Earnings Call: Q2 2020

Jul 17, 2020

Hello, and welcome to the Belarrete Cushner's Interim Report, January 2020. Throughout the call, all participants will be in a listen only mode. And afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Leonard Holm, Acting CEO Ivar Botany, President and CFO Christopher Casselblad, Head of Communications. Please go ahead with your meeting. Good morning, everyone. This is Lena Tolmir speaking. Welcome to the presentation of our interim report, January to June 2020. I think we should start and take the first slide. So next slide, please. Just to give you very, very brief introduction, key Q2. Continued sales volume increase, relatively limited impact of COVID-nineteen. K-seven ramp up progress continues as planned. Earnings continued to be affected by lower market prices, and we're on track to deliver our cost and efficiency program. We will come back during the presentation to all these topics. So we can have the next slide. Some figures. Ivar will, of course, give you some more meat on the bone around the figures, but the net sales then slightly down 2% versus same quarter last year. EBITDA margins up compared to last quarter. Of course, here we also have some influence from timing issues when it comes to maintenance, shutdowns, etcetera, but still I think a good figure for the Q2. And if we look on net debt to EBITDA, 2.4x, still within, let's say, the limits that we have set up in the company. So let's have the next slide. COVID-nineteen, big topic for everyone these days, of course, also for Wilbur Achness. However, I can say that the impact on us and our company has been relatively limited so far, everything considered. Most notably, we have seen an impact within Division Paper and division solutions. And what we see is then mainly an indirect effect in terms of having a demand decline in certain channels, specifically then in products going to industrial applications and foodservice applications. Another big change for us has been the fact that we had to move or decided earlier on this year when COVID-nineteen was accelerating to move and reschedule our maintenance shutdowns from first half twenty twenty to second half twenty twenty. And this is, of course, something that creates some issues for us internally. I must say that our teams have been doing a fantastic job rescheduling and really planning in detail now how to go through with these maintenance shutdowns in order to secure that we can get the jobs done, in order to secure the safety of our employees and in order also have very close contact with both suppliers, entrepreneurs and the local authorities, etcetera, to really plan for the maintenance shutdowns in all the different mills. But we need to realize that, of course, there are still a number of uncertainties around these maintenance shutdowns that can influence us. We've also had to have slow steam or some production reductions, and that is in 2 production sites during the Q2. It has been in Pietasari in Finland and it has been in Sverdlakka in Sweden. And these are related then to a weaker market and a weaker demand for, as I said before, industry and foodservice products. The internal crisis management team that we put in place to deal with COVID-nineteen effects, we were quite early with this, continues to work in 6 work streams. And I must say that their entire team in Billeerkorden has done a fantastic job to not only secure operations, but also to be very proactive in identifying potential risks and dealing with these. We've also managed as part of this to have a very close check on receivables balance and overdues. And I must say these are and they remain in good shape, which is also, I think, a good sign that the team is really on these topics. I think we can take the next slide. This might be a little bit complicated, but just trying to give you a feeling for the business status and the outlook. And what we can see is that food and drink has been stable during the entire Q2. And this is, of course, our most important segment. And you can see that the liquid packaging board is the biggest product in this, but also carton board, container board are big in this segment. We've had a stable situation throughout the Q2. On the board side, we've had some negative effects from 2 things, I would say, 2 parameters. 1 was that we had a plastic contamination that happened in the Javal Mill on liquid patching board, which means that we had to downgrade some tons in Javal, which has had a certain influence on the result. And the second is also a little bit unfavorable product mix some of the board grades, excluding KM7, where we've had a positive effect from a better product mix. Medical and hygiene continues to be stable as well throughout the quarter. It's a smaller segment for us. We've had a more challenging situation in consumer and luxury, excluding, I would say, cartonboard, where cartonboard for us is a niche segment. We're a niche player in cartonboard, and I have to say that there we have we continue to see a very good continued weak. And of course, here we see a lot of sack papers and kraft papers that goes to various industrial applications and has been continued weak during the Q2. Looking forward for the Q3, there is a lot of uncertainties, of course, related to COVID-nineteen, and we are a bit cautious on what will happen during the Q3. We do see that there has been during the first half year a certain inventory buildup throughout the value chain And that now is, let's say, normalizing or the consumption is normalizing. So we don't see this buildup of inventory anymore. It might be that we will and we will probably see certain negative effects from people basically reducing then the inventories that have built up during the Q2. I think we can take the next slide. KM7, of course, remains very, very much a focus for us, very important topic in our company. It's now more or less 1 year since we started upcoming 7. We have accelerated the ramp up process, and I would say that we we have taken significant steps forward quarter by quarter, and the second quarter showed very good progress. We have a number of heating problems still to be fixed. I think that is quite normal when you build such a big machine and complex machine as KM7, there are certain topics where you get some design flows, where you get some initial issues and you have to do basically adjustments on the machine. We have a list of a number of issues that we were planning to basically fix during the maintenance shutdown that was planned for early this spring. And it has had a negative consequence, the fact that we had to delay the shutdown until September. So we still have that list on, and that gives us certain limitations right now on what products we can produce, how much we can produce, wouldn't say, stumbling block, but an irritation and something that has wouldn't say stumbling block, but an irritation and something that has cost us some money in terms of and a more unfavorable product mix. However, as soon as we get these fixed, I think we will be able to go ahead full speed in developing the grades further. We've also, during the Q2 now, really gone back and looked into the original investment case assumptions. We said, okay, let's do a deep dive and see