Report earnings call. My name is Christopher Casselblad, and I'm Head of Communication. With me in the room, I have our CEO, Petra Einarsson, and our Acting Chief Financial Officer, Kristina Schauman, who is also a board member since 2014. As usual, we will use approx. 20-25 minutes to go through our presentation to then open up for questions. Petra, please.
Thank you, Christopher. Good morning, everyone, and welcome to our webcast to talk about the result in the fourth quarter. I would like to start with the key highlights, to then invite you, Kristina, to give an update on the financials. After that, we will open up for Q&A. The main key highlights of this quarter are this. I'm pleased to inform about the solid performance that we have had in growth, +5%. This fourth quarter was somewhat lower due to year-end seasonality. Production levels continued to develop in line with our expectations, with very few production disturbances. We have continued to experience headwind regarding raw material costs at a magnitude of 25% increase year-on-year. I'm also very pleased to inform that we have renewed our long-term contracts within liquid packaging board.
Importantly, our strategic investment, KM7 in Gruvön, is progressing according to plan towards startup in March, April 2019, this year. Bergvik Öst is also well on the way, and we expect the transaction to be closed late April or maybe early May. The process to find a suitable investor continues as planned. The proposed dividend from the board is SEK 4.30 per share, to be paid out at two occasions during the year as an improved cash management. Let's start by looking at the very strong performance of Packaging Paper. Sales increased by 5% with some seasonality variation towards the end of the quarter, the EBITDA increased by 2% to SEK 411 million or 18% of sales. We expect the market to remain good, I'm happy to say that we have reached a record high result for the year.
Let's turn to Consumer Board, where we are also experiencing continuing strong demand with sales up 4%, with limited effects on price increases. EBITDA is down by 20% compared to last year, mainly due to increased raw material costs and unchanged prices. We reached SEK 290 million or 14% of sales. We expect the market to remain good, we have renewed our long-term agreements with our largest customers, which will have a positive effect on margins. The new contracts are, of course, of utmost importance for our long-term goal to take profitability back to historical levels of liquid packaging board. Last but not least, the performance of the Corrugated Solutions, where sales has increased by 15% and the solutions part within Corrugated Solutions that we call Managed Packaging has increased by 14% during the quarter.
EBITDA reached SEK 278 million, or 24%. This is an increase by 31% compared to last year. Also here, we expect the market to remain good. Continue with the strategy. As we said at our recent Capital Markets Day update, we need to unlock the potential of our business because we do see that we have large opportunities ahead from a BillerudKorsnäs perspective. My first and foremost attention has been on securing a successful ramp-up of our investment, KM7, in Gruvön. Also, the cost of wood is key to us. That is also the first priority to secure that we have a cost-competitive wood sourcing strategy, short and long term. Second, we need to continuously improve safety and production stability. Third, growth is in focus. We have to accelerate regarding innovation and solutions. First and foremost, secure the ramp-up of KM7.
Here I feel confident that we are on schedule towards the startup of March, April. All risks in the project are monitored on a weekly basis, where we have pulse meetings looking at risks based on safety first, on time, and at cost. The civil construction has now been finalized. The assembly work of the machine will be finalized during February. The machine will run with water during March. We expect stock on wire in April. We also expect EBITDA to be positive 2021. This whole process is very exciting for all of us. We are really proud to be part of ramping up the world's most advanced board machine. Another important area is to safeguard the sourcing of wood.
The sourcing of wood accounts for 30% of our total spend. As you all know, we have experienced the wood shortage during 2018, mainly weather related, impacting the result of the full year of SEK 250 million, or taking out roughly 1% unit of EBIT. This has not affected at all during the fourth quarter. It influenced the full year quite a lot. We do see that the competitive situation continues. We estimate for this year that the cost of wood will flatten out, but still on a high level. We now focus on finalizing the deal with the letter of intent parties on Bergvik Öst latest May. As we conveyed at the Capital Markets Day, we still believe it creates more value for BillerudKorsnäs to invest forward in our packaging business than to own forest land.
