SCA (Svenska Cellulosa Aktiebolaget), a leading supplier of sustainable forest products, reported a mixed first quarter for 2024, with sequential improvement in the fiber products market. Despite a decline in sales of 5% and EBITDA of 22% compared to the first quarter of the previous year, the company began implementing price increases in all areas. The forestry segment recorded a strong performance, while the wood segment faced challenges due to the slow market and rising raw material costs. The pulp segment saw lower prices, but saw increased demand, particularly in Europe and the United States. The carton segment faced higher volumes but lower prices, while the renewable energy segment experienced strong profitable growth. SCA expects further price increases and positive developments in the future.
Strengths
- SCA sales decreased 5% and EBITDA 22% compared to 1Q23.
- The forestry segment saw increased sales and EBITDA due to high demand for woody raw materials.
- The wood segment had to deal with lower volumes and higher raw material costs.
- Pulp prices are increasing, resulting in improved demand.
- The containerboard sector saw higher volumes but lower prices.
- The renewable energy segment has seen strong growth in terms of profit.
- The company’s net revenue was just under $4.6 billion, with operating cash flow of $677 million.
- SCA has net debt of $11.7 billion.
- The company is nearing completion of major capital projects and does not anticipate further restructuring costs.
- SCA expects higher prices in the first quarter and a further price increase.
- Start-up of the Obbola plant is underway and full capacity is expected in 2026.
- Kraftliner prices have increased and further increases are expected.
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Company perspectives
- SCA expects further price increases in all product areas.
- Wood costs are expected to increase in the second quarter.
- The company is the largest private forest owner in Europe and contributes to self-sufficiency in raw materials.
- A strong increase in demand from the US market is expected.
- SCA intends to focus on upgrading existing projects rather than new investments.
Bearish highlights
- Falling prices and rising raw material and energy costs had a negative impact on earnings.
- The wood segment saw a slow market.
- Kraftliner prices decreased compared to the previous quarter.
Bullish strengths
- The forestry segment benefited from high demand.
- Demand from the pulp segment improved in Europe and the United States.
- The renewable energy segment reported a strong quarter.
- Kraftliner prices have increased due to low inventory levels and good demand.
Shortcomings
- EBITDA margin stood at 10%, down from previous quarters.
- A provision of $26 million has been made for an ongoing reorganization.
- The net profit contribution of the Gothenburg refinery is expected to be lower due to market conditions.
Highlights from the questions and answers
- CEO Ulf Larsson spoke about the start-up of the Obbola plant, which expects to reach a capacity of 725,000 tonnes by 2026.
- Kraftliner prices increased by 60 euros per tonne in April and another increase was announced for June.
- The company’s capital allocation will prioritize the ramp-up of existing projects.
- Low volumes in Q1 are attributed to low inventory levels, but prices and volumes are expected to increase in Q2.
- The company does not expect a significant impact from M&A activity in the containerboard market.
- Chemical product costs are expected to remain stable, while maintenance costs will follow normal inflation.
- The impact of increased Kraftliner exports from the United States to Europe is uncertain, but SCA does not expect a significant effect on its business.
- Limited supply of softwood pulp and a more established market for hardwood pulp are seen as positives from a producer perspective.
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SCA’s mixed first quarter results reflect the challenges and opportunities of the sustainable forest products industry. Thanks to strategic price increases and strong commodity self-sufficiency position, SCA remains optimistic about future results despite current headwinds. The presentation of the company’s next semi-annual report is scheduled for July.
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