Earnings Call: Q3 2019

Oct 24, 2019

Welcome to this conference call following the publication of Biller Kosne's Third Quarter Results. Our CEO, Peter Enarson and CFO, Lilver Gartner, will hold a presentation. And after that, there will be time for questions. Present in this room is also Christoffer Casseblad, Executive Vice President, Communication. And my name is Lena Schatauer, and I'm Head of Investor Relations. By that, I would like to hand over to you, Petra. Thank you, Lena. Good morning, and very welcome, everyone, to today's webcast of our Q3 report. I will start by presenting the key highlights of the quarter and also to give a quick overview of our recently reviewed strategic direction for the coming 5 years. And after that, EVAL will continue with the financial part, and we will open up for Q and As in about 30 minutes. This quarter has been quite eventful for Bilo Kosnes where we have started up our biggest investment, KM7, and we have also finalized our biggest divestment, Bergvik Oost. And some key highlights of the quarter. The inauguration of KM7 on October 3 visually closed the first chapter of our KM7 journey, and the 3rd quarter was largely impacted by the start up of the machine, both from a sales perspective but also from an earnings perspective. Most probably this quarter represents the quarter where we will have the largest impact compared to previous year due to the fact that we have closed down the 3 old machines and still have a minor impact from the new machine. From now on, the impact compared to last year will gradually be reduced. Underlying sales and earnings are solid. And adjusted for the negative effect from the KM7 start up, sales growth amounted to 1%, and EBITDA grew by 2% compared to last year. The sales is negatively impacted by a weaker demand in especially our industrial segments, mainly within division paper, affecting both sold volumes and it also put pressure on pricing. The profitability on EBITDA reached 16%, adjusted for the negative effect of 5% points from the start up of KM7. The cost of fiber remained a headwind during the quarter, and it remained on high levels and but was somewhat offset by cost savings and efficiency gains where we have no major production disturbances during this quarter. We completed the sale of Bergvik Oost, which has also resulted in a strong balance sheet and a net debt to EBITDA on 1.8%, significantly better than the long term target of below 2.5 But talking about an eventful quarter, we also had a review of our 5 years strategy in September, and I will take some few minutes to inform about that strategic direction on a very high level. Birul Korsnas is a fantastic company built on a stable foundation, has a lot of talented people and have a great future ahead. I have no doubt about that whatsoever. Our mission or purpose is still the same, to challenge conventional packaging for a sustainable future. And we have 4 prioritized areas to reach looking at the company targets for 2024: Drive performance, profitable growth, accelerate speed in innovation and to expand our solutions business. Each priority is connected to a number of initiatives, all in all, 11 initiatives that are anchored in the organization with specific KPIs and are easy to follow-up. So let's take a quick look at each of the 4 priorities. Drive Performance. Driving Performance has 5 initiative of the 11 in total. The other three priorities have 2 initiative each. To drive performance is something that we, to a very large extent, have in our own hands. Safe and stable production is naturally the number one initiative. And as you already know, we see a big potential in increasing availability in production, affecting at least EBITDA plus €400,000,000 for the next coming years. A paradigm shift in safety is a must to succeed with a stable and safe production. Cost reduction program with a target of plus €600,000,000 by the end of 2021 was announced in September. Future footprint of our assets is also included in the strategic review. To have a standardized way of working to set a common way of working within BILAR KOSNES is also a vital part where we have to make sure that the standards that we set are being followed and a competitive wood supply where the divestment of Bergvik Oost is one important milestone for the future. The second priority is profitable growth by creating customer value. To focus our offer on maximizing customer benefits and our profitability is the first initiative, and the second initiative is increase production capacity. And here, we will be able to harvest on already made expansion, such as future platform MG in Ghebblakka and KM7 in Guevion, which is expected to increase EBITDA by SEK1.2 billion when fully ramped up after 2023. The 3rd priority is accelerate speed and innovation, and the 2 initiatives are increase speed to market and execute flagship pipeline. The core competence of Bylori Kokosnes in innovation is our 4 research platforms: strengths, formability, barrier and new concept. And I regard that to be the DNA of the company. The initiative, increase speed to market, is very much to do things more focused, fewer focus areas, but do it faster. And here, we strive to have sales of products younger than 5 years on 30% of our turnover. The second initiative is to execute our flagship pipeline. And just to mention some of the 5 flagships, we have the paper bottle, which is a joint venture together with Alpla, where we strive to produce a bio based, recyclable and biodegradable