Earnings Call: Q2 2019

Jul 16, 2019

Good morning, and welcome to the presentation of Billet Kochne's Second Quarter Results. My name is Liana Schattower, and I'm Head of Investor Relations. With me here in Sonne, I have Bilhut Kochener's CEO, Pietra Enarson our CFO, Ivar Wachtne and EVP, Communication and Sustainability, Christoffer Casselblad. Petra and Ivar will hold the presentation, and after that, we will open up for questions. By that, I would like to hand over to you, Petra. Thank you, Lena. Good morning, and welcome, everyone, to today's webcast of our Q2 report. I must admit that it is sometimes difficult to read the expectations purely by looking at the consensus perspective and considering the fact that the expected adjusted result this quarter varied a lot. And on top of that, we also had the effect of the KM7 ramping up the cost amounting to SEK190,000,000 affecting this quarter. The SEK190,000,000 affecting the ramping up of KM7 is not booked as impacting comparability, thus not excluded from adjusted EBITDA. However, the most important from my perspective is that we are transparent with information regarding the company and that we utilize this telephone conference to clarify the outcome of the Q2. So I will start by presenting the key highlights of the quarter and then to invite Ivar to give a more granular update of the financials. And after that, we will be happy to open up for Q and As. So these are the key highlights of this quarter. I'm pleased to present continued strong overall demand with a strong sales performance of 7%, where we have experienced growth compared to previous quarter for 11 quarters now consecutive. And in total, the underlying result is solid, especially taking into consideration the KM7 KM7 effect of SEK190,000,000 and the high cost of fiber that has affected this quarter. The Q2 was characterized by 2 major events: the start up of the KM7, now producing liner to customers and the successful sale of Bergvik Skog Ost. The deal where we have secured a long term competitive wood supply at the same time as it enables us to invest in future growth. Our safety initiative as well as our program for production stability are progressing according to plan. And however, the production stability can be improved. During the quarter, we have had negative effects from a fire at the Javal Mill. But let's start by looking at the Bergvik Skog Ost deal. During the Q2, we finalized both the acquisition of Bergvik Skog Ost at a negative cash effect of SEK 5,400,000,000 and the divestment of 89.9 percent of Bergvik Burgurst to IMF for SEK 11,000,000,000. We have a 15 year wood supply agreement with a buyback option. And the Swedish Competition Authority has approved the sale, and we anticipate the transaction to be completed by end of August, with a positive cash effect of SEK 7,900,000,000. The other major event for this quarter was the start of ramping up KM7. The ramp up is now ongoing and progressing according to plan. We reached the milestone, Stockholm Wire, on April 17. In May, the focus was on test runs with dissolved pulp, and we reached paper on pulp in beginning of June. The first commercial liner to customers was delivered end of June, and we are now in the certification process of pure performance involving 3 customers. Next vital step in the ramp up is to open up the coating in August and to start up the certification process of carton board and liquid packaging board in October. The inauguration of KM7 will take place on October 3 in Gruyvern. Moving over to operational efficiency. We have improved And looking at the production availability, it has improved very much supported by the production excellence program, but it was unfortunately somewhat offset by the fire we had in Javal during this quarter. However, I'm really happy with the fact that we have the PEX tracker, production excellence tracker tool in place now, and all mills are working in this tool. And the process we have in place is to eliminate all losses and to make sure that it is not repeated and to follow-up the program continuously. Unfortunately, this has taken longer than I expected to ramp up. And if you look at a yearly basis, I believe that we it will not we will be in a range of reaching the yearly volume that we had last year if you adjust that number from the wood shortage. But all in all, we are moving steadily towards increased availability. If we move over to safety. A safe company is a well run company. And also here, we see good traction, but also too slow to some extent. The most exciting that has happened this quarter is that we have conveyed a safety survey. We made the decision to use the DuPont survey so that we can compare with other companies. 70% of our employees participated in the survey, which is a very high number, I believe. And we have received a feedback loud and clear. And if you look at just to mention a few facts from the survey, we can see that 1 out of 3 employees at Filiolkosnes believe that injuries can be prevented. Or to paraphrase, 2 out of 3 believe that injuries are actually part of the job and not preventable. 