Welcome to this conference call following the publication of BillerudKorsnäs third quarter results. Our CEO, Petra Einarsson, and CFO, Ivar Vatne, will hold a presentation. After that, there will be time for questions. Present in this room is also Christopher Casselblad, Executive Vice President, Communication, and my name is Lena Schattauer, and I'm Head of Investor Relations. By that, I would like to hand over to you, Petra.
Thank you, Lena. Good morning, 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 five years. After that, Ivar will continue with the financial part, and we will open up for Q&A in about 30 minutes. This quarter has been quite eventful for BillerudKorsnäs, where we have started up our biggest investment, KM7, and we have also finalized our biggest divestment, Bergvik Öst. Some key highlights of the quarter. The inauguration of KM7 on October 3 visually closed the first chapter of our KM7 journey, and the third quarter was largely impacted by the startup 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 three 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 startup. 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 five percentage points from the startup of KM7.
The cost of fiber remained a headwind during the quarter, and it remained on high levels, 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 Öst, 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. Talking about an eventful quarter, we also had a review of our five years strategy in September, and I will take some few minutes to inform about that strategic direction on a very high level. BillerudKorsnäs 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 four 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. Let's take a quick look at each of the four priorities. Drive performance. Drive performance has five initiative of the 11 in total. The other three priorities have two 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 the EBITDA plus SEK 400 million 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 SEK 600 million 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 BillerudKorsnäs 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 Öst 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. The second initiative is increased production capacity. Here we will be able to harvest on already made expansion, such as future platform MG in Skärblacka and KM7 in Gruvön, which is expected to increase EBITDA by SEK 1.2 billion when fully ramped up after 2023. The third priority is accelerate speed and innovation. The two initiatives are increased speed to market and execute flagship pipeline. The core competence of BillerudKorsnäs in innovation is our four research platforms: strength, formability, barrier, and new concept. I regard that to be the DNA of the company. The initiative increased speed to market is very much to do things more focused, fewer focus areas, but do it faster.
Here we strive to have a sales of products younger than five years on 30% of our turnover. The second initiative is to execute our flagship pipeline. Just to mention some of the five 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. Here we have also a community where we work together with partners such as Carlsberg, L'Oréal, 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 enwrapping solutions such as candy and other types of products. Maybe the even most important flagship is of course the liquid packaging board biobarrier.
The focus on multilayer where the LPB customers use paper in combination with plastics and aluminium, we need to come up with a biodegradable barrier. The last focus area is to expand our solutions business. Here we have a potential to become a true sustainable packaging partner. We need to expand in the value chain throughout all three divisions. 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. Since our capital markets day is 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 million in increased production availability, the SEK 600 million in our cost-saving program, and also to harvest on the next generation investments of SEK 1.2 billion. These three amounting to SEK 2 billion within the scope of the next coming five years. 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, Ivar?
Thank you, Petra, and good morning. Let's get into the numbers. Just starting with a bit of a summary on the key financials. You can probably read for yourself that at first sight, all relevant figures are negative versus year ago. Keep in mind that 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. As also Petra mentioned, the KM7 impact in Q3 is by far the biggest quarter impact you will see. From here now on, we will expect then the impact to be smaller quarter by quarter. For net sales, it's -4%. That's the reported figure. Excluding then the KM7 impact, you're on +1%.
In terms of our profitability, we have SEK 280 million of KM7 impact, and if you put that back on the EBITDA, you are up to 3% underlying growth. 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. Let's go into a bit more onto the net sales first, before we dive into the EBITDA bridge and also onto the divisions. This is the graph that you probably recognize of the last three years. Overall, it has been a very strong top-line trend for BillerudKorsnäs. Obviously, Q3 now in 2019 is a bit of a shift, but part of this can be explained.
We would be at plus one, if we had corrected for the KM7. Plus one is still lower than what we produced over the last four to six quarters. Most of that is related to what we've seen from Division Paper, where we certainly see a weaker market for sack and for kraft paper. The liner board is stronger, again, impacted by the KM7. 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 Petra and myself spend a bit of time on introduction. Reported net sales of 4%, you can see for yourself the biggest building block comes in the end, and that's the KM7 startup. It's SEK 300 million on net sales.
You need to think about this as, this is the volume mix impact that we're suffering from a temporary loss of capacity, where we are turning down or turning off three machines and gradually getting new capacity with our new KM7 machine. As said, this impact will start to be lower and lower once we progress now towards a full ramp up. Obviously both in Q4 and in 2020, we still expect to see impact also here. If you 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 what we've seen throughout the first quarter of 2019. On pricing, it has been such a dramatic shift, so we split it out in two buckets.
