Research report: Svenska Cellulosa AB SCA (SFB: SCA.B)

We are short Svenska Cellulosa AB SCA (Ticker: SCAB.SS, SCAb.ST), because, in our opinion, the company’s financial statements are materially misstated and SCA didn’t consolidate at least SEK 3.6 billion (!) of debt from commercial paper and credit facilities. Since it is neither included in the balance sheet nor the cash flow statement, where did the money go?  We believe SCA’s financials cannot be relied upon. The company’s auditor, Ernst & Young, failed miserably and the unqualified opinions of the last three years are worthless. In addition, the board of directors consists of puppets, and its forest assets are significantly overvalued. 

In our opinion, 

  • SCA has been hiding at least SEK 3.6 billion in debt by not accounting for it on the company’s balance sheet since 2020. We estimated that the unconsolidated debt could reach SEK 5.1 billion at Q3 2023. The Annex attached to our report makes the unreported liabilities easy to spot.
  • SCA inflated its EBITDA through non-cash gains totaling SEK 6.2 billion since 2019. On average,the EBITDA figure is overstated by 29 percent.
  • SCA’s net debt is understated by SEK 7 billion at the end of Q3 2023. SCA did so by not consolidating liabilities and deducting illiquid financial assets from its gross debt to arrive at its grotesque net debt.
  • By manipulating net debt and EBITDA, SCA misstated its Net debt/EBITDA metric. The company is significantly more leveraged and the true Net debt/EBITDA is 3.3x.
  • Prior to the publication of the 2021 annual report, SCA’s CFO resigned for “personal reasons” and was replaced by a 36-year-old greenhorn. The new CFO was the head of a business control unit at a subsidiary prior to being appointed CFO. In the last three years, SCA has had three different general counsels. One “retired” but started working in a local law firm, one left the company abruptly before the end of 2021 and the current one comes from completely different industry which has no overlap with forestry.
  • In the last ten years, SCA has been the center of several of Sweden’s biggest scandals involving private jets, luxury lodges, and criminal investigations for bribery. The board of directors was caught lying on several occasions.
  • The audit committee lacks experience and the chairwoman of the committee is a former marketing executive with no training in accounting or auditing. Two of the three audit committee members don’t own a single share of SCA.
  • SCA’s nomination committee is a barely known board of external shareholders that has more power than the company’s board of directors. The committee is the ultimate gatekeeper for all decisions to be made by the board of directors. The board of directors at SCA are just puppets.       
  • The nomination committee is not independent and secretly controlled by Fredrik Lundberg. A small group of affiliates is not acting in the interests of all shareholders, but solely in their own interests.

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