We are now in the process of inviting robust investors for long-term collaboration. We plan to send out an information memorandum late February. Now some words about safety and production stability. I truly believe that a safe company is a well-run company. BillerudKorsnäs had 7.7 Lost Time Injuries per one million working hours 2017, which is far from zero harm. The correlation to production stability is quite obvious. Our priority is safety first. We are committed to achieve our target of less than 1.5 Lost Time Injuries per one million working hours. We now have a track record of moving in the right direction for the Lost Time Injuries during 2018. We have developed from 7.7 to 7.2 regarding the Lost Time Injuries. Regarding all injuries, we have an even more distinct positive development during the year.
This is not good enough, here I would say that we need to have almost what you can call a paradigm shift when it comes to safety for the company. This is very important for us to continue this work. Another area where we also have total commitment is production stability. We continuously need to improve our production stability and have seen less disturbances during 2018 compared to previous years. It remains our key focus, we are not satisfied with the pace of improvement that we have seen during 2018. Targets have been triangulated to evaluate our performance by each segment and also by each machine. We are setting availability targets for the next coming 2 years to improve 2% per year. That is equivalent of SEK 200 million in EBIT improvement, or roughly 1% unit in EBIT margin per year.
This program is in place, I have full confidence in our ability to deliver. As I said, we have experienced fewer disturbances during 2018 compared to previous years. Now I have talked about what to secure and what to continuously improve. Let's move over to what we need to accelerate. Innovation is, of course, at 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 of BillerudKorsnäs. When it comes to measure our performance to launch new packaging material or solutions, 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 somewhere around 6%-7%.
This is primarily an effect of where we are in our investment cycle. Already this year, we expect the new product ratio to come back up on targeted level. Hopefully we will reach closer to 15% already this year, next year. It will not take up until 2023 to reach the goal. One thing that I'm also very happy with is that we have my management team in place now. We launched the new decentralized profit and loss-based organization October 1st, now I have all managers in the team appointed, we actually had our first kickoff management team meeting a couple of weeks ago. Now we are all set for execution, I would say.
The long-term financial targets, as you know from the Capital Markets Day, we are committed to meet our long-term targets, those were unchanged when we presented them at the Capital Markets Day in September. This quarter, we are well above when it comes to net sales growth of 6% compared to the targets of 3%-4%, not fully in line when it comes to EBITDA, return on capital employed, and net debt to EBITDA. The dividend proposal of SEK 4.30 per share is in line with our long-term target. That was the key highlights of the quarter. Now I would like to hand over to you, Kristina, to continue with the financial presentation.
Thank you, Petra. We finished 2018 with yet another quarter of top-line solid growth. As you have seen, our net sales increased with 5% in Q4 2018 compared to the same quarter last year. This increase is mainly explained by the increased sales prices within Packaging Paper, as well as within Corrugated Solutions. We have also seen a positive effect from currency in the Q4. On the negative side, we saw lower sales volumes, and that's an effect of inventory buildup, both within Consumer Board and Packaging Paper. The increase in inventory in board was mainly or is mainly an effect of building inventory ahead of planned maintenance stops, and that's mainly related to Gävle, which this year will take place already in Q2 compared to Q3 in 2018. For paper, the increase in inventory is mainly due to seasonal effects around year-end that we normally see.
This year, however, we saw a somewhat larger effect and lower orders from the customers that optimize their working capital over year-end due to the high price levels. Regarding the results, the EBITDA decreased in Q4 with 14% compared to the same period in 2017. As Petra has already gone through, the main reason for this decrease is the continued headwind that we are seeing from the higher raw materials cost. It's the higher cost within the fiber, but also other raw materials, and then in particular, chemicals that have remained at a high level. Although we've had price increases within paper and solutions, as well as positive currency effect, we have not been able to fully compensate for these higher costs.
