CMD 2018

Sep 17, 2018

Everybody, and most welcome to our Capital Markets webcast. My name is Christoph Kasflad, and I'm Head of Communications. Today, with me with me today, I have Pertek Enarson, our CEO I have our CTO, Ulfred de Jason and I have our new Head of Board Division, Mikael Andersson. The agenda for today is that we will use approx 1 hour to go through our material and then open up for Q and A. With that said, I think we are ready to start. Petra, the floor is yours. Thank you, Christophe. Good morning, everyone, and welcome to our webcast at the Capital Markets Day. My name is Peter Ignason and I'm proud to be the CEO of Billard Korsnes. You have already met Christophe Casselblad and later on during this presentation, you will also meet Mikael Andersson and Ulf Eirsson. I feel very comfortable to have them on board in my team together with the devoted and talented people within biliary carchnes. And we are all ready to take on the future and this webcast, of course. So what if we would tell you that Biederd Causness has potential to unlock. Well, we do and this webcast is all about telling you how we will do that. A brief update on Bilhorud Kosnas in numbers. Last year, the turnover was SEK 22,000,000,000 and the operating profit SEK 2,200,000,000. We have 4,400 employees. And last Wednesday, it was announced that Dow Jones Index, Sustainability Index that we are still in the lead in Europe when it comes to container and packaging. And we have also improved to the first position, the world leading position in container and packaging. So that was for sure a very proud day for all of us working for Birgelborgsnes. And I would say that everything we do is actually connecting sustainability to packaging. Packaging and the offerings that we make to our customers are very much containing a sustainable future. Packaging in form of the materials, packaging in form of the services and solutions. And we truly believe that consumers will reward companies that takes responsibility for packaging. And we also see that the value chain is tightening where the brand owners involve much to much larger extent as we speak into the relationship within the value chain. And we already experienced this change to a large extent right now for all our segments. And we have 4 key market segments. It's food and beverages, industrial consumer luxury and medical. The largest one by far is food and beverages. And here you can find products such as liquid packaging board, corrugated boxes for fruit, cups and MG paper. Within industrial, you find a lot of applications important for our paper industry and that here you find products such as sack material bags and so forth. Consumer and luxury is very much concentrated on carton board. Here you find products for champagne, for also perfume and chocolate. I think this is actually my favorite segment. And also we have an important part of medical and hygiene. What you could say is the common denominator in all four markets is sustainability. And if you add to that very strong trends in the market right now where you see legislation steering towards banning plastic. We also see strong megatrends such as urbanization, e commerce, and aging population. There are many trends moving in our direction. And one important trend that is also a common denominator for all is the trend just for me when it's much more important now for the consumer to experience the message from the packaging in the unboxing moment and also for the brand owners to send the message that they take responsibility for the packaging. So here you can see some examples of our products. And if you look at you could ask yourself the question, what if these products could actually push the boundaries? And I think to a very large extent they can. And I think that summarizes to a large extent what BirgitKochnes is all about. We challenge conventional packaging for a sustainable future. And by doing so, we also provide the innovative solutions to our customers so that they can be in the forefront in their industries. And this is not only about innovation. I think it also concerns to the same extent operational efficiency. The packaging market is growing 3% yearly. And on top of that, we also see large possibilities from taking market share when plastic is moving over to more responsible packaging forms. And here we definitely have also potential to unlock in the future both when it comes to the material part of the business, the solution part of the business as well as services. So with that as a brief explanation of what we have discussed in this is all about, I would like to move more into exactly where we are right now and what we are focusing on. So there are 3 things that are in focus right now and that is first to secure a successful ramp up of Kilometers 7 and to ensure that we have a competitive cost when it comes to wood supply. Secondly, improve safety and stabilize production. And thirdly, to accelerate innovation and capture the possibilities we have within solution sales. Looking at the first one, this has been my first and foremost attention since I joined Builders Kossners in January, securing KM7 in Gjoern. We are now on a level where we monitor all risks in the project weekly and based on that, we can set where we are heading when it comes to safety, when it comes to whether or not we are on time or not or if we are at cost or not. And the other part that has also been very much full attention since I joined BirgitKorsnas has been the wood supply. As you all know, we have had quite a lot of disturbances when it comes to the wood supply during this year and especially weather related. It started with the mild autumn in Baltics, then we had the harsh winter in Sweden and on top of that, the hottest summer ever. But who said that this was going to be easy? And I believe that now we have the worst behind us, but it has been quite a troublesome start of this year. And it also sets the direction that we need to have this very much secured both from a short term perspective and from a long term perspective. Secondly, what we need to do and that is very, very urgent and full speed ahead is to stabilize production. In June, we launched the production excellence program to capture an increased volume of 2% units every year as from 2019 and this Ulf will tell you more about within short. 3rd is to accelerate regarding innovation and solutions. And I believe that this is truly our core competence and has been for the last 150 years. So this is the area where we need to capture growth and to do that with a little bit more speed, more focus and to be delivering on our toes. So as I said, we have a lot of potential to unlock within Villefril Karsnes and the window of opportunity is right now. And I would say that that window is absolutely widely open. It is very fortunate to be new on the job when the former management team have taken full responsibility to invest well for the future. In 2012, we made the acquisition from UPM, Pietasari and Terbasari. And 2013 to 2017, we made several investments in capacity where the investment in Fruvy was the largest one. This year, September 5, we inaugurated the MG Center in Greublakka, the largest MG center in Europe and these investments actually already contribute to the result. And starting next year, we ramp up the most modern board machine in the world, KM7 at and with an addition of 550,000 tons. The ramp up will definitely not be a walk in the park, but I have confidence that this will ramp up in a good way and we have really scrutinized this project in risks from a safety perspective, on time perspective and at cost perspective. And today, we feel confident that the project will start on time, but it might be so that it will be a bit more costly than we originally thought. But this is very much driven from the