really has anything changed compared to when we took the decision in 2015, 'sixteen. And I'm happy to say that when we've done this work, it basically reaffirms the potential of KM7 when fully ramped up. If anything, I think the potential is better than we thought when we took the decision. In terms of that, the market still looks healthy and there's a healthy growth for the key products on KM7 At the same time as no other capacity has been added to the market and we don't see any other capacity coming on stream either. No new machines are built that are in competition with KM7 for the time being. So here it looks pretty good. I think we can take the next slide. We're right now in Q2. Annualized production rate is around 300,000 to 350,000 tons per year, which is on schedule, I would say. So the machine can produce and it can produce as planned for this year. We have also during the Q2 had the first successful production of Krammboard Prestige, which is one of our most sophisticated cartonboard grades that we normally produce in Jhebord. And those volumes have been supplied to customers with very good feedback. So this is a big step forward. And here we are actually ahead of plan, I'm happy to say. We are now focusing a lot on improving the product mix in order to minimize low margin and downgraded products. We've had quite a few tons of, let's say, low margin and downgraded products during the initial startup period of KM7. We are now working to reduce those and go into more high value products. You shouldn't expect that to have a big impact in Q3 as we have this very moment, we are not pushing for the most advanced products. We are producing products that give us a stable production on the machine, but they are not optimal from a product mix perspective. The maintenance shutdown, important very important for us. And of course, there is a degree of uncertainty of feasibility due to COVID-nineteen. Right now, it looks as if we will be able to push through the maintenance shutdown as planned. But there is a number of factors. Just to give you some flavor of it. We can't put external contractors working too close to each other, which means that normally we would perhaps have 2 or 3 teams working in parallel on the same part of the machinery. Now that we have to stage that, so team 1 has to do their job first, then comes into team 2, etcetera, etcetera. And of course, there's a risk that the maintenance shutdown might take some few days extra or that some of the jobs that we want to do can't be done, etcetera. So we're fighting hard to really plan and go through with the maintenance shutdown. But there are risks involved with it, and we have to see where that goes. The negative EBITDA impact is decreasing compared to Q1. For Q2, the impact has been SEK 120,000,000. For 2020, we have communicated earlier on that we will be in the interval of SEK 350,000,000 to SEK 450,000,000. We do expect at this moment that we will land in the higher end of that interval. A big reason for that is, of course, also the fact that the market is, for some of these grades, not as strong as it has been before. So when we talk about the less advanced products, we do get less paid for those products, and we have a lower margin contribution than we expected just a couple of quarters ago. However, expectations to become EBITDA neutral during 20 21, they remain. So we see no reason to change that. We are quite optimistic when it comes to the future for KM7, I must say. It will take time, but we will get there. Next slide, please. Cost and efficiency program is on track. We have promised to deliver $250,000,000 of cost savings and efficiencies in 2020. We have delivered during the Q2 $90,000,000 So I would say we are on track there to deliver. And we are also in full swing working in order to step by step then identify and initiate those actions that are required, the building blocks to deliver the $600,000,000 run rate by Q4 2021. So we're on track. Next slide. Looking briefly at raw materials. We can say that cost of pulpwood decreased somewhat during Q2. I think we will see marginal decrease also in the Q3. Here the situation is, and I think some of you have certainly picked that up, but we have this spruce beetle issue in Sweden that now is changing a bit the dynamics on top of COVID-nineteen effects in the forests in Sweden means that we get a lot of spruce into our pulp mills. But in the forests that are affected then by the spruce beetle where we have to cut, those that wood is of lower quality, so it costs us more to process it. But it's also a fact that those forests with spruce, they contain less birch. So it means that we have an oversupply of spruce, but have definitely not an oversupply of hardwood. So when it comes to hardwood, we don't see any reductions at all in price. So overall slight increase, but no dramatic change I think we expect. Chemicals, not so much to say about, not big movements, I would say, in 2nd or Q3. Purchased pulp pricing has gone down. We have the new supply agreement in Pietasari, which of course is favorable for us. However, when we look on that, we should remember that we also sell pulp and we still have a net exposure of pulp. Roughly for 2020, we're expecting somewhere around 70,000 to 90,000 tons compared to 160,000 tons last year. I think 2021, it's reasonable to believe that, that will more or less disappear, the net exposure of pulp. But as pulp prices have gone down, even if we're saving money in Pietasari, of course, we lose even more as long as we have a pulp exposure on the pulp that we sell. Energy cost savings limited during the second quarter, even though spot prices have been low on energy, but we hedge our electricity prices to basically reduce volatility. So for us, that means that the savings have been limited during the Q2. Next slide. And this, I think, Ivar, is your time to talk about the figures. So please go on. Thank you, Lennart, and good morning. So some comments just overall on the financials before we dive into the bridges. Net sales, as Lennart, was starting off on down 2% versus year ago, which is mainly then a function of a 4% volume growth fully being offset by negative pricing impact. And this situation we've for some quarters already. Looking at net sales versus Q1, it's also slightly down, and this is mainly due to slower demand in some segments and some mix impact. Pricing is actually pretty flat versus Q1, and this calls for both of the divisions. If you then go into the profitability, we are significantly up versus year ago, but no mistake in that one, that part of this or actually a pretty big part of it is due to maintenance timing and scheduling versus last quarter, you can see for yourself the profitability is relatively flat. That goes for the return of capital employed relatively unchanged what we've seen over the last quarters and certainly reflecting that KM7 investment is now fully in our balance sheet, while we are still waiting gradually to see the ramp up effect taking place. So next slide, please. So looking into our net sales bridge, what I was referring to, we're down 2%, pretty hefty negative pricing impact, which is mainly driven by some segments within division board. I apologize, the pricing is from division paper, where in