Good morning, everybody, and most welcome to this first quarter press and analyst conference. My name is Christopher Casselblad, and I am head of industry relations. With me today I have Petra Einarsson, our CEO, and Susanne Lithander, our CFO. We will, as usual, use approx. 25, 30 minutes to go through the presentation with the results, then open up for a Q&A session. I think that is all. I leave the floor to you, Petra.
Thank you, Christopher. I would like to start with just a few minutes on the fact that my 100 days have actually passed, time flies when you have a lot of fun, that is for sure. I just want to tell you just a few words on the first impressions that I have from BillerudKorsnäs. I have picked up quite a lot. I have been around talking to the employees, of course, both at the production sites but also at the sales offices. I visited quite a few customers. I have also spent some time in Brussels with the questions that we need to address over there, also spent time with science centers looking at the future on more of an innovative perspective, also spent time in Gruvön, of course, talking to suppliers.
I would say that all in all, the takeaway that I have from meeting all these people is that BillerudKorsnäs actually have an enormous potential in the future. Also if you look at everything that is ongoing around us right now with the Rescue the Ocean starting a year ago all the things, the disruptive technology happening around e-commerce, for instance. It is for sure a change in the customer pattern outside BillerudKorsnäs that we really need to quickly adapt to, I see that as the major transformation that we need to do. We need to very quickly act upon these innovative digitized solutions that the customers are asking for. I think that is something that we really need to take all of our effort, it also probably means different business models for the company.
We can't really afford to spend that much time on hygiene factors within the company, 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. If you look at BillerudKorsnäs and the way we work, I think you could say that from my perspective, I have spent all my life, 30 years, in Sandvik, coming into BillerudKorsnäs, it is very much similar to a family-owned company, which is on most tones very positive. It is like one for all for one, also very entrepreneurial a very warm feeling within the company. Everyone truly loves the company.
You can also see that on the latest ranking on Randstad on the most attractive companies in Sweden, where BillerudKorsnäs 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, what I would like to see more of is a more systematic approach where we actually put more efforts to prevent accidents from happening. We act very much like a family-owned business, where if you have a fire, we take all the resources we have in the company, and we put out the fire. That also have a consequence on other things that we have decided to focus on. I think that is the way that Sandvik does not act.
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. That is something that I think that I can contribute with from a more execution perspective. My top priorities during these first months have, of course, been very much concentrated on the Next Generation project, Gruvön, to make sure that we are on top of things at the Gruvön site, but also on the investment in Skärblacka, of course. What we have done in Gruvön is that we have strengthened the project by putting in place a program office in Gruvön with the purpose to visualize risks. We have pulse meetings now every week where we discuss the risks. We have also divided the project in four parts.
We have the first part, which we call machine ready. That is more or less the building under the machine. The other work stream is mill ready, to make sure that Gruvön is ready to take on this challenge. The third work stream is the product ready. It's an enormous challenge to just qualify all the products to be utilized in this machine. The fourth work stream is business ready, to make sure to ramp up the whole thing. I have really looked into the investment appropriation request from all the parts, and I think that BillerudKorsnäs 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. I think the Next Generation project, or the program, is much more than just the machine in Gruvön.
It's really to streamline the whole product portfolio within BillerudKorsnäs, where Skärblacka is the MD center, Karlsborg is FibreForm, Gruvön, Frövi, Gävle in Consumer Board has their roles and responsibilities much more clarified. 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 looks much stronger now than it did when this project was approved. I think that all in all, evaluating this program that Billerud put in place some years ago, I think we need to value the whole setup, including the way we qualify products and the way we sort of really start up the business.
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. 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 costs that we have had very early in the project. 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. This will remain to be the top focus of the company to make sure that we ramp up this project in a good way. Another part in the Next Generation program is, of course, Skärblacka and the PM10 machine that we have moved from Tervasaari and put up in Skärblacka.
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. I think that is also a relief and very good. Something that I have been also very impressed by during the first three months is the environmental awareness that really lives in BillerudKorsnäs. I was quite surprised, actually, visiting all the sites to see that almost all production sites in BillerudKorsnäs are fossil free. They don't use fossil oils. It's quite remarkable the way generation of employees are actually focused on environmental issues for such a long time. That I feel really honored to have the opportunity to continue to be the leader of that at BillerudKorsnäs so that we can contribute in that way to sustainability.