complexity and also a consequence that our priority is to ramp up Kilometers 7 on time. So I would say that Bielberg Korsnas is rest for success and we aim to capture the potential that we have. The cost of wood corresponds to 30% of our total spend and it's a very important part to have a competitive edge of course, and to make sure that we also add value to our customers. As we speak, we are finalizing the deal, the initial stage of the deal and the deal, the initial stage of the deal and we hope that this transaction will be completed before year end. And looking at the effect it will have on Birul Kossnas, it will influence the balance sheet by SEK 5,000,000,000 where we plan to short term finance that with bank debts. Long term, it is too early to say yet what will happen and but that will continue, but I do not foresee that we will change the strategy to that we have now that we want to invest in our business. So we prefer to invest in the packaging business and I don't see that we will move into invest in owning our own forest. So to secure the ramp up of KM7 and to ensure that we have a competitive cost when it comes to wood supply has been my first priority since I joined the company. And we have made quite many changes and both regarding responsibility, but also regarding risk awareness. But today, I feel confident both when it comes to ramping up Kilometers 7 and to that we have ensured a competitive wood supply for the future. So moving over to steadily improve when it comes to safety and production stability. I think both production stability and safety go hand in hand and I am convinced that a safe company is a well run company. And what if a safe company is actually a competitive advantage? I believe it is. If you look at safety and the people working with full focus on never walk by, that is the same thing as equally to have the mindset that all accidents can be prevented, which equals the mindset of preventive maintenance, which also equals the mindset of right for me. And if you truly believe in 0 harm, you also believe that the prerequisite is diversity and inclusion. Knowing this and believing in this and looking at Bilhir Kocner's track record when it comes to safety, you realize that the lost time injury frequency rate last year was 7.7 per 1,000,000 working hours. And that is very, very far from 0 harm. And I would say that the correlation to the production instability that we have is quite obvious. So our priority is safety first and we will make the journey towards 0 by improving safety last time injury frequency rate by 25% at least every year starting now. So looking at what we are doing when it comes to production stability, I'm not happy with the starting point when it comes to production stability, but I'm very impressed with the program that Ulf and his team has set up for the future. They have done some massive analyzing on the company level and on each mill level and they have also taken all these numbers and they have triangulated the numbers comparing with who on each segment and each machine, who is actually world class, who actually is best in class in Birgel Kossnas as well as conducted loss analysis on the difference between the availability that we target and where we are today. And based on that information, we have set the targets going forward to increase the OEE with 2% units per year. That is equivalent to roughly SEK 200,000,000 in EBIT improvement or you could say roughly 1% unit per year in EBIT margin. And I would say that we have this program in place. I have absolutely full confidence that we will deliver on this and Ulf will tell you more about this within short. So, so far I have been quite inside out in my storytelling on where we are today at Birgel Kossnes with the KM7 wood supply and also safety and production stability. Birulkorsnes is an absolutely fantastic company with 4,400 extraordinary talented people and now we have made up our minds to change and I'm absolutely certain that we will. And the change has of course to start from the top. My 3rd CEO commitment is to accelerate innovation and solution. And looking at innovation, it is very much the DNA of build carsnes. And we divide the innovation in 4 different platforms. It's for mobility, barrier, it's strength and what we call new concepts. Looking at for mobility, it has to a large extent the ability to replace plastics in many applications. There has actually been some recent research theoretically shown that if you have an extensibility of 60%, you can actually replace almost all plastic solutions with paper. So this is, of course, an extremely important platform for us. The other platform is barriers and I would say that the big challenge here is to find a suitable barrier that you could include in the paper that is actually forest product based, so that you don't need other barriers to compile together with the board. And this is also one of our top focused research areas. Strength is maybe the most important and has always been. Think that is very much the foundation of all products that we have today and will continue to be one of the absolutely most important property for biliary koshniz in the products going forward. And a good strength allows for lighter packaging and also to a large extent is connected to solution packages. New concepts houses the significant research that we do that don't automatically fall into 1 of the 3 for mobility barrier and strengths. And just to mention 2 of the projects that we are focusing on within new concept, I would like to highlight the paper battery and also transparent paper. So there is absolutely no doubt whatsoever that this has been the focus area in the DNA for building a recluse in looking back 150 years and it still is. The trick now is to ramp up the investments that we have for the next coming years with KM7 and to make sure that we can capture the growth within innovation at the same time. So I think that is the really to focus is the key word here. But we do have all the prerequisites in place, I would say, that we need. Solutions then. Let me just give you one example of solutions. We have a customer in the U. S. That sells barbecue grills And that customer asked for our help transporting this product from China where it is produced to the customer in the U. S. They wanted help with the logistical setup, but they also wanted help with the unboxing experience of the customer. The customer did not want to have a feeling of that this transportation and this product is not based on responsible packaging. So what we have done is utilizing all competence that we have within Bidril Korsnas, looking at corrugated box, making sure that utilize the strengths that the knowledge of strengths that we have to make sure that this product could be transported from China to the customer in the U. S. Without hurting the product in any way. But we have also taken away all the EPS or Frigolit in Swedish in this setup. So when the customer open up and take out this product, you don't have to sort of to take away all the Figo Elite or the EPS first and you have a much more sustainable experience. And only with one project, with one product for that customer, we have actually been able to reduce the need of EPS equivalent to 1 football field and 8 meters high need of EPS and that is only one example, one product in what we can help with being the solution provider with both material, with services and with the solution. And you can see here for yourself also some other examples. We have solutions within cart on, within corrugated, formable solution, bag solution and several other solution and services. The example that I provided is from Managed Packaging Solutions. So I would say that we simply have to capture this opportunity. And looking at packaging solutions, we see an increased demand in all kinds