Earnings Call: Q2 2021

Jul 20, 2021

Welcome to this webcasted conference call following the publication of our Q2 report this morning. As usual, our CEO, Christoph Michalski and our CFO, Dzir Ratner, will hold a presentation. And after that, we will open up for questions. Baidat, I would like to hand over to you, Christophe. Thank you, Lena. Good morning, everyone, and thank you for making the time joining I'm quite happy to say that I think quarter 2 has been a continuation of quarter 1. And if we go on the slide Q2 performance, you have seen our results. So first, We had a very good sales growth driven by positive market momentum, which resulted in 6% growth, 9% excluding exchange rates. Profits grew in line as well at 14% at EBITDA level, and we also could deliver a good and strong cash flow with operational cash flow after investment of SEK694,000,000. In the quarter, we also had the production of our 1st commercial liquid packaging board in Gruvon, which clearly was a big, big milestone, and that will allow us to continue to grow and also to improve our mix across the different mills and factories. So, so far, in summary, our Q2 performance. Let me give you an update a little bit on the business stages and the market outlook. If you would like to move slide, please. As you know, during the pandemic, the food and beverage market generally has been quite stable, sometimes positive. But it was basically the other segments which suffered quite a bit. And today, what we see is despite some of the messages in the markets of the next variant or excessive force wave, we still see a positive outlook When it comes to consumer products and to some extent luxury products, but also in the industrial area. And you could see that also when you look at our paper sales, did relatively well now in quarter 2, and we do not expect a market slowdown In the next quarter to come. So overall, I think we feel that the market conditions are pretty good for the rest of the year. We expect some uncertainty around corona, but we do not expect is a 7th stop of the market. So if we move to the next slide and talk a little bit of our highlights. Market and condition for all segments were very good. We have strong order books. And I think We signaled our liquid packaging board because these are clearly long term contracts where movements are not so dramatic. But the other segment, cartonboard, containerboard, are very strong. And you have seen some of you made some comments about our good performance in paper versus ward, and I think it's basically the Lack of supply out of Javel for a couple of weeks, which created this imbalance between paper and board Because from a market perspective, all segments are doing very well. We had a maintenance shutdown in Gruwen, And we were incredibly focused on the COVID situation, which at the time was still quite serious. We tested people coming into the plant with about 1000 maintenance workers coming in and out and did 48 hour compulsory testing on everyone and discovered cases, which didn't lead to a spread, but basically the security worked. And we were able to finish the shutdown, which I think when you compare our data this quarter, would have been even better in comparison to last year, considering that last year, we didn't have a quarter air shutdown on any of the mills in quarter 2, 2000. I mentioned that in Ghevele, we had a loss of production of 22,000 tonnes, which was due to an explosion close to is close to our pulp mill, which led to slower down of all the machinery and just off the pulp mill. And clearly, as I said, even the report, we are incredibly sorry for all our customers who expected to get these volumes of product. And and at the end, we needed to basically prioritize and make sure that everybody got something, but I would like again to apologize Frozens and Nissan. Excellent progress for the new board machine in Gremlins, I already mentioned that. And this gives us, as I mentioned, 2 opportunities. The first one is to accelerate slowly the production on KNX7 itself, But in particular, to manage now the portfolio in a way that we produce only the mills, which are the best Vest made for the different type of products. So we are moving products between Ghebwe, Gluburn and Frobi. And that this mix effect is really what will make profitability better as well as the increased production of KM7 in itself. We continued also our cost and efficiency program, Randstad is progressing well. If you would like to switch slide, please. The additional contribution from cost and efficiency program in quarter 2 was €70,000,000 so good progress. I think to date, we have delivered €475,000,000 And we expect to reach the 600 at the end of the year, and we will carry some forward next year. I think we will probably look for New activity, so this is not the end of our efficiency program. But I think this was kind of the first step of saying what are the low hanging fruit, what can we do. But as you know, the start of this program was based on better cost we see from competitors, and we want to get in line and we'll be the best in class. And I think from next year, we'll launch probably a program Which will look much more into the structural savings and how can we further increase sustainable A quick word on raw material on next slide, please. Raw material costs in quarter 2. So these are not the cost movements that the market shows, but these are the cost movements that we had internally. So for example, we had lower cost in energy than in quarter 2 last year, but this is mainly due because of good hedging. The energy price actually went up, As you know. So we had relatively stable costs for pulpwood, very good availability. There were some movement in the market in quarter on in quarter 2 with some closures, which freed up some wood or will free up some wood. Remember, in quarter 1, we talked a little bit about some price increases that some players wanted to get through. We haven't seen any movement on price so far in any significant way, and we do not see any reason why fiber availability would change. So I think overall, we are well positioned for quarter 3 and probably quarter 4 as well. Chemicals, clearly, is a bit more worrying. As you know, we had some impact on the Texan Bad weather, which led to some shortages in latex, in particular, which really increased costs dramatically. But I think overall, we see a trend of increased prices on chemicals. And we expect this trend to continue, and it's probably a little bit similar to the trend that we are currently experiencing with high demand on packaging material, raw