Thanks for joining this webcast and conference call. We have today released our Q1 report and our Acting CEO, Lennart Holm, and our CFO, Ivar Vatne, will now hold the presentation. After that, I will take any questions. With that, I hand over to you, Lennart.
Good morning, everyone, and thanks for calling in. Well, we're going to talk about the first quarter report from BillerudKorsnäs, and as the headline says, record sales volumes and continued price pressure is what I think characterized a lot of the first quarter. If we switch to the first slide, key highlights. What we can say is we had a stable production and a solid demand throughout the quarter. As I said, record sales volumes up 9% compared to last year. We also had, I would say, in the quarter itself, limited financial effects of the COVID-19. I'll come back to that. Earnings were heavily impacted by continued lower market prices, especially then on brown sack paper, which has been continuing development over the last three quarters, basically. We also have ramp-up effects from KM7 that affects the result with SEK 200 million compared to the reference period.
We'll come back to that as well. During the quarter, we started up the coater on KM7, and we have also now initiated the certification process for liquid packaging board. We'll talk more about that as well. Concerning the cost and efficiency program, I would say that is delivering according to plan. If we take the next slide and just have a quick look on the effects of the COVID-19 pandemic. So far, I'm happy to say that we've had no major disruptions and limited financial effects. We do monitor the situation on a daily basis. We have actually, since roughly a little bit more than a month back, implemented the crisis management team, and we put that in place, and it's working in six work streams where we basically cover all the different aspects of COVID-19. This group is reporting directly to me.
We have daily updates on it. I think we have a fairly good understanding of what's coming up, and we are preparing ourselves to be able to deal with matters that become urgent. We have also, as a consequence of COVID-19, initiated additional cost-saving measures, and we're pushing through those. If we look on Division Solutions, the sales there were affected already in Q1, contrary to the other two divisions. Mainly, that is, of course, due to the fact that a lot of the business we do in Solutions is related directly to China, and China had its big hit of COVID-19 directly after the Chinese New Year. What we see there going forward, just to make a comment on that, is Q2 is also going to be a tough quarter for Division Solutions. Another change, first half year planned maintenance stops.
We had maintenance stops in a number of our mills. We have basically postponed all those stops into the second half of the year. In Gruvön, that led to a negative effect of roughly SEK 40 million as the cancellation of the stop came very late, and we got some costs to do the rescheduling. On KM7, we're also expecting to have an additional negative impact of roughly SEK 100 million in the year due to the fact that at the planned maintenance stop, we were going to do some rebuilds and some upgrades. Some baby problems, or whatever you call it in English, with the new machine that we were going to correct. Now we cannot correct them until the second half of the year, and that will have some effect on the product mix going forward, but we can deal with that.
Reschedule maintenance shutdowns at Skärblacka, Gävle, Pietarsaari mills. We had a bit more time there, so the additional cost for postponing those stops will be roughly SEK 35 million. As you know, the board of directors has withdrawn the proposal for an extra dividend also as a consequence of the COVID-19 pandemic. Next slide, please. If we look on the market perspective and content, I've already said that the demand in Q1 was solid. We could see strong market conditions for liquid packaging board. We could see stable markets for cartonboard and containerboard. The market for sack and kraft paper stabilized, but at lower prices. There we could see that, especially once again, brown sack prices continued downwards in the first quarter.
Much of this, however, we need to remember, is a consequence of contracts that we entered into during the fourth quarter that are now coming in effect. For additional contracts coming in the first quarter, they were, I would say, on level with the fourth quarter, not lower. What do we think about the future here? Well, second quarter, there is a high uncertainty concerning effects of COVID-19 and the impact of that still. I would say that we continue to see stable market conditions for products we deliver into food and beverages and medical and hygiene segments. Surprisingly strong, I could say. That looks quite okay.
Market conditions for consumer and luxury goods, there we do expect that they will become more challenging. They are smaller segments for us relative food and beverage and medical and hygiene. Also on the industrial segments, we do expect weaker market conditions for the second quarter compared to the first quarter. We have right now some logistical challenges, and we believe those will continue to affect us in the second quarter, which means that especially shipments to Asia in containers is somewhat difficult for us right now to keep the time schedules. There is a certain risk that that will have some impact on the volumes that we can ship over to Asia. Next slide. KM7 and the ramp-up of KM7. I'm happy to say that we started up the coater during the first quarter, and that start-up went overall very well.
As perhaps could be expected, there were some initial challenges around that, but we have overcome those, and the coater today is running quite good, actually. Now we're starting to do test runs with coated cartonboard products and coated white top liner, and we have delivered those with good results to customers, so that looks really promising. We have also initiated certification of liquid packaging board products together with our big clients. That process is still in its infancy, but so far so good. Solid volume output centered around uncoated liner, which is our main product for the time being. Challenges initially around the quality have gradually been overcome. We also, during the quarter, started to produce some cup stock, and there we had actually initially quite big problems with sizing and some other topics around quality.