paper bottle for carbonated drinks. And here, we have also a community where we work together with partners such as Carlsberg, L'Oreal, the Absolut Company and the Coca Cola Company. Flow Wrap is also a very interesting flagship. It's an urgent need from brand owners where paper needs to be replaced by plastic solutions for in wrapping solutions, such as candy and other types of products. And maybe the even most important flagship is, of course, the liquid packaging board bio barrier, to focus on multilayer where the LPV customers use paper in combination with plastics and alumina, and we need to come up with a biodegradable barrier. And the last focus area is to expand our solutions business. And here, we have a potential to become a true sustainable packaging partner. We need to expand in the value chain throughout all three divisions, and the two initiatives are to grow organically or to grow through acquisitions. We are happy to tell you more about this at a later stage. But since our Capital Markets Day, it's not planned to be held until springtime next year. We wanted to take this opportunity to communicate the strategic directions on a more high level, but also to repeat some of the potential already communicated, such as the SEK 400,000,000 in increased production availability, the SEK 600,000,000 in our cost saving program and also to harvest on the next generation investments of SEK 1,200,000,000, these 3 amounting to SEK 2,000,000,000 within the scope of the next coming 5 years. So with that said, I would like to move back the attention to the Q3 key financial numbers. And may I hand over to you now, Ival? Yes. Thank you, Pietro, and good morning. So let's get into the numbers, just starting with a bit of a summary on the key financials. I mean, you can probably read for yourself that at first sight, all relevant figures are negative versus year ago. But keep in mind, and this is something I will say more than once over the next couple of minutes, that the numbers are definitely impacted by the KM7 impact. And as also Pedro mentioned, the KM7 impact in Q3 is by far the biggest quarter impact you will see. And then from here now on, we will expect then the impact to be smaller quarter by quarter. So for net sales, it's minus 4%. That's the reported figure. Excluding then the KM7 impact, you are up on plus 1%. In terms of our profitability, we have SEK 280,000,000 of KM7 impact. And if you put that back on the EBITDA, you are up to 3% underlying growth. But I will show you more of that in a second when we go through the bridges. Also noteworthy is obviously the net profit, which has a massive increase. And most of that, obviously, is down to the Bergvik transactions now sitting into our numbers. Anyway, so let's go into a bit more onto the net sales first before we dive into the EBITDA bridge and also onto the divisions. So this is the graph that you probably recognize over the last 3 years. And overall, it has been a very strong top line trend for BILDRO KORSENES. Obviously, Q3 now in 'nineteen is a bit of a shift, but part of this can be explained. We would be then at plus 1 percent if we had corrected for the KN7. Plus 1 percent is still lower than what we produced over the last 4 to 6 quarters. Most of that is related to what we've seen from division paper, where we certainly see a weaker market for SAC and for kraft paper. Underlying board is stronger, but again impacted by the KM7, And I will show you that when we come to the divisions. We decided for this time to show a net sales bridge as well to illustrate exactly what both Peter and myself spend a bit of time on in terms of introduction. So reported net sales of 4%. You can see for yourself the biggest building block comes in the end, and that's the KM7 start up. So it's SEK300 1,000,000 of net sales. And you need to think about this as this is the volume mix impact that we are suffering from a temporary loss of capacity where we are turning down or turning off 3 machines and gradually getting new capacity with our new KM7 machine. And as I said, this impact will then start to be lower and lower once we progress now towards a full ramp up. But obviously, both in Q4 and in 2020, we still expect to see impact also here. But if you then look at the other impacts that you have in the left hand side, we have an FX help of 2%, and that is pretty consistent with what we've seen throughout the Q1 of 2019. On pricing, it has been such a dramatic shift. So we split it out in 2 buckets. So you probably also read the same report as we do that the pulp pricing has taken quite a hit in Q3, very much linked to what is being traded on a very commoditized market. Pricing level down more than 10% versus year ago. And we see then the pulp pricing now back to the level we've seen in 2017, early 2018. Now the pricing other, that pretty means it's accumulated pricing position for everything else than pulp, and you still see that as positive. And that is a carryover pricing impact then of everything that we started in the back half of 'eighteen and the beginning of 'nineteen as of pricing interventions. On the volume mix, so this is a bit of a smaller piece, but there's certainly offsetting items in between those. The underlying situation on board is actually positive and taking that number up quite a bit, but then pretty much all of this is offset with the decline in the Vision Paper. But again, I will show you those details when we get into the divisional slides in a second. Right. So with