1 out of 4 has an experience that injuries are closely monitored and followed up. And last but not least, 9 out of 10 answered that they have not been rewarded for working safe. But change is coming rapidly, and people pop up as ambassadors as we speak. And I feel very confident regarding this cultural change that we are moving ahead with. And you can also see that the numbers are improving. It's not in the level and the range that I would like to see, but still, it is moving in the right direction. If you look at the overall lost time injury frequency rate in mid the 1st 6 months, we ended up at 7.7% comparing with the full year of 8.4 percent last year. So safety is a journey that we have entered, and it will be continued from now on, even if it will be strongly accelerated. Moving from and production stability towards innovation. Our DNA for future growth is innovation, and we have experienced some good news during the quarter. Firstly, as previously announced, we have decided to embark on a joint venture to develop a fully biodegradable paper bottle in the joint venture with Alpla, establishing the paper bottle company. Secondly, during the quarter, we have announced to be the 1st to produce paper battery on a paper machine. There are several potential applications of the paper battery. 1 is, of course, Internet of packaging or digitization of packaging. And another application is also large scale cost effective energy storage in the small grids field. And thirdly, yesterday, we launched the first U bend paper straw 180 degree made out of paper, where we have filed a patent in cooperation with the paper straw company, who will produce the straw. So we look forward to share more good news in the next coming quarters to bring you along with us on our journey towards innovation. And before I ask Ivar to come in with the financials, outlook of the 3rd quarter. The market conditions is expected to remain good for liquid packaging board and carton board. And however, we see an increased uncertainty in the global container market. We have some weaker market conditions that has occurred during the Q2, and this is particularly for brown sack paper. The continued expectation of increased price pressure remains, And we also see the same picture as the last quarter on the cost of fiber that we expect to flatten out on the current high level. And we will, of course, continue to focus on operational efficiency and cost savings. So with that said, I would like to invite you, Ivar, to continue with some deeper information in the financials. Thank you, Petra. I think you can just go to the next slide. I just wanted to start by showing some of the key financial figures that I think most of you already had got familiarized with this morning. So we will take them kind of in pecking order through the presentation. But net sales is up 7%, which is a very strong number and we are happy with that. If you look then into the profitability section and starting with the EBITDA, I mean, we report €579,000,000 of EBITDA, adjusted being €539,000,000 for the EBIT figures. We have the reported €194,000,000 and adjusted number being 154,000,000. You see, I guess, on both of them that there is a delta of 40. So that is the items impacting comparability. I just wanted to quickly run through that because you can say it's roughly of 3 buckets. The bigger one is some provisions for staff changes and demolition of all buildings, which is €52,000,000 and they're all provisions done in 20162018. We have as well SEK 14,000,000 of educational program around the KM7 start up that we also have communicated earlier. And then there is a smaller item around Bergvik to round that figure off to $240,000,000 but a pretty small difference between the two. I mean, so you can say and see for yourself that we are down in profitability versus year ago, but I'll go over the next couple of slides and also underlining with a very strong focus why we actually believe the underlying profitability is much stronger and in fact is growing. Let's start with the net sales, just giving a little bit more facts. Continued sales growth, this is actually the 11th quarter in a row where we had a pretty significant net sales growth. We've had then yes, you can see the red line, the average CAGR for the last 3 years of 5%, and we deliver above that now for Q2. And I guess also it feels pretty good for my side coming in and see how did we deliver those 7%. We are certainly not only relying on currency or some one off items on this. It's pretty evenly spread between currency, a volumemix and pricing. So we have the organic net sales then for Q2 'nineteen, that's 5%. We also have a 5% underlying volume growth on that number. So if I go into next page, talking a bit about the raw material cost, and I know this is a hot topic for a lot of you guys and also for us. We have seen the impact for Q2 versus well, 'nineteen versus last year, it's roughly CHF300 1,000,000 which is a combination coming then from wood, also from pulp and we also have an impact on chemicals. I think the difficulty thing when you look into the outlook going forward is where does it go from now. I mean, you read the same report as we do. We are kind of conservative in the way that we expect this now to flatten out on the current level. If it turns out that these numbers or the spot prices will go down, obviously, that means we will have an upside and then that will flow straight through. But for our expectation and our view at the moment is that we are pretty conservative and expecting this trend to more or less continue going forward. And I think going to the next slide, and I generally believe that this is probably the most important slide that I'm presenting to you this morning because this illustrates, I believe, in a pretty good manner what is the underlying performance when