Finally, the vision statement that BillerudKorsnäs 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 statement. 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. 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 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. More or less, I think execution is really the key so that we can run a little bit faster. 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. With that said, I would like to move into what has actually happened the last three months, the first quarter.
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 first quarter, 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. This has resulted in a very strong result, of course. Considering the fact that we have had some headwind during the first quarter of the wood shortage, that was to a large extent weather related. It started with hardwood shortage in the Baltics, and then we also had quite a lot of snow, as you might remember, in Sweden. On top of this, since it affects all the producers in Sweden, it strongly affects transportation.
This has really traveled into all kinds of wood supply have had the problem the last month. This is something that we anticipate will continue also during the second quarter. We anticipated a hit of EBIT of round about SEK 80 million-SEK 100 million for the first quarter, and we have actually been hit round about SEK 115 million in the first quarter. We anticipate this to continue in the second quarter, but not to an extent of SEK 100 million, but maybe roughly half, like SEK 50 million-SEK 75 million in the second quarter. Now it's not weather related any longer. Now it's more like to stabilize this and to make sure that we have a refill of inventories and to make sure that the transportation network really works. We will see effects of it also in the second quarter.
I think the demand is strong all over. 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. It is a very strong market situation. 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 for Packaging Paper. Net sales up 6%. They have increased pricing, and they have had also a very strong demand during the first quarter, 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. The outlook remains solid, and I would like to highlight that we also, during the first quarter, relaunched a product that we call D-Sack, and D stands for dissolvable sack, and this is actually a sack for cement that disappears in the mixer. It really makes the way of working for the customer much more easy, both when it comes to handling, because you just put the sack in the mixer, and then, of course, it's also much more friendly for environment and also it's much safer for the person working with this because there are no dust or anything. You can also say that the sack itself that is actually surrounding this D-Sack is actually climate positive also.
I think all in all, Packaging Paper has had a very good first quarter, and I'm very confident with the future. Consumer Board. It amounts to around about 40%, 37% of BillerudKorsnäs. Also here we have had increased sales compared to the first quarter last year, and EBITDA has improved with 8% to 22% EBIT margin of the first quarter. Also here, we expect the market to remain solid, and I think that you could say that what differs Consumer Board from the other two business area is that they have not been as affected by the wood shortage as the other two, Packaging Paper and Corrugated Solutions. I think also here that 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 Recart product.
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. 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. This is another opportunity that we have so that we can broaden our addressable market. It's 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 BillerudKorsnäs, and has been constrained to quite a large extent during the quarter by the wood shortage. I think they have been working very well with increased prices and also with the product mix. 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 first quarter EBITDA margin amounting to 22% for Corrugated Solutions. Also here, the outlook is solid, as for all business areas, and we see further potential when it comes to both product mix, also to a large extent when it comes to price increases.
Just to give some insight in a product also here, I think the world's strongest fluting is the product that we believe a lot in within this business area. I think that is also a trend that is developing where you want to have the customers demand more light material, they need it lighter and stronger so that you can utilize much more packaging for air freight. 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, you could actually air freight it. If you can air freight it could actually be much less of a CO2 emission.
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 or product segments where we have not been before, like replacing plywood boxes with our product. This is ongoing. I'm also very satisfied with Corrugated Solutions' performance during the first quarter. 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 the holistic point of view, what it actually looks like. Moving from that over to Next Generation, this I have already talked a little bit about.
As I said, the whole purpose of Next Generation is very much to make sure to capture the growth by really streamlining and making sure that we put in place new capacity and remove bottlenecks. If you look at the whole map included in the targeted Next Generation, it's very much to streamline the product portfolio where Skärblacka will be the center of MG, machine glazed products, and FiberForm will be moved to Karlsborg. We also clean up the responsibilities in Gruvön so that they have a much more clearer focus area in Consumer Board. FiberForm moves to Karlsborg, where we have that center, and also we put up the MG center in Skärblacka, and then we focus very much Gruvön, Frövi, and Gävle on Consumer Board. Also move some products to Jakobstad that will put up what will be the MF center of BillerudKorsnäs.
It's more focused production units and also all in all to capture the risk and volatility. If you look at this as initiative, more from an overview as a company, considering the opportunity that we have, I see that KM7 in Gruvön is, of course, the most expensive piece that we need to put in place. It's also so that I think 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 need to sort of fit into each other. 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.
