Ladies and gentlemen, welcome to the BillerudKorsnäs interim report, January to March 2019. Today, I am pleased to present Petra Einarsson, President and CEO, and Kristina Schauman, acting CFO. For the first part of the call, all participants will be in listen only mode. Afterwards there'll be a question and answer session. Speakers, please begin your meeting.
Thank you. Good morning, and welcome everyone to today's webcast of our quarter one report. I would like to start by sharing some key highlights of the report, and then to invite Kristina to give a more granular update of the financials. After Kristina's update, we will open up for Q&As. These are the main highlights of the quarter. I am very pleased with the continued strong demand, resulting in a 10% sales growth and the solid margin of 16%, not far from our long-term targets of 17%. However, we still experience headwind regarding raw material costs and above the level of last quarter.
I'm happy and proud to inform that our strategic investment, KM7 in Gruvön, is progressing according to plan, and we have now entered into the startup phase, and we will have stock on wire any day now, and I definitely believe that it will be in April. The Bergvik Skog transaction is expected to be closed in May, and the process to find a suitable investor continues as planned. We have now sent out the information memorandums to several interested parties, and the interest is very high. We are on a journey with good momentum in the first quarter towards unlocking the BillerudKorsnäs potential. If you look at the three focus areas that we have on unlocking the potential, the first and foremost attention for us has been to secure a successful ramp-up of our strategic investment, KM7 in Gruvön, and to secure long-term competitive wood sourcing.
Second, we need to continuously, day by day, improve safety and production stability. Third, it's last but not least, growth is our focus and we need to accelerate regarding innovation and solutions. If you look at KM7 in Gruvön, it's a huge project, still far from being finalized. It's SEK 7.6 billion. Right now we have green lights on safety, green light on at cost, and green lights on time, thanks to a tremendous teamwork within the company. The startup phase is now initiated, and we will have stock on wire in April. We plan to produce commercial liner already in May, June, and to have certified material produced in October. The coating machine will start up in August, and the first material for our customers, as I said, will be sent to customers in October.
Our guidance of SEK 500 million impact on EBITDA related to mix is still valid, the SEK 250 million regarding increased schedule depreciations is also still valid. Looking at the sourcing of wood, this accounts for roughly 30% of our total spend. Bergvik Skog is still in our focus from two different perspectives. First of all, we focus to finalize the deal with the letter of intent parties on Bergvik Skog in May or early June. We believe that, as was conveyed during the Capital Markets Day last year, we still believe that it creates more value for BillerudKorsnäs to invest forward in our packaging solution business than to own forest land. We are now in the process of inviting robust investors for long-term collaboration and have sent out the information memorandums.
The interest is very high, I look forward to deepen the discussion with several parties. Now some words about safety and production stability. A safe company is a well-run company. If you look at the safety performance of BillerudKorsnäs, last year, we reached 7.2 lost time injuries per 1 million working hours. This is very far from zero harm. Unfortunately, if you look at the fourth quarter, we have moved in the wrong direction and are now on 8.7 lost time injury frequency rate. During the fourth quarter, we have now launched the BillerudKorsnäs Safety Program, where we focus on structure, engagement, and predictability, with our focus to have safety as our first priority. We are committed to achieve our targets of less than 1.5 lost time injury frequency rate by 2023.
We believe that all accidents can be prevented, and we will never walk by to raising the voice to avoid an accident within the company. It's a long way. This will be a long journey, and it's very much correlated to mindset. Another area where we have total commitment is production stability. Here we continuously need to improve our production stability, and we have seen no major disturbances so far during 2019. The first quarter had a soft start with a maintenance-related challenge in Gävle, we also had a very strong finish off of the quarter with a month in line and above our targets. The production targets have been triangulated based on external benchmark, internal benchmark, and the nature of the loss to evaluate our performance by each segment and by each machine.
We have set availability targets for the next coming two years to improve by 4%. This is equivalent to SEK 400 million in EBIT improvement, or roughly 1% unit in EBIT margin each year. This program is now in execution phase to deliver on the committed targets with our key competence network set up to facilitate the cross mill learning and the best practice sharing. The key loss initiatives are monthly tracked, we also track corrective actions when needed to get back on track. We are fully committed to deliver on these promises, and we definitely plan to increase OEE by at least 4% units by the end of 2020. If you look at the full year production of 2019, we expect to reach 2.9 million tons. Now we have talked about what to secure and what to continuously improve. Let's talk about accelerated growth.