I'm happy to say, though, that we now in April have had very good runs with that, so it seems as if we're getting that in order as well. Continued uncertainty, though, connected to the ramp-up and production mix, mainly production mix, I would say, because we want to move into higher value products as soon as possible. That takes some time because we need to be cautious about really delivering the right quality. Negative impact on EBITDA for the first quarter was roughly SEK 200 million, and we have guided for the full year for an impact of up to SEK 450 million. Let's say we are in the range SEK 350-SEK 450 right now, where we believe we will come out. From 2021, we continue to foresee that we will have a positive impact of KM7 on EBITDA versus the 2018 base year level. Next slide, please.
What has been good during the quarter is the fact that we've had excellent production, record volumes, and we've really focused a lot during the last couple of quarters here on safe and stable production. There, I think the different mills have done a fantastic job, and we see a clear stabilization of production. The actions that we have taken start to show results. For sure, we still will have challenges ahead, and we have still a lot of work to do, but at least we're moving in the right direction. We also see that safety development is developing in a good way, lost time injuries have basically close to be reduced by half since 12 months ago, which is very, very positive. Next slide. Cost and efficiency program, it's on track. Positive impact in the first quarter, roughly SEK 50 million as expected.
We are, I would say, on track to deliver the SEK 250 that we have committed in cost savings and efficiency in 2020. Expect a bit back-heavy delivery during 2020. A lot of the results of the impact is kicking in the later half of the year. Work is then, of course, also in progress to identify additional building blocks to deliver the SEK 600 million run rate that we said for Q4 2021. Okay, I think we can jump to the next slide. Raw material costs. We can see that we have a tons of pulpwood decreasing in the first quarter. We have guided, we've said that we expect that level to remain flat in the second quarter, but it's a bit uncertain due to COVID-19 . Why flat? You might believe that they should continue downwards. We most likely expect that list prices will continue downwards.
What is happening is, of course, also that the sawmills now are reducing their production capacity, which means that we are getting less sawmill chips from the sawmills, and that means we need to use more round wood, which means that we have to have increased transport distances on some of the stuff that we source, and we have some additional costs around shipping these, et cetera. That results in some higher costs. We also have the spruce beetle, which is affecting forest operations quite significantly right now, especially in southern parts of Sweden. We, as all other users of wood now, we have to try to take care of that problem. We're taking more and more volumes of this spruce beetle-infested wood, which means also longer transport distances.
Processing that wood is also somewhat more expensive in terms of we need to use more chemicals, we get less bark for energy production, et cetera. There we have some negative effects. We had a bit of a challenge during the first quarter when it was very wet out in the forest. That will also result in some, let's say, delays and some extra costs for the second quarter. We were quite close getting into a problem with birch wood supplies, into especially Gruvön mill during the first quarter, but we managed to get through that and now the situation looks better. If we look on chemicals, also there it's a bit uncertain where prices will go, but we could see that the caustic soda price decreased in first quarter, so that was a saving.
When it comes to pulp pricing and the pulp that we're buying for Pietarsaari mill, there we also could see an impact in terms of a decrease in prices in the first quarter. On energy, spot prices for energy have dropped drastically, but because we hedge our energy purchases, so that means that we only saw limited impact in the first quarter. With that, I think I will leave or let Ivar step in and take over and talk about the key financial figures. Please, Ivar.
Yeah. Thank you, Lennart, and then good morning. Some highlights on the financial and focusing mainly on the Q1 2020 result than versus a year ago. Net sales is down 2%, certainly highly impacted by pricing. Volume growth is up, as we mentioned earlier, by nine percentage point. You also see that you have a positive net sales development than since Q4. We'll talk more about these items impacting net sales in the bridge, in a couple of minutes. In terms of profitability, certainly significantly down versus year ago, and is also below where we want to be, certainly long term. The decrease is surely impacted mainly by negative market pricing implication, and that's the trend that we've seen then since end of Q2 2019.
I think as some of you remember for the last different quarters, it's also very important that we look into our profitability excluding the KM7 to get a view of what the underlying performance really is. I'll cover that into the profitability bridge also in a second. One last point on this slide, that is that the return of capital employed is further down. I think there's two reasons for that. One is just a pure calculation on how it is computed. It's based on a rolling 12 months average. Now when we take out the Q1 in 2019, EBITDA result that was very strong. The last four quarters, EBITDA has come down versus what we saw in the previous months, as well as now we have the full KM7 asset base in the numbers.
You can certainly say that this is in theory now really the lowest piece of that KPI, and it should go upward from now on. If you move into the next slide and look into the net sales bridge. Start by looking at the top on the green arrow there. We are flat on net sales if excluding the KM7. I think the building blocks speaks for themselves, but just to quickly go through them. There's a significant pricing impact versus year ago. It's not every quarter I can tell you we have a 7 percentage point negative pricing impact. That pricing bucket is coming from several segments. Most of it's within Division Paper, where in particular the sack pricing has had a very brutal development since last year. There is as well a certain pricing impact within Division Board.
