Earnings Call: Q1 2018

Apr 20, 2018

Morning, everybody, and most welcome to this First Quarter Present Analyst Conference. My name is Christoph Kasblad, and I'm Head of Investor Relations. With me today, I have Peter Enarson, our CEO and Susanne Vitander, our CFO. We will, as usual, use approx 25, 30 minutes to go through the presentation with the results and then open up for a Q and A session. Yes, I think that's all. I'll leave the floor to you. Petra? Thank you, Christophe. And I would like to start with just a few minutes on the fact that my 100 days have actually passed. And time flies when you have a lot of fun, that's for sure. And I just want to tell you just a few words on the first impressions that I have from Bill and Karsnaz. And I have picked up quite a lot. I've been around talking to the employees, of course, both at the production sites but also in at the sales offices. I visited quite a few customers. I've also spent some time in Brussels with the questions that we need to address over there. And also spent time with science centers looking at the future on more of an innovative perspective and also spend time in Gruywe and, of course, talking to suppliers. And I would say that, the takeaway that I have from meeting all these people is that cautionary actually have an enormous potential in the future. And also, if you look at everything that is ongoing around us right now with the Rescue the Ocean starting a year ago and also all the things, the disruptive technology happening around e commerce, for instance, it is for sure a change in the customer pattern in outside the billowed costness that we really need to quickly adapt to. And I see that as the major transformation that we need to do. We need to very quickly act upon this innovative digitized solutions that the customers are asking for. And I think that is something that we really need to take all of our effort, and it also probably means different business models from the for the company. So we can't really afford to spend that much time on hygiene factors within the company. So we need to quickly make sure that we don't have production issues and things like that because there are so many enormous potential to capture out there. And if you look at the little cautiousness and the way we work, I think you could say that from my perspective, I've spent all my life, 30 years in Sandvik. And coming into Birgit Kosnas, it's very much similar to a family owned company, which is on most It's like one for all, all for 1 and also very entrepreneurial and very warm feeling within the company. Everyone truly loves the company. And you can also see that on the latest ranking on Randstad on the most attractive companies in Sweden, where Bilud Koshner score on top 10 on that listing, which is quite amazing for such a small company. I think everything has a flip side though of a coin. And what I would like to see more of is a more systematic approach where we actually put more efforts to prevent accidents from happening. And we are we act very much like a family owned business, where if you have a fire, we sort of take all the resources we have in the company and we put out the fire. But that also have a consequence on other things that we have decided to focus on. And I think that is the way that Sandvik does not act. Then if you have the top priorities, I think listed companies of today put much more effort in risk analysis and controlling a much more systematic approach to the targets that they have put up. So that is something that I think that I can contribute with in from a more execution perspective. But my top priorities during these 1st months have, of course, been very much concentrated on the project, the next generation project, Grovan, and to make sure that we are on top of things that is at the Giroveon site, but also on the investment in Karelakka, of course. And what we have done in Gruyvern is that we have strengthened the project by putting in place a program office in Gjoern with the purpose to visualize risks. So we have pulse meetings now every week where we discuss the risks in and we have also divided the project in 4 parts. We have the first part, which is we call machine ready. That is more or less the building under the machine. The other work stream is mill ready make sure that the is ready to take on this challenge. The 3rd work stream is product ready. It's an enormous challenge to just qualify all the products to be utilized in this machine. And the 4th work stream is business ready to make sure to ramp up the whole thing. And if I have really looked into the investment appropriation request from all the parts. And I think that Wilud cautiously did a really good job. Already, some years back, anticipated that they needed to release and open up bottlenecks and make sure that we could address a stronger demand. And I think the next project, the program is much more than just a machine in Gruyburn. It's really to streamline the whole product portfolio within Wilud Korsnas, where Kjellblakka is the MD center, Karlsborgs, 5Form, Groove, Jablle in Consumer Board has their roles and responsibilities much more clarified. And even though we have a more expensive building than we actually anticipated in the project from start, I think that there are also other considerations that are much more positive today. The demand driven by Rescue the Ocean and the total demand is much more it's much much looks much stronger now than it did when this project was approved. So I think that all in all, evaluating this program that Billered put in place some years ago. I think you need to value the whole setup, including the way we qualify products and the way we sort of really start up the business. And I wouldn't be surprised if all in all that we actually can compensate for the extra cost that we have right now in the building. But it looks without any doubt that we will still be above the financial target of 13% on return on capital employed, even including the extra the costs that we have had very early in the project. But it is a challenge, and it is definitely something that we need to keep our focus on. And it will be a bumpy road. It will be ups and downs during the next years. So this will remain to be the top focus of the company to make sure that we ramp up this project in a good way. And another part in next the next program is, of course, Graal Blakka and the PM10 machine that we have moved from Carvassari and put up in Graublakka. That machine is up and running as we speak. It's in the final stage of production ramp up, and it looks very good, which feels very good to say. And so I think that, that is also a relief and very good. Something that I have been also very impressed by during the 1st 