit rating Increase share prepare for of WT Kraftliner expansion at 2015 2018 Obbola Joint venture with Östrand St1 signed expansion Integrated 100,000 biofuels Agreements for value chain construction in 2018-2020 SEK 196m 7.0 TWh 2025 investment +50kt white-top Kraftliner SEK 7.8bn investment Production started in June 2018 Time 5
Profitable growth strategy 1 Forest – the source for value creation 2 Increased Wood – moving forward in the value chain value from each tree 3 Pulp – start-up and further growth Growing 4 forest asset Renewable energy – the next value creator 5 Paper – Kraftliner expansion 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 and further growth
World’s largest NBSK pulp line in operation 7.8 Production began in June according to plan • 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
Strong demand and favorable trends supports further expansion Strong market growth with no new capacity 2019 & 2020 Growing tissue demand and shortage of virgin fiber Softwood capacity (Mt) Supply/Demand balance – Softwood 1) Index (global market) No new capacity Östrand, announced 100% Äänekoski 150 Increasing 29 29 Tissue production Growing tissue demand, CAGR utilization rate 27 140 +3.4% shrinking supply of high grade recycled fiber from 95% 130 25 Printing & Writing 24 120 90% 110 100 Printing & Writing consumption 85% 90 CAGR -1.8% 80 70 80% 2008 2012 2017 2019 2021 2008 2010 2012 2014 2016 2018 2020 2022 2007 2009 2011 2013 2015 2017 Source: CEPI, RISI, PPPC, SCA. 21 Note: 1) Including Östrand expansion.
Opportunity to further increase capacity? Capacity (kt/year) Future potential? Opportunity to further increase capacity through debottlenecking and minor Helios investments? Fiber line – design capacity of 1,000kt Ramp-up will reveal potential bottlenecks 2017 900 NBSK 430 CTMP 90 90 22
Pulp – strategic direction 1 Start-up 2 Ramp-up 3 Quality 4 Further growth 23
Renewable energy – the next value creator
Renewable energy – the next value creator 1 2 3 Secure 2025 Bioref raw 7.0 TWh material 2020 2021 Growth 5.0 TWh St1 2017 ~3.0 1) 2017 2.3 TWh Pilot TWh Wind power Bioenergy Biorefinery • Secure new projects • Maximize value of byproducts • Östrand investment enables biofuel potential • Develop after market offering • Profitability and expansion Note: 1) Including integrated biofuels, such as black liquor from the recovery boiler, the 25 total energy production is approximately 9.0 TWh.
Doubled wind power production by 2020 5.0 TWh Initiate new wind projects Construction scheduled to start in 2018-2020 Develop after market offering 2.7 Target of 5.0 TWh by 2020 will be exceeded, new target of 7.0 TWh 2025 Current wind power on SCA land 2.3 EBIT contribution of SEK 60-70m by 2020 and >100m 2025 26
Östrand investment enables biofuel potential Increased value of byproducts 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. 27
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. 28 Note: HVO = Hydrogenated Vegetable Oil.
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