that, I continue on to the profitability bridge. And it's very much the same logic applies that we presented in the previous slide from the KM7. So the KM7 EBITDA impact is then SEK280 1,000,000. And you might wonder, I just talked about SEK300 1,000,000 in the previous page. Now I'm talking SEK280 1,000,000. So the SEK300 1,000,000, that is the net sales impact of volume and mix. And here, I'm talking about the profitability piece, which has the main component being volume and mix, but we also have some, call it, babysitting cost or some extra fixed cost items that has hit us in Q3. And the €280,000,000 is obviously €20,000,000 lower than we had guided for in the well, mid September. Main reason for that is it's coming the volume in September coming in better than expected. And coming back then kind of to the left hand side of the chart, it's very much the same logic as we just went through onto the net sales bridge. The pricing, the impact for us is €80,000,000 Most of this is coming from the pulp pricing, while we've been partly able to offset this through, I guess, what we said pricing in other. So net is €80,000,000 negative. The currency, it's helped obviously as the Swedish kroner has continued its journey. So CHF 90,000,000 is the net, including all of the hedging impact. Yes, volume and mix, I don't think I need to say much more, more than what I just said on the previous slide. Underlying Board and also solution contributing to a positive result, while most of this is offset by negative impact on paper. On the fixed cost piece, so minus CHF10 1,000,000 versus a year ago, this is obviously again a net number of several different impacts. But the one that I just wanted to highlight that we have a help on a program that we will talk a bit more in a second. It's a smaller benefit of €10,000,000 but that's great to see that we already have some impact of kind of early signs of that program. We have been helped by maintenance phasing of around €14,000,000 There's also an IFRS 16 impact of SEK 28,000,000. And then the negative driver here is an inventory revaluation that brings this back into a slightly negative number. But in the big scheme of things, I wouldn't say that this quarter has been very eventful in fixed costs. There's more smaller items offsetting each other. Right. So I just wanted to talk a little bit more about something that we introduced about, well, 5 weeks ago, and that is the cost program. I just mentioned this that we have very early signs already coming into Q3, have in mind, and this is all what we communicated, the big impact of this should start to see in 2020 and obviously the major impact when you come to 2021. So I guess now what we're doing in Q4 is really getting ready to deliver on all of this project stream when we enter into Q1. And as a reminder to all of you in terms of what this program really is all about, if you really boil it down, you can say that this program has 3 legs and it's around procurement, purchasing, savings. It is around FTE reductions. We also have a stream around end to end savings across supply chain and logistics. And for a very brief or a, I guess, rough guidance, you should assume 1 third of these 3 streams as the saving impacts. And we already communicated those numbers, but we have said SEK 250,000,000 in 2020 and the exit rate when we going into Q4 2021 is €600,000,000. We have booked now a CHF30 1,000,000 provision in our Q3 result this year. It sits on items impacting comparability and is mainly related to the second stream that I mentioned about, the FTE reduction part. And I just wanted to finish this slide that we do not foresee any other sizable costs or any other sizable one off impacts in our ability to deliver this program. Good. So let's get into more details under the divisions. And you probably remember the drill by now that we have the sub segments in net sales and then we have the profitability piece. So overall, our net sales for board, we came in flat, excluding then the KM7. So that's the fair share of board of the CHF300 1,000,000 net sales I introduced some slides ago. We will be up 5%. And the reason for this is the underlying growth, including in liner, is close to 10%, while you see reporting being minus 7% in this case, And that is very much linked to then this temporary loss of capacity that I introduced some minutes ago. Carton board as well is continuing to grow very well and is on the same trend that we've seen throughout 2019. It's obviously a focus area for us going forward. Liquid Packaging Board, a little bit more nuance to explain this. Year to date, we're still in growth, 3%. The impact then you can see of minus 2%, that's nothing to do with the KM7 impact. You should read this as more of a phasing impact related to delivery challenge in the wake of our availability issues in Q2. That was coming mainly from Ihevle in the last section of Q2, but we still expect to land the full year in growth for liquid packaging board. On the EBITDA figure, looks pretty nasty with minus 37% down. A lot of this is attributed to the Kilometers 7. It's roughly 2 third of the 2 80 sits in board. Are you excluding this? We have around 37 left to well, to reconcile or to give some perspective on, mainly explained by high fiber costs. That still is a kind of a full year impact from a pretty high rate. We've also seen a lower price impact on pulp. Just the last comment there on the net operating expenses. It's up €235,000,000 versus a year ago of the 9%, euros 100,000,000 