particular, the brown sack has been a negative trend for quite some quarters, partly helped and offset positively by 1% of currency, and we have percentage point volume and mix, taking us to $6,156,000,000 Moving into the profitability ratio. Next slide, please. I mean, you will see this logic pretty much from what we talked on the net sales bridge. There's a very sizable negative pricing component for $330,000,000 that's 6% of our net sales basis. It's certainly definitely a significant driver that we are monitoring and also, yes, sequencing a plan to get the contribution margin back on track. From that negative pricing impact, we have a series of positive items bringing the profitability to a better level. Some of the bigger ones, we have raw material help. There's another solid contribution coming from our cost and efficiency program. Currency help us, and we also have a volumemix part. And you can see the $260,000,000 that's definitely a big item coming from the maintenance schedule. And part of that is obviously timing, which will come back in the second half. So if you look at a bit more details per division, so next slide, please. And starting on the division board. Division board had again a very strong sales quarter, up 6%, broad based growth, growth in all segments, sales volume growth of 7 percent and clearly riding on a strong demand wave across more segments and also positive impact from the ramp up. Some details then by the segments. I mean, liquid packaging board had another excellent quarter, strong growth versus year ago 12 percent. Lennart was alluding a little bit about this in the beginning. We believe certainly that, that market and segment is still strong, but we get indications now that we're moving towards a bit more normalized level and that there's an industry inventory adjustments coming along in the second half, meaning that certainly, we expect the liquid packaging versus the second half. For cartonboard, it's another versus the second half. So cartonboard is another very strong quarter and wonderful number with 16% growth. This means we had 10 consecutive quarters with more than double digit top line growth for carton board. And this is very much on strategy and certainly according to our plan. And now with new capacity being added we came 7. This is also going to be continued a priority for us. Increasing position in both existing positions, but also going after new customer base as we still believe that there's ample room for us to expand in both products and also geography. In terms of carton boards, including in liners, still growth, coming to a growth rate which is slightly lower versus what we've seen in the past and also reflects a little bit more challenging market as also Lennart was talking about. Net operating expenses flat, while sales volume is up 7%. Efficiency is helped by raw material decrease and a cost and efficiency program. But certainly, there's an element also here of the maintenance schedule timing. In terms of profitability, EBITDA margin of 16%. If you look at the KM7 impact, which Lennart was talking about $120,000,000 which is still sizable regarding the 21% of EBITDA and that's certainly also in an area that we believe that we will and target to get the Vision Board in that range over time. If you go into division papers on next slide, please. Yes, it has been a relatively similar situation for some quarters. And you probably also remember that in end of Q2 Next slide, please. Thank you. On the division paper. So in division paper, I mean, it is still relatively similar to what we have reported over the past quarters. You probably remember that in Q2 'nineteen and the early Q3 'nineteen, that's when we started to see some pretty negative impact. Starting now to meet a lower base, but still we see an impact. And it has been pretty similar to what we've seen over the last quarter with half paper holding up relatively well, while Sac Paper is impacted hard, in particular in the brown Sac where pricing is certainly a lockdown versus a year ago. Now looking versus Q1 'twenty, our net sales on paper is only marginally down, and that also surprised us a bit positively, meaning that when we look into Q2 and seeing the trend, the pricing picture certainly has held better versus what we expected. While we've seen some volume being reduced, in particularly certain channel, where we expected COVID-nineteen to be more influential, and we're talking in particular about the industry and also partly within food service. Operating expenses coming down, partly due as on the Vision Board on the maintenance sequencing. There is volume decline, but we have the same items here as on the Vision Board that we have raw material cost decrease and also some cost and efficiency improvements helping us, meaning that EBITDA is reported up, but a lot of this is then fluctuation in terms of the maintenance timing. So that's a couple of words on the Vision Solutions. So next slide, please. The Vision Solutions certainly had a pretty hefty negative decline on top line. This is mainly due to managed packaging. Definitely had a challenging quarter with mostly North American brand owners heavily impacted by COVID-nineteen. And here you can do the link into most non food retailers, which is the main part of our customer base, has been in lockdown mode or certainly very heavily impacted by a different consumer behavior during Q2. 5, the perm coming in with moderate growth. We had a very strong Q1, and there has been a little bit of an inventory adjustments just over the first half. But still, first half is on a good level. Yes, I mean, costs scaled down since we have done what we could to protect profitability and initiated certain measures in the wake of the business trend we already saw. And that means that EBITDA is down due to the net sales decline. We're not talking about very big numbers there in absolute as you can see from the table. So if you go into the next slide and just a couple of words on the balance sheet and our net debt leverage, relatively unchanged from what we had in So next slide, please. Thank you. So in terms of the balance sheet, there's not a lot of change versus what we reported in Q1. It's slightly up from 2.3 to 2.4, which is main effect of that is net debt going a bit up due to dividend payment that we executed during the quarter. You might also remember that we talked about in Q1 this energy hedging collateral and the increase that we went through in Q1, that has now been reduced by SEK 150,000,000 during Q2 to a new total of $250,000,000 So that certainly also help our position partly. In terms of debt maturity, we have limited positions over the coming calendar years and in the rest of 2020 and going into 2021. For CapEx, there's no really news. We have already communicated SEK1.3 billion in total for 2020, and we are on track to deliver that, and that remains our latest estimate. So you can ask for next slide, please, and I'm handing it back to Lennart. So to summarize, the Q2 continued okay, let's wait for the next slide to appear. Could we have the next slide, please? Thank you. To summarize, the Q2 continued sales volume increase, relatively limited impact from COVID-nineteen Game 7, ramp up progress continues and potential when fully ramped