For 2018, the cost for pulp board have increased by 25%, and the cost for caustic soda, which is one of the main chemicals that we are using, has increased by 20%. Moving ahead and looking into 2019, we are expecting this cost level to remain at a high level, but that this increase will flatten out. Our next generation program is now close to completion with the expected start of our cartonboard machine in March, April this year. With this, we are now coming to an end of a very intense investment period. As a result of the investment activity, our net debt is now at SEK 9.3 billion, and this implies a net debt to adjusted EBITDA of 2.7x to compare with our target to be below 2.5 x. We expect our net debt to peak in Q2 2019, excluding any effects of the Bergvik transaction.
As Petra mentioned, the work to find suitable investors for Bergvik Öst is progressing according to plan, looking ahead, we have a clear focus to de-leverage the company. We expect to be on target again, that is a net debt to EBITDA below 2.5 times, at the end of 2020. I hand over to Petra for the outlook.
Thank you, Kristina. Looking at the outlook of 2019, we see limited possibilities to further increase the sales prices and focus on safeguarding the price level achieved during 2018. Also, as I have already informed, we have renewed our contracts with the largest customers in liquid packaging board, which will also affect 2019 when it comes to pricing. We have also a wood cost increase that we expect to flatten out, but still on a high level. The summary is that the production levels are in line with our expectations, which is good, but we are not satisfied with the pace of the improvement. We have a continued headwind from higher raw material costs, and as Kristina pointed out, it's both wood and chemicals. The renewed long-term contracts with liquid packaging board, where we foresee a positive effect on margins.
KM7 progressing according to plan, and we still expect the start-up and plan for the start-up in March, April. Bergvik Öst process of finding a suitable investor continues as planned. We also take off in 2019 with our new organization. We plan to publish the pro forma numbers on March 11th. That was the summary of the fourth quarter. Now I would like to hand over to you, Christopher, or maybe I can open up for the Q&A myself. I think we do it like that.
Yes.
Please, if you have any comments or questions.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad and you enter a queue. After you're announced, please ask your question. Our first question comes to the line of Justin Jordan from Exane. Please go ahead, your line is now open.
Thank you. Good morning, everyone. I just wanted to get a little bit more color if I could, please, on in the Consumer Board division, you talked about renewing long-term contracts within liquid packaging board and talked about clearly a positive impact on margins. Can you give us some idea of how quickly we should see this positive impact? Is that in Q1 2019? Secondly, clearly any more color on the degree of, say, margin benefit that might bring. Secondly, just a sort of slightly technical question. You clearly have stocked up at the end of 2018 for clearly Gruvön start-up in April. Should we see the stock levels unwind as we go through 2019? Because your 2018 production was 2,785 and your sales were 2,641, so you've increased stocks by 144 tons.
Should we see that unwind in 2019, or is that a new elevated working capital sales level? Thirdly, just on CapEx. Your CapEx for 2018 came in at SEK 5,135, and your guidance was SEK 5.3 billion. Does that mean the 2019 CapEx will be higher than your existing SEK 2.75 guidance?
Maybe we have to ask you to repeat the questions as we go along, Justin.
Sure. Okay.
The first question was regarding the renewed contracts of the liquid packaging board and when we will see the impact. The contract is renewed and is valid from January 1st.
Fantastic. Okay. Can you give us some idea of the potential benefit to margins from that increase or new contract?
We don't reveal the details of the contracts that we have with our customers. If you look at it from a broad sense and look at the Consumer Board margin, where we are on a quite low level as we speak, our ambition is to gradually take the margins back where they have been on a historical level. Talking on an EBIT level, Consumer Board has been somewhere around above 10% EBIT margin, and that is what I estimate as a long-term target. You need to consider, of course, that we have an extremely high cost of raw material with wood and on top of that, chemical. With the new contract in place, I think that we have the ability to have a decent margin in Consumer Board.
Sure. Okay. I appreciate Q2 almost will get slightly confused by the KM7 start, should we see some margin benefit in Q1 2019 before KM7?
Yes.