we're looking into our results. So we do have some positive impacts and they are colored in the green staples where we had the pricing. And that is mostly pricing that was initiated during 2018 and we now see the full year impact going into 'nineteen. The FX is, I guess, pretty straightforward. And as I did mention, we do have a positive volume, which is helping our volume and mix quite a lot. There are a couple of negative items. The SEK300 1,000,000 that I did mention, that's the vast majority in the sense of what's labeled as the variable cost. And that's you can sense and that's also part why we see the margin has come down. We have been doing a lot of pricing, but due to nature of some of our contracts that are fixed longer term, etcetera, we have not been fully able to price up the 100% of the raw material impact. The fixed cost item there as well that you see of €53,000,000 is mainly related to Ghevla, where they had a fire and there has been some production disturbances, and that is pretty much what is earmarked on that bucket. But adding those altogether, I mean, you will arrive and end up at $7.29 which is a higher EBITDA percentage versus the same quarter last year and very much in our view represents the true underlying performance and where we believe that the fundamentals of the business currently is. Last bucket related to the start up impact of KM7. I think we have talked this quite a lot in the past. It's very similar to the estimate we have previously shared with you, what we expect that to be, and it's a combination of a volumemix impact and a fixed cost bucket. When we now go through the transition and getting this new and beautiful machine up and running, And that lands then on the 539 that you have seen in the past. And I just wanted to emphasize also some point that Petra mentioned in the past that we have had discussion around the €190,000,000 of KM7, if that actually is an item that should be put out and reported on their items impacting comparability. Our view still is this is a number that probably belongs more in a bridge like this. It's still some operational items that can change over the quarters, although we do have a pretty good estimate. But I can assure you that going forward, we will be very clear to calculate and show this as a separate building block, so we can ring fence what are some of the impacts in a transitional period. If you then go into and I was just going to take Board division by division on some of the results and some of the highlights and I will start with Division Board. So Board has had a phenomenal quarter. And if you think about the 7% net sales that we talked about in the beginning, all of this is driven by Born. So we have a 12% net sales where the sales volume is 10% And obviously, we have help as well from pricing and currency. If you also look at some of the segments or where is it coming from, the good news that is coming broad based. So we see several segments and several parts contributing to the growth. We have fluting and liners going up with 30%, carton board 13% and we have the liquid packaging board up 3%. So that is indeed very good news and represent a fundamental solid performance by board. If you look then into the EBITDA number, it's down by 75%, but very fast. I will come back to the point I just mentioned on the previous slide on the one time or the ramp up effects of KM7. So that's a very big part of explaining the delta. We've had as well on board the same impact that I mentioned on the total group that the raw material impact cost has gone up, which has been partly offset by pricing, but not fully. And this is very much linked to some of the contract dynamic we have with some of our strongest customers within the division. If you look at as well, this is a comment on the net operating expenses, also just a reminder, that also includes the raw materials, so that is part of it. A big chunk of this is also just explained by the volume growth being up 10% as well as the KM7 cost that I referred to in the beginning. For paper, if you go into the next slide, please, it's a little bit different story. It's flat on the net sales. And actually, if you look at the sales volume, it's down by minus 4%. So there's no doubt that comparing board to paper, we had a more challenging quarter on paper. Looking by the segments, we have Sac Paper growing by 4%. We've had kraft paper flat, but also pulp is down. So again, a little bit different dynamic of what's happening within that division. On EBITDA, you see a 50% -ish decrease well, in the profitability. Again, main reason being the raw material inflation not fully offset by pricing. We have had as well a mix effect by more of the pulp volume being sold at spot rates, which has not helped us this quarter. And last but not least, we have solutions. We are down on net sales by continuously making, you can call it, a customer mix reevaluation or certainly looking into some of the positions we do have with the different collaboration partners all around the world, optimizing our portfolio. So in this case, it is down, but it's also something that consciously we take the Empire Choice off. And we do expect going forward to have a more solid growth within solution. It's definitely one of our main divisional footprints we want to expand. There's not too much to say around the profitability. It's pretty low numbers in absolute. Compare this to versus year ago. You can say it's mainly related to higher pricing. We had some FX impact with cost control and also the customer mix is helping us on this side. Right. So let's go into I also know a topic that I think a lot of you have followed during the Q2 where there has been a lot of action on the Bergvik side. And you see for yourself on the graph what illustrates now the net debt versus the profitability ratio when we close to Q2. 