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. It is a challenge for sure. So far, so good, I would say, during the first quarter, and we have strengthened the program office with more systematic work, more looking into risk analysis. I spend a lot of time in Gruvön meeting with the suppliers, and I also have safety walks on site to make sure that we role model and set the standard so that nothing happens.
This is the Gruvön and the timeframe, the conclusion after the first quarter is that we are keeping the timeframe. As I said, we have put the program management office in place during the first quarter, and the startup is still set for March next year. I think 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, that is also a part that needs to be addressed already now in the product, so that we don't shift the startup schedules in March. We need to be ready to take on this in a good way in March. Then we have the MG center in Skärblacka, where we have PM10, the machine that we moved from Tervasaari.
The startup plan was to start up this machine in March or March, April this year, I think it works according to plan. We don't have any hiccups in this project. The machine is up and running. Some weeks ago we had I don't know what that is in English, but it's a good sign in a machine. We are actually up producing as we speak. Unfortunately, Skärblacka is one of the production sites that have been hit the hardest by the wood shortage.
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 a business decision to safeguard EBIT, because if we have a wood shortage in Skärblacka that we don't have now, but we do anticipate a hit on 50%, 75% in EBIT, we need to look as businessmen on the whole portfolio and make sure where to reduce, how to handle the situation in cooperation with our customers. Right now we don't see any effect on PM10, but it is in Skärblacka, and if it will be affected, it is not because of pure ramp-up in the project. It will be based on a business decision driven by the wood shortage. Then the focus on operational excellence and to put in place preventive, systematic way of working.
I think this is something that is more or less a hygiene factor that all companies need to have in place. 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 the cultural mindset change, because it is driven from the culture of more family-based owned mentality, where everyone acts as a fire brigade. We need to put in place a different mentality. I think that will take time, but I don't believe that it doesn't have to take enormous amount of time.
You can actually push and change a company to quite large extent if you have the will in the employees with you, I think you can make a huge change in one year or one and two years. I think also here, the first quarter is a good tick in the box. We have a good development in safety, and we also have a good development in production stability. This is ongoing, and I think we could do it faster, but it's also something that has to take some time. Finally, before I let Susanne continue with more all the details in the finance, I like to summarize that we have actually delivered on all our financial targets, and we have actually over-delivered on some of them.
Considering the fact that we have a first quarter that has been hit by wood shortage and also to a large extent, higher costs of chemical, like caustic soda, for instance, I'm really happy to see that we have delivered the result of the first quarter on this level. A tick in the box for me also. With that said then, I would like to invite Susanne to tell you a little bit more about the fantastic details. Thank you.
Okay. Let's start then to dig into some of the details at least, with a bridge from last year, first quarter. We started at SEK 923 million in EBITDA. In the first quarter last year, we had a couple of issues. We had production issues, costing us about SEK 80 million. No, SEK 75 million, actually. We also had other issues. We had a maintenance stop in Gruvön that was actually planned. All in all, the improvement from that sense, it's around SEK 150 million on EBITDA level. As Petra has pointed out, our business areas has done a strong help in improving our EBITDA by increasing sales price, and we now are certainly seeing the effects from the price increases. Over SEK 300 million is the impact in the first quarter. Currency has played some impact, SEK 65 million in the quarter compared to last year.
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 tons of production that we could have sold. We could have actually sold a lot more if we'd done that. Two-thirds of that hits Packaging Paper and one-third hits Corrugated Solutions of that volume lost. Fiber is increased cost for both wood and pulp that we buy. Out of these SEK 200, this is SEK 200 million negative, SEK 125 million is increased wood cost. We had an instant hit in the first quarter, 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 first quarter.
As Petra has mentioned, we have also seen increased cost 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 million in the quarter. That brings us to the end. We delivered a clean EBIT of SEK 1065 million. That is 15% better than last year, and it's a margin of 18%. When we adjust the EBITDA with SEK 37 million in adjustments, we do the adjustments that we have announced for extra cost that we have in the projects in Gruvön. We've also had some spillovers from Skärblacka, and we've had some restructuring costs that we've taken in these SEK 37 million. That is actually SEK 20 million above what we had guided for. All in all, we made adjustments of SEK 52 on EBIT level.