Clearly, though much less than on paper. Cartonboard and containerboard are somewhat down, while liquid packaging board is keeping the level up due to our longer term contracts. Currency impact of 2.5 percentage points, very much linked to a continued weakening of the Swedish krona. There's the sizable volume and mix impact reflecting then the strong quarter end of the production demand that Lennart was talking about. Last but not least, the KM7 with an impact of 2.5 percentage point. This is very much down to a negative mix impact, and that is a little bit also as Lennart did refer to lower value or somehow, on average, more lower value segments or grades within Division Board and also to a certain extent, higher waste than we expected.
If you then move into the next slide and look to the similar one, just the EBITDA bridge. You will recognize there is a lot of the same impacts that I was just going through the net sales bridge. SEK 460 million of pricing impact. That wipes out 45% of the profitability versus last year, which obviously is massive. Having said that, covering after the pricing, there are some positive building blocks that brings the numbers back up. Currency is obviously one of them. Volume and mix. The raw material of SEK 235 million, which is then this combination of some of the things that Lennart went through. Wood fiber cost reduction of roughly SEK 80 million. We have pulp pricing coming down, and that is the pulp pricing we are buying of SEK 125 million. There is smaller or more limited impact coming from energy and hedging.
In terms of our cost and efficiency program, that's a SEK 50 million delivered. I think when we launched this program, we talked about that will come from different streams, and that's also what we see now in Q1. Most of this effect this quarter is coming from operational efficiencies inside and within procurement, where we've done some good progress. There is also a smaller contribution from fixed costs. Mainly from reduced external services. Starting to see the impact of some of the employee reduction, and just in general, a lower level of SG&A activity, very much in the wake of what the COVID-19 has imposed to us as a business. As Lennart said, we certainly have expectation for that number to come up from Q3 and Q4 in particular. The last piece, other cost bucket of minus SEK 55, is a combination of several offsetting items.
In this context, the biggest items are, it's cost and impact associated with the late maintenance delay we did in Gruvön of SEK 40 million. There's also a timing issue of products produced versus sold in last year's base. That's hitting more of a timing issue in the Q1 2019 number. As I said, the bigger item here is certainly the late delay of the Gruvön maintenance stop. The SEK 200 million of KM7 that also been mentioned. It follows very much a logic we had from Q3 and Q4. It's mainly a volume mix component then versus then the three machines that we had in Gruvön before we started to initiate the KM7. As well, there's a certain fixed cost component in there, but the vast majority is then the volume mix impact.
If you just go to the next slide and just couple of comments per division. Board had another good quarter and continued some very strong sales growth figures that we've seen for most of 2019. 5% net sales, and looking at the volume is up 13%, which is very, very solid. Clearly done and driven by stability production in pretty much all of our machines and sites, and certainly also new capacity coming in from KM7. Yeah, liquid packaging board, another strong quarter. I think everybody have realized that in the wake of COVID-19, shopping behavior, in particularly within food and drink, has accelerated. That also spills over for us. Cartonboard had another excellent quarter, and we've had some quarters now in a row where we've seen double-digit net sales growth for cartonboard, so that's also positive to see.
Yeah, on container board, so fluting and liner, another growth quarter, certainly driven a lot by more volume also coming out from KM7. The net operating expenses up by 10%, mainly driven by the volume growth I was just talking about. EBITDA margin then of 16%, but keep in mind in the last commentary that it excluding then the KM7 impact that we certainly believe is temporary and will structurally go away. We're up to 21%, which is on a very acceptable level and certainly within the range that we have as of a target. Moving to the next slide and into Division Paper. It is a different story than on board, and that story has been also quite different for some quarters. - 18% net sales is pretty significant. Very much of that is coming from a negative pricing impact versus last year.
You actually see volume being pretty flat. Well, at least that is positive in the sense that we don't really see that accelerating continuing, and we start to see probably the bottom now in terms of the volume. If you look at what else is happening into the net sales, yes, the pricing on sack is the main point. Kraft paper holding up much better. White and neon is somewhat in decline. We actually have a solid growth on some one of the segments within kraft paper. Operating expenses coming down, partly due to the volume, which is slightly negative, but as well as some of a cost shift base between the machines. We also had some good operational savings in Division Paper, which is starting to show. EBITDA of 14%, which is down 6% at this point versus year ago.
There's no doubt that that's also a level that we are not really happy with, and of course, we're doing really what we can to improve that number going forward. Moving into Division Solutions. Net sales coming in flat, which is actually a pretty good number given the circumstances. Decline in managed packaging, which shouldn't be a big surprise given the exposure that we have in Southeast Asia and China, have certainly been impacted from early on into the quarter. Good news there is that FibreForm has really managed another quarter of strong growth and offset the decline from managed packaging. Yeah. EBITDA margin pretty flat versus year ago. EBIT down, absolute down versus year ago. Most of that is due to some one-offs in the Q1 2019 base, more than anything strange happening in this quarter.