material, chemicals, etcetera, overall. And so probably the strength is in line with our trend as well. Purchased pulp costs have increased. You have seen the record prices in pulpwood. Currently, in China, we see already a slight drop, but we expect Europe to hold up. There might be a slight decrease, but I think we're looking more for stability Going forward, rather than the big decrease. As you know, we are also a net seller of pulp, so to say. So high pulp prices for cost base is not good, but generally for Biloquistnes, this has a positive effect on profitability. Ivan will talk about that a little bit later. And then I mentioned already energy. Energy costs, because of our hedging policy, will stay stable or even And which sorry, will stay unchanged for quarter 3, but this is not to be said that energy price we expect energy prices to go down significantly. It's more our internal hedging. It's more our internal hedging. With that, I think I would like to hand over to you, Iva. Thank you very much. Thank you, Christophe, and good morning, everyone. And if you can move to Slide 7, please. So a couple of words about our net sales performance. I mean, in general, this is a strong top line performance in the quarter, 6% of reported and taking out the currency plus 9%. We have significant positive help from pricing. Roughly half of this impact is coming from our pulp sales. The remaining pricing impact for Q2 is mainly coming from containerboard, where we had several pricing rounds of being announced in the beginning of 2021. We also have a sizable health coming from volume and mix. So sales volume is up 2%, and Mick's help is coming from several places, but a very big chunk of that is coming from KM7 and a steady increased share of coated material and reducing gradually the waste in secondary material, which is extremely pleasing for us has been one of the priorities. Moving into next slide and some words about the profitability bridge. There's quite a lot of pieces here, so I'll probably just spend the time on some of the bigger ones. We have a smaller negative currency impact of SEK 35,000,000 Followed by the Swedish kroner strengthening versus euro and dollar and helped by our hedging positions. The Evelyn incident has already been mentioned. The main driver, the 22,000 tonne of volume loss left him back for us in the quarter, minus SEK 75,000,000. Raw material and logistics bundled this together, coming in with SEK 40,000,000 help. Has quite a lot of different items in this bucket, the biggest being we have a vibrant pulp health loss of SEK 100,000,000, Which is partly offset then by Chemicals, EUR 40,000,000 and Logistics, EUR 20,000,000. And as Christophe mentioned, for chemicals, it's mainly the last that has been unusual pricing curve so far in 2021. The pricing piece is the biggest bucket we have on the chart, SEK 200,000,000. It's been significant in the quarter. And as mentioned, half of that or roughly half of that is coming from the market of Sol, while the majority of the remaining part is on containerboard. Yes, we have a solid help from volume mix, as we mentioned. Also then we have the SEK 70,000,000 that Christophe mentioned from our Cost and Efficiency Program. So that brings us up to an EBITDA of SEK 10.83, excluding the maintenance stop, and And this is very pleasing to see because this is not a level we have seen for quite some time. So it's really also encouraging to see that as part of the programs that we have initiated and focusing on over the last couple of years is 14. Including the maintenance stop that we had in Gruver, it brings us back to $883,000,000 for the quarter. So we're moving to next slide and some comments about our Product Area Board performance. I mean, it wasn't the easiest of quarters for Product Area Board, bought the Groove maintenance staff, which was planned, and the Jebel incident, which you can definitely say was not planned, 2 major events. Despite all of this, Borr delivered a 2% net sales growth, plus 6% If you exclude currency, and that is with flat volume, you see the breakdown for yourself by segment. All of the growth is coming from cardboard, We've had another excellent growth quarter. In fact, if you look at the last well, in 13 of the last 14 quarters, We've experienced double digit top line growth for cartonboard, which is very pleasing and certainly on strategy. Gjeble, incidentally impacted heavily the liquid packaging performance and also the proven maintenance stuff had an impact on Containers Board. Yes, there's several profitability items, the biggest one being pricing, lower fiber cost, positive mix and help from a cost and efficiency program, the then the Glueven annual shock and JAV incident drags our EBITDA numbers slightly negative versus year ago. We move to next slide, some comments around the product area. Paper, and I think it's very fair to say that the market situation is very different now for versus what we saw in the end of 2020. Net sales plus 5%, plus 12%, excluding currency, so that's a very strong number. Sales volume, plus 6%. Market pulp sales is leading the growth, followed by kraft paper, where in particular fiber form had a good quarter. In general, you can say that excluding currency, we actually see growth now on most of the grades within kraft paper, which is very pleasing. SAC is flat with the brown SAC being positive and white SAC slightly negative. But we do have positive sales volume growth for both in white and brown and black. Yes. Somehow, a little bit similar story that we also had for Borr, when you look at the profitability, good progress now helped by volume growth, pricing and benefits from our cost and efficiencies. So we move to next slide, talking about Another very strong cash flow delivery is certainly one of the highlights of the quarter. Operating cash flow is up bought roughly SEK 700,000,000 versus previous year, driven by both the stronger operating result as well as help from our working capital, in particular. It means our balance sheet keeps getting Stronger, net debt leverage now is down to 1.7, as you can see. We are making a small update on our CapEx estimate for 2021, SEK 1,800,000,000 is the new number that we look at, which is a combination of 1.3 percent base CapEx, and we have taken down slightly the estimated impact of the program of the 3rd bit recovery boiler in 2021. Is good. With that, I hand it back to Christoph. Thank you, Igor. So let me spend some time on sustainability and innovation, if we can move to the next slide, please. As you know, we are already 97% fossil free in our production. And we said but we said Like I think most companies did science based targets for 2,030. And as you know, it's always at the margin, at the end where the most difficult and we designed a program which will bring step by step all our mill in a fossil free state. Next investments, which we will implement in 2022 is in Gruvon, where we move towards a backup boiler, which is electricity driven, basic renewable energy electricity and which replaces an old oil boiler. And step by step, we will take out fossil fuel first. And then in the later stages of the program, we will convert our bio sorry, our gas consumption from fossil gas to biogas as quick as we can. So that's a bit on sustainability. So a good program, which we will implement within our current CapEx over the years. So there is no direct impact to the numbers that Eva was just mentioning for this year for the years to come. Then we also had some good new product launches this last quarter and this month. 