Innovation is at the heart of what we do. The end results are new packaging solutions that create value for our customers and at the same time support the profitable and sustainable growth for BillerudKorsnäs. When it comes to measure our performance to launch new packaging material, our long-term target is a new product ratio of at least 15. A few years ago, we surpassed that level, but during the last two years, the level has decreased to 6%, 7%. This is primarily the effect of where we are in the investment cycle. Already this year, we expect to come up on the targeted level of at least 15% again. We have taken one step closer to a fully bio-based paper bottle during this quarter. BillerudKorsnäs and ALPLA joined forces to fulfill the shared vision of developing a fully bio-based paper bottle with biodegradable barriers.
This is something that is really exciting, and we look forward to see the paper bottle out on the market soon. Finally, before I hand over to you, Kristina, the outlook. Looking at the next quarter, we expect the good demand of our products to continue. We also experienced an increased price pressure on some parts of our product portfolio, but for the major part of the portfolio, we need to focus on safeguarding the current price levels and also the fact that we have newly negotiated price levels for the major part of our liquid packaging board. Finally, the cost of fiber expect to flatten out on a high level for the quarter to come. With that as an introduction, Kristina, I hand over to you.
Thank you, Petra. I will now go through the results, first from the group level, and then I will give you some highlights on the different divisions. As you have already seen, we have started the year with a very strong net sales growth of 10% year-on-year, and this is a strong growth that we have seen across all the divisions. The increase is mainly driven by the fact that we have higher sales prices year-on-year, but we also have seen a positive currency effect. Of the growth, approximately two-third relates to organic growth in sales and one-third to currency. At the same time, our sales volumes for the group have been more or less unchanged compared to the first quarter in 2018. We have also continued to see high raw materials costs in our production.
The largest effect we have on the fiber, it has continued to increase somewhat in the first quarter, now the prices have increased with more than 20% compared to the first quarter in 2018. We expect that this price increase will start to flatten out, but that the level will still remain high. Costs for chemicals has also remained at a high level, but here we have seen that the increase has already flattened out. In addition, we have also, during the quarter, seen a negative impact from higher energy prices year-on-year. Looking at our EBITDA, compared to last year, we have a small decrease, and we ended the quarter with an EBITDA of SEK 1 billion 35.
The main explanation is that although we have managed to increase our sales prices, we have not fully been able to compensate for the higher raw materials costs that we now see a full effect of in this quarter. I will now guide you through the effects on the different divisions, and I will start with Division Board. For Board, we have seen a net sales increase with 12% in the first quarter, where of the major part of this has been organic, approximately 9%, and the remainder part is based on currency. The organic increase is a result of higher sales prices compared to last year, but also that we have had higher sales volumes in Division Board. The increase in sales volumes relates to a transfer production capacity from Division Paper.
Here we have then increased the production of fluting and liner for Board during the first quarter. The EBITDA decreased with 8% compared to the same period last year, and we ended the quarter with a margin of 19%. The main explanation is the higher fiber and energy costs that we have seen, but also have we had costs in Gävle in relation to that we have replaced part of a digester in one of the pulp lines and used dissolving pulp in the production, and this has also affected the cost. Our return of capital employed for the division ended at 9%, and this is the same level as we have seen at the group level. As you know, the long-term target is 13%, to be above that.
The lower return is, of course, related to our large CapEx program and where the investment in our KM7, the cartonboard machine, is allocated to Board. We expect to start depreciation of this machine as of May. Then I'll just continue. The last thing I said was that we expect to start depreciation of KM7 as of May. Petra already mentioned that we also expect to have the same level of SEK 250 million depreciation for this year. The outlook for Board is that we see that the market is expected to remain good. The only segment where we have seen some weaknesses is the uncoated liner segment. Division Paper, here we have yet seen another very strong quarter for Paper, and the net sales increased with 10% year-on-year.