up is definitely reaffirmed. Earnings continue to be affected by lower market prices mainly then from division paper and we're on track to deliver our cost and efficiency program. Could we have the next slide? Very slow changing slides today apparently. Can we have the next one, please? Outlook for quarter 3. Uncertainty related to COVID-nineteen remains. We have to say that we are somewhat cautious when it comes to the Q3. We see somewhat more challenging market conditions for most segments, exceptions being products designated for food and beverages and medical and hygiene where we expect stable situation. We also have several planned maintenance shutdowns, which I alluded on previously, some challenges around that. Raw material costs are expected to decline marginally. So that will, of course, have a certain positive impact. So this is just trying to give you a rough idea about the Q3. So thank you so much for that. Okay. Thank you, Leonard. Operator, we are ready to open up for questions. Thank We have a question from Christian Kopfer, Nordea. Please go ahead. Thanks, operator. Good morning, everyone. Just a few questions from my side. Firstly, on the paper. Just wanted to ask and I'll take the questions 1 by one. Just wanted to ask on the have you seen any positive effect demand wise as the plastics consumption, especially on bags are coming down a lot in Sweden? Bags basically material going to bags for us is not really a product area that we're focusing on. So marginally, yes, but not any major or significant impact. But it's true. Paper bags consumption has gone up and plastic bags has more or less collapsed, I think, in Sweden. But for us, I wouldn't say that, that has a significant impact at all. Okay. Fair enough. On the outlook for Q3, firstly, on volumes for Paper, is it fair to say that you expect volumes to come down a bit? Just talking underlying volumes and also prices coming down a bit? I think what we see is demand for MG paper is quite weak now. We expect a weak quarter for MG paper, which means that we will most likely take some or we plan to take downtime in SAVLAKKA on 2 of the paper machines and continue with Lostini and Pittasalle. So volume demand for certain of the packaging paper grades, we do expect that to be somewhat weak. SAC paper volume wise is fairly stable right now. We don't see prices so much dropping. Prices appear to be stable. So it's mainly volumes where we will see negative trend in Q3, I think. Right. And then on board, if you could do similar comments to Alunort on volumes and prices for Q3 versus Q2? Yes. On board, I would say that the market for liquid packaging board is stable. I think Ivar mentioned that I think we've seen a certain inventory buildup in first half of the year and the consumption there is normalizing, but still on good levels, I would say. So we do expect a stable demand there. Cottonboard, we foresee continue for us, a continuous growth. But our opportunities to exploit that in the Q3 are a little bit limited as we have the maintenance shutdown. So we don't expect any huge increase there. On containerboard, I'd say that containerboard is a bit more somewhat under pressure, I would say, volume wise and possibly also price wise. I think we can expect that we will have some pressure on the containerboard grades during the Q3, driven I think not necessarily by a much lower consumption, reduction of inventories in downstream from us among our customers, seems if they have had some buildup. Our sales team there is fairly optimistic, but they say that quarter 3 will be a challenge. Did I forget anything there? No, I think it's okay. I hope that answers roughly. Do you have any numbers to give for CapEx for 2021? 2021, basically, we will follow the earlier communicated levels around $1,300,000,000 no major deviation. Right. And then finally for me, on Peter, sorry, the cost savings that you will realize from that new agreement, Is that on top of your communicated cost savings of $250,000,000 for 2020 or? Yes. So you probably can look at that EBITDA as an outside item. Yes. So we clearly have an ambition to deliver our 35,600, and this is an item that is going to help us on top, yes. So what would that bring for you in total then? So around Yes. So we don't really comment on, in particular, margin on specific sites or health for certain machines. So I'm not sure I would like to open up more on that topic. We have a question from Alexander Berglund, Bank of America. Thank you very much. I just have a question on your comments on a bit more challenging markets in the industrial end markets. I'm just trying to square those comments with other comments that we've seen from construction companies and other industrial companies of an improvement. So is this, from your perspective, more due the inventory destocking that you mentioned in your presentation? Or is it something underlying still being kind of weak sequentially in Q3? Well, it's an interesting question, and we're not sure of the answer directly, but it could be probably a combination of both. I also suspect that we haven't seen volume wise so much impact Brasel Construction earlier on because they have been still in the motion of finalizing already ongoing projects, but there might be certain hesitation now to initiate or some delays to initiate new construction projects. So I would guess that the demand will be a little bit down in Q3 and possibly also Q4 from simply lower activity. I think it takes some time to restart those types of projects. We have a question from Robin Santavista, Carnegie. Please go ahead. Thank you very much for taking my questions. Now first of all, just sort of going back to the demand outlook for Q3. Now if you look at the group overall, is it fair now based on what you say to expect demand to be slightly weaker in for the whole compared to the outcome that you had in Q2? I would say to give a short answer, I would say yes. There is a lot of uncertainties. So of course, we don't know where it will end up, but we would be somewhat cautious in this situation. We still believe that, of course, as we said before, that certain of the grades are stable, others a little bit weaker. But we also need to remember that we have the maintenance shutdowns, which will somewhat limit the volumes that we can deliver during the Q3. I understand. And then the same question goes for prices. Should we expect prices to slightly decline in Q3 quarter on quarter? Or is it more in line with oil change prices quarter on quarter in Q3 that you see now? I think it's more of issue of volume than price in general. I think it's likely that we will see certain price pressure on containerboard. But for the rest, I would say that we have rather stable prices. All right. That is clear. Then in terms of FX, we've seen the Swedish growing and now strengthened significant. I guess it's a strongest level compared to the past 2 years. How will that now pan out for you in Q3 and Q4? I guess some headwinds already in Q3 if the FX rates remain at the remain at the current spot levels. Is that right? That's correct. All right. And then in terms of the 7, I was wondering now is it positive EBITDA in 2021 or neutral? I guess, I think you had positive as to sort of original guidance and also in the