1 is Pure Decor Decorx, which is a 3 ply and light coated white top liner. And then it's light, strong and climate smart. What do we mean by that? It's lightweight. It is much stronger, so you can use less material and therefore also less weight. Crown board Prestige has a coated carton board with peach primary fiber in the top layer. And basically, it's a very good looking carton, which is used mainly in the luxury and consumer goods products, and the market response so far has has been very, very positive on these 2 new qualities. Then I come to the outlook. No big change, I don't think, to quarter 2. We expect quarter 3 to behave very similar in terms of market condition. And probably, we see that trend continuing for the rest of the year. I think we see overall good availability of pulpwood, Which should keep prices, to some extent, under control and have maybe some pressure, but definitely with the availability of some stability. And then if it comes to other input prices input costs, sorry, I think we will manage that with some Continuation of looking at our prices and to see in the strong demand area how much we can compensates that. As you know, we have a number of business priorities. Clearly, Health and Safety is number 1, so we continue on that. And I think we are making slowly progress this year. Stable production is the absolute critical factor to deliver our results for the rest of the year. As I said, the market is strong and stable, and stable production is basically the only thing that will allow us to deliver. Ramp up at Gruvon. I think I will now as we said already in quarter 1, we will less and less talk about a specific mill or machine or something. But as we have now As we're now producing commercial grade for liquid packaging board in KM7, this will continue. So, I see Good opportunity there. Competitive wood supply is what I mentioned before. So we are looking as you know, we are sourcing in Sweden in the Baltic States, a little bit in Norway, and we will continue to optimize our supply on that front. And then finally, very important, we still have a little bit of our cost saving program left for this year and next year. And then we have to rework what is our next cost saving program and efficiency program to make sure that we reach best in class cost base for our kind of business. Good. That brings me to the end of the presentation. And thank you for your presence. And I think now we will move into questions. So operator, if I can hand over to you, please? Thank you. And our first question comes from Robin Santavira from Carnegie. Please go ahead. Your line is now open. Thank you very much and good morning to everybody. I have three questions and if I take them 1 by 1, if That is okay with you. First of all, regarding H2, if we look at The sales price increases that you would expect and then compare that to the cost inflation and if we exclude The rationalization program, will you then expect neutral variance or a positive variance In H2 from those 2 wide dams. Could you maybe Robin List all the questions and then we take them 1 by 1. Is that okay? Yes. Okay. So that's the first one. Then Regarding the KM7, obviously, now performing really well. Could you give an indication or an update of the current volume performance, the volume you would expect for the full year of 2021 And then the timing when you expect Kilometers 7 to reach full capacity, Is that 2023 or then 2024? And also related to KM7, a question. You stated in the last quarter, it reached EBITDA breakeven compared to the 3 machines For the performance of the 3 machines that you have closed, what kind of profitability did the 3 machines have? Final question is related to the current straw market. Obviously, it is a good market. Is this now Only driven by a cyclical strength or is there also structural elements, for example, Paper based packaging gaining market share over plastics. So those three ones. Thank you. Good. Thank you. Look, let me start with question 3 and then we work our way backwards, and I will share some with Eva. When it comes to the market, I think you have probably a double effect. I expect that clearly, you see has actually a lot of preference towards paper. We have lots of brand owners discussing with us what packaging option could we bring out of paper to substitute plastics? You have a lot of interest in that area, and that's clearly more structural shift. However, I think what we're also seeing is a cyclical changed in the sense that I think COVID brought the world economy a little bit to a stop, and now we are starting up again. And as you have seen already in the stock market yesterday and today, there's a bit of wobbles. Is a forced wave coming or not, this delta. Will that impact the economy as previous lockdowns before? Will we have lockdowns or not? And I think there's a level of uncertainty. But I think overall, most people are quite optimistic that the worst of COVID is over In the sense of lockdowns and economic impact and things like that. And that basically drives up A certain amount of economic activity in which Glen clearly have been part of a very significant material in that economy where we profit from. So that's my sense. So I think we have these two trends. 