of different areas and I think it's also very much involving connecting different parts of the world in a global setup that we do today in managed packaging. Today, we are focused on electrical goods and also on clothes and footwear just to mention 2. And we also reorganized BILrud Korsnas with an organization that is effective from 1st October where division solutions will be a separate part of biliary cautiones with very much ambition to grow. I don't have so much more to say about the progress yet since we are in the recruitment phase of finding this person Mr. And Mrs. Solution and I hope to be able to tell you much, much more about these opportunities next time we meet. But we don't sit and wait. As you see, we have a growing division already now and this business grows roughly 15% to 25% yearly. So I believe that Bilhorikosnes has an absolutely marvelous strategic direction. We challenge conventional packaging for a sustainable future and that direction is still valid. I think it's absolutely anchored within the company and also with the customers to a very large extent. What needs to be added is frankly speaking some speed, accountability and customer focus. It is hard to really live very close to the voice of the customer in the functional organization. And I am convinced that the change that we are moving into as we speak with the new organization going live here October 1, we will have an increased speed, accountability and customer focus. We will have a decentralized organization with 3 divisions and starting more or less in a couple of weeks. I'm also happy to say that I see no need to change the long term targets. I think that they work as a very good guideline for the company. And I'm fully in line with the former management that this is the finally, we are on a journey to unlock potential. And I truly hope that this webcast has at least convinced some of you that you see things the way we do and we have hopefully, we will provide you with some transparency with some KPIs so that you can measure and decide for yourself what you think as we go along now quarter by quarter. But next on the webcast is a deep dive in Nxt and KM7 presented by Mikael Andersson. So thank you for that, Pietra. Yes, we I will provide a little bit more of a deep dive into the KM7 project, but I will make a deep dive into more things than that. So to present myself, my name is Mikael Andersson. I'm the Head of the Corrugate Solutions Business Area today. And from October 1, in our new organization, I will head the Board division. So that's the new organization from October 1st that Pietro talked about. This picture you start to recognize now and this is the picture that Pietro showed and is the CEO commitments from her. This is the 3 areas: secure, improve and accelerate and I will keep myself more to secure than anything else. We strive towards helping our customers to fulfill their dreams and achieve their targets. This is what we do all the time. A lot of our customers are growing and growing substantially some of them. And we they're asking us all the time how we can help to fulfill their growth. So today, I will talk about how we will secure our growth going forward and that means also helping our customers to grow. I will also talk about the rationale behind our decision to invest and grow. I will talk about a little bit more into detail around the projects that we have done investment projects that we have done under the umbrella of Next Generation. And then I will finish off by talking about the growth targets for the solutions or the solutions business, the board business and the paper business. But moving on then to what we really do to secure our future growth. Here we have 2 major investment projects. The biggest one we have right now is KM7 and in the greenfield of KM7, we're putting a new machine or that's the machine KM7. So it's a big building and a big investment that is called KM7. This machine is the most is the largest and most efficient machine in Europe right now and it will only produce high quality, high end products. This machine is going to produce 550,000 tons when it's up and running full speed in 2023 and the net contribution to Grueven Mill at that time will be 250,000 tons. We have also done a lot of investments then in the brownfield. We have done pulp washing investment, CTMP pulp dissolving, rebuild of the recovery and then the freshwater and effluent water treatment plant. And all this together is the investment around Kilometers 7. In Grievven Mill, we also have the PM6 and this is the machine that is producing the world's strongest fluting and together, those two machines, KM7 and PM6, will make Grueven Mill, the largest mill in Sweden at the time when it's up and running full speed. You can see on the pictures on the top left side, you see Gjoven Mill site in February 2017 where it was a parking lot. And then in August 2018, this is a big factory building. And it's not only the building that is big, it's also containing a big machine in there, which is the KM7 machine. When we come back to the investment under the program of next generation then, we also have Hoheblakja where we have invested in a machine called PM10. That machine was moved from Tervasari Mill to Hoeghblakja. And that is a 90,000 ton machine where we're integrating the pulp that we were market pulp before in Greublakija. We're integrating that now into more valuable refined product, high quality MG paper. And we're also creating, I think, Petra said, the Europe largest MG center. I think it's even the world's biggest MG center in HUERBAKA. When it comes to brownfield in Hoeghbaka, we have done some investments on PM7 and the investments we have done here is to target new quality benchmark for medical and food packaging paper. So that's another investment done under the same next generation program. Moving on. Really, so why are we doing the investments we're doing? Why are we scaling up? Yes, it is obviously because it's supported by strong market growth. If you look at the products that we are going to invest for, which is liquid packaging, carton board, white kraftliner MG, all of those high quality grades are increasing in demand and also in the growth in the market. If we look at the details around each of them, the liquid packaging board market today is around 4,500,000 tons and it's a growth rate of 1% to 2% annually. And the volume we will have coming from KM7 will be quite small and it will be absorbed by the market and we will only grow according to the growth on the market from KM7. If you look at the cartonboard market, that's a bigger market. It's 15,500,000 tons. The growth rate is also bigger. It's 4% and here, we also see the same trend that the volume that we will add from Chem 7 will be easily absorbed by the market and the great growth that we see on that market. And I repeat myself coming into White Kraftliner because this is the same thing. It's a market of 4,300,000 tons today and the growth rate is 1% to 2%. We are probably up on the upper level in that growth right now and it's a well balanced market. The addition that we will see coming from KM7 will also be absorbed by the market growth. For the MG paper, this is a market of 2,700,000 tons. Growth rate is big, really big in Asia like everything else in terms of growth in Asia, is going to be 6% to 7% forecasted. Then we have 2% to 3% growth in Europe and U. S. As well. So short term, this market is well balanced. Long term, this market is short of paper. So all in all, what I want to say through this picture is that the market is very strong. It was strong when we made investment. It continues to be strong and the outlook is really good for all those high quality products. Coming back to the investments in among other things, KM7, but the program around next generation then, which