report, I think it says positive. But now in this presentation, it says neutral. So is this now sort of a change in the outlook for 2020 or 2021? Or is it the same guidance you had before? No. I mean, let me try to clarify and see why you asked that. I think Leonard was a little bit alluding to at the beginning that there's certainly a big quarter coming up in Q3 now and if you can do the maintenance, stop as we had hoped and due to the improvements that we really hope to do. So it's very difficult at this stage now to sit and do a very credible and good forecast for 2021 because the big item that certainly moves the needle a lot here would be on the product mix. And then certainly our ability to move up as fast as we want to will be impacted also by part of the items we're going to fix in the maintenance stop. But there's no doubt and assuming that we will be able to do in a good manner the maintenance shutdown, We definitely foresee in the beginning of 2021, and if that's Q1 or Q2, it's difficult to say, that we reach a breakeven stage. And then certainly from there on, we're starting to go into the positive. So as a whole of 2021, we would expect to have a positive impact, but in the beginning of the year somewhere, we would expect to reach a new milestone, which is a breakeven point. I think we will know we will have a much clearer picture after the maintenance shutdown that are going through here in early September. And then we see if that goes through as planned, we're in a good position. If we get some hiccups there, there are some things we don't have time to do, then that will affect the product mix until, well, probably during the Q1 or so next year and also during the end of this year. So I'm sorry for not being able to answer exactly, but I think when we have our next quarterly review, I think we can come back with some more facts on that. Yes, and more detail on 2021. I understand. And thank you very much for the sort of clarification on that. It's very useful. Then just finally on the few times actually sort of that few times actually sort of that you're a bit worried about it seems that you're a bit worried about how that will pan now. What is sort of the key challenge? Is it just sort of the busy maintenance schedule you have now in H2? Or is it some particular things that worries you? Well, I think it's number 1 is we have now a lot of stops in a very short period of time. And it's not only our mills that have that. It's also the other forest industries. They had pushed their maintenance shutdowns as had the large parts of the process industry itself and not only in Sweden. So I think it's going to be a stretched period for everyone with all these shutdowns that have to take place. And of course, let's hope that COVID-nineteen doesn't come into second wave or something like that because then I think the main concern is to get all the people that we need, all the specialists we need to come in during the maintenance shutdown. We need to have them in place and we need to be able to give them conditions so they can do their job because what we don't get done during the planned shutdowns will be difficult to do later on because then they will be fully occupied at another mill, etcetera. So it's a very tight schedule with tight resource planning. I think that's the main concern we have. I understand. Those were my questions. We have a question from Johannes Grunzelis, Kepler Cheuvreux. It's Johannes Grunzelis here. A couple A couple of questions, but starting with the wood cost. And I know you mentioned here that there is pressure on the price, obviously, but also that you don't have the favorable mix in the feed in the Q3 with low amount of birch, I think. Can you say anything about how you're looking at this in the longer term perspective, let's say, when looking into next year? Could that also be a concern? Well, I think this Yes, sorry. Yes. Okay. I can start. I think when we talk about this, I don't even know if it's called spruce beetle in Swedish in English, but And I think that issue is serious for the entire industry. And I think it's something that we will have to learn to live with for a number of years going forward. So we need to develop strategies, both in the forest and in our mills, how to deal with that problem. And this especially goes for the southern parts of Sweden. So I think up to so in our case, it's mainly Sverdlakka that is affected right now. But of course, we need to develop strategies for that. And we need to develop alternative sourcing, etcetera, for hardwood. So I think these are things we're looking into right now. And I do believe that we will be able to handle the situation. But I think this the fact that birch supply will be a bit more under stress also in the coming years and that it will have an influence on the price. Okay. Is it a fair assumption, I mean, given where spot prices are now or rough market prices that you will have, let's say, 5%, 6% lower wood costs for the next rolling twelve months compared to what you have had? Or could you help us there with some sort of number? I'm not so happy to give you a number on that. I do think we will see a decrease, whether it's 5%, 6% or something else. I would probably say 3% to 5% if anything. Okay. And also another cost item, electricity. Could you also perhaps help us with possibly some numbers how one should think about that for next year given that I know you're working a lot with hedging and presumably you're hedging in at much, much favorable rates now than in previous quarters. I mean, how much of a cost easening can we expect from electricity would you say? I think I will give that question to you, Aure. Yes. Thank you. It's a very good question and I wish I would be able to tell you this in a solid manner. But as you probably realize, there's a pretty hefty spot rate development in the first half. Looking at the forward contracts, there's certainly an expectation from the market that it stabilizes and come back to a more normal rate. So in that sense, you can say that, yes, you're right. We have been hedging in certain positions going forward at some, yes, favorable position, you can hope. And if this kind of continues and we don't see the spike back to normal, there will be definitely an impact for next year. Not very comfortable at this stage to give an estimate give some kind of a number of what we would expect. We should probably have also better overview when you come into Q3, latest Q4 and give a little bit more guidance of what we expect for the coming year. Okay, okay. Sure. Then I was thinking about your comments here on caaten board that you've had consecutive nice growth in this area for many, many quarters. I mean, one of the reasons, I guess, perhaps KM7 is helping you perhaps with indirect effects, I don't know. But is it any market reasons or what's behind this basically? I think we have as a preparation for KM7 and the ramp up, we have clearly said that we will focus on certain segments within the cottonboard business area or end use area for KM7. So we have definitely established a number of new customers in that region in that area, and we are step by step then ramping up business with them on expectations that KM7 will be able to supply good volumes there. And we've