12.7 percent is the net debt that we currently have. Yes, main reason, I think all of you know, at least most should know, is linked to the acquisition of Bergvik Skog that we did during Q2. We've also had a dividend, but that's not a big surprise. We already know what will happen when we come into the Q3. So the estimate, of course, there are still things that can change slightly, but we will be surprised to see not landing roughly 1.5 in terms of our new net debt ratio when we close our Q3 books in end of September. And I think that also means we are significantly below our target of 2.5%, and we should be very well positioned with a strong balance sheet position to look for future growth and potential also M and A opportunities in the future. Yes, just last couple of words then in terms of where do we stand versus our long term financial targets. I did mention in the beginning, 7% net sales growth is a number we're happy with. We also demonstrated over the last 3 years that consistently we've been able to exceed that number. We know as well that the EBITDA margin of 9% percent is not really where we want to be. Adjusting that, as I did show for the KM7, one off we are 12 So that certainly improves the situation. It still means we have work to do in terms of looking into different items of price management, but also looks in terms of different efficiency, etcetera, and that is a challenge going forward. I think the return on capital deployed has also been covered in some previous sections. We do now have an increased asset based with the KM7 coming into our books, and it will take some years before we see the EBITDA generation of KM7 really coming in where it belongs. So that is still a long term, I guess, target we'd like to have, but it will take some time for that to be coming up where it belongs. Net debt versus the EBITDA, I did mention this, it's very temporary being above, and we should see a very different number there as we close the Q3 in September. And I think the dividend policy is something which has been consistently good. And also the numbers for last period has been certainly above the target. So with that, I'm handing it back to Petra. Yes. So I just would like to summarize where we are from a more broad perspective. And I think first things first, and that has been for us to ensure a successful ramp up of KM7, and that is something that I'm very content with during this quarter and also to make sure that we have a competitive wood supply going forward. And here, I definitely think that the deal that we made with Bergvik Skog Ost is a step in the right direction. We need to steadily improve. And here, we have definitely potential to unlock when it comes to stabilizing the production, and that is a continuous improvement journey. And then to speed up and accelerate innovation and new solutions for the company to reposition ourselves moving forward. And here, I also believe that the second quarter was a step in the right direction. So with that said, as a broad summary then on where we are moving, then I would like to hand back to you, Lena. Thank you. We will now open up for questions. And we would appreciate if you limit yourself to 3 questions and then get back in line if you have more questions. And also, you're always welcome to call us afterwards if you have follow ups. So by that, we're ready to take questions. Thank you. The first question is from Martin Melbury from ABG. Please go ahead. Your line is open. Good morning. First question on the Gluven ramp up costs, the SEK 190,000,000, is that entirely on the board segment? Or is there something there on the paper segment as well? And linked to that, the depreciation, how will that change in Q3 versus Q2 regarding the Gruban new machine? Okay. I think maybe you can take that, Eva, I think. Yes, I think the first comment around yes, that was CHF190 1,000,000 in the split. We operate with a seventy-thirty split between board and paper, so 70% board and 30% paper. It's a rough estimate, but it should be a pretty good estimate that we use as allocation key between the division. And the second question was around the Scheduled depreciation in the second quarter versus the third quarter. Yes. So we have a rough estimate of SEK 30,000,000 depreciation per month. And that means we had 3 months of depreciation for Q3 scheduled and we have had 0 for Q2. Okay. So there's another SEK90 1,000,000 of depreciations for Q3 versus Q2? Correct. Yes, that's correct. Okay. Good. And then one question on the Bergvik Skogast transaction. Have you stated the gain you'll have in Q3? I reckon it could be like SEK4.7 billion, but have you given that number? It's not a bad estimate, Martin. I can still say that we are working with the auditors just to get all of the moving pieces tied up. There's also some moving pieces in the Bergvik during the Q3, in particular with some of the dividends. So I don't want to give you a more updated number than what you said now, but I can say it's not a bad estimate and we will confirm this as part of the Q3 close. Okay. Good. And that from me. The change the prices