is then KM7 and PM10. You have already probably seen those numbers in a press release that we did last night. But if you come to PM10, that machine is already up and running. It's on the ramp up. Everything have been quite well in that ramp up and is we are doing well in around PM10. Investment came to SEK1.3 billion and that investment is now closed and completed. When it comes to KM7, it's a little bit of another story. We have completed most of the civil today. The number I heard on Friday was 92% rather than 90% we have on this screen and we're moving forward on that one. The machine is 40% or almost 45% completed within the building right now. The extra cost though that we haven't really talked about before that we're releasing now is that we have an extra cost for this project that is SEK 600,000,000. We have earlier said that we will have the cost for this project will be around SEK 7,000,000,000, but an additional SEK 600,000,000 for this. If you look at the graph to the right around CapEx, the base CapEx for this company is around SEK1.3 billion and this is where we came from in 2015. The ramp up we have had for those almost SEK 9,000,000,000 through PM10 and KM7 And we were peaking here in we are peaking now in 2018 at SEK5.3 billion. Then we see the investments, then PM10 is out of the way. We have SEK2.75 billion dollars investment or CapEx in 2019, which is then the base CapEx and then we also have that for the rest for the KM7. In 2020, we're coming back to the base, which is SEK1.3 billion and that is the normal CapEx we have in this company to do some improvements of quality and enhancements and growth. So most of what is on this picture, I've already mentioned, but I just want to point out that this project was started in time and we did really well on the project. It has been a successful project and I'm not going to go back in time and look at this, but I want to mention that the positive contribution from 2018 will be it will be a positive contribution for 20 18 because we're producing 30,000 tons of MG paper on this machine this year. And then we're ramping up this machine to 90,000 tonne, which is the full capacity and we're doing that during 2019. Moving on to the next picture and here I want to stress what also Pietra said. This project is on time and that has been a priority for us. So and it came with extra cost, but it is on time and on schedule. We have been working in 4 different streams, which has been machine ready, mill ready, product ready and business ready. All of those streams have been extremely important for the to get on time with this project. And obviously, the closer we get to the finish or really not the finish, but the start of the machine, I would say, the more important product ready and business ready have become. But all those streams are delivering really well in the project and that means that we are on time with this project. I'm going to use the next picture to talk about the ramp up of this project rather than this picture. And I'm also going to say that we're committed to stable ramp up of KN7. And the commitment is to the whole organization within builder Korsnas. It is to our suppliers, which are a lot of them, but it's also obviously the most important also to our customers because they need the product on time when we're up and running. The ramp up here will be in 20 19, we will do 240,000 tons on this machine and that's obviously done for the last three quarters. In 2020, the number is 390,000 tonnes. So that's the ramp up we see, but that's for the full year. 2021 is we're up to roughly 400 and 50,000 tonnes, and this is the 1st year where we'll see that we will be EBITDA positive. And I think the previous years, we have in 'nineteen, minus SEK 500,000,000 and in 2020, SEK 200,000,000 and that was also announced in the press release. You see the mix on the machine is in the start of this is a lot of liner. It will continue to be liner on the machine because this is also a high quality valuable product for us in the long term. But as we increase our production rate on this machine, we will also start to produce more liquid packaging board and carton board on this machine. The good thing with this machine is that we have great flexibility and all of the products that we will do on this machine is high quality, high end products. So I already mentioned that we will have an increased volume in our company going forward and the majority of it is coming from the project KM7. I already mentioned during the first pictures that the increase will be net of 250,000 tons, meaning that the new machine will produce 550,000 tons, KM7, and the closure of the paper mill current paper mill with PM1, PM2, PM4 and PM5 will then take away 300,000 tons. The PM4 is continuing to run right now and it will do for some years going forward. If you look at the total picture, we also have some efficiency improvement that my colleague, Ulf, will talk more about later on. But obviously, we see a total here that is higher compared to 2017 is going to be another 400,000 tons roughly up to 2023. Still, when we come to 2023, we're not reaching the permit that we have on all sites, so there is still some headroom. So I'm coming to my last picture for this presentation, which is the agenda for growth going forward in the new divisions that Pietro spoke about. We have the paper division, which is we have chosen to talk about selective growth, growth between 0% 2%. And the growth will come from growing in emerging markets and growing markets, of course, but also to capture the full value of the products we have and make sure that our customers can capture the full value in the products we have and therefore also having the price leverage. When it comes to the board division, we have as I said before, this is really high quality, high premium products that we have here. And obviously, here we also talk about value based selling. But as we have mentioned before, we have growth in terms of volume into this business or division and the growth will be 4% to 5% going forward. And then we're coming to the solutions division, which is really the big grower in this company going forward. Today, we are serving the main market we have today in solutions is managed packaging that Pietra spoke about. We have seen growth close to 25% here over the last couple of years. This is service to brand owners that we will do and solutions to brand owners. So it's one step down the value chain and we have been very successful in implementing this into our company. We are confident that it's doable to do this growth of 15% to 25% in this area going forward as well. So this is the target we have set up. So if I'm going to just summarize what I have been talking about today. We have invested a lot in our machines, PM10 and KM7, which is really good. We look forward to successful start also in Gruvon in end of quarter 1 and we have a successful start already in Hoeghbakia. We see great demand for our products, our premium products that we're putting on the market from both PM10 but also from KM7. So the demand is there, outlook is really good. We have an increased cost of the project Km7, which amounts to SEK600 1,000,000 and that's unfortunate. But at the same time, I think we also what I'm looking for is that we anticipate really good growth as we have shown in this last picture also for the future in all business area. Even though 0% to 2% looks small, I think all of those divisions, not business areas, I'm stuck in the old, but we're moving forward to the new. And I think that all divisions will deliver good healthy growth into our company. So with this, I want to leave over to our CTO, Ulfeli Jasson, that is going to talk more about production excellence. Thank you. So, good morning, everyone. My name is Ulf Eliason and I am the CTO of the company as of 1st October this year. In my presentation, I will focus on the improved part of the COA agenda that Pietra presented earlier. As Pietra mentioned, we have a large EBITDA potential by proving our production stability and also increasing our overall equipment efficiency. And in my presentation, I will guide you through how we will catch this potential in our production excellence program, which is in fact a systematic approach and about mindset to reduce losses in our day to day work at our mills. But before I do that, I will give you a short introduction to our mills. In Miller Karsteners, we have 8 mills. 