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. We see the pulp pricing now back to the level we see in 2017, early 2018. The pricing other, that pretty means it's accumulated pricing position for everything else than pulp. You still see that as positive, and that is a carryover pricing impact of everything that we started in the back half of 2018 and the beginning of 2019 as of pricing interventions. On the volume mix, 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, pretty much all of this is offset with the decline in the Division Paper. I will show you those details when we get into the divisional slides in a second. Right. I continue on to the profitability bridge, it's very much the same logic applies that we presented in the previous slide from the KM7. The KM7 EBITDA impact is SEK 280 million. You might wonder, I just talked about SEK 300 million in the previous page. Now I'm talking SEK 280. The SEK 300 million, that is the net sales impact of volume and mix.
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 costs or some extra fixed cost items, that has hit us in Q3. The SEK 280 is obviously SEK 20 million lower than we had guided for in mid-September. Main reason for that, it's coming the volume in September coming in better than expected. Coming back then to the left-hand side of the chart, is very much the same logic as we just went through onto the net sales bridge. The pricing, the impact for us is SEK 80 million. 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. Net is SEK 80 million negative. The currency, it's helped, obviously, as the Swedish kroner has continued its journey.
SEK 90 million is the net, including all of the hedging impact. Yeah. 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. The fixed cost piece, minus SEK 10 million versus year ago. This is obviously, again, a net number of several different impacts. The one that I just wanted to highlight that we have a help on a Cost Program that we will talk a bit more in a second. It's a smaller benefit of SEK 10 million, but that's great to see that we already have some impact of early signs of that Program.
We have been helped by maintenance phasing of around SEK 14 million. There's also an IFRS 16 impact of SEK 28, the negative driver here is an inventory revaluation that brings this back into a slightly negative number. 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. I just wanted to talk a little bit more about something that we introduced about 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, obviously, the major impact when we come to 2021.
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. 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 three legs, and it's around procurement, purchasing, savings. It is around FTE reductions, and we also have a stream around end-to-end savings across supply chain and logistics. For a very brief or a, I guess, rough guidance, you should assume one-third of these three streams as the saving impact. We already communicated those numbers, but we have said SEK 250 million in 2020. The exit rate when we going into Q4 2021 is SEK 600 million. We have booked now a SEK 30 million 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. 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. Let's get into more details on the divisions. You probably remember the drill by now that we have the sub-segments in net sales, then we have the profitability piece. Overall, on net sales for board, it came in flat, excluding the KM7. That's the fair share of board of the SEK 300 million net sales I introduced some slides ago, we will be up 5%. The reason for this is the underlying growth, including in liner, is close to 10%, while you see reporting being -7% in this case.
That is very much linked to this temporary loss of capacity that I introduced some minutes ago. Cartonboard as well is continuing to go very well, and it's on the same trend that we've seen throughout 2019. It's obviously a focus area for us going forward. Liquid packaging board, little bit more nuance to explain this. Year to date, we're still in growth, 3%. The impact 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 Gävle in the last section of quarter 2, 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 KM7. Roughly two-third of the SEK 280 sits in board. Are you excluding this? We have around SEK 37 left to reconcile or to give some perspective on, mainly explained by high fiber cost that still is a kind of a full year impact from a pretty high rate. We also seen a lower price impact on pulp. Just a last comment there on the net operating expenses. It's up SEK 235 million versus year-ago of the 9%, SEK 100 million that is related to the KM7. That means it's SEK 135 million that you can say is on the line, and this is related to 2% higher sales volume. We have also some maintenance phasing, and there is an inventory revaluation impact on that number.
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. KM7 has started. It is certainly one of the biggest company milestones in our company’s history. The SEK 280 million 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 is also noteworthy to comment that the volume trend in the back half of Q3 has been positive.
Just for giving you one illustration of that, we have seen also going into beginning of October that we've been able to run the machine up to 1,400 ton 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 the run that 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. It's not before we come to 2023 that we have the full machine up and ready in the capacity, in the segments that we want.
We keep the SEK 650 million KM7 impact for SEK 20 million, meaning we go slightly up off our Q4 impact that was previously at SEK 160 million, and we take that up to SEK 180 million, while we keep the guidance for 2020, meaning SEK 200 million stays. Let's go into Division Paper. We do have as well a KM7 impact, but it is much less than on Board. If you exclude the KM7 impact, we would have minus SEK 12 million 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 is partly because we have a high base last in Q2 2018, but probably more important that the market trend has certainly become more negative than what we saw only one or two quarters ago.
For sack in particular, we see a significant decline in the brown sack, and this is something we are not alone, but certainly as well, we see all players are 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 brown sack. 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. 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, also down versus year ago, SEK 90 million.