The main explanation is that we have been able to increase prices and keep this high price level throughout our segments. We have also seen positive currency effects, and we have also seen an improved product mix, and this is due to the start of PM10 in Skärblacka, where we're producing MG paper. The EBITDA increased with 9% year-on-year, and we have a margin that remains on a high level of 20%. The return of capital employed in Paper is high at 20%. The outlook for this division is that we expect the market to remain stable, but we have started to see some price pressure, our main goal is now to continue to safeguard the current price levels. Finally, Division Solutions. Here we have a good growth also of 10% during the quarter, and we had net sales of SEK 206 million.
This is mainly related to new sales within our Managed Packaging segment, but we have also here seen positive currency effects. The EBITDA was positive at SEK 13 million compared to a negative number in the first quarter in 2018. We ended the quarter with a margin of 6%. Since this division is solutions oriented and therefore asset light, here we focus the follow-up on margins rather than return targets. The outlook for solutions is that we expect the growth to continue in a strong way during the remainder of the year. Now some words about the balance sheet. We have had net debt ended at SEK 9.8 billion in the end of the first quarter compared to SEK 6 billion a year ago. This is clearly a result of our large CapEx programs that are now coming to an end.
In the first quarter, we had strategic investments of around SEK 700 million, close to SEK 900 million is expected in the second quarter. If we exclude any effect from Bergvik in the first instance here, when I talk about it, we expect net debt to peak in the end of the second quarter. This is due to the remainder part of our CapEx for our strategic investments, also that we have the dividend payout that we book in the second quarter. If we include the closing of Bergvik during the second quarter, we expect, as we have already mentioned, a cash out effect of around SEK 5.4 billion. Our debt position will increase even more. As we have communicated, the sale of Bergvik is progressing well, and we expect to sell a majority of this during the third quarter.
Even if we had Bergvik on our balance sheet, we still have headroom for our debt covenants. We have debt covenants based on net debt to equity and interest coverage. We will start to see a decrease of our debt position in the latter part of this year, and it's expected to be in line in late 2020. That is in line with our net debt/EBITDA target. I'll hand over to Petra for some final concluding remarks.
If you summarize the long-term financial targets, we reach the net sales growth of 10% and the EBITDA margin on 16%. Return on capital employed 9%, which is below the long-term target, also net debt/EBITDA is now on 2.9x level. The dividend policy to be 59% to be decided at the annual meeting. To summarize the quarter, it's definitely so that what we see during this quarter is that the strong demand for our products continues, which is really good, and we see also a strong sales performance in all divisions. I believe the 16% margin to be solid considering the high fiber costs that we have had also in the first quarter. The ramp-up of KM7 has started and proceeds according to plan, and the process of finding a suitable investor for Bergvik is ongoing.
We definitely have a very good momentum in the company right now, I would like to say that we have a quite optimistic view on our future. The strategy process is taking form now in the new organization with the divisions in place and the management team and the division in place. We plan to tell you more about our five-year plan when we meet later this year at the Capital Markets Day. Now I would like to open up for some Q&As.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press 01 on your telephone keypad and you'll enter a queue. After you are announced, please ask your question. The first question is from Linus Larsson from SEB.
Taking my questions. I'd like to start just for clarification's sake, just to follow up on your Gruvön KM7 startup. You're guiding for SEK 200 million EBITDA impact in the second quarter. Should I understand that as the sequential impact is also SEK 200 million, i.e., on that basis, there were no such costs, no such impact in the first quarter? That's my first question, please.
Yes, that's correct.
Thank you very much. Then going into the third quarter, is it then SEK 50 million less of an impact? Is that the way we should understand your guidance comments?
Yes. We foresee SEK 200 million roughly for the second quarter, and then for the remaining SEK 300 million to be split evenly the next quarters.
Excellent. Many thanks for clarifying that. Also, the way I understand it, this is guidance for the project in its totality. Does the guidance also cover some group-wide improvements? Like for instance, the moving of volumes from, say, the closed machines at Gruvön to other mills in your system, or is that outside of this particular guidance?
No, that is included in the guidance of SEK 500 million.
Okay, thank you very much. Could you quantify that? How important is that? How much volume do you expect to move from Gruvön, for instance, to other mills in your system?
I think, Linus, what we have said so far is that PM5 is now closed, that has been already moved. That was MG paper and is now produced in Skärblacka. PM1 and PM2 is expected to be closed down in May, the last machine, I think it's PM4, we have not taken a decision when to move that capacity yet. We are expecting to move those qualities going forward. We have to come back to that.