3 months is the environmental awareness that really lives on in Billerikosnes. I was quite surprised actually, visiting all the sites, to see that almost all production sites in Belarus Kossnes are fossil free. They don't use fossil oils. And it's quite remarkable the way generation of employees have actually focused on environmental issues for such a long time. So that I feel really honored to have the opportunity to continue to be the leader of that in at Billehardkochsnes so that we can contribute in that way to sustainability. And finally, the vision statement that Billud Kosnes has that we challenge conventional packaging for a sustainable future is, to a large extent, I think, it's a perfect fit for the company. And it's so very much embraced by all employees. This is really something that incorporates all the employees in the company. And that is not that usual, I think, in a company that everyone knows the mission statements. We have the core values already sort of connected to that direction. And it's really what we need to do. We need to go out there and capture the opportunities that we have. So I don't plan or we don't see any reason at all to change the direction for the company. It's more to make sure that we execute in a more direct way and make sure that being a family so acting as a family owned company, we need to make some roles and responsibilities clearer so that everyone can have a mandate and to act in accordance with what they are responsible for. And but more or less, I think execution is really the key so that we can run a little bit faster. But I plan to invite you in to tell you all the details about what we would like to change, how we would like to do and if it affects the targets in any way in the Capital Markets Day that we will invite you to in September. So with that said, I would like to move into what has actually happened the last 3 months, the Q1. And the highlights of the quarter is that the production is stable. If you look at it from a disturbance point of view, we have had no disturbances during the Q1. And also, the strong demand that has also continued, I would say that it's as strong as it was last year or maybe even stronger. And this has resulted in a very strong result, of course. And considering the fact that we have had some headwind during the Q1 of the wood shortage. That was, to a large extent, weather related. It started with hardwood shortage in the Balticums. And then we also have some quite a lot of snow, as you might remember, in Sweden. And then this has also on top of this, we have since it affects all the producers in Sweden, it strongly affects transportation. So this has really traveled into all kinds of wood supply, have had the problem the last month. And this is something that we anticipate will continue also during the Q2. We anticipated a hit of EBIT of roundabout €80,000,000 to €100,000,000 for the Q1. And we have actually been hit roundabout $115,000,000 in the first quarter. And we anticipate this to continue in the Q2, but not to an extent of EUR 100,000,000, but maybe roughly half like EUR 50,000,000 to EUR 75,000,000 in the second quarter. But now it's not weather related any longer. Now it has it's more like to sort of to stabilize this and to make sure that we have a refill of inventories and to make sure that the transportation network really works. But we will see effects of it also in the Q2. But I think the demand has is strong all over the all business areas, looks really good. We have had the price increases in all business areas. And I can't really pick any segment that is not really performing. I think we are very much supply constrained as it is. If we just could sell more, we could sell more in all segments. So it is a very, very strong market situation. So all in all, I feel quite positive. And I have already commented on the investment that they are progressing according to plan. I will come back to that a little bit later. Strong demand, packaging paper, net sales up 6%. They have quite work they have increased pricing, and they have had also a very strong demand during the Q1 where they are, to a very large extent, supply constrained. They could definitely have sold much more if it wouldn't have been for the wood shortage. And the outlook remains solid. And I would like to highlight that we also during the Q1, we launched a product that we call DSAC, and DS stands for dissolvable SAC. And this is actually a SAC for cement that disappears in the mixer. And it really makes the customers the way you're working for the customer much more easy, both when it comes to handling and because you just put the sack in the mixer. And then, of course, it's also much more friendly for environment and also for the it's much safer for the person working with this because there are no dust or anything. And you can also say that the SAC itself that is actually surrounding the this DSAC is actually climate positive also. So I think all in all, packaging paper has had a very good Q1, and I'm very confident with the future. Consumer Board, it amounts to around about 40%, thirty 7% of the koznes. And also here, we have had increased sales compared to the Q1 last year. And EBITDA has improved with 8% to 22% EBIT margin of the 1st quarter. Also here, we expect the markets to remain solid. And I think that you might you could say that what differs consumable from the other two business area is that they have not been as affected by the wood shortage as the other 2, packaging paper and corrugated solutions. So I think also here that it's I have good confidence with the result and also with the outlook. One example of a product that we believe a lot in here is called the TETRA Rekart product. And this is just to illustrate some of the possibilities that we have in this business area for the future, where this product is actually targeted to replace cans for food packaging. And I think to just lean back on the comment that I did in my intro that the customer pattern are really changing, I think it's not only for plastic, it's also for replacing metal with more paper based products. So this is another opportunity that we have within where we can so that we can sort of broaden our addressable market is not only to continue with the paper based product, it's also to move into traditionally metal based products and also plastic, of course, where we can increase our market. Corrugated Solutions has also increased in sales, and this business area amounts to roughly 15% or 16% of the turnover of BILDRIL KOSNEG and has been constrained to quite a large extent during the quarter by the wood shortage. But it has I think it has they have been product mix. And within Corrugated Solutions, we also have managed packaging