6 of them are in Sweden, 1 in Finland and we have 1 in England. And within the organization, 4 of the mills will belong to division board, which is Frivi, Geheble and Glueven and Rokkammer. And 4 of them will belong to division paper, which is Pietasari, Freblakka, Beetham and Carlsberg. All units produce premium packaging material to serve the food and beverage, consumables, industrial and also medical high end markets. All units except Beeton and also Pietasare are integrated to own pulp production, could be either chemical pulp, semi chemical pulp or mechanical pulp. And in fact, Willekorsen is the largest producer of chemical pulp in Sweden with a production of about 2,200,000 tons. We have large assets in the company as Mikael mentioned, Groven and also Zevle or with a capacity of 700,000 tons per year will are one of the biggest mills in Sweden. And if we take as an example the Javal Mill, when the 2 board machines in Javal Mill run at full speed, they produce materials like this for liquid portion packs, materially equivalent to $200,000,000 on these in 24 hours, dollars 200,000,000 of these in 24 hours. So it's a huge production that we have on liquid packaging board in our large assets. And in fact, today with a capacity of 470,000 tons and we are striving for high capacities, It is in fact the single largest machine for liquid packaging board production on a global scale, which is integrated to chemical pulp. Will have a very cost efficient infrastructure for premium production of liners and also consumer board. And when is running at full speed, as Mikael mentioned, it will be the largest mill in Sweden with a capacity of even more than 900,000 tons. Division Paper have specialized machines and also as Mikael mentioned, Graeblacher will be the global leader with investments we have done in PM7 and also in PM10 in producing MG paper for the medical and also the food market. And our mills in Pirtasan and in Karlspar are also specialized to production of kraft and SeK paper. The strength of the Miller Kosnes asset structure is that we have large units for production of efficient large unit for production efficiently of consumer board packages and we also have specialized machines producing MG paper and sack craft and all of them or most of them are integrated to own pulp production. The production in the company has grown steadily. And if we take a look backwards to 2013 to 2017, production has increased about 2% CAGR and that is equivalent to about 200 and 30,000 tons over the period. And in fact, we made annual records in production in 2017 at Gjerbel, Friv and also in Kvaerbachia. And when we announced the Q2 results, we also informed that we had reached high production levels or record levels, again in Gjavle and Fjervi, but also in Carlsberg and Rockhammer. And in 2017, we made a record production also, but we expected to produce more. And if we compare to the earlier growth about 2% CAGR, we should have produced at least 50,000 tons more last year. And we had some operational challenges during the year. And if one categorize the disruptions that we had into the 4Ms, machine, material, man and method, A majority of the reasons behind the disruption that we had was in man and method. And that is what we are also addressing going forward now with our production excellence program. If we compare ourselves to the peers 20142017, and we compare market valuation, our competitors have closed the gap and we have a we had in 2017 a lower valuation about SEK2 1,000,000,000 compared to 2014. And the disruptions in production is probably one of the major reasons behind this loss in market value. One key target that we have with production excellence is to improve our overall equipment efficiency or the OEE. And with improvements in overall equipment efficiency, we can see significant potential to improve EBITDA. What is OEE then and how do we measure OEE? Well, it's a core metric in production and OEE measures the overall equipment efficiency or the total efficiency you can say of a machine. And the value for OEE varies between 0% to 100%. And if you run at 100%, then you don't have any time losses. All the time that is available is used for production. And when you produce, you produce at full speed. You are always running at full speed and all the material which is used will end up in sellable qualities. And in our production excellence initiative, we have deeply analyzed the we can regain OEE EBITDA and also ultimately lost market value. And 1% unit improvement in OE is equal to SEK100 1,000,000 in EBITDA. So for each improvement we can do, there's a what we are then going to focus on in our production excellence program. Well, we have essentially 4 building blocks. We have the occupational health and safety, environmental performance, product quality and production stability. And as Peter mentioned, a well run company is as Louise and Biller Carshness should have that all accidents can be prevented. Today, we are at level, level, but however, with the mindset that all accidents can be prevented and also to put up ambitious targets, we will push ourselves to improve at a faster pace. And our mission is to be the company in this industry who is driving this. Focus on environmental performance is becoming more prominent every day. Our determination and commitment to the environment, our efficient use of resources, our focus on products and process is a real asset, which we will maintain. And as Peter also mentioned, we are on the Davion's Sustainability World Index and we were there for the first time last year and this year in 2018, we have even strengthened our position there. And one of the reasons behind this is the resource which we have achieved in operations. We have in fact today 97.2% of all the energy used in our mills are bioenergy. And going forward, our target is to reduce and take away the remaining 2.8% towards the fossil free production in our units. And our ambition here is continue to be recognized as an industry leader, which the Dow Jones Index is a way of measuring that. Customers value our product quality. Our business is in very complex product segments and we have over the years had a very close collaboration with suppliers and also with customers, which has put us into the forefront for many of our product segments. The demands on our products coming from our customers and also from our brand owners are continuously increasing. And in fact, a lot of these demands come from increased demands from the value chain. So product development is at the core to develop our business. But there is, of course, also important share in production to produce the right quality with as little losses as possible. And by doing that, we of course also will have a good efficiency in operation, but also from environmental performance perspective using less raw materials and also less energy. Securing production stability and increased overall equipment efficiency across all our mills is one of the key targets that we have in Biller Krasners. And in fact, by working structured and with health and safety, with product quality and with environmental performance will of course also be beneficial when we work with production stability because