The Q1 2019 base, basically it's a favorable outcome of some claims reversal we did last year. Moving into the next slide and talking a bit on our balance sheet and some of our net debt to EBITDA ratio. Net debt has gone up a bit versus what we had in Q4 ending, and I'll come back to this. You also see that from the table that the ratio has increased from 1.9 - 2.3, and I should probably spend a bit of time to explain why that is. Well, there's two reasons for it. First, as I mentioned a bit earlier, the rolling 12 months EBITDA has come down, given that in Q1 2019 now is out from the base, and certainly that absolute number has come down, so that's one piece of it.
There's also another piece around, which is related to our energy hedging. We've inserted SEK 400 million as a collateral deposit for negative value of electricity derivatives. You can say that is a mechanism that is happening pretty much automatically through the instruments that we are engaged in under the energy. Now, given the difference between the spot rates and some of our hedging positions have been quite significant. That value is certainly much bigger than it would normally be. In terms of the debt maturity, we have limited positions over the coming calendar year, so that's certainly good news. In terms of CapEx, we are also taking what we can. A little bit into the points Lennart mentioned around the six streams that we're doing to manage the COVID-19 as good as we can.
We looked over all of our investment choices and the list and trying to do the tough choices we believe are fair, but certainly not hampering operation in any significant manner. We have found, at least we are working very close now to finalize the details, around SEK 200 million. It's certainly our ambition to bring down the expectation of CapEx by SEK 200 million. That means the total goes from SEK 1.5 billion down to SEK 1.3 billion, which is the last number we communicated in Q4. I think the dividend part has already been covered, that we're staying with the original, the base dividend, while the extraordinary dividend has been pulled back. With those comments, I just hand back to Lennart for summary and some Q2 comments.
Thank you, Ivar. Trying to summarize what we have been presenting. Volume growth and production excellent during the first quarter. Positive EBITDA impact by continued lower prices and the KM7 ramp-up. Limited financial effects of COVID-19 so far, but of course, increasingly uncertainty going forward. Finally, strong financial position, and we have taken precautionary measures to secure that position. I think that pretty much wraps it up then. With that, I suppose we-
Yes. We will now, No, we have one more slide.
One more.
Actually, yep.
Yes. Okay. Perhaps that's of a certain-
Well, thank you.
outlook. Stable market conditions expected for products that we deliver to food and beverages, and medical and hygiene. We see a continued strong market there, which is, of course, our biggest segment. When it comes to market conditions for consumer and luxury goods, we see that they will most likely become more challenging going forward, as will then the deliveries of products into the industrial segment, which mainly then affects our paper business. Fiber costs, we've said are expected to remain flat compared to Q1 due to the fact that we have certain higher costs in getting the wood out of the forest. We do expect some logistical challenges that might affect our sales or, let's say, our possibilities to deliver some volumes to Southeast Asia and that region. Remaining KM7 startup effects in 2020 estimated somewhere around SEK 150 million-SEK 250 million.
I think we will actually be able to do that. When it comes to then the IAS 41 revaluation exercise of biological assets, I don't know if we mentioned that, but we are undertaking that in Q2, which might have some impact then on our results in Q2. I think that's roughly it then. No more slides forgotten, I think.
Yeah. That was the end of the presentation, and we will now open up for questions. We would appreciate if you limit yourself to three questions each, and then get back in line. By that, please, operator, we are ready for questions.
Thank you. Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you'll enter a queue. Our first question comes from the line of Linus Larsson from SEB. Please go ahead.
Yes, good morning, and thank you very much. I'd like to ask around paper and the market outlook, especially now going into the second quarter. Given that sales has come down a long way, I'm curious to hear a bit more about how much potential downside you see. Maybe if you could open up a bit on your price visibility within paper and your order book situation. If you like, any type of guidance in terms of year-on-year volume development in the second quarter, please.
Okay. I guess I can start, and Ivar can continue. Order book for brown sack right now is around 40 days, which is not bad at all. That is partly due to the fact that we didn't promise that so much, but we had a production problem in the Skärblacka mill on the sack paper line early April, which meant that we lost roughly eight, 10 days of production, something like that. Order book right now is pretty decent, actually quite good. However, of course, we see that inflow of new orders is coming down. I would guess that deliveries in April and May will continue on level where they should be, but then we probably will have a weaker June. We haven't felt so much price pressure yet, but normally that comes as a consequence of a low demand on the market.