directed to focus more on packaging solutions. Also here, very much driven from e commerce and that we believe could really increase quite a lot. The EBITDA increased by 11%, and we had the 1st quarter EBITDA margin amounting to 22% for corrugated solutions. And also here, the outlook is solid as for all business areas. And we see further potential when it comes to both product mix but also to a large extent when it comes to price increases. And just to give some insight in the product, also here, I think the world's strongest fluting is the product that we believe a lot in within this business area. And I think that is also a trend that is developing where you want to have the customers demand more light material, but they need to be lighter and stronger so that you can utilize much more packaging for air freight. And one product that we could actually replace in the future are wooden boxes, for instance. It's much more heavy. If you could replace the wooden box with a lightweight fluting, then you could actually air fry it. And if you can air fry it, it could actually be much more less of CO2 commission. So I think that this is also something that we can both increase the capacity that we have today or the demand, but also move into new product areas like or product segments that we have where we have not been before, like replacing plywood boxes with our product. So this is ongoing. So I'm also very satisfied with Corrugated Solutions performance during the Q1. So it sounds a little bit like I'm repeating myself, but it is actually so that all business areas are performing, and they have a solid future and with the potential to further increase price. That is from a sort of from the holistic point of view, what it actually looks like. So moving from that over to next generation. And this I have already talked a little bit about. And as I said, the whole purpose of Next Generation is very much to make sure to capture the growth in by really streamlining and making sure that we put in place new capacity and remove bottlenecks. So if you look at the whole math of included in the targeted new generation, it's very much to streamline the product portfolio where Gerblakka will be the center of MG Machine Glades Products. And you will have fiber firm will be moved to Carlsberg. So we also clean up the responsibilities in Gruyvyan so that they have a much more clearer focus area in consumer board. So fiber form moves to Krogsborg, where we have that center. And also, we put up the MG center in Karelaka. And then we focus very much Groweon, Trevi and Jablia on consumer board. And also moved some of the parts of the some products to Jakobstad that will put up will be the MF center of Biller Kosnaz. So it's more focused production units and also all in all to capture the risk and volatility. So if you look at this as initiative more from an overview as a company considering the opportunity that we have. I see that the KM7 in Gruyvern is, of course, the most expensive piece that we need to put in place. But it's also so that I think it's very for us, it's very important not to put all our efforts on actually putting up the machine in place because there are also so many other things in this puzzle that needs to sort of fit into each other. And the time that I have had looking into this is, as I said, that there are a lot of things in this that looks much more positive today than it actually did 2016 where we took this to the board. So I'm happy to see that we are performing on this and that we are doing this because otherwise, this would have been a headache right now if we wouldn't have started this streamlining of the footprint in the middle of this very, very high demand and almost changing environment with the customer behaviors that put demand on us to change to answer on what they need in the future. So but it is a challenge for sure. So but so far, so good, I would say, during the Q1. And we have strengthened the program office with more systematic work, more looking into risk analysis. And I spend a lot of time in Gruvon meeting with the suppliers, and I also have safety works on-site to make sure that we will model and set the standard so that nothing happens. So this is the year end and the time frame. And the conclusion after the Q1 is that we are keeping the time frame. And as I said, we have put the program management office in place during the Q1. And the start up is still set for March next year. But I think it's also now it's very important that we focus on the qualification and also focus on the business ramp up. Because even if it looks much better actually today than it did 2016, it's still that is also a part that needs to be addressed already now in the product so that we don't start that we don't shift the start up schedules in March. So we need to be ready to take on this in a good way in March. And then we have the MG center in Kvavlaka, where we have TM10, the machine that we moved from Tervasari. And the start up plan was to start up this machine in March or March, April this year. And I think it works according to plan. We don't have any hiccups in this project. And the machine is up and running. We have some weeks ago, we had Masampo Vieiran. I don't know what that is in English, but it's a good sign in a machine. And we are actually up producing as we speak. And unfortunately, Greublakka is one of the production sites that have been hit the hardest by the wood shortage. So I just want to take the opportunity if we make a decision to affect the ramp up of PM10, we could do that. But then it would be purely based on the business decision to safeguard EBIT. Because if we have a wood shortage in Carablaqa that we don't have now, but we do anticipate a hit on like 50%, 75% in EBIT, we need to look as businessmen on the whole portfolio and make sure where to deduce what to how to handle the situation in cooperation with our customers. And right now, we don't see any effect on PM10, but it is in Gravelaka. And if it will be affected, it is not because of pure ramp up in the project. Then it will be based on a business decision driven by the wood shortage. So and then the focus on operational excellence and to put in place preventive systematic way of working. I don't I think this is something that is more or less a hygiene factor that all companies need to have in place. And I can see that just looking by the KPIs, looking at the safety statistics and also the production disturbances that we have had during the last years, this is an area that we can improve and that we will improve. But it will not happen overnight. This is a cultural mindset change because it is driven from the culture of more family based owned mentality where you sort of everyone acts as a fire