Moving forward, looking at our net sales, as Petra has pointed out, we have had a continued strong demand that has driven our sales increase. We had sales of SEK 5.9 billion in the quarter, which is up 6%, driven by local sales price increases. As I said before, could have produced 30,000 more if we had the wood to supply the mills with. 30,000 tons more could have been included if we hadn't seen that. I think Petra has explained pretty well what it consists of and why it was there. We had also put in here the total competitiveness weight index from 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 the real estate crisis in 2001.
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, as said, we want to split up clearly the demand-driven price increases that impact us, which was SEK 200 million overall, SEK 125 million of that was wood. As you can see, we've had a fairly decent ride over the past five 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 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 generative, as we all know. We had SEK 806 million in cash from operations in the quarter. If you note here, we have very low first quarters in the past two years, which is explained by decreased accounts payable those two years. That phenomena we did not see this year. Our working capital is on a relation to sales on 9%, which is low, and it's helped by the big accounts payable that we have in our big projects right now. A bit help we get there. The investment level for the first quarter was at SEK 1.1 billion. 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 SEK 2.8 billion, still we managed to deliver the 13% growth rate, which is good.
We have increased our net debt to SEK 6 billion. During the quarter, we have issued SEK 2.3 billion in bond loans, and we experienced a very high interest from debt investors. In hindsight, we think the timing could probably not have been better for that financing. Net debt to EBITDA, as Petra showed before, 1.55 rounded to 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, not including any actions on Bergvik Skog. Bergvik Öst, 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. Our outlook for the year.
We are not changing our outlook in any form or fashion other than one item on this slide. It's the third bullet, we actually are still being impacted by the wood shortage. We anticipate that that will actually have an impact in the second quarter as well, SEK 50 million-SEK 75 million. It will be less than in the first quarter, 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.
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 2017 level, and we will be able to see increased volumes for Consumer Board. 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 Gruvön. Our one-off impacts from the project in Gruvön are not changing. We still anticipate that to have an impact of SEK 210 million, out of which SEK 75 million is due to lost volumes when we have longer stops. Okay. To summarize, stable production. Finally, feels like for me. Had a good production quarter that shows immediately in our results. A strong EBITDA margin, adjusted 19%.
We have a very high demand. Net sales are up 5%, and the investment programs are going according to plan. The positive market outlook is really strong, both short-term and long-term from our perspective. Finally, we have a save the date here. You already mentioned that, Petra, that we have a Capital Markets Day in September, and we expect it to be in Stockholm somewhere on the 17th, and have a shorter version in London on the 18th. That's what we aimed to convey here today.
Should we open up for questions then? Would you like to start, please state your name and the firm before you ask.
Thank you very much. It is Linus Larsson with SEB, maybe if we could just start for a bit with the wood cost situation. Thanks for guiding for the second quarter on the SEK 50 million-SEK 75 million. Apart from that, do you expect the wood supply constraints to move away in the third and fourth quarter, or do you foresee some continued problems? That is the first question, secondly-
Can we take that first?
Sure.
I think the wood shortage, it started out with very much a weather-related problem. That, of course, needs to be mitigated in the future with more scenarios to handle a situation like that. I think looking at the weather as such, that is no longer a problem. We actually have a very good weather right now, both in the Baltic and here, from a wind perspective. I think what has happened is that the problem has been transferred into all wood, both softwood and hardwood, the major problem right now being the fact that it affects all producers. BillerudKorsnäs is the largest consumer of hardwood. It started off hitting us really hard and emptied the inventories, then it affected all other producers, then it affected the whole infrastructure in Sweden.
Now we are more in a situation where it has been contagious in the whole business. It's more transport related, building up the inventories again. I see that this is something that will be balanced again during the summer. It's not something that we anticipate right now what we can see that we will drag on for a longer time. Of course, we could be hit by something else. This root cause incident triggered by the weather in the Baltic area will probably be balanced during the second quarter.
How would you describe your inventory situation currently?
It is a tricky situation because we need to prioritize between the different production mills. We are more or less, in some areas we have a really tough situation, in others not. It's very costly, it's also very transport consuming to move wood from one part to the other. It is a quite extensive jigsaw puzzle to deal with this. I have confidence in the organization that we are on top of things, it will be noticeable in our EBIT during the second quarter.
Thanks. Apart from those logistics and supply constraints, what do you expect in terms of price inflation for wood in the second quarter and beyond?
You mean increased pricing in the wood prices?