had very positive feedback both in terms of how they see our quality and also when they see, let's say, our ability to increase volumes going forward. And this is why I'm very pleased that we've made so good runs now on KN7 here during the Q2 with coated water. Yes, yes. And that's my final question on the KM7 ramp up. I mean, is the reason why you have sequentially better earnings impact? Is that because you have added the higher sort of advanced products with the coated surfaces that's behind it? And if you perhaps could also help us, is it so that the next major improvement will come in the Q4 and that's due to the mix improvement that you foresee, yes? That's my question. Product mix is much more important than volume, to be honest, on Chem 7. It's of course, we need to run the machine and we need to get out the volumes, but the product mix is very critical, especially as the market right now looks. For example, we do some cap stock production and then the margins on cap stock are not fantastic right now for sure. That's a simple product for us to produce. And so we want to produce less and less of those type of grades, uncoated grades, and we want to go into more coated grades. That is definitely higher margins us. We also have, of course, had during the startup period some waste or, let's say, downgraded production of board. And those volumes are quite difficult right now to sell at any decent price at all. We basically have close to 0 margin on those grades. So we want to get rid of those. So a lot of the focus right now is to get rid of those low or almost no margin products and then step by step get into high margin products. Yes. And can you say something about how much, let's say, in the end of Q2, how much was coated material here and how should we see this, for example, in the Q4 if things goes according to plan? I think in the second quarter, the large most of the products that we produce are still uncoated products. We need this maintenance stop as I was into earlier on. And the reason for the maintenance stop is that we have to do some rather limited alterations on the machine, but they do have a fairly significant impact on the product mix. I don't want to go into any technical details here because then we can talk 2 hours about that. But basically, as soon as we can those, we can move more into coated grades. For let's say, of the 90,000 tons that we produced during the Q2, less than 10,000 were coated products. And for the Q3, don't expect too much coated products either because we have the maintenance shutdown. We have right now a period where we have had to let some of our guys on holiday. They've been working quite hard. So we do some uncoated grades here as well not to risk anything. So from the Q4 onwards, I think you can see that coated grades will increase. But at this stage, you don't want to sort of give an idea of how much coated you will produce in the Q4? No, not no, I don't want to give that. Fair enough. Fair enough. Thank you very much for answering my questions. Thank you. Thank you. Thanks. Our next question comes from Vinit Lachan. Please go ahead. Thank you and good day to everyone. You said that CapEx in 2021, indicatively at least will be around 1,300,000,000 the Fervi and Gevle pulp mills? And also if you could please us on the progress of the investigations into reinvestments in the recovery boiler systems and pulp mills at those 2 mills, please? Okay. I can do that. We have a pre project in Fruhvi looking into a new recovery boiler in Fruhvi. That pre project will present its conclusions to the Board late this year. And the Board then will decide on whether to go for a new recovery boiler in Fruhvie or not. I would like to say that the probability of us taking decision to build a new recovery volume through the are quite high. I think it's the right decision to take. If so, that will basically then result in CapEx costs for us in 2022, 2023. So it will not so much affect 2021. When it comes to Javal, we are not in a stage where we're looking on investing in a new recovery boiler at this moment. This is something that we will look into and that will come later on. So I think that's not going influence the coming couple of years here. Great. And please that's very helpful. And could you please also understand there are a number of potential investment alternatives. What's the range of CapEx if you decide to invest or reinvest in the recovery system at Sverdrup? I don't have a figure on that yet. So I think you have what you should do is you probably you can probably see on other producers who have built recovery bowl is roughly what size of investment that results in. I think for us, of course, there is a lot of equipment around the recovery boiler that we don't have to invest in. So we will not overinvest in the turbine mill. We will basically invest to secure the present capacity of the board mill and pulp machine. Size of investment, no, I think it's a bit I'd like to come back to that when we have a bit more visibility later on this autumn. But it will not have any major effect on 2021. Right, right. That's very helpful. And I mean as a consequence, if you go ahead with recovery boiler reinvestment at Fravi, would the natural consequence also be that you go ahead with fiber line upgrade on that site? Not necessarily. We will do regular maintenance and we will basically keep the fiber line in good order, the fiber line that we have, but we're not planning to build a new fiber line in Pervi. That's very helpful. Thank you very much. And something completely different. You said that you have made reassessment of the whole KN7 KN7 investment, and I think that's a very good thing to do. And you said that the initial potential has been reaffirmed or even strengthened. But in terms of returns, is that something you could please comment upon? I mean, this project had a big cost overrun. So how would you comment in terms of the returns on the project, please? I think what we do see is that we have a market that is still growing and we have, let's say, I would well, I would say competition is not investing in new capacity for those grades that we're looking into right now. So that looks favorable. Then you know as well as I know that we have had a more expensive or the CapEx in KL7 was significantly higher than we had the budget before initially. So that effect will be there definitely. But hopefully, we will be able to compensate that by the fact that we have a strong market for the products going forward. And we also then look into opportunities to, let's say, optimize more the product mix on the machine. And that also could could enable us to actually improve on our margin contribution from KM7 going forward. So I don't know, Ivar, if you want to comment. No. I mean, I think as Leonard was saying, the size of the price, we assessed, we confirmed a lot of the assumptions we put into play back in 2015, 'sixteen around what we expected market to look like assessing it now, yes, it looks certainly as good and maybe in some items the payback period of this is longer. And from original, we had some estimates around payback intervals investment. That certainly has had an impact. But the more important thing, which was glad to find, was that the size of the