brigade, but we need to put in place a different mentality. And I think that, that will take time, but I don't believe that it doesn't have to take like enormous amount of time. You can actually push and change a company quite to quite large extent if you have the will in the employees with you. And I think you can make a huge change in like 1 year or 1 2 years. So but I think also here, the Q1 is a good tick in the box. We have a good development in safety, and we also have a good development in production stability. So this is ongoing. And I think we could do it faster, but it's also something that has to take some time. And finally, before I let Sasan continue with more all the details in the finance, I'd like to summarize that we have actually delivered on all our financial targets. And we have actually over delivered on some of them. And so considering the fact that we have a Q1 that has been hit by wood shortage and also, to a large extent, higher costs of chemical like caustic soda, for instance. I think I'm really happy to see that we have delivered the result of the Q1 on this level. So a tick in the box for me also. So with that said then, I would like to invite to Sam to tell you a little bit more about the fantastic details. Thank you. Okay. So let's start then to dig into some of the details at least with a bridge from last year, Q1. We started at EUR 923,000,000 in EBITDA. Last in the Q1 last year, we had a couple of issues. We had production issues costing us about SEK 80,000,000. We also had SEK 75,000,000 actually. We also had other issues. We had a stop, maintenance stop in Grundfjord that was actually planned. So all in all, the improvement from that sense, it's around SEK 150,000,000 on EBITDA level. And as Pietro has pointed out, we have our business areas has done strong help in improving our EBITDA by increasing sales price, and we now are certainly seeing the effects from the price increases. Over EUR 300,000,000 is the impact in the Q1. Currency has played some impact, EUR 65,000,000 in the quarter compared to last year. And then we've been very clear here in splitting up what is what when it comes to the wood shortage and the wood cost and fiber cost. The wood shortage is primarily or it's only really volume lost. We've lost 30,000 tonnes of production that we could have sold. So we could have actually sold a lot more if we've done that. 2 thirds of that hits packaging paper and 1 third hits corrugated solution so that volume lost. Fiber is increased cost for both wood and pulp that we buy. Out of these EUR 200,000,000 this is EUR 200,000,000 negative, EUR 125,000,000 is wood increased wood cost. And we had an instant hit in the Q1, you could say. We've been warning for quite some time for increased wood cost, and this is how much it hit us in the Q1. Also, as Pietro has mentioned, we have also seen increased costs for chemicals and primarily caustic soda, which is a chemical that we use to a large extent in our mills. It impacts us with SEK 60,000,000 in the quarter. That brings us to the end. We delivered a clean EBIT of SEK 1065,000,000,000. That is 15% better than last year, and it's a margin of 18%. When we adjust the EBITDA with SEK 37,000,000 in adjustments, we do the adjustments that we have announced for extra cost in that we have in the projects in Lueve. We've also had some spillovers from Karelaka, and we have had some restructuring costs that we've taken in this EUR 37,000,000. That is actually SEK 20,000,000 above what we had guided for. All in all, we made adjustments of NOK 52,000,000 on EBIT level. So moving forward then, looking at our net sales. And as Piappa has pointed out, we have had a continued strong demand that has driven our sales increase. We had sales of EUR 5,900,000,000 in the quarter, which is up 6%, driven by local sales price increases. And as I said before, production has could have produced 30,000 more if we had the wood to supply the mills with. So 30,000 tons more could have been included in if we haven't seen that. And I think Petra has explained pretty well what it consists of and why it was there. The weak we have also put in here the total competitiveness weight index on Riksbanken to show that the krona is on a pretty high level. It has been higher twice before, as we have noted, during the financial crisis and also during a the real estate crisis in 2,001. So historic it's on a historic very good level for us exporters, not news to anybody, but we thought it is on a very good level right now. Going back to the negative effects from cost increases. And as said, we want to split up clearly the demand driven price increases that impact us, which was EUR 200,000,000 overall and EUR 125,000,000 of that was wood. And as you can see, we have had a fairly decent ride over the past 5 years. We've been enjoying a very stable market balance with little changes on pricing. We saw a trend shift in the end of last year, and we expect that to continue to increase. We also, as I said before, caustic soda, which is a chemical we use a lot, is up 70% compared to 2016, doubling the cost for us basically. We continue to deliver very strong, solid cash flow. Our business is very cash generated, as we all know. We had SEK 806 1,000,000 in cash from operations in the quarter. And if you note here, we have very low 1st quarters in the last past 2 years, which is explained by decreased accounts payable those 2 years. That phenomena we did not see this year. Our working capital is on a relation to sales of 9%, which is low, and it's helped by the big accounts payable that we have in our big projects right now. So a bit help to get there. The investment level for the Q1 was at EUR 1,100,000,000. So we have a high pace right now in our investment programs. It's more than double than it was last year. Capital employed has increased EUR 2,800,000,000. And still we managed to deliver the 13% growth fee, which is good. We have increased our net debt to SEK 6,000,000,000. During the quarter, we have issued SEK 2,300,000,000 in bond loans, and we experienced a very high interest from debt investors. And in hindsight, we think the timing can probably not have been better for that financing. Net debt to EBITDA, as Petra showed before, SEK 1.55 rounded to SEK 1.6 in this chart, is on a level where it is expected to be right now. We estimate that we will peak with the current ongoing programs at a level of 2.4, percent, not including any actions on Dalvik Skog. Dalvik Ost is we have really no news there to convey. The DD, the due diligence phase is ongoing, and we expect it to close by the end of the year. So our outlook for the year. We are not changing our outlook in any form or fashion other than one item on this slide, and it's the 3rd