Okay. Do you expect to retain the vast majority of the business that is now on the machines subject to closure at Gruvön?
PM1 and PM2 is now producing liner and pure board. Yes, some of those volumes will be moved to KM7 as we ramp it up.
Okay. I see. Okay. Good. Thank you very much for that clarification. Then may I also ask on Bergvik, you hope to close a divestment or part divestment in the third quarter, if I heard you right just now. Is your intention to release capital on a net basis in connection with these transactions?
I think that is too early to speculate as we are right now in the absolute beginning of the negotiations.
Understood. Maybe in connection to that, how important do you view a buyback option as part of this potential deal?
I think that is also something that will be part of the negotiations.
Okay, you're not.
I think it's important to have some kind of mechanism to secure that BillerudKorsnäs has a stake in this long term.
You mean that.
If it is a buyback option or not is part of the negotiations.
Okay. Understood. Thank you very much.
Thank you, Linus.
Next question is from Justin Jordan from DNB. Please go ahead, your line is now open.
Thank you. Good morning, everyone. I just wanted to clarify something that's in the statement on division paper. You talk about transfer of production capacity to division board, and clearly lower volumes year-over-year in division paper in Q1. Is this something that we should think of as a longer term structural change within the divisions? It clearly will have impact in Q2 to Q4 respectively for 2019, or is this a one quarter thing? That's my first question.
This is a one quarter thing, that machine has now been closed down. That's the machine where we moved the production to PM10 for MG paper.
Right.
Then it was used for production of liner meanwhile up until the end of March this year.
Okay.
Now it's closed.
Now it's closed.
There's no effect from that going forward.
Just in terms of thinking on a group-wide basis, again, your volumes were down 0.7% in Q1 year-over-year. For calendar 2019 overall, with the benefit of KM7, should we be thinking in terms of overall group volumes being up year-over-year? Or how should we think about that overall?
Yes. You should think that it should go up, we are aiming for 2.9 million tons. If you divide it, you have the increased productivity targets that we have of roughly 60,000 tons. Then we also have contributions from KM7, also thinking about the volumes that we lost last year due to the wood shortage. If you add that back then we are aiming for 2.9 million, roughly.
Okay, thanks for clarifying. Just, again, staying in division paper, you talked about pricing pressure going forward. Can you just give us some idea of the particular product areas that you're expecting that or seeing that already, as it were?
We haven't really seen a price decrease so far. We are able to safeguard our price levels. There are indications in certain segments that it could come, we still are working towards keeping the price levels up.
We're not overly concerned, we need, of course, to keep an eye on it.
Sure.
I think also, if you look at the sales performance in the quarter with the 10% sales increase, where around about two-thirds were related to price, I think that is also a message.
Yeah. I'm just trying to clarify, sorry, the certain segments that you're cautioning on, can you elaborate as to what they are, please?
It's mainly in the well material containerboard. It's uncoated liner where we are most worried. We still just want to send a signal that the market is good, but not as good as it was last year, and we see some pressure out on the market, but we have so far been able to safeguard our price levels and feel confident about that.
Exactly. Yeah.
Sure. Okay. Thank you for giving the EBITDA bridge. Can you just help us understand just on the 10% revenue growth at the group level year-over-year in Q1 over Q1 2018? You've got a negative 70 basis points from volume. I'm trying to work it out here. About a 6% or so group FX tailwind? Sorry,
Yes
impact, then something like a 4% or 5% FX tailwind year-over-year. Is that correct? I'm trying to work out the 10%. Can you bridge that for us between volume, price, and FX, please?
No, but it-
The answer to your question is that we see a 10% increase in net sales, approximately one-third of those is currency driven.
Yes, two-thirds are prices.
The rest is price increases. The volumes are more or less unchanged year-over-year, as we said.
Yeah.
Yeah, the downslide.
Does that make sense?
Okay. Thanks, Christoph.
Next question is from Oskar Lindström from Danske Bank. Please go ahead. Your line is open.
Yes. Hi, thanks for taking my question. Three questions. First, on the operational side. In the Board division, you had quite good increases in average sales price, sort of a sales divided by volume sold during the quarter. Does this reflect higher liquid packaging board prices? Or is there also some sort of a liner-
No. It's both.
It's all board.
No, it's board.
Sorry, both what?
It's both. It's both liner, it's also reflecting the liquid packaging board increase pricing.