price looks to be still there and going after the right items would enable us to clearly get a good lift in our EBITDA. Yes. Got you. I just wanted that clarified. That's helpful. And then just one final question. I was positively surprised by performance in paper, if I understand it right. So are you. And specifically on pricing, if I look at the pricemix for paper on a sequential basis, it's improved by 4%. It's a bit of a nitty gritty question maybe, but is that due to currency? Is it due to mix? Or is there anything special going on? If anything, I would have thought at least the pricing would be negative in Q2 on Q1. Yes. No, I mean, it's a good comment. And I definitely admit if we turn back the clock 3 months, we also would expect it a bit what you ended your question with. So we certainly have been, you can say, positively surprised. What drives the item you said is mainly a positive mix and in particular customer mix base. There is definitely also a smaller item of currency, but mix is the big piece. I think keeping also in mind that we also have a very clear, and I'm happy that the division is doing this very grander, There are certain profitability targets that we definitely pursue, and we also have a very clear walk away position when we feel that some of the customer requests or some of the pricing challenges is coming to a level that we don't want to do. So that is also part of the reason why volume has been partly impacted in some cases for us taking a conscious choice and saying that that's not the level we want to play. So I hope that answers your question. Absolutely. That's very helpful. And then just to follow-up then, in the Q3, you commented earlier that you're seeing pretty stable pricing in the market going into the Q3. But should we expect further positive mix that aside? I think it's very difficult to have, again, credible customer mix already at this stage. I would be careful to think about further help, maybe keeping at this level here is not as a bad starting point. As you know, mix can hit pretty fast. And there will be surprises as just how much and in what direction. There's nothing planned consciously from our side on that piece that would yield at this stage an answer of a further enhancement. So I would not think too much either way on that piece. But as Leonard was going into, there are some question marks more around on the volume and the demand side. That's We have The first one is on Liquid Packaging Board, where you board contracts coming up for renegotiation during the second half of the year with I. E. New prices next year? I think we will give the same answer as we have earlier on that we don't want to disclose specifically when we are renegotiating any contracts. That happens on a regular basis. So well, I think that's basically what I would like to save on that topic. All right. Fair enough. Another question is, I mean, there was a question about plastic bags replacing or paper bags replacing plastic bags earlier and realize that's not a big product for you. But I mean there is this trend of replacing plastic packaging going on, which are very much a is in a paper bottle for a Danish brewing company. What's the progress here on these sort of new products, which are fiber based instead of Yes. That's the Pabocco joint venture that you're referring to that we have together with Alpla, focusing then not and of course, Karlfei, in this case, has been one of the promoters of this project. But we also have then, of course, discussions with other producers of liquid packages and other products. Ivar, I think you were actually in the Board of that joint venture. I don't know if you want to elaborate. No, I can. So not on the paper bags, but on the paper bottle. As you rightly say, it's a company we have a stake in. We have that together with Alpla. And you can say that, that progress has had an incredible strong attention, and there's a partnership now with 4 very strong brand owners. So we have Coca Cola, we have L'Oreal, we have Carlsberg, and now a new theme one in Absolute. And you can see we have still at the very early stage a plan and we have now on the stage of getting a new machine installed that will increase capacity and certainly get that whole production to a different level. But there's no doubt that still we're talking relatively humble volume, but there's a clear plan forward now to tackle some technical challenges, but also then to sequentially get your hand on to more machine with more cavities so we can increase, yes, the overall capacity. So you can say that, yes, a lot of positivity. There's a lot of interest. We have to say no to several brand owners because we just literally cannot do that. But yet in early stage and we expect now the next couple of years to be quite crucial for that company in the future. I don't know if Leonard, if you want to comment, but more on the paper bag from what you're I think just talking by my own experience, new products take more time than you think until they become significant businesses, especially in this type of industry. There's a lot of investments, not least among the converters when they if they want to go to new products. So we see positive on this, but we don't expect it to explode from 1 year to another. It will take time. All right. Thank you. I'll be following that with great interest. Thanks. Those were my We have a question from Cole Hathorn, Jefferies. Just a follow-up on containerboard. Could you just give a little bit more color on what you're seeing in fluting versus the white liner space? I imagine you talked about the weakness in the white liner versus fluting. And then on a longer term perspective, is there any color you can give on maybe board of where you see EBITDA trending, let's say, 2024, 2025 once the machine is fully ramped up, since you did do a review of how it would impact the business longer term? Okay. Flute being stable, to make it easy. I think where we see certain challenges more on the white liner, as you say correctly, for the coming quarter or so. When it comes to expectations on profitability going forward, I think, Eva, do we want to say anything about that at this stage? Yes. I mean, it's a tough question to answer because there's certainly a big X factor here on the raw material, which is tough to estimate. But you can certainly say that if we more or less keep what's happening now as a bit of a constant and don't expect any major deviation on currency or other raw material input. And there's no doubt that we should be up in the sniffing on the 20% EBITDA margin once we have the K 7 up and running and probably even if we get the mix where we need to and want it to be, a bit even above that. So it's probably the best I can see. It's clearly an ambition and it's a long way there. But there's no doubt that when we look into the building blocks and see what we likely would achieve, we will be in that range. And then just one follow-up. With fiber sourcing, I suppose moving around with the spruce beetle and in fact the last few quarters you're saying you're working on some of the mix particularly in the kraft and sack paper space. Are there any optimization programs or potential machine shifting around that you could be announcing near term on your product mix? So