I think we need to expect some further drop on prices on brown sack. On white sack, the story is a bit different, because on white sack, you need to remember that most of the white sack actually goes to smaller sacks and packages for sugar and flour and stuff like that. Second big market for white sack is then bags for various kinds of chemicals. That goes a lot to automotive, et cetera. Of course, there we probably will see a certain impact, but that is compensated then by a strong demand for other segments in white sack. It's mainly brown sack that is affected. I don't know, Ivar, if you have any additional comments on that.
No, I think you summarized it well. The only maybe caveat I want to add, and I think this should be hopefully clear, the whole market on paper started to move quite a lot in Q2 last year. We really did what we can to hold back quite well on pricing in Q2. Actually, our Q2 2019 is still a relatively strong quarter on paper. If I just look at some of the average for division pricing level now that we're trading on versus how we did Q2 2019, maybe we are 15 percentage point lower. Certainly versus Q2 2019, this will be another quarter which you would expect a hefty quarter impact on pricing. I think it really should be to a large extent at least the end of it since from Q3 2019 it started to go down.
I fully share with what Lennart said that Q2 versus Q1, it starts to be at least limited on what we should expect the further price drops, with some exceptions.
That's very helpful. Thank you. Now just on the technical kraft papers, just to maybe complete the picture on paper. What are you seeing there?
Well, on products delivered once again to food and healthcare, actually, we're pretty optimistic. We think that, let's say, prices will probably be flat. Volume outlook is probably slightly growing on that segment. If we look on the non-food, retail, industrial, we don't see much changes of prices. They will probably also be flat, there I would say that volume wise, it's probably slightly declining. Overall, no dramatic changes.
Great. That's very helpful. Thank you very much. Just one final question from me, and you did elaborate a bit earlier on your fiber cost situation. I was a bit surprised that you're seeing flat fiber costs from here, but I understand better now that you gave some additional information there. Having said that, is it your anticipation that later in the year, we might start to see a more favorable trend? Also, if you could please update us on your current, or should we say 2020 net pulp balance for the group?
Okay. If I start with the situation in the forest, well, we are uncertain where the market will go during 2020, considering COVID-19. I think it depends much on the development, there is a strong connection to how the sawmills will be able to operate. It's not unreasonable to believe that there will be further price reductions on pulp wood going forward if the market stays fairly normal. We're a bit cautious too, as uncertainty is so significant right now.
Yeah.
Oh, yeah.
On the pulp.
Ivar.
Yeah, no, I can try to cover that, and it is a good question on what kind of net pulp exposure do we expect to see? Just a bit of a reminder that our net balance or long position in 2019 was 140,000 tons. As a starting point, we certainly expect that number to come down. A lot of that is driven through KM7 coming into gear and will consume quite a big chunk of what that balance normally would have been. Now, having said that, given now what's happening in terms of COVID-19 and also the uncertainty of what we see in the different channels playing out, there's no doubt that that can also probably trigger some, call it some internal optimization, where we might actually produce some selective pulp, a little bit more than expected.
There's minus of that number for the KM7 absorbing more, and then some big uncertainty what else could happen in the wake of some channel uncertainty. It's probably the best I can give you. Number should go down, but it's very tough to say how much it should go down with.
What could happen is, of course, also if it turns out that the brown sack paper market weakens further, we have now done a small modification of our plant in Skärblacka, so we can, as an alternative to produce brown sack, we can also produce brown market pulp, and there is a big demand for brown market pulp in Skärblacka. That means that Skärblacka might be producing more brown market pulp than previously. That's sort of a hedge in a way or a contingency plan if the market goes down further for brown sack.
Great. Many thanks.
The next question comes from the line, Robin Santavirta from Carnegie. Please go ahead.
Yes, thank you very much. First a question on the KM7. Could you just provide some details on what did you produce in Q1? What is the target, basically, at the end of the year, in terms of volumes and in terms of split of that volume? Also related to the KM7 disqualification process, can you do that now normally with this coronavirus pandemic, or is that limiting your prolonging the process? That would be my first question. Thanks.
Okay. I can start and Ivar-
Yeah
can continue. Talking about the first quarter, I'm quite happy with the way that the coater started. I think we were expecting more problems than turned out. It started up pretty well. That means that during the first quarter, we have made more trials with coated grades than we were expecting to. Of course, the reason for pushing that a bit in time is that coated products pay better than uncoated products. We want to move into coated products as soon as possible. The drawback of that is, of course, that those trials means that the output was reduced somewhat compared to if we just had been running flat out with uncoated white top kraftliner. Uncoated white top kraftliner production now is actually very stable, and quality output is great on KM7.
We could produce a lot of tons if we wanted to of uncoated liner. Considering the overall market there, as we don't have existing customers for white top kraftliner that can take substantially larger volumes, we need to send those volumes to new customers. The market is not very strong. We're a bit cautious of doing that. When we do it, of course, we don't get the highest prices. Therefore, it pays off over time to do more coated products. That's why we're focusing on that. Distribution of products, basically we said that 350,000 tons roughly for the year.
Between 250,000 and 350,000.