that is related to the KM7. So that means it's €135,000,000 that you can say is underlying. And this is related to 2% higher sales volume. We have also some maintenance phasing and there is a inventory revaluation impact on that number. And I thought it might be just proper to talk a little bit more, and I think some of you already are very up to date on this. But KM7 has started. It's certainly one of the biggest company milestones in our company's history. The SEK280 1,000,000 I have already talked about, slightly lower than estimate, mainly due to then volume coming in better than expecting in September. Volume and mix are the main drivers, but we certainly also have some extra cost, in particular, in Q3 around what we call babysitting costs or extra fixed cost items. I think it's also noteworthy to comment that the volume trend in the back half of Q3 has been positive. And just for give me one illustration of that, we have seen also going into beginning of October that we've been able to run the machine up to 1400 tonne on a 24 hour shift. That means that if you analyze this, you're starting actually to see that we're coming close to the capacity number that we have said from the start. I do not want to create any false expectation here that this is now that the run rate we see every single day. It's certainly a learning curve still, and we have certainly more steps to going through, including the coding and many certification. So it's not before we come to 2023 that we have a full machine up and ready in the capacity in the segments that we want. We keep the SEK 650 1,000,000 Km7 impact for SEK20 1,000,000 meaning we go slightly up of our Q4 impact that was currently well, historic previously at €160,000,000 and we take that up to €180,000,000 While we keep the guidance for 2020, meaning €200,000,000 stays. Right. So let's go into division paper. We do have as well a KM7 impact, but it's less much less than on board. So if you exclude the KM7 impact, we would have minus 12 on this one. I guess the truth on paper is that things have shifted quite a lot during this quarter and also versus last quarter. It's partly because we have a high base last year in Q2 'eighteen, but probably more important that the market trend has certainly become more negative than what we saw only 1 or 2 quarters ago. For SAC in particular, we see a significant decline in the brown SAC, And this is something we are not alone, but certainly as well, we see all players struggling at the moment. Volumes and pricing is down double digit versus year ago. And pricing on brown sack is now back to levels that we saw in the end of 2017. On white sack, we see a decline as well, but it's certainly not as dramatic as the situation for brownsack. So that is certainly the number you see on the screen is mainly impacted by the brown sack. For kraft paper, prices are holding up much better and the negative effect you see is mainly driven by volume or demand decline, particularly coming from the industry and the non food sector. On the EBITDA, we are also down on versus year ago, CHF 90,000,000 this is related to the KM7 start up or the allocated amount of the KM7 start up. Keep in mind also if the EBITDA percentage is reported 14%, you take out that allocated amount, it will come up to 19%, which is solid. But we still have a excluding Chem 7, decline. This is mostly related to higher wood cost, as I mentioned on the board. It's also down to higher pulp sales and lower pulp pricing. And certainly also prices and volume drop on both SAC and kraft, as I was just mentioning to you. Small comment then on the net operating expenses. We are down on paper operating expenses, mainly due to volume decline is 9%. And also on paper, we had a bit of help on the maintenance phasing versus a year ago. So if we go then into solutions, net sales grew by 4%, and that's obviously something we are happy with. We certainly also have an ambition to continue grow this more aggressively, very much in line with the strategy part that Petra talked about for this quarter. Just want to highlight a product that we are very proud of. It's called Fiberform. I think some of you already know it. It's certainly a niche that we have as one of our biggest investments. It's great profitability, and we certainly want to accelerate this and having this leading the growth in solution is something we are very happy with. In terms of our profitability, keep in mind that this is pretty much a non asset free division. We're up to 6%. We were in red figures last year, so we certainly improved this, CHF24 1,000,000 since last year. Most of this is just related to our contribution margin or the EBITDA margin being significantly up due to product mix and also customer mix. Right. If I just then move on to this part, and I think this is also something we have been quite vocal about over the last quarters. We do have now a very strong balance sheet in the wake of completing the battery transactions. Net debt of CHF5.5 million and we closed the books for Q3, meaning our net debt ratio is CHF1.8 million, which is certainly better than our target. And it certainly has made us well equipped for both a potential winter period, which is coming anything we might want to consider of looking into M and A. So with that closure, I just wanted to hand back to Petra for a bit of summary and some comments on the Q4 outlook. Thank you, Ivar. So if you look at the summary and the outlook, we have a strong financial position and the market for