There is also some increase in liner prices sequentially. Is that how we should understand it? Year-on-year in there.
Year-on-year. If you compare Q1 over Q1, yes, it's an increase in liner. Yes.
Also sequentially?
Not in this quarter, no.
No. Did your average sales price for liner stay the same quarter-on-quarter?
Q1 over Q4, yes.
Yes, more or less.
All right. The entire sequential price increase is due to liquid packaging board. Also to folding boxboard?
Limited effect from folding boxboard. I would say it's liquid packaging board mainly.
All right, very good. My second question is on the Bergvik Skog sale. You had a question on that already. I'm just wondering, given your, at least at the moment, sort of slightly stretched balance sheet, is that in any way sort of impacting in how important the conditions that you attach to the sale are, and to how much of Bergvik Skog you're looking to sell?
No, not at all, I would say. No, I don't think that influences this very much or not at all. We also have a negotiated loan, especially for Bergvik Skog. We can keep Bergvik Skog in our balance sheet for this year or for another year as well. We are not at all forced to finalize this negotiation, and we will not do it unless we find a good deal. We can also keep it, and we have headroom to keep it, but we see that that is not the wisest thing to do since we want to develop BillerudKorsnäs to develop forward into our packaging solutions business. It's not at all guided in a way from a balance sheet perspective.
All right, thanks. My third and final question is on the KM7 startup. You mentioned that you're aiming to sell certified material in October, if I remember correctly. Does that mean you will be selling certified liquid packaging board already in October? I thought that was a process to get that certified much longer.
No. In October, we will start up the coater in August, and then we will provide our customers with the material to be certified in October.
Okay. How long do you expect that process to take if it goes according to your plans? Certification.
If you look at KM7, to have the machine fully ramped up will take up until 2023. So the certification part of that will continuously move towards the full ramp-up of the machine.
All right. Does it take one year or two years to have materials certified?
I don't want to speculate on that.
No.
I think the message that we want to send is that we start up the certification period already in October.
All right. Good. Thanks. Those were my three questions.
Thank you, Oskar.
Thank you.
Next question is from Robin Santavirta from Carnegie. Please go ahead. Your line is open.
Hello. Thank you for taking my questions. Looking at the volumes, actually, your volumes have now declined for six consecutive quarters. What are the key reasons for declining volumes? As I understand, the market demand has actually been very good during this time. You say production has been running quite smoothly during this time. What are the key reasons for the volume declines over the past six quarters?
If we start with the major effect last year, it was very much related to the wood shortage that we had that was, to the large extent, weather related. If you move into this year, it has been affected by the prolonged maintenance that we had of the digester in Gävle. I think those two are the two major reasons.
Still, Robin, I'd say that the sales volumes are more or less in line with last year Q1. We are up in this quarter, right?
I guess the sales volumes are down by 1% year in the delivery volume.
Okay. Yeah. It is more or less in line.
Sure. Smaller now. Yeah, sure. All right. Mainly weather-related problems last year, but you are not deliberately running machines slower compared to the time where you had a lot of production issues back in 2016, 2017-
No, we do not.
in order to avoid this.
No, we don't do it deliberately. We do believe that, or we know during the exercise that we have done in Production Excellence, that we have a great opportunity to increase availability. We now monitor that journey every month. I think that we have a quite rock solid plan to increase volumes and to release potential for the company during the next coming quarters.
Okay, good. Thanks. Related to this OEE program, this Production Excellence program, I guess it has been now up and running for six, seven months since the Capital Markets Day in September. You promised an update on that at that time, we have been talking about that, can you provide some more materials, information about where we are standing, any kind of numeric data you can provide?
I would be happy to do that the coming quarters. In this quarter, we're happy to see that the Production Excellence, that the performance database that we have is working. We also see some really good performance from the mills that are mostly advanced in this program, like for instance, Karlsborg. Here we have also had a new permit that also enables Karlsborg to increase and to release the potential that they have in Production Excellence program that they were not able to do before. I think we see a lot of signs that things are moving in the right direction. Our plan is to update more in detail the coming quarters, so that you can see for yourself the journey, how close to 2% this year and 4% in total for two years that we are.