Between 250,000 and 350,000, and I think we will most likely be in the upper end of that. I don't know, Ivar, if you have any-
No, I can just-
breakdown on the volume.
I can make some comments, though, that as Lennart said, when we also guided on the interval, it's certainly between. Well, the methodology, there's a volume range and there's also contribution of the ton range. Between 250,000 and 350,000 is probably where we expect to land. Now, the vast majority of that is coming within containerboard and will be linked to uncoated white top liner. There will be some Coated white top liner, that should be very minor. There will be some production of cartonboard and cup stock, I would also say that that's on the minor side. I think that's pretty much the summary we can give at this stage.
Actually, as you all know, if you look on volume versus margin contribution per ton, the volume itself is not so interesting. What's interesting is the margin contribution we get on the tons that we produce.
Therefore, of course, we're trying to push for higher quality board rather than just running the white top kraftliner. Certification was also a question. You're correct. I think our liquid packaging board customers right now, they're experiencing very strong market, which means that they are just trying to produce flat out. That, of course, as always, does reduce a bit their interest to do spend a lot of time and efforts on certification. However, I think they also see the strategic importance of supporting us in that process. We have ongoing work with certifying our products for their filling machines. You're probably right that it might have some implications in terms of certain delay when it comes to the certification process. It is ongoing. I hope that roughly answers your question.
Yes. Definitely. Thank you for that. Secondly, Thanks for shedding light on the CapEx for this year. I was wondering about what is the outlook then for 2021, 2022? I know it's early, but just sort of a rough indication and maybe related then to, you have spoken a little bit about Frövi annual recovery boilers. When should we expect decision for that? Is that now pushed forward? A little bit sort of more details on that, please, if you can provide.
Yeah. Okay. Well, I think we have, as I think I said when we had our last quarterly report, we have been reviewing the status of our machinery, and I think the picture is becoming increasingly clear. I think we're building up a picture of what we need to do, and I think what you can expect is that we will do an investment in Frövi. The scope is still to be determined. That means also that the size of that investment is still to be seen.
I don't think that will have any major impact on the investments we do 2021. Likely that will come 2022, 2023, in that space. 2021, we haven't, of course, looked so much into levels of investments there, but I would guess that we should be basically on par or slightly above the level that we see for 2020. That means SEK 1.3-SEK 1.5, somewhere in that region. But it's still early days.
All right. Thank you very much. Then finally, just on the share buyback program that you have spoken about, is that still something that you are looking into? What is the reasoning for that if you still sort of plan to proceed with it? I guess net debt EBITDA of 2.3 is not really very low. The outlook is fairly uncertain for you and for a lot of your customers. What is the reasoning? Surely it cannot be a too strong balance sheet at the moment. A little bit color on that, please, if you can.
Yeah. No, it's a fair comment, Robin, and let me just try to say something around it. We said from the start that we wanted to keep a close eye always on our market conditions and how our performance is proceeding forward. Certainly, as you say, within the internal targets we do have. I guess the projection, if you talk about three months ago, the world was also a little bit different. We probably see that now the market has certainly changed and there's much more uncertainty. That certainly impacts, I guess you can call it, the ambition of when we start and how much we would push the button. I think you would probably say that the board wants to go, and they will proceed towards the AGM asking for a mandate.
We will have a very, let's call it, close dialogue and be careful of potentially when, and how much we go for this in terms of executing. Given our prognosis, just looking in terms of the ramp up, how much it should do, some efficiency program, some of the potential, it has been pretty clear that there should be room for doing this, and still keeping within our parameters and targets. This is a dynamic world and things have changed. I guess that also means it's just a natural evaluation we take with the board of if we do it and when, and by how much. More information to come. I think that's the best I can say.
I understand. Thank you for that. Thanks.
The next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead.
Yes. Very impressive sales volumes during the quarter. A couple of questions on this. First off, did your production volumes match the sales volume, or was there any overhang? Second here on the volume theme, could you please describe some of the actions that you've taken to improve the production stability? Does this mean that we should expect these higher volumes going forward, notwithstanding the COVID-19 situation, of course, but is this a new production level that we're seeing? Thanks.
Okay. Thanks for the question. I can start. Well, production volumes and sales volumes match pretty well, actually, in the first quarter. I would say that means that stock levels were more or less on the same level. We had a good production in all factories during the first quarter this year. You're right, I would say that that is due to specific actions that we have taken. A lot of that has to do, I would say, with focus, less allowing the different mills to focus, but also really challenging them, putting in the right resources, following up very much on actions taken, and putting in some experts in systematically identifying where we've had, let's say, bottlenecks and production issues.
We've spent a lot of time during the first, let's say, last couple of months last year and the first quarter this year on improving stability and production through specific actions. Normally, there is a tendency to think that you solve availability issues with investments, but a lot of it is actually down to a lot of small actions taken in everyday operation. I think this is what we really spent a lot of time on, and I have to say that the different mill teams have done a fantastic job during the first quarter. I'm not saying that all problems will disappear forever, but I think with the way we're working right now, I do expect us to have a production level that is higher than we've seen the last couple of years, and also going forward.