changes on sack kraft paper, I see that some new sellers are talking about 4% to 5% lower prices. Is that relevant already from Q3? Or is that coming in phases for you? I think that differs. But I think if you look at SAC and especially brown SAC, here we can see the pressure in from a price perspective and that a weaker market definitely. So I think that is something And the wood costs, how is that changing quarter over quarter? What we estimate with it's that flatten out on a high level, that is as detailed as we can be. And then as Ivar, of course, stated that if something more positive happens, then, of course, we will be happy to see that development. But as a guidance, we don't see anything else right now but the flattening out of the fiber cost for next quarter. Excellent. Thank you. Next question is from Gustaf Schael from Pareto Securities. Please go ahead. Your line is now open. Good morning, Gustaf Schall and Pareto here. Three questions from my side. Firstly, on the Board division, can you say something about the negative mix effect, how big that was related to the Kjellfab ramp up? Yes. I can Did you understand the question? The negative mix effect of board on the ramp up? It's 2 thirds out of NOK 190,000,000, Gustaf. NOK 133,000,000. Yes. I think that was the same question as Martin had. Exactly. Is that what you're looking for, Gustav? Yes. Perfect. Great. Thanks. Then secondly, on the containerboard. I mean, when you talked about a pretty stable situation, both for Fluting and kraftliner now for Q3, I mean, naturally, I assume pricing should be a bit lower quarter on quarter. But looking at your volumes now, so I mean, Q2 versus Q1, they seem to be holding up quite well. So I mean this uncertainty we're seeing in the market, do you actually feel that affecting volumes now going forward? Or are inventory levels at a level where activity is still quite good? I don't see we don't expect any big swings when it comes to volumes, especially talking about fluting and liner, it's definitely so that we have seen a weaker market situation also for fluting and liner, and the prices has come down somewhat. But it the biggest effect is what we see in brown sack. And I would also like to say add to that that in white sack, the market conditions are much more stable. But if the question is particularly regarding board, I would say that I don't see any major effects on the volumes as being considering the market outlook that we gave. Great. Very clear. And then lastly from my side. If I remember this correctly, you still have some liquid contracts that are expiring this year, which have not yet been renewed. So if this is correct, I mean, have the negotiations for this started already? Do you have any feeling now for the possibility to further increase your average pricing in board? It's correct that we have not yet renegotiated all contracts that we have in liquid packaging board. And but we are not I don't want to comment any further on that as we speak. So what we have communicated regarding the new contracts are still valid, of course, but we have not yet renegotiated all contracts that we have. And next question is from Christian Kopfer from Nordea. Please go ahead. Your line is now open. Thanks, operator, and thanks for the presentation. Just a couple of questions from my side. Firstly, can you just update us on the import of wood, how much you import from the Baltics on pulpwood? Okay. Take that first. The import of wood from Baltic is 20% out of the total comes from the Baltics, and it's mainly hardwood, birch. So it's okay. So that's about the same as previously done now. Yes. Absolutely. It's exactly the same. Okay. But we have seen prices coming down in the Baltics. So I'm a little bit puzzled to not hear you commenting at all on it. I mean, you don't see any prices lower on your imported worldwide. I think that we don't guide on a specific level. So I think the overall guidance that we can give is also included mix. It's different the different mix that we have considering hardwood and softwood. But on that sort of high level outlook, I would say that we are not confident to say anything else but flattening out of the wood prices. But if mix is unchanged going into Q3 versus Q2, everything else is unchanged, but the only thing that has moved is the price level. I mean I cannot see how you cannot see any lower prices overall. I think, Christian, you have to see it like this. It's a mix effect. So this quarter, we have used more hardwood than previous quarters. And hardwood is more expensive than softwood. So that is the reason why we see a flattening sorry, a flat cost for fiber in Q2 versus Q1. That's the main reason. And how do you see the mix going forward on between hardwood and softwood? That is too detailed. That is operational questions that we don't disclose. Okay. Then on the I mean, you previously talked about the production targets, but it's impossible to follow those on a continuous basis because you're not reporting these. So can you say anything about delivery targets for 2019? I think it is our ambition to start to report in a more granular way our how we proceed with the Production Excellence Program and also invite you to see more what is actually happening in the Production Excellence Tracker now that we have it in place. But we actually plan to do it for this quarter, but we have decided to wait to make sure that we have top quality of the numbers before we disclose it. So what I can say is