1 is more in the area of substitution of plastics and the other is clearly A good relatively carefully optimistic outlook. Kilometers 7, look, We've I think we're planning 350,000,000 to 370,000,000 tons for the machine this year. The capacity of the machine is 500 on 550 on current specs, and we expect to reach that in 2024 or something. And that eludes my comment why I'm saying, hey, if we want to continue to grow 3% to 4% going forward, we need some ideas after from 2024, I. E, 2025 onwards, where our volume growth can come from. And that was one of my last statements. When it comes to EBITDA performance, look, we broke even. I don't think we will comment on that anymore. We don't comment profitability by machine or by plant. You have seen the overall result is encouraging, and I think I will leave it like that. Do you want to take Eva, do you want to take the prices question maybe? Yes, I can do that. And actually, before that, I just wanted to comment one thing, Robin, because you did ask about became 7 in the old machine profitability on that. And I think the 215,000 ton on these old machines, We don't go into that level, but the case the whole business case around KM7 and this SEK 1 Yes. Even for incremental, we talked about it. I mean, it is coming from 3 building blocks, and that's no secret. But the vast majority of that, it will be to get volume up to 550,000 tonne. A very significant building block is also that we operate on board Seitz, so Jevre Felder Engluyend, has a much better driven, you can say, well, coordination, meaning that we drive the products and segments in the machines they're optimized for, and that will and should give us good scale and even more efficiencies across. And the last piece is fixed cost efficiency in Juveen. And the status, I think, when we look at it Right now, is that we're doing well and progressing super well on the volume plan. We're also doing now very good progress this first half on this board site efficiencies and how we now plan and drive through and Jelve and Gruen, much more planned and coordinated and again, get the best out of the machines. Fixed cost efficiency in Gruen, that would still have something to do. So that's still kind of on the priority list for the coming years. So that was just some comments on kind of reminding on how the business case has been put together. I think on the pricing piece, I think my answers on this would be that there has been several price announcements happening also during the Q2. So you would expects to get a, say, a full quarter impact when we come into Q3 in the second half. If you do it simple, you can say that out of the 3.5 percentage points we reported now in Q2, And you take out about half of that, which is the pulp and liquid packaging. You would land around 1.7, 1.8 Pricing impact for the other segments. We probably would expect something similar on top of that for Q3 and going into Q4. And that will mainly be a better impact or stronger impact from Cardboard and some of the paper grades, Which for the time being has not contributed too much during Q2. I think for the raw material costs, I think the bigger question mark still for us is around the chemicals. There is a certain time lag on some of our contracts and caustic soda, for instance, been already will go up with some tens of 1,000,000 Per quarter now going into second half, I think the Lappex prices is on a high level, was very volatile. Tough to say, We are basically looking at it roughly stable, but maybe slightly continuation into second half. I think pulpwood has already been covered. We have seen slight increase, but almost neutral position in first half. We don't see Any big change going back into second half. Electricity, I think we looked with very solid hedging positions, That should be mainly flat for the next quarters. So I think that hopefully should give some coordinates on how we look at Good. Thank you very much, Christoph and Ivar. That is very helpful. Thank you. Our next question comes from Johannes Gronsijev from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Good morning, everyone. Johannes here. I want to come back on your comment there, Christophe, about more Supply beyond 2024, is the message that you are looking more into sort of debottlenecking investments perhaps on brownfield? Or are you Also about are you thinking about any sort of major investments here coming beyond 2024 in the planning? That's my first question. Do you have another following question? Just give them all, and then it's much easier for us to understand where Yes. How to Yes. And that is also on the pricing side because it's It's quite obvious that you didn't get so much or almost no price uplift on sort of paperboard, cartonboard. Could you maybe touch on those prices and also how you see liquid packaging board? If you could give us any idea if there could be any Tailwind from prices for Liquid Packaging Board in the coming quarters. Yes. I think that's my questions. Yes. So supply 2024. So I think it's a bit too premature to answer that. What we have done or what we are doing right now is we basically looked at all our markets. And it's not surprising you see that actually in containerboard and cartonboard with fresh fibers, you have huge opportunities in the market. And as I mentioned already before, coming into Biloquist Koschnes, my view was we should really focus and have a look. We're doing so many activity, but what can we do in our core business? And actually, we came to the realization that there are massive opportunities In our core. And my sense is we are pretty confident that carton board and container board and liquid packaging board is on our agenda. We will We are looking at Europe, which is strong. The U. S. Is probably even stronger, and some of the materials we are making has a strong demand and a little bit undersupplied in those markets. And now the key question for us will be, okay, How will we be able to supply that market during from 2025 onwards? Because if all goes to plan, we will be pretty full. And I think bottlenecking is already In the plan until 2024, you have probably seen our productivity is slightly behind that of our competitors in certain aspects, and we are working very hard to improving on that front, and that will be done with a EUR 1,300,000,000 CapEx EUR 1,300,000,000 CapEx as we go forward. But then we need to think, are there any significant brownfield investment we could do in order to get better supply, and that has to do not just with the CapEx, but also with the wood supply. And as you know, Sweden and wood supply, there's certain That is a little bit more constrained, so we need to think about how we manage that. And then we're also looking at opportunities. Is it worthwhile to have some supply in other geographies or a mill in other geographies closer to some other markets. And that answer, I cannot give you today. We are in the middle of working through that equation. And then we will have in, I think, September, October, probably