for example, doing more brown pulp instead of some of the brown sack rates of paper? Could be, yes. Brown pulp, for example, we have done some recent investments, which means that we can produce brown pulp should we so wish. So what we produce will basically depend on where we get the best contribution. We have deliberately, let's say, created a degree of flexibility here so that we can go for best contribution. We have a question from Marco Yarmen. Please go ahead. Yes. Good morning. I just had a few questions regarding your cost savings program. You now achieved €90,000,000 in Q2 and I guess €140,000,000 in H1 in total. You're still guiding for €250,000,000 for full year. Is that a conservative estimate? Or is the maintenance having a negative impact in H2? Or how does it work? I think, Eva, you're the specialist when it comes to following that development. Yes. I think well, you can certainly just looking at the pure figure that it looks a bit conservative. But we can say the following though that we are certainly happier with the progress out of the first half than maybe we would have thought 6 months ago. So that's great news. And certainly now we are tracking and pursuing a bit more than 250. I think it's still too early to say because as you also point out, there will be a clear organizational focus in the next quarters more centered around some clear maintenance task. I think in Q3, we should be able to give an update, but it could definitely be that we will be able to deliver a bit more. I wouldn't expect a crazy delta, but certainly there is a 2 50 plus share now at play for 2020. But I think also it was mentioned in the slide that Leno went through that a lot of the focus now is actually now on identifying new and bigger building blocks for 2021. And that 600 challenge, it still stands. And we have already part of the plan in place, but there's no doubt that we need more and we need new items to be developed and initiated before we feel comfortable reaching there. So hopefully, that gives a bit more flavor. Good. Thank you. Did you also have some one off cost savings in Q2? And what was the magnitude and what type of savings were those, if those were significant or impactful? We haven't had any significant ones, to be honest. We've all reported some one off in adjustments. But in terms of one off items, no, there's not really any big ones standing out. You always would have a certain emission right that we sell a little bit fluctuating, but I wouldn't call that as a one off saving in any way. So no, there's nothing really stands out that I would lift up as a one off saving item for Q2. I'm sort of thinking more in terms of lower travel costs and that sort of thing with the current environment, anything like that? Yes. Well, of course, you can always, Amit, you're right. But I mean, in general, we don't have a very sizable travel cost for the company. I mean, sizable but I would not call them in any sizable manner. Are we talking single digit millions there? Yes, but you are probably right that there are some smaller items like that, but nothing really big that stands out. Very good. Then H2, you have quite significant maintenance, and you've guided for the impact of those. Now you're also guiding for somewhat lower demand. How did those impacts sort of overlap? Will the maintenance have a less significant impact now that demand may be a bit softer as well? Or how do you see it? I think on the maintenance costs and that we publish separately in the report on Page 24. I mean, they should stand like they are. We did talk about the $35,000,000 on top for the late Q2 maintenance shifts to Q3. They still stand. It's hard to put a precise number on that, but from being very late at some of the rescheduling and how you then optimize your wood flow to get some contractors rescheduled, it is always a little bit of an extra tipping point. I mean, as Leonard said, it should be that we're not able to do all of them in a quality we want. Certainly, that will impact the overall cost that we don't know. It's currently planned, but we go full steam ahead on all. Yes, I think that's probably the best I would say to this stage. Okay. And then the FX impact you had in Q2, what should we envision at current levels for Q3? Is it similar? Or was it particularly negative in this quarter? No, I think it was a question earlier on this as well. I mean, there's a pretty as you know, we have a pretty hefty hedging in place on this. But with the current level we see, we should get a positive impact. But it's tough to say anything. But yes, if everything else is equal, we should have a positive impact. And we're not really coming at this stage, sorry, in the quarter around anything what that interval would be. Okay. Very good. Then still on the Fervi investment, with if you, in the end, decide to replace the recovery, is there any room for capacity growth through that investment? Or is it just pure replacement? Degree of volume, but fairly limited, I would say. In terms of that, we're not planning to expand the capacity on the board machine itself. And the purpose of the pulp mill there is to supply the board mill with pulp. What will be the result of, let's say, somewhat higher pulp production is, of course, that we can reduce externally supplied pulp to the mill, but that's not going to be a major difference. Where we will of course, we will get down costs because with the new recovery boiler, obviously, we get operation costs at a lower level than we get with our present old boiler. But no major capacity expansion there, no. It's a so basically, it's a replacement investment to be clear. Good, good. Thank you. We have a question from Marty Nagy. Please go ahead. Yes. Many questions here, but last question is regarding Sakkraft paper. That market really seems to be lagging quite a lot when they report the prices. What have you seen there on pricing in the actual market that could influence market prices in the second half and the start of next year? Well, I think we have you have to distinguish, as you know, between brown and white sack. And if we see on brown Sac, what we see right now is actually volumes are pretty okay, perhaps a bit better than we expected. Prices, they have basically dropped earlier in the year, but now we feel that they are rather stable. Not much is happening on the prices. We don't see them going down substantially more. But I can't say that they're on their way up either, so more or less. When it comes to white sack, basically, I think we've had some softness there in the market when it comes to volumes as well during a period of time and perhaps still a bit soft on the volumes. On prices, we basically say you see that they are stable. So no big movements on those grades right now price wise. As you know as well that they've taken a huge hit compared to last year. Yes, they have. They look like 15%. So is that the drop? Or is there more to come next year? You tell me. I don't know. But I think we don't foresee any drastic drops, but you never know. Good. Thank you. Thank you. There are no further questions at this time. Dear speakers, back to you for the conclusion. Okay. Thank you, operator. I think that concludes today's conference call. Thank you all for joining in. Thank you.