Fantastic. Thank you. Sorry, the second question was just regarding stock levels. I appreciate this is slightly confused by KM7, as I said, your production-
I assume that part of the question is that we have had some buildup of inventory levels at the year-end.
Yeah.
That I can explain.
Please.
It's mainly from a broad perspective that you can explain it as a seasonality effect to some extent, considering the fact that we have increased prices quite a lot. I think we always see this pattern at year-end that our customers try to avoid building up stock at year-end. The main part or the main explanation for this is that we very late in December decided to replan the maintenance stop during 2019. We will stop earlier than planned in Gävle. Then we will push the maintenance stop in Gruvön later this year. In order to make some extra security, we decided to build up stock to prepare for those maintenance stops during the year, especially taking down Gävle earlier than planned. That is the main reason of the inventory increase.
Okay. I'm just curious, in your Corrugated Solutions business, you talked about general market conditions for containerboard slowed down somewhat in the latter part of 2018. Did that impact year-end stock levels for that division?
I couldn't really hear.
Sorry. In Corrugated Solutions, you talked about, your statement says, "General market for containerboard slowed down somewhat in the latter part of 2018." Can you just give us some more detail as to what that means? Is that presumably lower volume demand from customers? Should we assume that had a contribution?
Generally, it is an effect of the startup and the ramp-up of KM7 that we are building inventories for.
Okay. Sorry, my third question was just on CapEx. Clearly you beat guidance, as it were, in terms of your CapEx for 2018 was SEK 5.135 billion, lower than your SEK 5.3 billion guidance from September. Is that a timing impact, or should we think that 2019 CapEx will be slightly higher than your September guidance of SEK 2.75 billion?
It's a timing question, yes. As you say, there is a small deviation between the CapEx guidance and the actual reported CapEx. That will be moved to 2019. Approx SEK 150 million, we will increase the CapEx for next year with SEK 150 million, meaning around SEK 2.9 billion, including base CapEx.
Great. Thanks, Christopher.
Thank you.
Thank you.
Thank you. Our next question comes to the line of Linus Larsson from SEB. Go ahead, your line is now open.
Thank you, good morning to everyone. First question on the Gruvön start-up. If you could please say what, if any, impact it may have on the first quarter results, please.
Good morning, Linus. I think that we are fully concentrating on planning the startup. I would not like to give any guidance when it comes to the result impact on the first or the second quarter.
Okay.
In general, you can say that the SEK 500 million, the mixed volume effect that we have talked about earlier, that effect will come when we open up the machine March, April, and going forward.
Yeah.
Yes. Okay, that's helpful. Thank you. You say March, April, but might there be an impact in March already from a portion of the SEK 500 million, or should we understand it as from April?
I think you should understand it as from April.
Excellent. Thank you. Do you have a date already for when you will close the old machines?
No, we don't have a date. We are operating on a monthly level now. It's March, April. As long as we can, we continue to produce on the paper machines. When we are ready to shift the pulp supply, we will do that, and that will happen somewhere around March, April.
Just given what you said previously, do I understand it correctly that the closing of the old machines will happen in April rather than March?
Yes. I think we need to do that at the same time. When we cut the supply of the pulp to the old machines, then we will start to feed KM7.
Right. Thanks for that clarification. Also on the first quarter, when it comes to the wood costs, do you expect to have sequentially lower wood costs Q1 versus Q4?
No, I would say that we do not know more than you do, but we see and plan for a flattening out level in Q1. Of the levels that we have in the fourth quarter.
Okay. For modeling purposes, unchanged costs Q1 and Q4?
Yes.
Excellent. Great. Finally, you gave some updates on the Bergvik Öst changes, as I understood, the dates you were referring to were referring to phase I, the buyback of the forest land. When do you expect to close a new ownership agreement that we may call a phase II?