it's all about mindsets. It's mindsets to work in a structured way to eradicate losses in our production. And here we have identified a 2 percentage improvement potential of OEE per year for the coming years. And how we are going to catch this OEE potential? To catch the OEE potential, we see essentially 5 areas to raise our performance. It is ambitious targets, leadership, teamwork, standards and digital excellence. And the improvement journey starts with ambitious targets to push ourselves to push change. And as Peter also mentioned, we have started that journey by making extensive internal benchmark, external benchmarks and also make a deep dive into our losses. And these targets will then be broken down and made relevant to all our employees across our production units. And we are also identifying initiatives to make sure to reach these targets. And these initiatives will then be tracked so we can follow our progress and our success. Leadership is at the core of the change and our company is not an exception from that. And we want our leaders to be role models here being visible, being active and being ambitious and that is also an area where we will develop our leaders going forward. Teamwork on all levels is about building engagement about among all our employees. And we really have here to move forward as one team And we want also that all our employees in the company should be confident problem solvers with a zero loss mindset. We need to set, raise and follow standards to achieve our ambitious targets and we need to act also on deviations to make sure that we eradicate our losses to create stability, to eradicate the root causes for our losses to obtain stability. Finally, Biller Kosners have a long history of innovations in both products and processes. And in an ever changing environment where digitalization automation develops fast, we can really see a potential here to improve our operations by taking part of that journey. And for us, digital excellence is about using all the data that we have in our company in a much clever way to get information to make better decisions at the right with the right timing. Our work towards increased stability and increased OE has already started. As I mentioned, we are now in the phase of locking in targets. We are identifying the initiatives that is secure that we will reach our targets. And we are also now focusing on making these initiatives up and running in the beginning of 2019. We have huge potential to improve. Well, 1% OEE improvement is SEK 100,000,000 EBITDA improvement and we can see that we have at least a possibility to improve our OEE with about 2% annually going forward. So there's a big reward for every improvement that we make in our day to day work. And we are really thrilled and excited get on to this journey now. And you will be able to follow us now on the journey ahead through the KPIs which we will introduce with OEE and also for LTIs. So thank you for your attention. So thank you very much, Ulf. And before we move into the section of questions and comments, I would like to take the opportunity to share with you the market outlook, the latest news that we have. We expect the demand and the order situation to continue to be strong and with normal seasonal variations. Possibilities to increase prices within selected areas in the market is also something that we foresee. And we also anticipate the wood the demand driven wood cost to increase and continue as it is right now. The financial impact the 3rd quarter from the wood shortage is estimated to be SEK 40,000,000. And as we have presented today, we expect the total impact on EBITDA from the KM7 ramp up to take the EBIT down 2019 by SEK 500,000,000 2020, SEK 200,000,000 and 2021, we will be EBITDA positive. So summarizing this presentation and this webcast, it is very much about unlocking the potential of Bilir Korsnes. And I hope that that has also been your main takeaway and that we have provided you with some transparency regarding following what is going to happen now with bildurkorsnes during this year, next year and the year after quarter by quarter following KM7 and also the unlocking of potential when it comes to production excellence. So it is very much about securing the ramp up and the competitive cost for wood to improve the production excellence and to accelerate innovation and solutions. So with that said, I think that we open up for questions and comments. Great. Operator, we are ready to take the first question. Mikkel and Olv, please join us. The first question is from Linus Larsson from SEB. Please go ahead. Your line is open. Thank you very much. Thanks for this very detailed run through. I'd like to start with a question on the ramp up guidance that you're providing for Gruvon, the DKK500 million EBITDA impact 2019. I wonder if you could in any way split that impact, for instance, how much of an impact do you expect from the removal of profitable machines and how much is on the ramp up of the actual Kilometers 7. Also in relation to that, I wonder if you could share with us the additional depreciation charge that we should anticipate and from what date, please? Thank you, Linus. And let's start with the 500,000,000 that we have mentioned regarding the negative impact of 2019. And if you look at that number, EUR 50,000,000 to EUR 75,000,000 is one offs for 2019 and the rest is mix and volume. But this is concerning KM7 alone. And regarding the actual depreciation that will could you please repeat that question, Linus? Or did you pick it up, Kristofer? I think the question I think the answer to your question, Linus, is that we will write off this machine in 20 years. So of course, there will be an increase following increased CapEx that we have disclosed here today. And the depreciation will start as of what date? Turn the key, we will start to depreciate the machine. Okay. And then just to the Pietro, to the beginning of the question, the $500,000,000 I assume includes the negative effect from lost profits on the 3 machines that you will close. Do you have can you please confirm that? And second to that, what is the run rate EBIT or let's call it EBITDA of those machines. Okay. I can confirm that, that is the case and that the €50,000,000 €75,000,000 is the one off. But the exact effect of the EBITDA of the machines that we will take out, do you have that number in the head? We never disclosed any results from separate machines or mills. So no, we cannot at this point. It was good that I didn't have it in my head though. Thank you, Linus. Do you have was that an answer? Yes, I have. Yes, I think that's good. Maybe if I can just put in one more question now that I'm on the line, if I may. You talk about Bergvik saying there's no change of strategy. And I mean, you have been part owner in forest land, so that has been part of your strategy for quite a few years. Do you foresee yourselves being, let's say, remaining forest owners in some shape or form after all Bergvik related transactions have been completed. Looking at the strategy as we speak right now, I don't see that that is the preferred way forward for Birlikonstanas. Will prioritize to invest in the packaging business. And that means that you will completely dispose of any shareholding in forest land activities? I think we have to take that one step at a time. But first, we need to finalize the deal that we are in right now and then we need to move into the next step. So exactly what it will look like and how we will do that remains to be seen, but the main target for us is to secure a competitive wood supply. And how could that be done? Do you mean if you don't have any shareholding at all in these forestland assets? I think one way that it could be done is to elaborate and to develop a strong partnership with other companies that can actually be the