division board is expected to be to remain stable. We have a weaker market condition for division paper and particularly on brown sack paper and kraft paper for industrial use. And we also see an increased pricing pressure. We have slightly lower total cost of fiber due to lower pulpwood prices, and we have also the KM7 start up effect of approximately SEK180 1,000,000. And we continue to focus on operational efficiency and cost savings, of course, also for the 4th quarter. So with that, then I hand over to Julianne and open up for Q and As. Yes. We will now have a Q and A session. So by that, we're ready to take questions. Thank you. Our first question comes from the line of Christian Kopfer of Nordea. Please go ahead. Thanks, operator, and good morning, everyone. Just three short questions from my side. Firstly, you highlight that you see some tailwind from decline in pulpwood prices. What kind of magnitude are we talking about in krona per cubic meter around 30, 40 or on average? I think it's the average price, I don't I think that estimate is not something that we can guide for the Q4, but it's definitely declining. Okay. But just okay. Can you give some color on how much that's coming down because it's quite a big impact for you, I mean, if it is a lot. Are you really do you want to specify the questions just so that I understand correctly? Is the pulp business that we have had before? Or is it connected to the fiber cost as well? Or is it expected for the pulp business that we have had during the quarter? Just so that I understand That's all right, Kepler, if I was unclear. So the question is with regarding to the raw material input cost, the wood that you are buying. Yes. So how much that is coming down in Q4 versus Q3? Okay. So I think that is something that, first of all, I think if you look at the overall market, we have a lot of wood available in the market right now. And it's also so that we see a time lag that is quite long when we look into the books for the next coming 3 to 6 months, it is sometimes a time lag of up as much as 6 months. So at of this stage, we actually see increased cost of fiber compared to last quarter. We have not yet seen a decline, but that is, of course, what we expect to see now for the next coming 6 months. Okay. And then on the Kilometers 7 impact, I think it was Ivar that mentioned that you it seems like the ramp up is actually going a little bit ahead of the most recent plan that you had. But still, it seems that you increased the cost impact for Q4. How is that adding up? Yes. So now I can understand why you're asking this. And I think the way you should probably look at this is that there's still uncertainty in terms of how the learning curve is going forward. We probably also look at keeping a flat guidance now on SEK650 1,000,000 is probably the right thing to do. The €20,000,000 I wouldn't be too worried about in terms of sending a signal that something new has come up. But let's put it this way, we've had SEK280,000,000 in Q3. We're now coming down with SEK100 1,000,000 in Q4, which for us is a significant step into the right direction. Okay. And then on the price pressure that you see on especially brown sack paper, And when you say increased price pressure, does that mean that you see even more price decline quarter over quarter in Q4 than in comparison to Q3 versus Q2? Yes. So I think it's certainly something that we see in certain of our segment. I think it's a bit different what product we are talking about. I think for if you start on paper, we certainly see that on Braunsak, we expect continued pricing pressure even further. And that's also, I think, what we've seen in the beginning of Q4 now in October. We probably also see part of that impact coming into Whitesak, much less than obviously we see on the brown sack. In terms of yes, the kraft paper, a little bit less certain, but certainly also we expect the pricing pressure to come a bit in that segment, definitely in the wake of industry and non food still being a bit of decelerated. On the board, we probably see a much more stable situation, and we don't expect a major pricing impact in any of the Board segments. And maybe if I can add, I think it's also when you talk about Braunsak, I think it's not only the price. I think it's very much a volume issue that is really hurting us and that will definitely continue for the next quarter. Okay. But then finally, I'm just wondering about the wordings here because you say it's an increased price pressure. So it's to me, that says that price pressure is accelerating rather than the opposite. Yes. I think that is the case for brown Okay. Exactly. Okay. Yes. Okay. Thank you very much. Thank you, Jose. Thank you. Our next question comes from the line of Martin Melby of ABG Sundal Collier. Please go ahead. Yes, good morning. I was wondering on these price declines on Sakrak paper, how much has actually been realized in Q3? And how much more is yet to come in Q4 on a segment basis, the paper segment? For if you divide it, I think it's very much to what you commented on Christian's question, Ivar. And then I think it's compared to Q4 and Q3, it's definitely weakening, I think, all 4 segments within paper, both SAC, white and brown and also MG and MS. But I think it's very much specific. And if you look at the different segments within Paper, you could see that we are taking a much more severe hit when it comes to the industrial segments. And if you compare to the segments that we have within white