some very good discussion with our Board and hope to communicate a little bit more on this matter than later in the year for Capital Market Day that that we talked about already in quarter 1. So that is the business supply discussion beyond 2024. Eva, why don't you go back on pricing if there's anything more to say? Yes. No, I can do that. Good morning, Johannes. It's a bit of repetition, but I can, Yes, look at this again. So as I mentioned, out of the 3.5% pricing impact we saw now in Q2, Roughly half of that is coming from pulp. And if you just follow the same logic then going into the next quarters, we are very careful. We don't really expect to see much Happening more on pulp. I think the levels are pretty high already. And I think you'll get the same reports from us or as we do In terms of what's happening on the market on that front. I think the pieces on cargosm board and paper grades, Yes, we had some announcements happening already during Q2. So a small impact that more will hit us as a full quarter impact in Q3. We also had some new pricing announcement or valid as of 1st July. So you can just say that If you are to expect, excluding pulp, something similar in Q3 and Q4 as we had for Q2, you will be looking at 1.7, 1.8 on the total portfolio. And that means that on average, we do see somewhere between 3 to 4 percentage point of price increase for carton borne and for the different paper grades as we have mentioned. I think liquid packaging, I mean, they live in many ways, you can say, the contract life. They are, as you know, longer term, And there's a different mechanic based on that. They are not in a short term cycle impacted as we will typically see on some of the other segments. Okay. Thank you. Very helpful. Just a third question, and that's the CapEx. You're making a small adjustment. Should we expect this less SEK 200,000,000 be invested in 2022? Or is it sort of a less CapEx For the company, how should we see that? No, it's a very good point. And let me just clarify this. So the overall 3 of the project Of SEK 2,600,000,000, that's unchanged. It's just the phasing. So SEK 200,000,000,000 that's expected now for 2021. But you can roughly say you can expect SEK 100,000,000 more for 2022 2023 versus what has been previously communicated. Right. Okay. Thank you. Thank you. Our Our next question comes from Cole Hathorn from Jefferies. Please go ahead. Your line is now open. Good morning. Thanks for taking my question. I just wanted to follow-up on the comments you made at the end around your longer term strategic direction. Could Could you just give a little bit of color? Is this a major rethink, as in starting to think about potentially disposing of some of the units like your solutions business or even something more material like your packaging paper division? Or is this just kind of setting out your longer term strategic targets, etcetera, is the first question. And then the second question on the Packaging Paper division. I'm just hoping you give a little bit more color by end market. Where are you seeing the demand pull in packaging paper? What is pulling the approved demand in kind of brown sack paper, white sack paper and then your specialty craft grades. And then the final question around the CapEx into 2024. I do think it's always good to be thinking ahead For to grow the business, but return on capital employed was impacted by the Groovon mill due to overruns there. How do you think about return on capital when you're allocating new CapEx to growth projects? Thank you. Okay. Thank you. Look, as you know, I joined Belarus Korsnes, on November. And I kind of with the team decided, let's make sure that we continue on the current list of priorities, which were health and safety, which was Guggen, which was stable production and the cost saving program. And We have done that, and you see the result in the quarter 1 and quarter 2. But that's clearly not a strategy in itself, Okay. So what we are actually doing is now to work a little bit fundamentally of saying, hey, what is the kind of growth rate we want to achieve? What's the kind of profitability What is the kind of capital structure we want to have because you alluded to the KM7 And how do we look at that? And my sense is, on one hand, yes, we need to go back to a healthier return on capital employed. But on the other hand, Gruvon is what it is. And therefore, I will not limit the strategic option to some consideration because in the past, things happened which were a bit unfortunate. So I think what we're doing is a fundamental review. We will discuss it is aboard and at this stage, I cannot give you much more color than that because there's so many options we could pursue. But I think by the end Of the CEO, we should have a very clear idea where the train is going. Do you want to take the next one, Ivo? I can do that, and hey, good morning, Karl. I think on paper in general, I think the answer is actually pretty simple since if you look at most of the channels Weigh the products in kraft paper and Satis Landing. We just basically see a very shift of optimism and a much more activity based pool. So if you go into industry and you look at construction or you look at automotive, certainly, the trend is going in the right direction. E commerce for us is still a growing channel, and it's certainly been booming. Retail in general is also really picking up now during first half. And even foodservice, which was, in many ways, you can say, the last channel that started to turn from somehow neutral or soft into growth. We've really seen also that now in Q2 that it's gaining momentum. And yes, basically, demand pool is back to a very different level than what we saw, yes, on a few quarters ago. Yes, I think on the last point, it's a good one around our return on capital employed. We are obviously not very happy with the performance we see at the moment, the 4%. It's far away from the target that's currently been set. And no doubt that with the overrun, this is still more rate than we expected. I can only just say that, Karl, we will be reviewing that as well and clearly have a very clear lens into the future CapEx expects approvals That it should deliver, well, a different level than versus what we've seen in the last couple of years. Great. Thanks very much for the answers. Thank you. Our next Question comes from Linus Larsson from SEB. Please go ahead. Your line is now open. Yes, thank you very much and good day to everyone. I'd like to start on the wood supply side and it sounds reassuring At least for the short term outlook that wood costs are