Exactly, the pricing. Top of the SEK 50 million-SEK 75 million. Should we expect something more than that, or is that the raw material cost inflation that you should-
The hit on EBIT of SEK 50 million-SEK 75 million 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%-75% corresponding to SEK 116 million in this. Of course, you have the other bucket, is the increased prices of wood as such. Of course, will continue also for the rest of the year.
What's your projection there? Do you see a gradual continuous escalation, or how much do you know at this stage?
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.
Yeah, the CFO has learned that we don't want to give the guidance on that. We do see a pretty gradual increase, I would say. It will increase over the year.
No, I think that what we can do is to be very transparent and open in how this affects us.
Yeah.
In the first quarter, it has affected us with SEK 200 million, where, 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 million in the first quarter.
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.
No, that's fair enough. Then just finally, if I may ask also on the Gruvön project, and it makes a lot of sense, the whole investment in very many perspectives. I just wonder if you could, in any way, help us break down the return on that SEK 7 billion investment. If we just calculate backwards, the 13% would equal in excess of SEK 900 million of improved EBIT on that site.
Could you in any way break that down? How much is reduced fixed cost? How much is mixed improvement and so forth? I presume that Gruvön today, given the red hot markets that we are enjoying-
in the second kraft paper, and not least market pulp, which is coming out of Gruvön as well, must be a very, very profitable operation as it stands. How will it improve-
profitability by more than SEK 900 million on back of this investment?
I don't have all the numbers.
That is something that we cannot convey today. For sure, you're right. It is a very profitable business today.
At least understand your way of communicating completely that-
Mm. Yeah
we are talking about an improved profit of more than SEK 900 million on back of.
If you refer to what I said in my introduction, that I feel confident that even though the extra cost in KM7 will not dilute the financial target of 13% return on capital employed long term. When I have looked into this program as such and taken into consideration what does the extra cost 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 investment. I'm not worried. It doesn't keep me awake at night that this is the wrong thing to do. I have a tick in all the boxes, even though we have had a quite severe cost increase at the building in Gruvön. It still makes all the sense to do this.
That's what I was trying to confirm in my introduction.
Yeah.
Referring to the 13% return on capital employed.
To your point, we have always said that we are going to give a little more flavor to it in the capital markets day.
Yes.
Right now 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. By the September timeframe, we will have some more flavor to it. We will not give you everything you want, but some of it.
Great. Many thanks.
Thank you. Nick Elios, Kepler Cheuvreux. Two questions. The first one is these preemptive actions. Will they affect the level of maintenance costs going forward?
You mean I think this is something also that BillerudKorsnäs 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. I think that this is what more or less all big 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 quite generic and quite much hygiene. No, I don't think that it will cost 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.
Yes, perfect. Thank you. My second question is more indirectly linked to you, if it's linked at all, because if we look to the market for recycled liners, flutings, et cetera. 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 recycled 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, Susanne. Well, there's always a gap and that gap cannot be too big. That's something that we've always concluded, but difficult to project.
Many thanks.
Thank you. Gustaf Tegell 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 from that. Do you want to give any sort of delta Q2 versus Q1, how much the volume improvement will be?
Resulting from the wood shortage?
Well, the EBIT result is clearly a lower negative number. I'm just thinking, what's the delta in volume loss, related to the problem with sourcing wood?
I would say just from the top of my mind that it's like half.
Yeah. Start to assume that. Perfect. Thank you.
Well, yeah, it really depends on what products that get hit the most, but yeah, it's a good assumption. It was roughly 116-ish in the first quarter, 30,000 tons. Now we say 50, 75, so sort of assuming 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 one will be renegotiated end of this year?
Yeah, actually two. We have two liquid packaging board renegotiated this year. I think negotiations will start up fairly early, within shortly, is the answer to that.
Great. Lastly, you showed the timeline of the Skärblacka progress. When you mentioned that we'll see a positive impact on results in Q4, just to clarify, is that on EBITDA level?
When will Skärblacka be EBITDA positive? When will Skärblacka be EBITDA positive? Well, the machine as such will be EBITDA positive this year.
Okay. All right. Thank you.
I think that it will be at least tricky for me to 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. I think the project in PM10 in Skärblacka is moving totally according to plan. If we have to realign products, since all product segments are moving according to plan and everything looks quite healthy, it's also prioritization that we have to do between the segments that could affect the machine, even though it has nothing to do with the actual project ramp up. I don't want to stick to all EBITDA positive targets for all the machines, because we need to act as a business from an overall perspective.