This is related to the KM7 startup or the allocated amount of the KM7 startup. Keep in mind also, if the EBITDA percentage is reported 14, you take out that allocated amount, we will come up to 19%, which is solid. We still have, excluding KM7, 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, certainly also prices and volume drop on both the sack and kraft, as I was just mentioning to you. Small comment on the net operating expenses. We are down on paper operating expenses, mainly due to volume decline is 9%. Also on paper, we had a bit of help on the maintenance facing versus a year ago.
If you go into solutions, net sales grew by 4%. That's obviously something we are happy with. We certainly also have an ambition to continue to 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 FibreForm. I think some of you already know it. It's certainly a niche that we have as of one of our biggest investments. It's great profitability. We certainly want to accelerate this and having this leading the growth and solution is something we are very happy with. In terms of a 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. We certainly improved this SEK 24 million 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. Move on to this part. 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 Bergvik transactions. Net debt of SEK 5.5 million, we closed the books for Q3, meaning our net debt ratio is 1.8, which is certainly better than our target. It certainly has made us well equipped for both a potential winter period, which is coming or anything we might want to consider of looking into M&A. 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. If you look at the summary and the outlook, we have a strong financial position and the market for Division Board is expected to remain stable. We have a weaker market condition for Division Paper, and particularly on brown sack paper and kraft paper for industrial use. We also see an increased pricing pressure. We have a slightly lower total cost of fiber due to lower pulpwood prices, and we have also the KM7 start-up effect of approximately SEK 180 million. We continue to focus on operational efficiency and cost savings, of course, also for the fourth quarter. With that, then, I hand over to you, Lena, and open up for Q&As.
Yes. We will now have a Q&A session, and we would appreciate if you limit yourself to three questions each and then get back in line. By that, we're ready to take questions.
Thank you. Ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad and you will enter a queue. Our first question comes from the line of Christian Kopfer of Nordea. Please go ahead.
Thanks, operator. Good morning, everyone. Just three short questions from my side. Firstly, you highlight that you see some tailwind from declining pulpwood prices. What kind of magnitude are we talking about in SEK per cubic meter, around SEK 30, SEK 40, or on average?
The average price, I think that estimate is not something that we can guide for the fourth quarter, but it's definitely declining.
Okay. Can you give some color on how much they are coming down? Because it's a quite big impact for you, if it is a lot.
Do you want to specify the questions, just so that I understand correctly? Is it the pulp business that we have had before, or is it connected to the fiber cost as well?
Yeah, sure.
for the pulp business that we have had during the quarter? Just so that I understand correctly.
That's all right, Petra, if I was unclear. The question is with regard to the raw material input cost, the wood that you are buying.
Yes.
How much that is coming down in Q4 versus Q3?
Okay. 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 three to six months, it is sometimes a time lag of up as much as six months. 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 six months.
Okay. On the KM7 impact, I think it was Ivar that mentioned that it seems like the ramp-up is actually going a little bit ahead of the most recent plan that you had. Still, it seems that you increased the cost impact for Q4. How is that adding up?
Yeah. No, I can understand why you're asking this, and I think the way you should probably look at this is that there is still uncertainty in terms of how the learning curve is going forward. We probably also look at keeping a flat guidance now on SEK 650 is probably the right thing to do. The SEK 20 million, I wouldn't be too worried about in terms of sending a signal that something new has come up. Let's put it this way, we've had SEK 280 million in Q3. We're now coming down with SEK 100 million that in Q4, which for us is a significant step into the right direction.
Okay. 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?
Yeah. 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 if you start on paper, we certainly see that on brown sack, 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 white sack, much less than obviously we see on the brown sack. In terms of the kraft paper, little bit less certain, but certain 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 a de-accelerated.
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.
Maybe if I can add, I think it's also when you talk about brown sack, I think it's not only the price. I think it's very much a volume issue that is really hurting us. That will definitely continue for the next quarter.
Yeah.
Okay. Finally, I'm just wondering about the wordings here, because you say it's an increased price pressure. Which to me that says that the price pressure is accelerating rather than the opposite.
Yes, I think that is the case for brown.
Okay.
Absolutely.
Okay.
Yeah.
Okay. Thank you very much.
Thank you.
Thank you.
Our next question comes from the line of Martin Melbye of ABG Sundal Collier. Please go ahead.
Yes, good morning. I was wondering on these price declines on sack kraft paper, how much has actually been realized in Q3? How much more is yet to come in Q4 on a segment basis, the paper segment?
If you divide it, I think it's very much down to what you commented on Christian's question, Ivar, I think it's compared to Q4 and Q3, it's definitely weakening, I think all four segments within paper, both sack, white and brown, and also MG and MF. 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. If you compare to the segments that we have within white sack, for instance, that are directed towards food, then we don't see at all as a severe impact. It is very much an impact from the industry segments that we serve, such as building and steel industry and those types of chemical, those type of markets.