bullet. And we actually are still being impacted by the wood shortage. And we anticipate that, that will actually have an impact in the second quarter as well, SEK 50,000,000 to SEK 70 5,000,000. It will be less than in the Q1. We are very sure about that, but we anticipate it to be at this level. Other than that, we expect the demand and order situation to continue to be strong. And the demand driven cost increases that we are starting to see now in a peak of a business cycle, we expect that to continue. Capacity wise, we are sticking to what we've said before. We will remain at the 17 level, and we will be able to see increased volumes for Consumer Board. But on the other hand, we will have lower volumes for Packaging Paper and Corrugated Solutions due to the fact that we have to ramp up and have longer stops in Gruve. And our one off impacts from the project in Gruyvern are not changing. We still anticipate that to have an impact of SEK 210,000,000, out of which SEK 75,000,000 is due to lost volumes, and we have longer stops. Okay? So to summarize, stable production, finally, it feels like for me. Had a good production quarter. That shows immediately in our results a strong EBITDA margin, adjusted 19%. We have very high demand. Net sales are up 5%, and the investment programs are going according to plan. And the positive market outlook is really strong, both short term and long term wise from our perspective. Finally, we have a save the date here. You already mentioned that, Pietra, that we have a Capital Markets Day in September. We expect it to be in Stockholm somewhere on 17th and have a shorter version in London on 18th. That's what we aimed to convey here today. So should we open up for questions then? Would you like to start? Please Please your name and the firm before we answer that. Thank you very much. It's Linus Lawson with SEB. And maybe if we could just start for a bit with the wood cost situation. And thanks for guiding for the Q2 on the €50,000,000 to €75,000,000 Apart from that, do you expect the wood supply constraints to move away in the 3rd and the 4th quarter? Or do you foresee some continued problems? That's the first question. And secondly Can we take that first? Sure. Yes. I think the wood shortage, it's I think it's sort of developing. It started out with very much a weather related problem. And then that, of course, needs to be mitigated in the future with more scenarios to handle a situation like that. But I think looking at the weather as such, it's that is not no longer a problem. We actually have a very good weather right now, both in the Baltic and here from a wind perspective. But then so I think what it has been what has happened is that the problem has been transferred into all wood, both softwood and hardwood. And the major problem right now being the fact that it affects all producers. And Billard Koschnes is the largest consumer of hardwood. So it sort of started off hitting us really, really hard and sort of emptied the inventories. And then it sort of affected all other producers, and then it affected the whole infrastructure in Sweden. And so now we are more in a situation where it has been sort of contagious in the whole business. So it's more transport related, building up the inventories again. So I see that this is something that will be so will be balanced again during the summer. So it's not something that we anticipate. Right now, what we can see that we will sort of drag on for a longer time. Then of course, it could be hit by something else. But this root cause incident triggered by the weather in the Baltic area will probably sort of be balanced during the Q2. And how would you describe your inventory situation currently? It is a tricky situation because it's we need to sort of prioritize between the different production mills. And we are more or less in some areas, we are really we have a really tough situation and in others, not. And it's also it's very costly, and it's also very transport consuming to move wood from one part to the other. So it is a quite extensive jigsaw puzzle to deal with this. But I have confidence in the organization that we are on top of things, but it will be noticeable in our EBIT during the Q2. And then apart from those logistics and supply constraints, what do you expect in terms of price inflation for wood in the Q2 and beyond? You mean increased pricing in the wood prices? Yes. Top of the $50,000,000 to $75,000,000 Should we expect something more than that? Or is that the raw material cost inflation that you No. The guidance the hit on EBIT of 50% to 75% is that is what we imagine, the wood shortage as such will hit because we can't sell because we are production constrained. So we could have had an increase of EBIT of 50% to 75% corresponding to $116,000,000 in this. But then, of course, you have the other bucket is to increase prices of wood as such. And that, of course, will continue also for the rest of the year. And how do you what's your projection there? Do you see a gradual, continuous escalation? Or is it how much do you know at this stage? I think I've learned that much that this is like the dynamite question that you hand over to the CFO to give a little bit more flavor on. Yes. And the CFO has learned that we don't want to give the guidance on that. But we do see a pretty gradual increase, I would say. It will increase over the year. No. I think that the what we can do is to be very Yes. There will be. In the first quarter, it has affected us with the EUR 200,000,000 were sort of divided with the pulp and the actual wood. But the total effect on the fiber increase, what we buy as sourcing is SEK 200,000,000 in the Q1. So what we've said is that we will be much clearer as we are today with what it has cost us and what the increase has been, but we will not guide you forward. That's fair enough. And then just finally, if I may ask also on the Girvan project. And I mean it makes a lot of sense, the whole investment, in very many perspectives. But I just wonder if you could, in any way, help us break down the return on that SEK 7,000,000,000 investment. So if we just calculate backwards, the 13% would equal in excess of DKK 900,000,000 of improved EBIT on that site. Could you in any way break that down? How much is reduced fixed cost? How much is mix improvement and so forth? Because I presume that driven today, given the red hot markets that we are enjoying, 2nd kraft paper and then not least market pulp, which is coming out of Driven as well. It must be a very, very profitable operation as it stands. So how will it improve profitability by more than EUR 900,000,000 on back of this investment? Can you add I don't have one That is something that we cannot convey today. But for sure, you're