All right, good. Thanks. That will be very useful. In terms of the start-up volumes of KM7, I assume that is mostly this uncoated liner. Aren't you a bit concerned now as that market looks a bit softer, put it that way, at the moment, now you're bringing more volumes. Have you agreed on a home for those volumes? Is it on spot market or is it with current customers? What kind of pricing have you agreed on? Can you a little bit comment on that? I believe that the ramp-up, I'm not that concerned about the technical part, I'm more concerned about the commercial part of the ramp-up.
I'm not really concerned about that. I think we have good contracts in place. From a KM7 perspective and from an EBITDA margin perspective for the company, I'm not concerned about that.
Okay. Are you planning to sell those volumes on spot markets or in Europe or overseas or with current customers? How does that work?
I think it differs, mainly we already have contracts in place and will not utilize spot.
All right. Thanks. Just on the, I guess you guide for positive EBITDA in 2021. When should we expect from KM7 or for all the sort of closing down the current production machines and then ramping up KM7, when should we expect positive EBIT? Is it 2022, or is it already in 2021? Can you already now provide some kind of info on that?
'21.
'21.
We have said that we will have a positive effect on EBITDA in 2021. I think we stick to that right now.
All right. Then finally, just a technical thing for Kristina or Christoph, maybe on CapEx this year, is SEK 2.8 billion a good figure?
Yeah.
2.9, actually.
2.9 is good, yeah.
2.9. All right. Thank you very much.
Thank you.
Thank you.
Thank you.
Bye-bye. Thank you.
Next question is from Christian Kopfer from Nordea. Please go ahead. Your line is open.
Just one brief follow-up from me on the price pressure that you see in Q2. You say that you expect the majority of the portfolio to be more stable. Can you just be a little bit more clear on this? On the majority, is that to be interpreted as 70%-80% of the portfolio, or?
If you take the different segments in order, you can say that the area where we are mostly concerned is for the well products or the containerboard, where we see price pressure now on the coated part of the containerboard. If you look at kraft paper and also sack, brown and white, we see a softening of the demand. We don't see any real tough price pressure on the niches where we are in. I think it's a different thing if you look at the full market. Also, if you look at the cartonboard, the cartonboard market as such is huge. I think it's 15 million tons or something, but we operate on some 100,000 tons. We are not really that price sensitive on such a small slice of the market.
Then we have the liquid packaging board, where we have quite recently renegotiated SEK 6 billion of the SEK 7 billion in liquid packaging board for new contracts that has a duration for more than one year. If you add that together, I would say that the price pressure is not the most evident for the whole portfolio. Of course, we feel it in some parts of the portfolio, and that is what we are guiding for.
Okay. Thanks, Petra. Just to follow up on that, the price pressure that you do see on some parts of the portfolio, can you just say something about the magnitude? Is it low single digits or?
No, it is no double-digit price pressure. I think it is single digit.
All right. Okay. Thank you very much.
Thank you.
Next question is from Kevin Hellegou from Goldman Sachs. Please go ahead. Your line is open.
Yeah, just one quick follow-up. Your production guidance for target of around 2.9 million this year, that implies a pretty strong second half, or should we already expect that production pick up from the second quarter? Can you just elaborate a little bit on that? Is it mainly KM7 driven or is it all divisions, all machines sort of producing better in the second half?
It is all machines and all divisions. We have some potential to unlock in the company and to increase the availability in all machines. It is a huge potential for BillerudKorsnäs, and that is what we aim to do. It is definitely all machines. It is Karlsborg, Skärblacka, Pietarsaari, Gruvön. It is all over that we can lift availability in all machines, and that is what we have spent time to make sure that we definitely have that is proven in numbers. We have also set up an execution plan that we follow now weekly, actually, but we have performance reviews with the management team every month to look at each task, each loss, and each machine and each mill.
Okay, perfect. Thank you very much.
Thank you.
Next question is from Mikael Järvinen from Handelsbanken. Please go ahead. Your line is open.
Yes. Good morning. Just had a few more clarifications on the KM7 project, if I may. Did I understand correctly that the SEK 500 million that you're guiding for this year, SEK 200 million of that will be lost production and SEK 300 million is sort of startup costs?
No.
No. I think you should think of it like SEK 500 and the major part of that, slightly above SEK 400, is mix and volume effects from closing down and opening up the new machine. On top of that, we will have around SEK 50-SEK 75 that we expect to be babysitting costs, meaning extra consultants, extra personnel, et cetera, related to the early startup.