Maybe I can just add, Martin, that from what we've seen from last year, we certainly have seen pricing has dropped significantly in pulp, as I mentioned, also 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 brown and white sack.
I think to understand the magnitude, I think if you picture that where the levels where we were on 2017, I think it's more that it has sort of bounced back to that level. It's not that we are totally falling off the cliff. It's more that it's back to the levels of 2017.
Yes, this is where it gets difficult because we see they are talking about a 5% price decline on sack kraft paper, and of course, that's important for paper. You have all these smaller niches. If you were to translate for the paper segment, how large will the price decline be quarter-over-quarter for Q4?
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. What we can say is that it will definitely continue for the fourth quarter.
Especially in brown sack.
Yes.
Okay. Last question, the SEK 200 million of ramp-up costs for next year, given that you have now increased the number for the last two quarters, have you looked at that number in detail in light of what you developed with last year?
That's a fair question.
No, I think we probably won't go at this 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 call it, front heavy of that 200, but also the impact then start to be much less by quarter. 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.
Also, yes, we have scrutinized it, and we stick to SEK 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. 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 third quarter and also please in the fourth quarter?
Yeah. No, I think it's a fair point, Linus. You're certainly right that there's a lot of things happening at the same time in Q3, and definitely within Division 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. 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. That is probably the level that we currently see for a, let's call it short- to midterm basis.
I would definitely expect also in Q4, that if you compare Q4 versus last year, that we have a significant growth on the pulp, in lines of what we see now in Q3.
That's very helpful. If you compare Q4 with Q3, 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? Should we actually expect a dilutive mix component from increasing pulp in the mix again in the fourth compared to the third 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. We certainly 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. More generally, as you say, you have a very strong financial position. That's your headline of your report and for obvious reasons. You've talked about M&A, especially in solutions, which isn't a hugely capital-intensive part of your business. That's kind of the point. 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 if you look at this from a CapEx point of view, we still stick to the guidance that we have had on base CapEx of SEK 1.3 billion. When it comes to acquisitions and within solutions, we don't have anything to report as of yet. Also, I think 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.
Are you ready to provide a full CapEx guidance for 2020, or maybe you already did and I missed it?
Yeah. We still stick to the SEK 1.3 billion that we have communicated earlier.
Right. Would that include all types of CapEx, potential expansion CapEx, et cetera?
Yes, do you have something to add?
No, I can just say that I think the SEK 1.3, 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 Petra said, in close discussion with the board. There is 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-off. 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. Demand in pulp is still strong within the high luxury and high-end segments we operate in, and that is pretty much the answer here.
Mm-hmm. Yes.
All right. Just in terms of volume, as I understand, you claim that the volumes are up excluding this KM7 startup. When I look at Q3 2017, you had deliveries of around 700,000 tons and now they're down 40. On an annual basis, that is some 160 million less delivered in Q3 this year compared to what you did basically on a run rate 2017. As I understand, you also have this productivity improvement program very much in play now, I guess for one 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 tons of the negative impact in the quarter just from the startup of KM7? I also think I picked up some comments about weaker volumes and weaker demand in sack and kraft papers.
Yeah, it's a long and good question. I think let's just separate two things. You talk about this underlying program, that's a PEX program. 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. We haven't really seen an impact during 2019 from that program as a net. That kind of is a bit of a starting point. I think in general, how you should probably think about when we talk about an underlying growth of this is that we have had three machines that we have turned off during then Q2 or let's say end of first half. We're gradually starting up on the KM7.
Obviously that temporary loss of capacity has been then allocated between board and paper. Our estimate is obviously that most of that would have come into a liner and a fluting segment. 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 loss of capacity we see.
Yeah, because we talk about.
Okay, good.
Yeah. Okay.
No, that is clear. Just I unfortunately missed the start of the call with some technical issues here. Sorry if that's a repeat, what are you producing with the machine at the moment? What are you selling? Then, maybe I guess you went through that, more focusing on this qualification of liquid packaging board. 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 one year. Could you comment a little bit how you see sort of that? When is that happening and what kind of volumes can you produce during that time? When do you expect any material sales of liquid packaging board from KM7?
Let me take the first part of what we have produced, and then maybe Petra takes a bit of the way forward and the stages we're going through. 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. That's pretty much what we're seeing so far, and we expect that to be the main ingredient for the Q4 as well.
I think we focus now on the availability of the machine and to make sure that we speed it up. 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. When that is up and running, of course, we will also initiate the certification process in very close cooperation with our liquid packaging board customers. That process will continue up until 2023.
Exactly. Good. Thank you very much.
Thank you. Is operator there?
Please press 01 on your telephone keypad. There are no further questions. Please go ahead, speakers.
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 of January. Thank you and goodbye.