owner of the forest land. Okay. Thank you very much. Next question is from the line of Gustaf Schind from Pareto Securities. Please go ahead. Your line is open. Hi. This is Gustaf from Pareto. Thanks for taking my question. I have a few. I think I'll take them 1 by 1. Firstly, on the EBITDA impact for Kym7. So you gave us the annual impact for 'nineteen to 'twenty one. How should we think about that on a quarterly basis? Should we assume more or less a linear decrease in EBITDA loss over the period? Or yes, any help on that would be great. Thank you, Gustaf. I think I hand over that to you, Christophe. What do you think? We are not that detailed today. We as we have said, we expect the negative impact on the results to be 500, and as Pietro said, 50 to 75 of those will be one offs. But divided between quarters, we don't have today, sorry. Okay. Fair enough. Secondly, on CapEx, the FX component that you mentioned today, what exactly is that? Is that increasing cost for some important materials? And then also on CapEx, are you confident in the number that you gave us today? I mean, how good is the visibility and the remaining 10% of the construction work that is going to be made? I think that the increased cost of KM7 is NOK 600,000,000 and I think that the basic reason for that is the complexity that we are in when we are finalizing the civil construction at the same time as we are finalizing the machine as Mikael said. And we have targeted to be on time and ramping up this machine successfully to be our main priority. And SEK 7,600,000,000 is an estimate that is also including some contingency parts, of course. So we don't know yet where this project will land, but we have indications that it most probably will be more expensive than SEK7 1,000,000,000 and on top of that, that we are prioritizing to start up the machine on time with the successful ramp up and that is the main reason for the increased forecast. And there are also parts in this that are currency related, but the main reason is to be referred to as complexity. And then lastly on the wood sourcing impact, you quantified that for Q3. Do you see any of that spilling over into Q4 at this point? You mean the wood shortage? Yes, exactly. I can't really say that, but I would say that if you look at our inventories and the way production is running as we speak, we are in a quite good situation. So the costs indicated for the Q3 is mainly due to extra cost for logisticals that and transportations that we have had during the summer to cope with the weather and but we are still in a quite good shape when it comes to inventories. So right now, we don't see any spillover to the Q4. Great. Then just lastly, while I have you on the line. You set targets for the new divisions today. Do you know when we'll get some pro form a numbers for this to put in our models? Have we decided when to publish that, the pro form a numbers for the divisions? Because internally, we are the new divisions are effective from October 1st, but we will make sure to change the full financial performance the financial reports based on as from January 1. But so Yes, exactly. So well, we will of course send out the performance figures a good time ahead before we start to disclose according to the new divisions, which is from Q1 2019. Yes. But no date decided yet. And next question is from the line of Kevin Hellegar from Goldman Sachs. Just if you could just clarify the $500,000,000 you're guiding for in terms of cost in 2019, is that versus 2018 reported numbers or just the total cost you expect in 2019? Should I ask on that? Yes, please. What we have done is that we have made one scenario not closing down the old machines and keeping everything as it is and compare that with opening up the new machine and what we see in terms of capacity coming out of that. So it's a mix and volume change that is that you see in those figures, plus the one off cost that is related to babysitting and everything that is related to opening up a new large machine. Okay. So it is the total cost in 2019? And next question is from the line of Robin Santavirta from Carnegie. Please go ahead. Your line is open. Thank you for taking my questions. Now just finally to clarify, this $500,000,000 that you referred as ramp up costs for Kilometers 7, does that include or does it not include the financial impact of capacity closures in 2019? Including. It's including. Okay, good. Then in terms of return of this investment once it's finally up and running in 2023. I guess you have previously said it will be more than ROCE will be more than 13%. But now with the new higher investments, what is the would you provide some guidelines there? Do you know what You're absolutely right. We have communicated the whole NICS program to be in the area of 13%. But what we see is that we will this program when it's fully ramped up will contribute to the ROCE target that we have long term. That is what we have said. There are investments. So it's total effects from all parts of the next generation program that will have that effect on our road sale going forward or fully ramped up. All right. Thanks. And then in terms of the balance sheet, you stick with this net debt to EBITDA below 2.5 times. Now, do you have any covenants that what are your covenants? And if you then would take Parivik's Korg with bank loans at Petrasil, is there a risk to maybe reach your covenants or? No, I don't see a risk for that as it looks like today considering that we do not put Bergvik Ost into the balance sheet long term. Okay. Okay. I see. Thanks. And then in terms of dividends, you target the dividend payout ratio of 50%. Is that from how should we view it? Is it from reported net earnings or from the adjusted net earnings? That I'm not certain of. I'm not sure either. I have to double check that and get back to you. Can we do that? Can we come back to you on that? Okay. No problem. No problem at all. And then finally on the CapEx, this overall equipment efficiency program you have, does that require additional CapEx or is it excluding additional CapEx? It doesn't require substantial additional CapEx. To some extent, it might require some, but I believe that it is within the room of EUR 1,300,000,000 that we have moving forward. You can say yes. And of course, the major part coming from the overall equipment efficiency work comes from working, I can say, with operational excellence or production excellence than CapEx, I would say. So that's the way going forward. I see. I see. And is this €400,000,000 EBITDA, is it mainly from then less time lost on the machine, higher speed or less material lost. To contribute most to the EUR 400,000,000. Correct. I have been running the machines at quite high speed already. But that is correct. That's improving our overall efficiency, both in terms of production speed, but also the uptime that we have and also the materials used. That's the 3 main components to increase the overall equipment efficiency and reaching this SEK400 1,000,000 improvement in EBITDA. All right. Thanks. And finally, just your pulp position, the net pulp position at the moment and then 2023 once grew and is KM7 is fully ramped up. Do you have an update on that? Today, we are it's 100,000 tonnes net exposure. And of course, one of the major, I can say, advantages with the projects now is that the integrated pulp that we have in both in Grovan and in Hejeblakka will be integrated to our board machines. But I don't have an update today about the net exposure. Mike, we can come back to that later. All right. Thank you very much. And next question is from the line of Oskar Oscar Lindstrom from Danske Bank. I have I mean, a number of questions that I've had have been reached slightly already. I mean, the main here is around the KM7 investment profitability long term. And I guess now you're