You are correct with your assumption that when I talk about April or early May, I talk about the transaction of us investing in Bergvik Öst. Then, of course, the process of finding an investor that can work together with us, that process, we don't have a clear set date for that. I think the most important is to find the partner that we can work together with to secure a competitive wood cost. That will be the prerequisite if we go ahead with the next step. I think that we rather take some time to find the right partner than to feel that we are pushed to close that of financial reasons or other reasons. We need to make sure that this is a good step for the company. Just to give something, I definitely expect everything to be finalized during the year.
Great. Thank you very much.
Thank you.
Thank you, Linus.
Thank you. Our next question comes to the line of Martin Melbye from ABG. Please go ahead. Your line is now open.
Yes, good morning. A bit more color on that liquid packaging board contract. You said, EBIT margins would move back up to above 10%, but I guess you've come down from 15% if you go a couple of years back. Is there more price increases coming later or new contracts to be renegotiated from here?
No, I just wanted to, since we don't reveal details from the contract with the customers, I thought just to give a picture of where we are heading and our long-term target is that we see the ability to take Consumer Board or especially liquid packaging board back to the levels where they need to be in order to be the core of BillerudKorsnäs. With this new contract, I think that that is possible. I can't say today the exact percent unit, but we have the new contracts in place valid as from January 1st. I feel confident with the price levels. I feel also very confident with the long-term contracts that we have negotiated, which will have a positive effect on the margin.
Maybe even more so, I'm also very pleased with the partnership that we have with the liquid packaging board customers, focusing on innovation and also in this period of ramping up the KM7 machine, which is very much focused on liquid packaging board. It's good to have this contract in place, partnering up also with the KM7.
Okay. Have you now renegotiated everything or is there still, say, one-third left?
No, we have not renegotiated everything. Roughly, the magnitude of the contracts that we have negotiated is somewhere around SEK 6 billion of turnover of the total liquid packaging board customers.
Yeah. Great. Then one follow-up on the ramp-up costs. This SEK 500 million on EBITDA and additional, I guess SEK 300 million-SEK 400 million on depreciations when it starts, which is a very big number. Is that in any way included in your maintenance numbers set for Q2, or is that on top of that one?
I think the cost of it is SEK 500 million that we have guided. Then it's SEK 250 million in depreciation.
Approximate.
Approximately. It's not included in the maintenance guidance of next year.
No, Martin, it's a mixed volume effect that we see from closing down three old machines and opening up the new machine.
Yeah. Q2 is a big minus. The SEK 500 million, is that then SEK 500 million divided by four, say, for Q4? Or is it-?
The negative effects will come at the same time as we open up the machine.
Yep.
We will run the old machines until we open up the new. Yeah, it's a three quarter effect.
Excellent. Thank you.
Thank you.
Thank you, Martin.
Thank you. Our next question comes to the line of Gustaf Schwerin from Pareto Securities. Please go ahead. Your line is now open.
Morning. Two questions from my side. First of all, just a follow-up question on you building inventories in Q4. You said part of that was related to the maintenance being moved to Q2 for Gävle. If I look at the delivery volumes in Q4, the volume drop seems to be the largest in Packaging Paper. Correct me if I'm wrong, but I recall that you produce very little of that in Gävle. If that's the case, how should we think about deliveries in Q1? Are you going to continue building inventory, or should we see more normalized volumes?
Yeah. As I mentioned, looking at the build-up to maintenance, there we do not see any large further increase. Regarding the other part, as you correctly said, a large part is related to the Packaging Paper business area. As I mentioned, this year we saw a somewhat higher build-up there, due to the fact that our customers were actually basically closing down their converters earlier than they normally do for Christmas and to optimize their own working capital. This, we believe, is very much due to the fact that we have very high price levels within the Packaging Paper at this point in time. We do not foresee that this will continue into Q1.
Okay. Very clear. Thank you. Lastly, how much of the KM7 CapEx has been taken now at the end of Q4?
Next year, we expect to have a full CapEx or a total CapEx of SEK 2.9 billion. SEK 1.3 billion out of those are base CapEx.
Yeah. Correct.
Okay. Perfect. Thank you.