Okay. Very good. Following on that, did I understand now correctly that you've discontinued all paper production at Gruvön now?
No. What we have done is that the PM5, a smaller machine, is now closed, and that capacity is moved to Skärblacka. It was an MG machine. The PM1 and the PM2 is now producing liner and pure board, and most of that capacity will enter into the new machine when it's open. That is the situation right now. We will close PM1 and PM2 during May.
Again, have you sort of stopped producing packaging paper at Gruvön, or are you still producing packaging paper? That's my question.
In PM4, we are still producing products that is related to paper business.
Okay. That will end, I guess, next year. Is that correct?
Decision is not taken yet, it's too early to say.
It will end in a year.
Okay.
We haven't decided exactly the date, but it will end. We will not produce packaging paper in Gruvön.
Okay. Very good. Could you just clarify what your capacity now is for packaging paper after you've closed PM5 and closed those two other machines? How much capacity do you have for that business?
I don't have those figures with me. We will have to come back to that.
Okay.
The major changes that we have closed down paper capacity in PM2, and now producing liner and board there. We have closed down PM5, which is, of course, an impact on paper. No, sorry, that is moved to Skärblacka, which means no impact on paper. If there's any other changes, I need to double-check that and get back to you.
In general, you can produce at the levels that you produced in Q1 in packaging paper and even more, I guess, if efficiency is improved and so forth.
Yes.
Okay. Very good.
You have the clarification on PM4. Part of that production will be moved to Josefstad. That is TFA paper. There is also FibreForm paper that will be moved to Karlsborg. It is too early to say exactly when we will do those changes. It is in the pipe, and as Petra said, probably within a year.
Okay. Very good.
Thanks, Pål.
Just a detail, I guess. We've talked about your increase in liquid packaging board for this year. Now that Q1 is behind us, could you sort of comment on what the magnitude of that increase in the end was?
No, we cannot do that on a numbers perspective. We can reinforce the message that we are very happy with the negotiations and also that it's a long-term contract and that it also involve a partnership when it comes to innovation and actions in working closely between the companies that we have negotiated with.
Okay. Finally, just you said that you have plenty of headroom within your loan agreements and so forth. Could you just clarify what your primary covenants are?
Our primary covenants is net debt to equity, it's set to be below 1.25. We have an interest coverage covenant as well, it's like to be above three, but it's way above that. Even the net debt equity covenant, we have plenty of headroom.
Okay. No EBITDA type of covenant?
No EBITDA covenant, no.
Okay. Very good. Thank you very much.
Thank you.
Thank you.
Next question is from Martin Melbye from AB. Please go ahead, your line is open.
Morning. If we sum up the big changes quarter-over-quarter into Q2, starting with depreciation, how much will Gruvön be depreciated in Q2 compared to Q1?
Yeah. We're starting depreciation in beginning of May, we expect it for Q2 to be around SEK 60 million, SEK 60, little more. Around SEK 60.
Okay.
For the remainder of the year, it's about SEK 30 per month going forward.
Okay. We have maintenance of SEK 300 and rent cost of SEK 200. Is there a price impact from these comments we've been hearing now in Q2 already, or is that more second half?
Sorry, the last part, if there is an effect for-
Is there a price effect already from these comments about the price pressure already in Q2, or is it more second half?
Maybe on uncoated liner, if we should point at anything.
Okay. We're left with, say, EBIT of close to zero, if we sum up everything, starting with the SEK 650 we had in Q1. Ish.
That's-
I guess from these numbers. Yep. Okay, good. Thank you.
There are currently no further questions registered, so I'll hand the call back to the speakers. Go ahead.
Thank you all for listening in. Petra, would you like to say anything? Final words before we
I think that if you look at the quarter, I'm very happy with the demand, actually, and that it's such a strong momentum, both in the market, but also within the company. I think that we did a lot of things to reorganize and to put the house in order last year. I feel very confident now with the new organization in place. Everyone is hungry, and we can work with real stuff now to improve the result. We see a lot of improvements that we can do. I feel very confident about this year, and I feel confident about KM7.
Fantastic. Thank you all for listening in. Bye-bye.
Bye.
This now concludes your conference call. Thank you all for your participation. You may now disconnect your line.