expected to be stable. You also say and you have been saying on a couple of occasions that you are looking into the long term strategy and to safeguard competitive sourcing. Could you possibly expand a bit on that? What Potential changes are you looking into that, that could have a material impact On your currently quite exposed situation in the with cost aspect. Do you have any more questions or should I go for this? Yes, I do. Actually, I can continue on as a follow-up on this very question and maybe tying into a previous question in terms of Capacity growth beyond 2024. And my question here relating to my first question is whether You're also looking into that question in relation to my first question, I. E, would you consider teaming up with someone in a potential capacity investment situation to safeguard the crucial raw material supply. Yes. I agree this is fully related. And yes, when it comes to the long term, any capacity expansions condition has to basically will be very clear in view of wood supply. So we're looking for capacity expansion, which will allow us to have a stable wood supply to competitive pricing. And that clearly opens up the world to some extent, But also makes the choices quite difficult because there are not too many areas in the world where you have Competitive wood supply like in Scandinavia. I think in the short term, it's more an issue of Our behavior and the behavior of that of our competitors and suppliers. And I think that Clearly, we see in the north, we've seen in the future probably some increases in wood price because of the Paltner, which is built in Finland, you have also seen some expansion plans from Stora, But then you have also heard about some closures from Stora. And these are the big moves, which will have a medium term impact on the supply availability of pulpwood. Then you have a long term trend, which is clearly the policy fit455 of the European Union, where in particular the forestry Management, is mentioned. And clearly, I think many of the industry were not Happy about the ideas which were voiced there. But I think at the end of the day, we are all sourced from the same basket. So even if we had a forest, well, wood prices would also go up because we wouldn't make the same amount of money if we were to sell to someone else. So I think it's from that perspective with our competitors, it's all a zero sum game. And at the end, Packaging material will evolve also with wood sourcing, well, with wood prices per se. So My sentence here, it's a strategic, very important question. And like most things in life, On the short term, it's about our good relationship with our supplier, our ability to manage prices, our ability to develop new sources of wood. And in the long term, it's about placing our mills strategically in areas where overall the wood supply is in good shape. Would we partner with people? Maybe, yes. Yes, I would never exclude it. Do we Negotiation on these type of partnerships, well, I cannot really comment on that. So I think when it happens, it happens. But My perspective is on the supply side, yes, you can always investigate partnerships. And if there's a win win, great. I mean, you have seen the case of Metso Way, which was done in Musso. Good. I think that's about it, I think. Thank you. Thank you for your questions. Yes. Thank you. That's very helpful. May I just that's very helpful. Thank you very much. And just a quick When you said the fiber form had a good quarter, as an update, could you provide any more color on Vibreform, it's a very interesting product. It has some great features. But how big is it really? Is there any way to quantify how what the size of that business has become? Look, fiber form is a great innovation, and it's a great product. But I think in comparison with our total business, it's so marginal at this stage But I cannot really comment on that. It's small and it's growing fast, okay? And but it will take a significant amount of time and a change of brand owners to use these type of products with scale. But it's I think I'm very happy about this innovation and the margin that these type of products are delivering. Great. Thank you very much. Thank you. Our next question comes from Martin Lovi from ABG. Please go ahead. Your line is now open. Yes. I think my questions on pricing have been answered by now. One question remains on Kilometers 7. Could you make it simple And say how much remains of the EBIT that is supposed to come from this project? I think it was 600,000,000 How much have you actually realized as per Q2? Yes. Also, Martin, as Christoph already mentioned in the beginning, we're moving away a bit from, in particular, commenting, particularly machines. And I, of course, understand the interest given this is a big one. Maybe I can just go back to some of the points I also answered to Robin around the business case That the vast majority building block of this famous SEK 1,000,000,000 is coming from volume going to SEK 5.50 Versus then the starting point of the old machines of $215,000,000 Christophe did mention that this year, We are expecting to land somewhere between $350,000,000 $370,000,000 fully being ramped up in 2024. So that should give at least a big indication. We are making good progress then on the second building block, which is the driving the survey and the German agreement as a much tighter organized unit And the last one, which we still have to be, you can say, completed or done, is to further get efficiencies on the fixed cost side of Sturgent. That's probably as far as I'm willing to go on that question. Okay. Thank you. I'll ask it again next quarter. Thank you. Thank you. Thank you. Our next question comes from Christian Kopfler from Nordea. Please go ahead. Your line is now open. Thanks, operator. Good morning. Yes, just two Little bit more longer term question from my side. First, it's about a follow-up perhaps then on the product launches earlier here. If you look at them as an aggregate, you typically come up with a lot of innovative And new products and if you look at it from an aggregated level, Will it still take a lot of time until you see a material impact from those new products? Or do you think you will see a gradual Impact during the next 4 to 8 quarters or so. That's the first question. The second question is on the Also a follow-up on the wood supply in the more longer term. If you could comment a little bit on what we hear from the European Union on perhaps a risk that less wood will come out of the European and Forests and how that what's your view on that versus an increased risk of Competition