Thank you.
Thank you. Our next question comes to the line of Kevin Hellegård from Goldman Sachs. Please go ahead. Your line is now open.
Good morning. I have two questions. The first question is related to your kraft paper prices and demand. You're saying demand is remaining good. Can you just remind us, do you have a portion of annual contracts that are now resetting at higher levels, or would you have already experienced most of the higher prices throughout 2018?
When it comes to kraft, we don't have long-term contracts that are about to be renegotiated.
Okay. We would have already seen the price increases in your numbers?
Yes.
Yeah. On your working capital, throughout this KM7 build, your account payables have gone up quite significantly. When do you expect that to reverse, and what sort of normalized level do you expect going forward?
Yeah, as you have seen the past year or so, we have had a decrease down to, at this last quarter, it was close to 9%, 8.8%, working capital in percentage of sales. Going forward, as you know, the CapEx remaining, we said it's around SEK 1.6 billion for the KM7. When that's paid and out, that will be in the Q2 and moving forward, we believe we're going to come back to the levels we had before this investment project, and that is in the region of 10%, 11%.
Okay. Thank you.
Thank you, Kevin
Thank you. Our next question comes from the line of Christian Kopfer from Nordea. Go ahead, your line is now open.
Yeah, thanks operator. Just one quick follow-up from me. We saw sack paper prices coming up further in Q4. Did you see the full effect on this already for Packaging Papers in Q4?
I'm sorry, Christian, I didn't fully understand the question. The sack paper?
Sorry, Petra. We saw that sack kraft paper came up in Q4. Did you feel the full effect of these price increases already in the fourth quarter, or would you see some quarter-over-quarter effects also in Q1?
I would say that you could anticipate that we have seen the prices in the fourth quarter, but there might be some small spillover to quarter one.
Okay. Thank you very much. Also on the deliveries of unbleached kraft liner that you are supposed to produce, at least initially from KM7. Have you secured the customer contracts already for these?
Yes. To the largest extent, we have done that. That is also why it is of utmost importance, it is so critical that we ramp up this machine in time.
Right.
We have back-to-back contracts.
Right. Does that also mean that you will sell some volumes on the stock market?
That, I think remains to be seen. I think we have the target set on ramping up as fast as we can. Of course, the most important is to do this in a steady state and to make sure that we have a good quality. That, I would like to say that it remains to be seen.
Right. Finally, for me.
Yeah, I'm sorry, Christian.
No, go ahead, Petra.
No, it's a quite short time of the ramp-up where we plan to produce and sell the brown kraft liner.
Right. Finally, on corrugated, what kind of market movements are you seeing there on the price levels? Are you seeing pretty much stable prices on white top and so on? Because we have seen prices coming down a bit on the stock markets, you're seeing more flat prices?
Yes, we see that the price levels that we have right now, it would be very difficult to continue to increase prices.
Right.
The main focus that we have now is to defend the price levels that we have. It is so that we have seen a softer market at the end of the year, especially when it comes to corrugated and also to some extent, parts of the paper.
Right. Okay. Thank you very much.
Thank you.
Thank you, Christian.
Thank you. Our next question comes to the line of Robin Santavirta from Carnegie. Please go ahead, your line is now open.
Thank you. A lot of questions already been answered. I have a question on Bergvik Öst. You said the transaction, the first part of it will be probably closed now in March, April. Now you're looking at a suitable investor. What kind of structure are-.
I actually said April, May.
April, May. Sure, yeah.
If you don't mind.
I was just wondering what kind of structure are you aiming at? Do you plan to sell all of your holding or just part of it and remain as a minority shareholder in the new vehicle? As I understand, the cash out now in the first part of the transaction will be a bit more than SEK 5 billion . What kind of sort of prices are you looking? I mean, the market prices may be a bit higher, but is the target to maximize the value of the forest or to maximize the flexibility of wood procurement?