talking about the next program as such, which is the KM7 project in Groove and the PM10 and PM7 project in Carablaqa together. I mean, if I just do you say that they're going to be sort of ROCE 13% long term. If I put those 2 investments together, and SEK 1,300,000,000, that's SEK 8,900,000,000 in investment. If I depreciate that over 20 years, it's SEK 445,000,000 each year. And then I say ROCE, 13%. I mean that gives me an EBIT of at least SEK1.6 billion or an EBITDA of SEK1.6 billion. I mean is that what those two projects are going to add net to the company once they're fully ramped up to 20, well, 2023 or something? Can you take that? Sure. We have said before and we stick to that that the next generation program will add $1,200,000,000 to our EBITDA when fully ramped up. Okay. 1.2. And can you split that between KM7 and Grauerblakka? Because those are 2 distinct investments. Yes. We have said that approx $1,000,000,000 is related to KM7 and approx SEK200 billion is related to Haarblakka. And now we're talking EBITDA? Yes, yes. And then my second question is around this wood sourcing problems. I mean, you're saying now that the €40,000,000 in wood scarcity, that's well, the wood scarcity in Q3 is going to impact your results by 40,000,000 dollars I mean, you don't see wood scarcity as sort of the new normal or as a long term problem, but it's more just these temporary factors and that you should be back to a more normal supply situation? I think that is definitely the case. It's not the new normal. And but I think this the last the weather related problems have has been horrendous during the last year with the mild autumn in the Baltic and extremely harsh winter in Sweden and then the hottest summer ever experienced. And I think that is what we are referring to when it comes to wood shortage. It's nothing else than that. All right. Well, and then finally, just on the balance sheet and the Bergvik Skou transaction, you say that you're going to be seeking bank financing for this. Have you already secured that? Or We have a plan for that. Yes. We have a plan for that. Yes, we have absolutely. And you mentioned that the long term plan is for this not to be on your balance sheet. For how long would you expect it to be on your balance sheet? I think that depends. We are in negotiations as we speak. So that is something that I can't reveal right now. Could I ask you, I mean The most important for us is to come to a conclusion where we have long term contracts that really ensure a cost competitive wood supply. I think that is in the interest of Birgel Kossnas and how we utilize the fact that we will require Bergvik Ost and put it in our balance sheet short term SEK 5,000,000,000 is something that we have to utilize in the best way we can to ensure a favorable long term contract for the reason to have a competitive wood supply. That is where we are discussing right now. Okay. If I just may ask, I mean, when you say you're in negotiations, do you mean negotiations to buy Barvik School? Or do you mean also mean negotiations to secure a long term sort of supply contracts? The main negotiation that we are in right now is to require a Bergvik Skog, the Bergvik cost. Okay. But also That will be finalized by the end of the year. Okay. Well, thank you. Those were my questions. And next question is from the line of Hari Taittonen from Nordea. Please go ahead. Your line is open. Thanks for taking the question. Many have been answered already, but can you just go through the mechanics of the closures of the 3 machines at Gru? How do you sort of what's the timeline for that? Is that happening all at the same time? And how long that will have to be before the KM7 starts? And therefore, also looking at the volume development, you guided kind of the volume development of 400,000 tonnes longer term, but if we look at next year and year after, how would you see that developing? Okay. So is anyone volunteering or Our plan is that we have 4 paper machines in Gjovern and also the PM6 for floating. And our plan is to close down number 1, number 2 and number 5 when board machine number 7 is up and running. We will keep board machine number 4 and that we have said that it will be for the time being. And then when we see that we have not room or pulp supply to that machine, we will close that later on. But that will be a decision we will make going forward, so to say. So number 7 and number 4 and also be able to produce pulp in Gjoven and also number 6 will be the infrastructure that we have in Clincennes in place. Yes, sure. So basically, 125, they are closed at one go and then you will have a short period when before the KLM starts obviously. I mean, just sort of give a feel of how long that kind of shutdown period might be? Or how quickly do you think you will close the gap between closing the 3 and starting the new one? Well, that will be a I would say, we will make the change quite quickly after we have started number 7 because then we will because the pulp supply to the machine will not be enough for the other ones and also from an energy perspective. So we will close them down when we start up at number 7. Okay. And do you give sort of what would be the best guidance for volume development for 'nineteen 'twenty, sort of overall? You gave the 400,000 ton increase up until 2023, but for the next 2 years? If we look into the 2020, we estimate to have a production a little bit more than 3,200,000 tons or close to 3.2. 2023. 2023, yes, 2023. And the today, we are at level about 2.9. And then we will close down number 1, 2 and 5 and keep number 4 and ramp up number 7. So in 2020, we will be around 3.1 in production. We have a question registered from the line of Mikhail Jovs from Kepler Cheuvreux. Please go ahead, Mikhail. Your line is open. Thank you, everybody. Thank you for this. Just a clarification. So when I look on your slide there for securing competitive wood supply, you also say that you will balance the wood supply from remote areas. So really two questions And then a more open question, I mean, wood costs, let's say, a couple of years out from now or when all of these weather issues have settled compared to the wood costs we saw, let's say, in 2016? Is that will there be a big difference? Or if you could say a couple of words on that? To start with the last question, I would say that the wood costs we see start that we guide also in the market outlook is refers to the demand driven wood cost that we see and has nothing to do with the wood shortage that we have experienced during the last months. And we believe that we will continue to see tough demands on pulpwood during the next coming years. So and that is the main driver of the costs. And when it comes to the Bergvik Ost part of how big that represents in our pulp production, I believe it is roughly roughly 10% that is actually based all in all from the Berwick Ost parts. Okay. Many thanks. Thank you. And we currently don't have any further questions registered. So I'll hand the call back to the speakers. Please go ahead. Thank you. So closing down the Q and A session then. Petra, would you like to say a few final words or? Yes, thank you very much for listening. And I hope that your takeaway from this webcast is not the fact that we have increased the cost of the Kilometers 7 rather that it is the message that we have a big potential to unlock at the bildurkorsnes and that it is positive news that KN7 is on time and that we focus on a successful ramp up. So I think that is the main wish that I have and also for your analysts that you have also been that we have provided you with some more extra information and that we have also provided you with some KPIs that you will be able to follow for yourself the performance we will have here during the next quarters. So thank you very much for your attention. Thank you.