from mills outside of Europe that doesn't have this situation. Thanks. Okay. Let me answer on innovation first. So clearly, we're not in a business like FMCG company where you have very clear after A couple of months, you know exactly where the rabbit is running. So I think all the innovation we are doing tend to be quite Evolutionary, so they create lower weights, more strengths, better printability, better pliability, all these type of aspects or better barriers for that matter. And as we move on, people tend, at least also working in the quality areas tend to substitute the previous grade with the new grade. And the new grades, We price them very competitively, so we get better margins as well. So this is the kind of day to day. What we have done this quarter, so quarter 2, is we have actually looked in our total innovation portfolio. We talked a little bit about that, I think, when I had my Q4 review, and a lot of you asked me what did I find when I entered below the Cushnet and what my perspective was. And I must say, now 6 months along the line, and particularly with the work we did in quarter 2, We have basically streamlined our approach to innovation in the sense that I wanted to see a portfolio. I want to understand what the business case of the individual projects are. I want to understand where they are. I want to understand where or when will they be launched. And this work has now been done. And I think now we're in a much better situation of being able to prioritize resources on specific projects, do projects more in sequencing rather than in parallel. And I'm pretty confidence that we can accelerate our innovation rate going forward. And when it comes to the financial turns of this innovation. Clearly, that is one of the key aspects. We need to understand that any innovation has to have a very significant The high return on capital offset what we have. So that's clearly a must. And then the second part is All the innovation we are doing has to have a better margin than what we have. And that is basically the game we are playing On the innovation side. Second question was on the longer term. Look, I must say, as probably most of my colleagues in the industry, we are a little bit confused by The European policy on woods or on forestry per se, because you clearly see competing interest even within or contradictory policy within the EU. So the first one is we want to circle economy. We want to have recycled products. We want to basically change move away from plastic and these type of materials And become much more carbon neutral. And on the other side, you want to have biodiversity and you want to have carbon sink with the forest and you want to stop people basically taking down trees and etcetera, etcetera, etcetera. So These are 2 very, very difficult policies to combine. And then on top of that, I think on the European proposal and policy was to make the overall forestry strategy more European affair rather than a national affair. And as you know, countries across Europe manage their forest in very, very different way. I think Sweden is probably Sweden, Finland and to some Stenmor, we are world champion in managing the forestry in an excellent way. And we have so many other organizations like FSC, etcetera, who said very good sustainable forestry rules and whatever you have. And therefore, I think we are a little bit skeptical At this stage, in particular, on the forestry proposal. But we have to recognize that Clearly, some of these aspects are also true, and I think biodiversity is important, etcetera. It's a matter how you handle it. And Our preference would be that this would be continued to be handled on a national level because countries are quite different and the forestry tradition are very different. And the second part is probably that in the long term, I see some We're talking now over the next 10 years. I could can see some increases in raw material prices on wood Just by the fact that you limit the amount of wood you can explore, especially in Scandinavia, where a lot Of where forestry, if you like, compared to other countries is very active and very developed. So that's a bit my view today. We are working clearly with the Forest Industry Association and our different Trader Association, to have an to basically have an input into the debate. And then We will adapt ourselves to whatever comes out of this debate, and I think the time line is 2022, 2023. So it will happen rapidly, and it will have, I think, an impact on the overall industry. Thank you very much. Thank you. The final question comes from Michael Dubow from UBS. Please go ahead. Your line is now open. Thank you. Just a couple of questions still from my side. On the Sac and kraft Paper Markets, could you give any comments on the growth rates in the markets in Q2 on a year over year basis Across the key products there, perhaps if there is something you could comment what's happening on the supply side in terms of disruptions or swing mills? And also if you can say anything about the magnitude of price increases that you have achieved in this business area and what you expect to achieve ahead? My second question would be on the Solutions business. Performance was perhaps a bit disappointing in the quarter with revenues up clearly on a year over year basis, but the earnings still down. Perhaps if you could talk a bit about what's happening there and what you expect for the second half of the year? And then finally, on the cash flow, we did see a good working capital inflow in Q2. I think you had an outflow in Q1. But how should we think about the full year from work Capital, perspective. Thank you. Okay. Eva, I will hand that to you. Yes. No, thank you, Christophe, And good morning. I think on the second half, let me just see if I got my notes right here. I think the market growth also Some lag in terms of some of the reports. We don't have fully updated yet from the first half performance, but I can definitely confirm that Q2 underlying demand is higher than what we've seen. I think we would expect That we see for the first half somewhere between 53% growth. There is Because this is also a question that we've been asking our sales guys, if the performance that we see now in Q2 is more of an inventory adjustment or actually believe that the market is real and the vast and overwhelming response is the latter. So we actually do believe that a lot of fundamentals behind the and the channels coming back to growth with after a bit of hibernation, you can say, in the COVID times is is certainly maybe not fully over, but it's definitely taking a very big