I think that is too early to go into in such detail. What we are planning to do now is to send out an information memorandum during February, where we will outline the criteria. What is important to us when we are looking for an investor or a partner in this. I don't think that is something that I would like to go into in detail as we speak. This is something that we will be able to talk more about presenting the quarter one closing.
All right. Do I understand correctly from previous communication that you have agreed with banks, I guess your balance sheet will become a bit stretched now after the first part of this transaction. Is there some timeline when you need to close the sale of the forest assets? How is that agreement set up? What are the covenants you have with the banks?
Okay. We have, as you mentioned, we have secured financing, and I would say we have plenty of time. This is secured in the long term. It's more than a year, two years, and there aren't any additional covenants to this financing compared to the covenants we have in our other financing. Overall, our financing is a long-term secured.
All right. Thank you very much.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead. Your line is now open.
Hi. I have just two questions and they've partly been covered, so please excuse me. The first one is coming back to this issue of the renewed liquid packaging board contracts. Now you said that it's going to have a positive impact on your operating margins. Does that in fact mean that you have achieved price increases, or are there other ways that you could have achieved a positive impact on margins?
Excellent question.
Well, Oskar, I would say that I don't want to go into the details. I could reveal that we have increased price. Yes.
All right. Following up on that, you mentioned now today that you want to and expect to come back to a 10% EBIT margin for the Consumer Board division. Is that something that's going to be achieved with these new contracts? How close to 10% is that going to get you? Do you expect?
That I can't tell you.
Given that you have stable-
Since I don't want to discuss exact the price increase numbers, and it's also several contracts with different setups in the liquid packaging board negotiation. When I talk about the margin of 10% or above 10%, then it's partly the negotiation, but it's also the fact that we have the price increases as such, but it's also that we have a long-term agreement with one of the most important customers for BillerudKorsnäs, and it's also important for us to work in a partnership environment, very much also focusing on innovation and in the situation where we are now the next coming years of ramping up KM7. It's also impacting by the execution of our own doing to increase the stability in production, increasing the OEE or the availability.
With the negotiation as we have closed now, with that in place, I see it as a possible realistic long-term target to be back above 10% EBIT margin on Consumer Board.
All right, good. My second question is around the KM7 startup and the SEK 500 million start-up impact. I think in an earlier answer to an earlier question, you said that is going to impact Q2, Q3, and Q4. That's how we should understand it.
Yes.
Is it going to be an even number for those quarters? How is that SEK 500 going to be divided between those three quarters?
I think that's a question for you, Christopher.
I think it's too early to say. As you know, Oskar, this is a mixed volume effect that we see on the results. It depends on how successful and stable the ramp-up is and so forth. It's also included in those SEK 500, the babysitting costs of SEK 50-SEK 75. No, it's too early to say how we split them between the quarters.
They should be front-end loaded or heavy?
Yes, I know what you mean. No, I think it's too early to say something in detail about that.
Okay.
Let's come back to that in Q1.
Yeah. What about the mix between different business areas?
The impact?
Yeah, of the SEK 500 million.
Only in board division.
Only in the.
In the board division.
Okay. Is any of these five Sorry?
I think I need to correct myself there. It's also an impact in paper, of course. Sorry. The exact how we split it between the two, I cannot answer that right now. I don't have the answer.
Okay. Is any of that SEK 500 million, is any of it going to be reported as a non-recurring item? How is the split going to be there, you think?
I think it's also too early to say. We haven't discussed exactly, but I'm hoping to be very clear about how we disclose this. We need to discuss exactly, but parts of it will be one-offs, I guess.
All right.
Yeah.
Good. Yeah, those were my two questions. Thank you for answering them.
Thank you.
Thank you, Oskar.
Thank you. Our next question comes on the line of Markku Järvinen from Handelsbanken. Please go ahead. Your line is now open.
Yes. Good morning. I had a few more questions. If we look back at 2018, did you have any impact from the KM7 project in 2018, and what was that in the end?
If we have an impact from KM7, you mean from the FDA?
Earnings impact, any earnings impact.