Not saying that that will happen, in case we have this discussion next quarter, I just want to send that message. That protecting EBIT is much more important for me than to stick to a date.
All right. Oskar Lindström with Danske Bank. Two questions. First of all, you've talked quite a bit about the strong markets that you're seeing in at least two out of three business areas, I think most of us now have seen what's happening with spot prices for kraftliner and sack and 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, a little bit for what you're seeing in terms of price increases going forward, are you raising prices with every new order, or are you having monthly prices or quarterly prices? How are you acting to maximize the benefit to you from the current market?
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 Solutions and also as much in Packaging Paper. It differs really how we do, how we handle the price increases between customers and business areas. Maybe I think you are better suited than I to inform of that.
Yeah. No, I would say that it's a mix of what you said. 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, to a certain extent the same, that's more of an ongoing order-to-order renegotiation.
Do you feel that you're getting good traction?
Yes.
Sometimes, I guess, you go out and say, "We're increasing prices," then that maybe goes through a month and sometimes two months later. Do you feel that you're now getting the price increases into your P&L quicker?
Yes.
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. When they informed about it and what is actually biting for real. I think that it is 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 showing the opportunities to streamline your production footprint. The ideas aren't entirely new. They've come across before from Billerud prior to your joining. You seem to be taking up that, seeing that opportunity again. Is it possible to quantify this opportunity in terms of how much cost could be taken out or a positive earnings impact? What is the type of timing that this would require, and are we talking about a sizable CapEx to achieve this? Maybe if you could just provide a little bit of flavor as to-
I really hesitate to do that right now since I am quite new on the job. 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. I believe that we get so focused into KM7 and actually building and the increased costs in Gruvön, so that that could actually hinder us to see what we are actually doing and the prerequisites for this transformation or industrial restructuring or whatever you should call it within BillerudKorsnäs. 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. What will happen? We need to have all the products qualified.
We need to ramp up business. We need to have a clever prioritization between Gruvön, Frövi, Gävle, who is doing what. We need to make sure that to safeguard the fantastic opportunities in Corrugated Solutions and also FibreForm. Where this appropriation request was approved a couple of years ago, then the market looked quite different, and that has actually improved. The first check I did was, of course, if I could tick the box, do I believe in this project? The outcome of that is yes, this is definitely the right thing to do. 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 do more? Should we tweak it somehow?
The most important question is to continue, make sure that we deliver and that we keep track and visualize the risks in this project, so we act upon them in time. That is the major outcome of this exercise that I decided to put a program office in place to monitor and visualize the risk. I do understand your question, but I'm not really ready yet to. That is the analysis that I'm making myself right now. I don't have a view on it really quite yet.
All right. Thank you. I understand. Thanks.
Okay, who's next? Okay. Should we try to get a question from the telephone conference then?
Thank you very much. Ladies and gentlemen on the telephones, if you have a question for the speakers, please press 01 on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Our first question comes from the line of Harri Töyrylä of Nordea. Go ahead, your line is now open.
Thank you very much, and good morning. It's a slightly detailed question of the working capital, which was very strong compared to the seasonal pattern. Was that linked to the wood inventories being limited, and related to the weather issue? Can you manage to keep this sort of achievement or the working capital level now, or is it something which will normalize? Obviously it was a 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 of inventory on the wood yards, but we also see some increased inventory in some of the business areas, like Consumer Board is increasing their inventory. I think it's not the big driver in the improvement. The big driver is the operating surplus.
Mm. Yeah. Okay. In this very tight market situation, have you changed the geographical mix in terms of, or do you see change there which could affect the 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.
Okay.
It's more product related, and the fact that Packaging Paper and Corrugated Solutions has been production constrained due to the wood shortage to a larger extent than Consumer Board. The product mix as such is more product related.
Okay. I'll stop there. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Martin Melbye 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 is 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 three years? Or how is that working?
I am quite reluctant to go into a separate customer contract as that. That is something that I think that we should avoid answering, or what do you think, Susanne?
I think, yeah.
Yeah, I think that is-
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.
The trick to Consumer Board having a strong margin is the production stability that we have been able to produce so much.
Yeah.