right. It is a very profitable business today. Yes. And at least understand your way of communicating completely that we are talking about an improved profit of more than EUR 900,000,000 on back of I see what I if you refer to what I said in my introduction, that I feel confident that this will not even though the extra cost in KN7 will not dilute the financial target of 13% return on capital employed sort of long term. I think that is when I have sort of looked into this program as such and taken into consideration what does the extra costs and the delay of the KM7 actually mean to the prerequisites of us driving next generation program? I think that there are also other parts in the program being much more positive now than the prerequisites of actually approving of the investments. So I'm not worried. It doesn't keep me awake at night that this is the wrong thing to do. I have sort of a tick in all the boxes, even though we have had a quite severe cost increase at the building in Gruyvyan, it still makes all the sense to do this. That's what I was trying to confirm in my introduction, referring to the 13% return on capital employed. And to your point, we have always said that we are going to be a little more give a little more flavor to it in the Capital Markets Day. But right now, we're it's a moving target because we're really considering what ramp ups and all these work streams, the business ready and the product ready that goes there. It's a huge jigsaw puzzle. So but by the September timeframe, we will have some more flavor to it. We will not give you everything you want, but some of it. Thank you. Nick Elias, Kepler Cheuvreux. Two questions. The first one is these preemptive actions, will they sort of affect the level of maintenance costs going forward? You mean the level of I think it's more to I think this is something also that Wilco Schnauss has started to work with during the last years of production disturbances to put up a way of working where you think much more preventive. And I think that is what more or less all listed companies do. You have a business system. You're working according to lean. You have preventive maintenance. Never walk by and safety right from me and quality. I think it's sort of quite generic and quite much hygiene. So no, I don't think that it will cost sort of from an implementation perspective. I think it's more twisting the mindset of how we work and how we address root cause problems and make sure that all incidents actually can be prevented. It's more in your mind than a costly thing. That's perfect. And then my second question, it's more indirectly linked to you if it's linked at all because if we looked to the market for recycled liners, fluting, etcetera, and right now, we see this very sharp fall in recycled prices across Europe. This could potentially affect then that market. Should we worry about that at all given that you are not in this wind cycle market at all? Or is it something that indirectly could hamper price development? I haven't started to worry about it yet, but maybe I should, Sivana. Well, there's always a gap, and there's that gap cannot be too big. That's something that we've always concluded, but difficult to project. Many thanks. Thank you. Gustaf Johansen with Pareto. Just to clarify your guidance on the negative wood impact in Q2. I'm assuming what you just said that we'll see some volume loss in Q2 as well for that. Do you want to give any sort of delta Q2 versus Q1? How much the volume improvements will be? From resulting from the work shortage? Well, the EBIT result is clearly lower a lower negative number. I'm just thinking what's the delta in volume loss related to the problems with sourcing wood? I would say just from the top of my mind that it's like half. Yes. So it's hard to assume that. Perfect. Well, yes, it really depends on what products that get hits the most. But yes, it's a good assumption. But it was like roughly 116 ish in the Q1, 30,000 tons. And now we say like 50,000 tons, 75,000 tons. So sort of assuming like 15,000 tons ish. That is how I think, at least. Yes. No, it's as good assumption as any. Second question. When will you start price negotiating on your liquid packaging contract. Am I right that 1 will be renegotiated end of this year? Yes, actually 2. So we have 2 liquid packaging board call being renegotiated this year. And I think negotiations will start up fairly early within shortly is the answer to that. Great. And then lastly, you showed the timeline of the Hverblakke progress. So when you mentioned that we'll see a positive impact on results in Q4, just to clarify that on EBITDA level. So when will Sharrocka be EBITDA positive? When will Sharrocka be EBITDA positive? Well, we don't well, the machine, as such, will be BPA positive this year. Okay. All right. Thank you. And I think that is also I think that it will be at least tricky for me to sort of guide on that level because at the end, I don't want the organization to focus on delivering on the targets in the investment plan. You have to have a much more business sense to run the business. So I think it's the project in PM10 in Gravelaka is moving totally according to plan. But if we have to realign products, since all the product segments are moving according to plan and everything looks quite healthy, it's also a prioritization that we have to do between the segments that could affect the machine even though it has nothing to do with actual project ramp up. So I don't want to stick to sort of all EBITDA positive targets for all the machines because we need to act as business from an overall perspective. Not saying that, that will happen, but in case we have this discussion next quarter, I just want to sort of to send that message that protecting EBIT is much more important for me than to stick to a date. All right. Oscar Lindstrom with Danske Bank. Two questions. First of all, I mean, you've talked quite a bit about the strong markets that you're seeing in at least 2 out of 3 business areas. And I think most of us know have seen sort of what's happening with spot prices for kraftliner and second kraft papers in Europe. I'd like to hear a little bit more about how you are able to push through these price increases that we're seeing in the market? And a little bit for what you're seeing in terms of price increases going forward? I mean, are you sort of raising prices with every new order? Or are you sort of having monthly prices or quarterly prices? How are you acting to maximize the benefit to you from the current market? I think the overall answer, I think, is that from my point of view, I see that we still have opportunities to increase prices in both corrugated solution and also as much in packaging paper. And