On top of that, of course, we have KM7 that now also was got to contribute with more and more volumes. I don't know. Was that okay as an answer?
No, I think that's very interesting since just production stability has been the issue for the company for a couple of years now, and it's nice to see production stability returning. A second question here on a different theme is, you talk about stable food and beverage. Potentially weaker consumer and luxury and industrial segments. Respectively, how large are those segments for you in terms of sales, and what are you seeing right now or let's say in April, in terms of demand for those various segments?
Okay. Well, just to try to give you rough figures, I think if we talk about food, beverage, medical, that corresponds to roughly 60% of our volume. What we define then as consumer luxury, I would say is 20%, and the remaining 20% is then roughly industrial applications. Just to give you a rough overview on that.
What are you seeing in these segments? I realize you've touched on it already a little bit, but-
Yeah.
now in April.
I can give you a little bit of a flavor. To give you some more data points, at least. If you talk about food and beverages, shouldn't be a big surprise that that is dominated by liquid packaging board. There's also a big chunk, the majority of containerboard also belongs to that section. There is a minority, let's call it 15%-20% from cartonboard. There is a good chunk, let's say 30%-40% of white sack and then kraft paper also belonging to that piece. Medical hygiene, all coming from kraft paper. If you're thinking about the consumer luxury, that is split between more segments, but just doing a bit the rough and fast view, cup stock certainly belongs there. We talk about cartonboards, not a big surprise. The majority of that belongs to consumer luxury.
Smaller piece, 10%-ish of containerboard coming in there. Somewhere between 20%-25% of white sack and kraft paper sitting there. On the industrial, dominated by brown sack, but there's also a good chunk from kraft paper, 40%, and then there is about a third of white sack as well. It might be going a little bit fast here. I hope you got most of the points-
No, that's perfect. Yeah.
should give you. Yeah.
Great. Thank you.
The next question comes from the line of-
Those were my questions.
The next question comes from the line of Markku Järvinen from Handelsbanken. Please go ahead.
Hi, this is Markku from Handelsbanken. I had a few more questions. You mentioned that energy prices are lower as we have seen. Could you just remind us how much power do you purchase and then give a description of what your hedging strategy is? I suppose you mostly deal in annual forwards, so this year probably not that much of an impact, but what's the situation for next year and when does that fully roll in, the lower price?
I think it's a question for Ivar, but as you know, spot prices for energy have dropped by, well, they're basically less than half now than they were just a couple of months ago. Do you have the figures, Ivar, on consumption?
The total is 3.6 of terawatts that we have in general consumption, and then 1.8, about half of that, we purchase basically, and the other one we produce. I think in terms of the hedging policy, we can say that within the next 12 months, we hedged the vast majority, and that typically means somewhere between 80%-90%. A lot of those positions were locked into end of last year and beginning of this year.
Certainly before we see a lot of these dramatic declines that has now happened. Going into 2021 and 2022, those hedging positions start to dramatically decline. A bit roughly, you can say that for 2021, we have somewhere between 40%-50% already locked in, and from 2022, we're down to 20%. At least that should give you a flavor of the current position we have.
Okay. Very good. Just further on that, what's your sort of spend on fossil fuels?
Yeah, I think to be honest, Markku, that's a fair question. I don't have that trade-off, so I think I need to come back to you on that. We're not a big user of fossil fuel.
Okay.
It shouldn't be crazy amount. We can send you a note on that. We don't have that upfront here.
Yeah. Okay. I guess you mentioned that you had some issues at Skärblacka in beginning of April. Perhaps you already mentioned what the sort of financial impact of that will be in Q2, but maybe you could just remind me, because I maybe missed that.
I'm not sure if we gave any figure or not, but it's around SEK 30 million.
Okay. Great. Okay. Those were my questions. Thank you very much.
The next question comes from the line of Martin Melbye from ABG. Please go ahead.
Good morning. You gave some hints on price direction for the coming quarter. Could you be more specific on brown sack paper, the price decline for Q2?
No. You tell me. I think we don't see any big price change right now here in April, May. I think there's some possibility that prices might drop further. I don't know, some further down in, let's say around June.
My guess is probably as good as your guess, but possibly another further 10%. I have no idea. It depends on the development.
You talk about maybe hiking the value of the forest. Could you give a rough magnitude for Q2, how much that could be on EBIT?
It's a tough one because we're literally in these discussions, and it's basically too early to say. I can say that when we talk about the book value we have, it's currently SEK 70 million. I think we will be looking into the biological assets of 18,000 hectares. There starts to be some external benchmarking that you can do on this to give a bit of a flavor, but they also vary a lot, and I think we also will definitely have a thorough discussion including the methodology. The [table stake] published on this before we decide. I don't want to give you any number more than that, but at least then you have some coordinates of the starting points of where we are.