Should I answer that?
Yeah.
We had a guidance for full year of SEK 210.
Yeah.
Of that was SEK 75 million, the prolonged maintenance stop we had in Gruvön related to the new machine. The second part is the education and extra personnel we had to educate and do backfill on staff in Gruvön, which was guided to around SEK 75. On top of that, we also have the accelerated depreciations for the three old machines that we're closing down when we open up.
You met that guidance or?
Yes. The prolonged maintenance stop came in a little bit higher, but on the other hand, the education and extra personnel came in a little bit lower. On the depreciation side, yes, spot on.
Okay, good. The impact of Skärblacka PM10 in 2018, what was that in the end?
Well, on resource level, I'm not sure, but we said that we will produce around 40,000 tons from that machine. I have it updated myself exactly what's in the books right now, but somewhere between 30,000 and 40,000 ton has been produced in that machine.
Just on KM7, I guess Gruvön now has a capacity of 710,000 tons. Can you just remind me what that will be when the whole process of closing the machines and ramping up the machine, what will the capacity be there?
We're closing down four machines, and opening up one new machine. When we are fully ramped up in Gruvön, we will have a large floating machine of approx. 300,000 tons, and the new KM7 machine, which is a 550 machine.
850?
In that area, yeah.
Okay. On the price increases in liquid packaging board, are you comfortable that this 10% long-term margin level will be sufficient for you to reach the SEK 1 billion earnings improvement you're requiring for KM7?
Sorry, can you repeat?
I think I understand. I understood the question. Once again, we don't want to go into exact details of the contract, I think we also have an opportunity in the KM7 to also produce liner as well as cartonboard cup stock. Liquid packaging board is not the only product that we produce in KM7. I feel very confident with the contracts that we have negotiated and the discussions that we have had, that we have a joint interest together with our key customers to ramp up KM7 in a good and productive way. I think that the negotiations have also put the foundation in place to do so.
Okay, very good. Thank you very much.
Thank you.
Thank you. Our next question comes to the line of Hugo Henson from Jefferies. Please go ahead. Your line is now open.
Good morning. My first question is regarding the wood shortages. Is this an issue specifically localized to Sweden, or have you seen any spillover in neighboring countries?
The wood shortage early 2018, first of all, it was in the Baltics, mainly affecting Q1. In Q2, we had effects from a lot of snow in the Swedish woods. In Q2, we also saw effects from the extremely dry weather. Yes, to your question, it is mainly Sweden, but also an effect in Q1 from the Baltics.
For your mills outside of Sweden and the raw material cost is relatively unaffected?
I think the mills outside of Sweden, we are talking about Beetham in U.K. and Pietarsaari in Finland. In Finland, we have a contract with UPM that we guided for during the third quarter that we have a quite expensive contract in place since we have a fixed rebate. We have quite expensive pulp pricing on the rebate level where we are right now, and we guided for roughly SEK 90 million, I remember, as it was for the fourth quarter. This continues, of course, and it's very much connected to the pulp prices.
Basically what we're saying here is that the Swedish mills are fully integrated. We buy pulpwood for those. In Finland and U.K., we buy pulp.
Yes.
Okay, great. Thanks very much. For my second question, you spoke a bit about this already, but regarding the speciality kraft, sack kraft, could you give a bit more color on the current supply and demand situation that you're seeing and pricing outlook into 2019?
Specialty kraft.
Was the question about kraft paper?
No, for sack kraft.
Sack kraft. Okay. What we have seen is that the prices on the sack prices have increased. We have increased our sack prices quite extensively throughout 2018. What we're seeing right now is a clear focus on safeguarding those prices.
Okay, you see it as quite achievable to retain those levels throughout 2019?
That is too early to say, we're doing everything we can to keep the levels or stable in the prices at these levels.
Okay. Thank you very much.
Thank you.
Thank you. There are no further question at this time. Please go ahead, speakers.
Thank you, operator. Thank you all for calling in. Thank you.
Thank you very much.