it differs really sort of how we do what how we handle the price increases between customers and business areas. So maybe I think you are better suited than I to inform on that. Yes. No, I would say that it's a mix of what you said. I mean, I know in Packaging Paper, for instance, we go out and we say from this date, we increase prices X and X, not so much in corrugated, but to a certain extent, the same. But that's more of an ongoing order to order renegotiation. Do you feel that you're getting sorry, do you feel that you're getting good traction? Because sometimes, I guess, you go out and say we're increasing prices and then that maybe goes through a month and sometimes 2 months later. Do you feel that you're now sort of getting the price increases into your P and L quicker? Yes. And we actually have we had a couple of days ago, we have a review meeting with all the business areas going through all the segments and ticking off the exact price increases that they do. Also when they informed about it and what is actually biting in for real. And I think that is it's not a huge difference between what we actually asked for and what actually goes through. All right. Interesting. A second question, if I may. You showed a slide up here about the showing sort of the opportunities to streamline your production footprint. And it's the ideas aren't entirely new. I mean, they've come across before from Billard prior to your joining. But you seem to be taking up that sort of seeing that opportunity again. What is it possible to quantify this opportunity in terms of how much cost could be taken out or a positive earnings impact? And what's the sort of type of timing that this would require? And then what's the set of are we talking about a sizable CapEx to achieve this? Maybe if you could just provide a little bit of flavor as to go. I really hesitate to do that right now since I am quite new on the job. But this is, of course, something that I just wanted to share with you that I'm looking into this since this is something that I think is a good topic to talk about at the Capital Markets Day, for instance. But I believe that we get so focused into KM7 and actually building and the increased costs in Gruyvyan so that, that could actually hinder the sea that what we are actually doing and the prerequisites for this transformation or industrial restructuring or whatever you should call it within Bilo Korsnas because it's so much more to this than just I'm not that nervous at all that we will actually have a machine in place in March. But then what will happen? Then we need to sort of have all the products qualified. We need to ramp up business. We need to have a clever sort of prioritization between Gruvy and Srivialevle, who is doing what. We need to make sure that to safeguard the fantastic opportunities in corrugated solutions and also fiber form. And so that is where this appropriation request was approved a couple of years ago. Then the market looked quite different, and that has actually improved. So but the first check I did was, of course, if I could sort of tick the box, do I believe in this project? And that the outcome of that is, yes, this is definitely the right thing to do. But then the next question is, of course, what you are asking. Could we twist it even further in some direction? Is this enough? Or should we sort of do more? Should we sort of tweak it somehow? But the most important question is to continue and make sure that we deliver and that we keep track and visualizes the risks in this project so we act upon them in time. And that is sort of the major outcome of this exercise that I decided to put a program office in place to monitor and visualize the risk. But I do understand your question, but I'm not really ready yet to that is the analysis that I'm making myself right now. So I don't have a view on it really quite yet. All right. Thank you. I understand. Thanks. Okay. So who's next? Okay. Should we try to get a question from the telephone conference then? Thank you very much. Our first question comes from the line of Harry Taytanan of Nordea. Please go ahead. Your line is now open. Thank you very much and good morning. The well, sort of slightly detailed question on the working capital, which was very sort of strong or compared to the seasonal pattern. Was that linked to the wood inventories being kind of limited and sort of related to the weather issue? And can you manage to keep this sort of achievement also the working capital level now? Or is it something which will sort of normalize? Because obviously, it was much stronger number than in the last few years in Q1? Sure. I think the big impact on the positive cash flow is the operating surplus. We do see low levels on our inventory in on the wood yards, but we also see some increased inventory in some of the business areas like consumer board is increasing their inventory. So I think the it's not the big driver in the improvement. The big driver is the operating surplus. Yes. Okay. Okay. And in this sort of very tight market situation, have you sort of changed the geographical mix in terms of or is there and do you see sort of change there which could affect the sort of price mix in the coming quarters? I would say that we have improved both price and product mix, but I think it's not so very much related to geography, Lucret. So it's more product related. And the fact that packaging paper and corrugated solution has been production constrained due to the wood shortage to a larger extent than consumer board. But the product mix as such is more cobalt related. Okay. I'll stop there. Thank you very much. Thank you. Thank you. Our next question comes from the line of Martin Melbu of ABG. Please go ahead. Your line is now open. Yes, good morning. One question about your maybe most important segment, the liquid packaging board. You say stable as always. Does that mean that you have some kind of price clauses to compensate you for higher wood costs intra the contract period of 3 years? Or how is that working? I am quite reluctant to go into a separate customer contract as that is something that I think that we should avoid answering. Or what do you think, Sasan? I think, yes. I think that's it. But to put the question another way, can you have when you say stable and you have higher input costs via wood, can you get higher prices on 50% of your EBIT, which is then having stable fixed price contracts as far as I understand. To consumer boards having a strong margin is the production stability that we have been able to produce so much. That's what should have the biggest impact on their earnings. But it's the way to think about those contracts as defining a stable EBITDA margin or more a stable price? In Consumer