Okay. On these remaining ramp-up costs on Gruvön, will that be booked in Q2 mainly, or is it spread over more quarters?
Sorry, once again, I didn't hear the question.
These remaining ramp-up costs on the KM7, will those be mainly booked in Q2 or is it later in the year as well?
I think it's fair to say that we expect the vast part of that balance to come into Q2. There should be maybe something coming in the second half. Our expectation is certainly that it starts to dramatically decline, a lot even, when we come into the second half.
Great. Last question from me. These wood costs that dropped maybe less than one could have thought. Is that Billerud- specific or is it more a reflection of the market, do you think?
No, I think it's a reflection of the market.
Okay. Excellent. Thank you.
The next question comes from the line of Johannes Grunselius from Kepler Cheuvreux. Please go ahead.
Yes. Hi, everyone. It's Johannes here. I have a couple of questions on liquid packaging board. Could you just remind us about your pricing structure there? I know a lot of those volumes goes on annual contracts. If you can remind us about how the contracts looks like going forward here, and if you can sort of elaborate a little bit on prices over cost, what you see in liquid packaging board for the near future. Thanks.
Yeah, I can start and then probably Lennart can jump in. I think as you know, it's a very consolidated market, so we're not talking about many players who constitute the customer base for us. The contracts typically are done somewhere between one to two years basis. That means that typically one out of the three is due up for discussion, negotiation, almost at some point of the year. We don't really guide any specific of what contracts specifically are negotiated when. I think that is just, let's call it the three parties kind of rolling over in cycles of one to two years.
I think in particular on the cost base, I'm not so sure if there's anything in particular I want to add on that since a lot of it is down to the fiber cost that we have already mentioned, quite a lot of it, and some of the chemical energy. I don't think there's anything specific that I feel is worth mentioning unless there's something in particular you have in mind.
No. I just wanted to get a feeling, if you could help me about your thinking about EBIT per ton here. If what we see in the first quarter, is that sort of representative for the next few quarters, or do you see an EBIT per ton improvement or EBIT per ton decline? That's what I'm thinking about.
I think the answer, at least on net sales per ton, that don't tend to change a lot over the quarter. I think with some, again, caveats around new contracts coming in and out, but that tends to be pretty stable. Certainly, the mix can have some impact, but in general, that's one of the very flat segments we have. I think liquid packaging cost base is impacted like everybody else, depending on how we obviously in the market. I think we already went through that. I think that's pretty much the best information we have. I don't know, Lennart, if you have anything else to add.
No, I think I would say that that is a very stable business.
Sure. Sure.
Expecting a big change.
That makes sense a lot. Thanks for sharing that. Just continuing with liquid packaging board, but on volumes, could you mention what sort of capacity utilization you're running at? Could you take out more volume since this appears to be very good demand for liquid packaging at the moment?
Well, I think you can expect that we will do some marginal increases. Until we have KM7 certified for liquid packaging board, we don't have too much additional capacity to put in there. Stepwise, as we get KM7 into liquid packaging board, of course, we intend to increase our volumes there.
Yeah. I have a detailed financial question, because I saw in the report that net working capital was impacted, I think, in the magnitude of SEK 400 million because of how you book basically hedging on the electricity side. I guess that's more of a technical accounting thing. Should we assume that this was a negative one, or can you reverse this net working capital change? Thanks.
As I said, it's a SEK 400 million, and that sits now, and it's moved out from our cash balance and sits in other receivables.
Okay.
You can certainly say that, we will get that back. I hope so. I think it really depends then on the spot price. If the spot price will come up, part of this will be automatically coming back to us. Certainly if it stays like this, then that's how it is based on a contract. Anybody's guess. I'm not going to sit here and say that I'm an expert on how to read the energy market. Yes, I think if the spot price will go up, then that will start to come back to us in the coming quarters.
Okay, thank you. That's all my questions. Thank you very much.
The last question comes from the line of Cole Hathorn from Jefferies. Please go ahead.
Morning. Just one follow-up on brown sack kraft paper. You mentioned that Skärblacka, for example, you can produce some brown market pulp if sack demand declines. What else can you do among your production portfolio to manage production to demand?
Good question. We are putting quite a lot of efforts into looking into product mix and product mix alterations right now. Of course, there are opportunities to go into other niches, and we might very well do so if they give a better margin contribution per ton. I wouldn't expect that we can do that for all our products, considering that the market is as it is, and the fact that we have certain limitations on our different paper machines. Let's say we might be able to move some 10%, 15% of our sack production into other segments, disregarding our market pulp.
Great. Thank you.
As there are no further questions, I'll hand it back to the speakers.
Okay, then. That concludes this conference call. Thank you all for participating, and welcome back when we report our Q2 results, which is the 17th of July. Thank you.
Thank you.
Thank you.