that I'm really happy with the engagement and the ambition levels in the company where we still stick to the fact that we have the ambition to improve availability with 4% units by 2020. But and I think we stated that already from the start, that this is not a linear journey. It will actually be exponential so that we will have a bigger effect of this when we have all the tools in place. But what we can say now is that we most probably will end on the same level roundabout the same level as we had for 2018, and then you need to adjust for the wood shortage. So it's unlikely to see the full effect of the 2% units already this year since it has taken a bit longer to put everything in place than we anticipated. And on top of that, we had the fire in Iavla this quarter. But our ambition is to make sure that you can follow this in a more granular level per division. You mean on production levels, Pietro? Yes. Okay. But are you also going to talk a little bit also about deliveries? Because at the end of the day, that is what also impacts earnings, I guess. Deliveries. Do you mean the saleable volumes? The shipments, I mean yes. Yes, the shipments. And no, I don't think that, that is I think that is not something that we will guide in detail going forward. Next question is from Justin Jordan from Exane. Please go ahead. Your line is now open. Thank you. Good morning, everyone. Welcome, Ivor. I just wanted to, first of all, just I guess, can I just walk through just the cash impacts of the Berbig Skog transaction? Clearly, you purchased I just want to be absolutely clear in terms of the resulting net cash benefit to the delivered group as it were. So clearly, you purchased the assets for $5,400,000,000 in back in the end of May, And then you're announcing disposing it for net $7,900,000,000 at the end of August. So am I right in inferring that we should be essentially the net cash impact is a positive SEK 2,500,000,000? And then I'm just curious, is there any tax implications of the capital gain tax or anything on that? Yes. Let me just find my previous slide. I think the best way to look at this is that it actually did require this for 6.4%, but we sold at the same time 5% off by the request for 1.2, so some of the net impact for that is 5.4. I guess the easier way to think about this is to say that our net debt now is 12.7 percent and the enterprise values for the full 100 percent we did sell was 12.2 percent and that included a $3,500,000,000 of debt, meaning the equity value comes to $8,800,000,000 and we get 90% of that. So the net proceeds is 7,900,000,000 So you would expect then from a net debt figure of 12,700,000,000 that this will come down by 7,900,000,000 percent, rounding the SEK5 1,000,000,000 of net debt in Q3 and that explains the ratio. On this type of industry in Sweden, there should be no tax impact. Great. Okay. And just specifically on Q2, switching entirely, can you just give us the impact in terms of both lost volumes and cash cost of the Galve Fire, please? The lost volumes on the fire in Gjavle? Yes, please. We have an effect of losing roughly in the range of 13 1,000 tonnes and affecting the EBIT for the Q2 of SEK 29 million. Great. Thank you. And just I just want to be absolutely clear what you're saying in terms of production for 2019 because you've previously talked about production in 2018 of 2,835, including clearly EUR 50,000,000 of lost volumes from wood storage. And you previously guided to 2,900 tons for 2019. What exactly are you saying now? Are you saying flat year on year on the 2,835? Or should you be thinking flat year on year on 2,785? I just want to clarify what exactly you're saying, please. Justine, we are expecting the guidance to be lower to around the same level as last year, adjusted for wood shortage to 2 35. Exactly. So 2,835. Okay. And that's incorporating the Gelvey lost 13,000 tonnes in Q2? Absolutely. That is one of the main effects why we do this right now. Yes. And also the fact that we have a slower start than we originally anticipated of the Production Excellence program to be quite open. And we still we don't back off of the original target of 4% in by the end of 2020. But we see that 2,900,000 tonne will be hard to reach. Sure. Appreciate that. Okay. And just one final thing for me. Just on your sack craft contracts, are they mainly a spot? Are there some mix of quarterly or annual contracts? I'm just trying to understand the pricing impact that you're citing in Q3 and thereafter. I think it depends if you talk of if you call the brown sack or white sack. If you look at the market from our perspective of brown sack, we have a quite low market share and a quite competitive situation with a large influence of spot pricing. On the other hand, if you look at the white sack, we are one of the market leaders with an entirely different set of pricing. Next question is from Robin Santavirta from Carnegie. Please go ahead. Your line is now open. Thank you. Now first of all, I think what you are saying guiding is roughly flat fiber cost Q on Q4 for Q3 and I guess a bit further out. But at the same time, you're also talking a bit about a bit lower sales prices in SAXP paper and potentially in futing and linerboards as well. So if you combine that, the underlying sort of earnings outlook is possibly weakening a bit towards the end of this year. I was just wondering if there's any sort of offsetting impacts that you have planned or are already doing in terms of cost cutting