That's what have the biggest impact on their earnings.
Is the way to think about those contracts as defining a stable EBITDA margin or more a stable price?
In Consumer Board, it is more production stability. Then we are moving into price negotiations. That work starts up now during the second half-year.
Okay, good. All from me.
Thank you. Our next question comes from the line of Robin Santavirta of Carnegie. Please go ahead, your line is now open.
Hello. Regarding the figure on page seven, on the Gruvön expansion. Am I reading it right now? The idea is to produce roughly 300,000 tons in 2020. Then in 2021 reach EBITDA positive. Then 2023 full capacity.
Yes, that has not changed. We have not changed anything in the time plan in the Gruvön project.
Exactly. As I understand, you're also planning to shut 300,000 tons of production. What's the timing of that? I understand that the plan is four machines all together and then 300,000 tons. How much of that volume will be shut when the machine starts? When will that volume be shut?
The four machines that will be shut down, three of them will be shut immediately when we turn on KM7. The fourth 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 pulse that we have. That fourth 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 fourth machine, you ask?
On all of this production. I would assume that the depreciation is already, or you're taking that as an EOI then at the moment, so probably no depreciation at the moment. I assume it's very profitable on the EBIT line, the 300,000 tons that you will shut. Is that a fair assumption, or?
Yeah, the 200,000 tons that we will shut, we have taken the depreciation on. The fourth machine that will continue to run with 100,000 tons almost, we still have the depreciations on. Yes, to both questions, they are very profitable.
Right. Still no comments on potential sort of ramp up. The only thing, what I'm getting at is that you're shutting quite profitable, and I understand, and I agree with the first comment, I guess it was Linus. 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. 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. We still have to sort of guess the difficult part, I guess, is to understand the ramp-up cost of this project. Still you're not prepared to guide at this stage any of those costs or give some kind of ballpark assumption for the actual ramp-up cost of this machine, are you?
No, we are not. We hear what you say, so we can definitely take this with us and look into it, maybe see if we can help clarifying, sharing some things what we see to make it more understandable and easy for you to grasp this whole project. It's not something that I'm ready to reveal any details about right now.
Right. Perhaps at the CMD, that would be very.
Yes.
At least I would appreciate that because it would make sort of the math much easier for 2019 and 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 Skärblacka? I guess you will get some 40,000 tons additional volume from that, but still the volumes will decline. Is it sort of excluding Skärblacka, the volumes will decline for this year?
That was the case including Skärblacka, especially now with the wood shortage.
Okay. Finally about the adjustments, the EOI terms now in Q1, where are those booked? I guess in the other segment.
Correct. They're booked in other.
All right. Thank you very much. Thanks. That is all for me. Thanks.
Thank you.
Thank you. Our next question comes from the line of Mikael Doepel of Handelsbanken. 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, as I understand it, that these are not counted as one-offs. If you could clarify firstly what those are and how big those are. Thank you.
Those were the establishment costs that we talked about in the fourth quarter report, they were in the area of SEK 25 million-SEK 30 million.
SEK 25 million-SEK 30 million, kind of positive one-offs in Q1, which were not booked as one-offs.
Yes.
Okay, good. Another question relating to Skärblacka. Will there be any startup costs now in Q2 related to that? Also, just to clarify, did you say that the machine will be EBIT operating profit positive this year?
There will be fixed cost, that is, to run the machine, and we will have some of that in the first part of the year, which we have today. 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 Skärblacka. Yeah. Exactly. Okay, good. Thank you very much.
Thank you. Our next question comes from the line of Cole Hathorn of Goldman Sachs. Please go ahead. Your line is now open.
Yeah. Hi, just quickly on getting some sort of feel for where your margins are going. You're both talking about prices going higher and wood cost 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. 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 two-third, one-third like the impact was this quarter?
That is a very difficult question to answer really to make it correct. It is really an impossible thing to say because it is on a day-to-day basis where we adjust the logistics here. I would take 50/50.
Okay. Those logistic issues should be gone moving into 3Q, 4Q as it looks for now.
Yes. Yes.
Okay. Lastly on, you mentioned consumer board price increases that have already been achieved, which will more impact 2Q. How much of your Consumer Board business would that impact?
15%.
Okay. Thank you very much.
Thank you.
Thank you. May I remind telephone participants that if you want to ask a question, please press 01 on your telephone keypad. 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.