Board, it's more production stability, and then we are moving into into price negotiations. That work starts up now during the second half year. Thank you. Our next question comes from the line of Robin Santavista of Carnegie. Please go ahead. Your line is now open. Hello. Regarding the figure on Page 7 and the Gruven expansion, am I reading it right now? It the idea is to produce roughly 300,000 tons in 2020 and then in 2021, reach EBITDA positive and then 23% full capacity? Yes. That has not changed. We have not changed any anything in the time plan of in the Gjovern project. Exactly. Now as I understand, you're also planning to shut 300,000 tons of production. And is that what's the timing of that? I understand that you the plan is is it 4 machines altogether and then 300,000 tons? And how much of that will be how much of that volume will be shut when the machine starts? Or when will that volume be shut? The 4 machines that will be shut down, 3 of them will be shut immediately when we turn on KM7. And the 4th machine, which is the largest machine, will be kept as a backup basically, and it will continue to run for a couple of years to take up the pulp that we have. So that 4th machine will be continued to run for some time. As a backup? As a backup. Okay. Good. Is it fair to assume that the profitability of this production is actually, in fact, very good? On the 4th machine, you asked? On all of this production. I would assume that the depreciation is already or you're taking that as an EO item at the moment, so probably no depreciation at the moment. So I assume it's very profitable on the EBIT line, the 300,000 tonnes that you will shut. Is that a fair assumption or? Yes. The 200,000 tons that we will shut, we have taken the depreciation on the 4th machine that we'll continue to run with 100,000 tonnes almost. We still have the depreciations on. But yes, to both questions, they are very profitable. Right. And still no comments on potential sort of ramp up. The only thing what I'm getting at is that you're shutting quite profitable sort And I understand and I agree with the first comment. I guess it was linear. This is a good project that you're doing. The only thing I'm trying to sort of get the 2019, 2020 impact of this project And now sort of we can do the math and get to understand how much that sort of reduction of profitable volumes will impact. That will be a certain impact. But we still have sort of guess the difficult part, I guess, is understand the ramp up cost of this project. And still, you're not prepared to guide at this stage any of those costs or give some kind of ballpark assumption for the ramp up for the actual ramp up cost of this machine, are you? No, we are not. But we can take I mean, we hear what you say, so we can definitely take this with us and look into it and maybe see if we can help clarifying, sharing something what some things, what we see to make it more understandable and easy for you to grasp the this whole project. But it's not something that I'm ready to reveal any details about right now. Right. Perhaps at the CMD, would but that would be very it would be at least I would appreciate that because it will make sort of the math much easier for 2019 2020. Yes. We can do that. Regarding the Packaging Paper division, is it so that the volumes for the division will decline despite the ramp up of Sjardblakka, I guess you will get some 40,000,000 tons of 40,000 tons additional volume from that, but still the volumes will decline? Or is it sort of excluding Cernambakta, the volumes will decline for this year? That is that was the case, including Schall Baca, especially now with the wood shortage. Okay. Okay. And then finally, about the adjustments, the EO items now in Q1, where are those books, I guess, in the other segment? Correct. They're booked in other. All right. Thank you very much. That's all for me. Thanks. Thank you. Thank you. Our next question comes from the line of Mikael Doepel of Handelsbank. Please go ahead. Your line is now open. Thank you. Good afternoon, everybody. Just a couple of quick questions. First of all, in the report, you said that there were some positive one offs related to the U. S. Operations. And as I understand it, that it doesn't really these are not counted as one offs. If you could clarify firstly what those are and how big those are? Those were the establishment costs that we talked about in the 4th quarter report, and they were in the area of €25,000,000 to €30,000,000 dollars So 25,000,000 to 30,000,000 kind of positive one offs in Q1, which were not duplicative one offs? Yes. Okay. Good. And then another question relating to Chambon Blanc. Will there be any start up costs now in Q2 related to that? And also, just to clarify, did you say that you said that the machine will be EBIT operating profit positive this year? And we don't anticipate I mean, there will be fixed cost that is to run the machine, But and we will have some of that in the 1st part of the year, which we have today. But overall, we think it will be positive for the year. On the EBIT line? On the EBITDA line. What about the EBIT? It will be positive on EBIT line as well if you look at Gerbraca. Yes, yes, exactly. Okay, good. Thank you very much. Thank you. Our next question comes from the line of Kevin Hellegon of Goldman Sachs. Please go ahead. Your line is now open. Yes, hi. Just quickly on sort of getting some sort of feel for where your margins are going. You're both talking about prices going higher and wood costs sort of excluding the availability going higher. Are they going at the same amount? Or is it adding pressure or margin increase? Well, what we anticipate today is that we will be able to compensate for the wood price increases for the year. Okay. And on the availability, you're saying that roughly maybe your shipments loss will be down to 15% or 20%. Should we split that equally between the two divisions, so packaging paper? Or should we split it on a 2 third, 1 third, like the impact was this quarter? That is a very difficult question to answer really to make it correct. So it's really an impossible thing to say because it's on a day to day basis where we Okay. But Okay. But those logistic issues should be gone moving into 3Q, 4Q as it looks for now? Yes, yes. Okay. And then lastly, on you mentioned carton board price increases that have already been achieved would more impact 2Q. How much on your of your consumer board business would that impact? 15%. Okay. And it seems that there are no further questions at this time. Please go ahead, speakers. Okay. Thank you all for coming. Thank you. Thank you. Thank you. This now concludes our call. Thank you for attending. Telephone participants, you may disconnect your lines.