or production improvement or something else? Yes, definitely. And I think that I have been quite open with that several times in the past now that I see that Wilhelcosmos have a lot of potential to unlock. And I'm really happy now that we have Ivar Watner, the performance management expert, on board. So I think that we I see in front of me that we do have the power we need to offset the slightly weaker estimate by pure cost saving, also working with operational efficiency, both when it comes to value based pricing and with the lean manufacturing. And it has taken a little bit longer than anticipated, but I do believe that we have the tools in place that we need now, and we also have the management team that we need in order to deliver on this potential going forward. So thank you for asking that question. All right. Thank you. That is clear. Then in terms of this divestment or the forest asset you had for a while, Now you talk about the M and A and growth investments combined with that. And obviously, your balance sheet is fairly strong now. What kind of M and A and growth investments are you looking at? Is it more of a bolt on type of things or something major? No. I think it's what we can say at this stage is, of course, that the deal that we made with Bergvik Ost enables us to look into this in a much more sort of thorough manner. And this is something that we are working quite extensively with right now, and we are setting for a board meeting here to discuss the strategic direction for the company in September. So right now, I cannot comment on our ambition level, but it is definitely something that occupy a lot of our times right now. All right. And finally, in terms of the new KM7, now did you deliver any volumes, 2nd grade volumes now in Q2? And could you provide some info on where you are in what markets you are placing those additional linerboard volumes in the second half of this year? And finally, combined to that, I guess you're talking about a bit of a weak containerboard market, but also guiding for unchanged white kraftliner prices. So what is the dynamics in that market? Okay. Let me first start then with what has been delivered during quarter. And in the Q2, we have been fully focusing on ramping up the machine and making sure that the machine works. So we do have we have delivered 2nd grade line of material to customers, and we have also delivered some materials for certification when it comes to liner. But in the Q2, it's a very small amount. So it's not even worthwhile for you to sort of calculate it and put it in your models. And that has never been the purpose for us either. And if we move forward in the outlook, I would say that what I worry most about, as I have said, is the brown sack development. And the brown sack for us is more or less 1 like 20%, 25% of the paper division. And it's also a place where we have a very small market share. So moving forward with KM7 and the plans that we have to certify materials for liner and then to also move into liquid packaging board. I'm not worried about the market situation in combination with ramping up KM7. It's not at all on that magnitude. And then you also asked where we plan to deliver the material that we produce in what areas. And this is something that I think is too granular, and I think it's also something that we need to have an option to act. So everything is not yet finalized. Good. Thank you very much. Thank you. Next question is from Marco Ervinen from Handels Banken Capital Markets. Please go ahead. Your line is open. Yes. Good morning. Good morning. I had a few sort of last questions, sort of some more detail on these issues that have been extensively discussed already. But on the liner and fluting prices, I guess we've seen the sort of NSSC and white liner pricing sort of gradually decreasing during the first half. Did you see lower prices impacting your earnings or your P and L already in Q2? Or are you expecting a more significant impact from that in Q3 compared to Q2? Or how does it work for you? We have seen we do we have seen the market price on fluting and liner that it has it had come down somewhat, but it's not on a major level. But it's we have not been able to keep the price levels from last year. We have been forced to take some steps back. But it's not on a level that I think it should be disclosed in the sort of second quarter affecting the result too heavily. And you don't expect this sort of more significant impact in Q2, Q3 compared to Q3 then? Or is that too early to say? I think it's moving back to the guidance that we have. We see we guide for an impact more considering the brown sack than when it comes to liner and fluting. Okay. Good. And then just on the fixed cost, Q3, I guess, is seasonally lower fixed cost. Could you remind us how much lower is the Q3 fixed cost compared to Q2? The fixed costs compared to the Q3 compared to Q2, It's the maintenance schedule, isn't it? No. I mean that sort of seasonal holiday pay related issues, I believe. But Historically, it has been around SEK 100,000,000. Yes. Okay. Good. Thank you. Thank you. Thank you. Next question is from Linus Larsson from SEB. Please go ahead. Your line is now open. Thank you very much and good morning to everyone. A follow-up on the market situation. You talked about the challenging market situation in 2nd kraft papers. And I think you also mentioned your need to adapt production. I'm just curious if you could expand a bit on that. Have you been taking