Sac, for instance, that are directed towards food, then we don't see at all as severe impact. So it is very much an impact from the industry segments that we serve, such as building and the steel industry and those types of chemical, those type of markets. And maybe I can just add, Martin, that I mean from what we've seen from last year, we certainly have seen pricing has dropped significantly in pulp, as I mentioned, also in brown sack has come down a lot, while we've seen a less impact on white sack. Besides that, I think also kraft paper has come down, but it's much less extent that we've seen versus the, yes, brown and white sack. But I think to understand the magnitude, I think if you picture that with the levels where we were on 2017, I think it's more that it has sort of bounced back to that level. So it's not that we are sort of totally sort of falling off the cliff. It's more that it's back to the levels of 'seventeen. Yes. And this is where it gets difficult because we see they are talking about the 5% price decline on fat kraft paper. And of course, that's important for paper. But then you have all these smaller niches. So if you were to translate for the paper segment, how large will the product decline be quarter over quarter for Q4? I think it's as you said, I think we have a lot of niches in paper, and I think it's a little bit too detailed to guide on that level. And I think it differs a lot in but what we can say is that it will definitely continue for the Q4. And especially in brown side. Yes. Okay. And last question, this the €200,000,000 of UGN rapid costs for next year, Given that you have now increased the number for the last two quarters, is there any have you looked at that number in detail in light of what you'd thought of the latitude? That's a fair question. Yes. No, I think we probably won't go at least yet out to this on a quarterly basis. I think you should assume that in the first half, we should be a little bit more, let's hold, front heavy of that SEK 200,000,000 but also the impact then start to be much less by quarter. So I think at least the guidance we can give for now is not unreasonable split through quarter, but definitely a little bit more front heavy would be a good starting point. And also, yes, we have scrutinized it and we stick to 200. Okay. Good. Thank you. Thank you. Our next question comes from the line of Linus Larsson of SEB. Please go ahead. Thank you very much. And if I may just continue a bit on the price discussion that we just had quarter on quarter, the group realized price was down some 5%, then in paper it was down more than 8%. But I would presume that part of this is a mix impact. It's not purely a price decline that we're seeing. Could you please talk a bit about that? And maybe especially on the pulp side, what's happening with your pulp exposure in the very short term in the Q3 and also, please, in the Q4? Yes. No, I think it's a fair point, Linus. You're certainly right that I mean there's a lot of things happening at the same time in Q3 And definitely within the Vision Paper, the core segment are down, well, most of them at least in volume versus year ago. We are doing obviously what we can to keep the machines going. And that literally means we're using pulp as a bit of a residual or last resort at least short term. So definitely, our pulp exposure has increased quite a lot even. I think you can probably use the annualized guidance that we had in the past of roughly 110,000, we said as a net exposure. We're looking now more as an annualized of 140,000,000 and that is probably the level that we currently see for a, let's call it, short to midterm basis. But I would definitely expect those in Q4 that if you compare Q4 versus last year, that we have a significant growth on the pulp in line to what we see now in Q3. That's very helpful. And so if you compare Q4 with Q3, do you given the weakness that you see in terms of pricing and also demand in some of your paper segments, would you expect even more pulp? Or have you limited your drying capacity already at this stage? Or can you should we actually expect dilutive mix components from increasing pulp in the mix again in the 4th compared to the 3rd quarter, do you think? I would probably say that you can expect a marginally bigger contribution or a mix impact in Q4 versus Q3, but I wouldn't go and say that, that should be dramatic in any way. Discerna already in Q3 have a pretty big increase on pulp, and we do expect that to be a bit bigger in Q4. Excellent. That's very helpful. And then more generally on your as you say, you have a very strong financial position at your headline of your report and for obvious reasons. And you've talked about M and A, especially in solutions, which isn't a hugely capital intensive part of your business. That's kind of the point. So my question is, now that we expect the ramp up to progress, cost savings to come through, How do you look at capital allocation? Is there room for increased dividends, say, an extra dividend, share buybacks, any of that sort? Could you just please say something around your thinking around that would be interesting. Okay. First of all, I think it's if you look at that is from a CapEx point of view, we still stick to the guidance that we have had on base CapEx of SEK 1.3 1,000,000,000. And when it comes to acquisitions and within solutions, we don't have anything to report as of yet. And also, I think I must also the to increase dividends and what to do with the balance sheet