step back into the right direction. I think on the supply side, there's nothing major. I think Seguess probably have been a little bit less active in the first half of this year versus maybe what we saw last I think that's more a temporary item that we don't expect to go forward. I think on the pricing, I think I have mentioned and I don't think I have too much more to add more than It is true that some of our pricing announcements within paper, we didn't have a lot of impact of that in Q2. It was relatively marginal. So we will certainly expect to get more of that now than into Q3 with, again, full year Quarter impact and some new items coming in on 3rd July. I think my range of 3% to 4% is still pretty good as kind of a bit of a proxy of how we expect the different segments to deliver. I think on Solutions, I think actually one of my favorite tables, I'm just going to check that that's also Christophe, it's based on Page 23 in the report because it's one of the last tables on that page. I mean, Hefel, the hedging or the currency hedging, etcetera, because that always is a bit of a moving item based on the revaluation of receivables and our has been positioned. So when we take that out and you look at the solutions out there a little bit more cleansed, you can say it's slightly better Than what we had in Q1, which is basically the managed packaging business doing a bit of a better. And that level now of what you see is Somehow, we expect also to go into second half. And the drivers, you can say, from last year when you say it's minus 44, It's actually that the Q2 last year was unusual low, you can say, or better than maybe this year being strange. And and some of the bigger building blocks to explain that gap has been around phasing of some of the variable pay Permissions that we do, and we also have some emission right timing, which explain a little bit that number. I think your last point around the cash flow, I think You're absolutely right. And maybe I can just quickly remind people on this because it's not an unimportant point that we had a very good Cash flow delivery first half. And when you think about what are the main drivers so far in 2021 versus what we saw last here, on the working capital, is actually, well, most and foremost related to some of the items we had sitting in last year's result. For some of you remember that we have this energy collateral balance, Which now will be taken out and eliminated after when we came to the end of 2020. So that expense, I did the SEK 260,000,000. There's also some receivable balance of some incoming tax payments last year, a bit more than SEK 200,000,000 sitting in. That explains also part of the balance. And then the delta to come up to what we delivered as an improvement this year, it's mainly inventory related. The public inventory first half last year was a bit on the high side. I can certainly confirm that inventory now going into end of Q2 this year has been on a very low level, very much linked to Market and demand being very strong across and with some of the challenges, for instance, we have in India, inventory levels are very low. So that means if you think about the second half, I mean, off net result is one thing, but we do not expect to see the same pickup Off of working capital, in particular, that we have seen in the first half. Actually, I think we've all even get a small third on inventory because inventory would, if everything else goes well, commonly be back into a more normal level, which is more sustainable level for us to keep up a good Service level rate. And that means we would expect to see working capital in the area of 9 ish percent of net sales. I think That will be my estimate. Hopefully, that answers some of your questions. Certainly, it does. Thank you very much. Thank you. We do have a follow-up question from Oster Lindstrom from Danske Bank. Please go ahead. Your line is now open. Yes, thank you. Just two questions here. The first one is on the low inventory levels at the end of Q2 for your part. Should we expect this to limit your delivered volumes in H2? So that's my first question. And the second one is on the insurance compensation for the Jabali incident. I understood that the cost for that came in at the higher end of the range. I believe it was SEK 75,000,000 in Q2. When and how much of that can we expect to be compensated through insurance? Those were my two questions. Okay. Oscar, last question from you in this meeting. That's good. Okay. First one is inventory. Look, if production goes well, there's no issue on delivery in the second quarter And in the second half, sorry. And actually, one of the reason why we have so low inventory now has to do with the Yevo incident because then basically all the stocks in all areas went down. And now our challenge is that while we are fully booked, we need to reconstruct some of the stock levels, either because they're security stocks of customers or generally speaking in order to keep our service level high. So if production works as planned, we will have no issue and that's clearly our key as a company going forward. Iva, do you want to take the Jesvo? Yes. I can do that. I think, yes, hi, good morning, Oscar. Nathan, just a quick recap on the case. So what happened in terms of the extra costs is forced upon us. Clearly, the volume loss was the biggest item with a lot of days on either Pretty reduced speed or pretty much no production at all. There's a certain repair cost as well that would need to be done to sort the basic asset back into shape. We also had a third part because This digester certainly influenced the internal pulp supply in the site, and we were forced then to go out on the market and buy a bit more Sternolp, then we normally would do all of this combined kind of adds up. So in this estimate now of SEK 75,000,000. It is a certain expectation on the insurance compensation for that, And we have a very good dialogue with our insurance providers, and we don't expect any big movements now from the amounts that we have already communicated. And sorry, the timing, when should we hope for this money? No. So already now in the Q2, it sits a provision or an expectation for the insurance compensation Based on the dialogue we have with them, so we don't expect another or big future morons based on the number we've already talked about. Clear. Thank you. All right. I would like to thank you all for your attention and your participation to our quarter 2 call. And I would like to wish you all a very, very good summer. And I'm looking forward to speak to you in our Q3 results. Thank you very much.