market related downtime? Are you intending to increasingly take downtime for market reasons in your Paper division as we move into the 3rd and 4th quarters? I think we are not planning to do any major actions when it comes to downtown, but we are looking into mix related actions and also cost savings and also to but not to we have not made any decisions to take down capacity. Okay. And relating to this, obviously, paper division in the 2nd quarter compared to the Q1, it was a decline of 3.5 percent. And I think you did mention now on the call that part of it is mix and part of it is pulp spot pricing increasingly. And that aside, how much price declines have we seen in the second quarter? And how much more will roll in, in the Q3, would you say? I think that is it's difficult to answer that. But I believe it's to guide on that particular level, it's quite tough for us to do right now considering the plans that we take and also to see and monitor how severe the situation is because it's a lot of different things we can do to maneuver the the situation, looking into the mix of the portfolio and also to add the pulp mix to this. And then it's the difference if you do it on contract or if you do it on spot price. So unfortunately, I think it's a too detailed question actually for us to answer. And also not that I don't want to answer, it's more that we are in the contingency planning regarding this and to see what to do specifically with the brown sack pricing and volume and mix as we speak. Okay. But just as a just using the 2nd quarter 3.5% price decline as a reference, would you say I mean, would you compare to that figure in any way guide on the 3rd quarter whether we should see something similar of a realized price decline, including mix or clearly less or even more than that? I'm reluctant to guide on that. But I would say that considering the guidance that I have given so far, it's definitely on that level. Okay, great. Thank you very much. And then just finally, if you could update us on the KM7 impact. I might have missed it on the call, but what so it was SEK 190,000,000 in the second quarter? And what's your guidance for the 3rd quarter? The guidance for the second half of this year is we still stick to the NOK 500,000,000. So we have additionally NOK 310,000,000 to add on. And if you look at the quarters coming, I think you could put in sort of you can divide it evenly between the 2 quarters coming. That is the same as we said last quarter, and we still stick to that. Great. Thanks for clarifying that. Thank you very much. Thank you. Next question is from Karl Hawthorne from Jefferies. Please go ahead. Your line is open. Just a clarification question. On your board division outlook, you note that customer inventory levels have normalized. Is this referring to your niche fluting and white liner market or the wider recycled and virgin containerboard inventory levels? I think it's as I interpret the question, it's a more wider the market question or it's the comment is more from a market perspective than exactly? For your specific fluting and white liner segments? It's for the wider market. For the wider markets. Great. And then on sack and sack kraft paper, you talk about the brown grades being a bit softer. But can you give a little bit more color of where you're seeing that weakness? And also if you're seeing any weakness between the various types of grades between the low and higher quality brown sack grades? We see it like this. The brown sack is down, and the reason for that is basically the Asian markets. And so the white is quite okay. The brown has come down. And the brown is also industrial segment. Yes, it's industrial. So it's the construction industry that has come down, especially in the Asian markets. So what we have seen this quarter is not that much of a price pressure. It's more of a volume pressure. It's important to clarify. Sure. And then just finally, on your kind of operational efficiency, you called out the beginning of the year that you start setting targets for the various management segments. Have those been put in place and people aware of their targets and those are being set for the full year 2020? Or are those still to come into play? Absolutely. Everyone is aware of it. And we have a performance management system in place every month to follow. We follow each target. We have promised a 4% increase of availability, and we have targets in place to take out the losses for all machines all mills, all the machines, and we also follow the targets on specific losses and where they are in the process to actually take out the loss. So I feel very confident that we have everything up and running now. But now it's the execution part that and here we will have an excellent help from Mr. Wachne. So but I don't think that I think you can pick anyone and ask if they are aware of the targets that they have put that they have on their on them in the divisions, in the management teams and also in the management team for Birderikosmer. Everyone is aware of the specific targets. So I have full confidence in that. And I do believe that we have potential to take it to make it also to the bottom line. Thanks. Thank you. Thank you. And that was our final question for today. So I'll hand the call back to the speakers for any closing comments. Please go ahead. Okay. So that concludes this conference call. Thank you all for participating, and welcome back when we report our Q3 results, the 24th October.