and the strong financial situation that we have is also something that needs to be discussed with the Board, and that is something that we will have to come back with. And are you ready to provide a full CapEx guidance for 2020 or maybe already did and I missed it? Yes. See, that is we still stick to the SEK 1,300,000,000 that we have communicated earlier. Right. But I mean, would that include all types of CapEx, potential expansion CapEx, etcetera? Yes. But if you do you have something No, I can just say that. I think the SEK1.3 billion, you should consider that the guidance we had on the base CapEx for now. Anything on top of this is obviously something we are, as Peter said, in close discussion with the Board. There's nothing for the time being on the table that we are in any position to communicate. Okay. Excellent. Thank you very much. Thank you. Our next question comes from the line of Robin Santavirta of Carnegie. Please go ahead. Yes, thank you very much. Can I start with the strong volumes in cartonboard in the quarter? We have a couple of other companies also reporting strong volumes in that quarter. What is that about? Is it inventory restocking now? Or is it simply strong demand? What are you seeing in cartonboard? I think in general, there's nothing that I would allocate this to any inventory or any other one offs. So we put a lot of focus in that segment over the last couple of years. It's a very attractive segment for us to be in. And I guess you can say that we're still kind of reaping the fruits of putting just more sales and commitment in that segment. And demand and end segments we operate in, and that is pretty much the answer here. All right. Then just in terms of volume, as I understand you claim that the volumes are up excluding this KLM 7 startup. But when I look at Q3 2017, you had deliveries of around 700,000 tonnes and now they're down 40,000 tons. So on an annual basis, that is some 160,000,000 less delivered in Q3 this year compared to what you did basically on a run rate 2017. And as I understand, you also have this productivity improvement program very much in play now, I guess, for 1 year, which should actually increase the underlying volumes. Is it something that I'm missing? Or is it actually, on an annual basis, almost 200,000 tonnes of the negative impact in the quarter just from the start of KM7? Or is it because I also think you picked up some comments about weaker volumes and weaker demand in Sak and Kraft papers? Yes. It's a long and good question. But I think let's just separate 2 things. You're talking about this underlying program, so that's a PEX program. Let's just I mean, we can take that straight away that on the PEX, yes, we have still items happening in 2019 are working. We also had some, as previously communicated in the first half, offsetting items of that. So we haven't really seen an impact during 2019 from that program as a net. So that's kind of a bit of a starting point. But I think in general, how you should probably think about when we talk about an underlying growth of this is that we have had 3 machines that we have turned off during then Q2 or in, let's say, end of first half. And we're gradually starting up on the KM7. And obviously, that temporary loss of capacity has been then allocated between board and paper. And our estimate is obviously that most of that would have come into a liner and a fluting segment. So it's obviously an estimated number, but it's a pretty good estimate based on the machines we have turned down and again, the temporary of capacity we see. Yes, because we talk about Okay, good. Yes, okay. No, that is clear. Just I unfortunately missed the start of the call with some technical issues here. But just can you and sorry if that's sort of a repeat, but what are you producing with the machine at the moment? What are you selling? And then maybe, I guess, you went through that, but more focusing on this qualification of liquid packaging. Now that is normally an extremely sort of difficult process where you need to run up and run down the machine several times, and it's sort of a lengthy process that might take, I guess, more than 1 year. Could you comment a little bit how you see sort of that? When is that happening? And can you what kind of volumes can you produce during that time? And when do you expect the sort of any material sales of liquid packaging bar from KM7? Let me take the first part of what we have produced and then maybe Pedro takes a bit of the way forward and the stages we're going through. But in a nutshell, we are producing at the moment mainly white top liner and we have some cup stock as well that is coming through. So that's pretty much what we've seen so far. And we expect that to be the main ingredient for the Q4 as well. So I think we focus now on the availability of the machine and to make sure that we speed it up. And when we are satisfied with that, we will move the attention over to the coating process. And that will most probably happen in the early part of next year. And when that is up and running, of course, we will also initiate certification process in very close cooperation with our liquid board liquid packaging board customers. And then that process will continue up until 2023. And there are no further questions. Please go ahead, speakers. Okay. So then that concludes this conference call. Thank you all for participating, and welcome back when we report our year end results. And that will be the 29th January. Thank you and goodbye.