Earnings Call: Q2 2019

Jul 26, 2019

Good morning. My name is Bjorn Lingfelt. Sincerely, welcome to this press conference on SCA's report for the figures for the 2nd quarter. The report will be presented by our President and CEO, Ulf Larsson and CFO, Toby Lawton. And after the presentation, there will be the opportunity to ask questions. Well, Ulf, please? Thank you for that, Bjorn. I'm happy to summarize Q2 twenty nineteen. And in Q2, we've been impacted by slightly weaker market conditions during the quarter when we compare with Q1 2019. And we've seen a reducing price trend in our product areas except from kraftliner where we have seen 2 consecutive months now without any price movements and that is of course encouraging. We've also in S. A. Been focused on keeping a healthy stock level in all product areas, and I think we've been successful in that perspective, but it might have caused us something short term in terms of pricing and mix. But long term, I think it's good to be where we are in terms of stock level. We had a strong sales growth of 12% during Q2 versus Q2 2018. And versus Q1 2019, we are slightly down around 3% and that is mainly due to price and mix. Ostrand ramp up support us well when it comes to growth and I will come back to that. On the other hand, the divestment of SA Wood France had a negative effect during the quarter by 2%. EBITDA was up 30% when we compare Q2 'nineteen with Q2 'eighteen and mainly due to successful ramp up of Ostrand and also the fact that we had expansion stop in Q2 'eighteen, which did cost us more than SEK230 1,000,000 during that quarter. On the negative side, we've seen lower selling prices and also higher cost for wood. I mentioned Ostrand. And as I said, I'm really satisfied when it comes to the ramp up of Ostrand. We've had another record quarter with pulp volumes coming from Oerstand increasing 22% during Q2 versus Q1 2019. We have also during the quarter completed the project in Munksund aiming to increase the production of White Top kraftliner with 50,000 tonnes. The project has been performed on budget and time and also I think with good timing for replacing volumes in unbleached kraftliner with white top kraftliner in the market. We have during the first half of this year acquired 30,000 hectares of forest land in the Baltics and we see this area as a natural part of our wood sourcing area and we are aiming to increase our forest holdings further in this part of the region. And we have also during the quarter sold our Rotterdam terminal, which did belong to a logistic company during the quarter and that will reduce our net debt by SEK575 1,000,000. If we then turn into our KPIs, we can see that Q2 2019 has been another strong quarter for SCA with an EBITDA level of SEK1.34 billion and that is up 30% in comparison with Q2 2018 and also gives an EBITDA margin of 26% for Q2. And when we compare Q2 'nineteen with Q1 '19, we have lost 5% when we exclude one time effects in the comparison considering firstly the positive contribution of SEK90 1,000,000 during the Q1 related to the merger between SA France and Groupe ISB in business area Wood. And secondly, we had a planned maintenance stop that we have performed in Q2 costing us SEK63 1,000,000. So all in all, SEK150 1,000,000 of the swing between Q1 and Q2 is explained by one time effects. Calculated as a rolling average for the last 12 months, we have had a strong industrial return on capital employed of 18% for the period. And as you can see to the right hand side, our EBITDA margin continued on a high level at 26%. I will now continue with some comments on each business segment starting with the forest. And as can be seen in the graph in the bottom left, wood prices have been increasing for many consecutive quarters. But in the market just now, we feel that we have reached some kind of peak and prices has also started to go down in some areas and not the least when it comes to current price level in our import markets, which is for in our case mainly the Baltics. Anyway, as you might remember, we always have a longer time lag when it comes to prices in the forest compared with other areas. We have also due to the startup of Ostrand seen a higher pulpwood demand and that increases the sourcing and the sales, but at the same time reduces the margin for forest as the additional volume comes from external sources. But of course, it's just transferred to the industry without any margin gain for business area forest. And in general, I can say that we have a good balance in our wood supply also this summer. If we then turn over to wood and analyze the segment wood, we can generally see that we have had a rather stable demand in the market, but still declining prices. The weakest development we see in Europe and also U. K. Probably due to the Brexit confusion. On the other hand, Scandinavia, U. S. And Asia are stable to good when it comes to demand. China is also running up again and but we see now substantial volumes from mainly Russia, but also Canada are holding back prices in this region. As I think I mentioned, when we did present the Q1 report, we lost around 3% in price between Q4 2018 and Q1 2019 and the prediction at that time was another loss of 3% between Q1 2019 and Q2 2019 and that one also came through. We now have done approximately 75% of the volume for Q3 and we know that prices will come down another 5% to 6% during the Q3. Also in wood, we've been focused on keeping healthy stock level, which we also have as we speak. Sales was down 6% Q2 'nineteen versus Q2 'eighteen and that was mainly due to deconsolidation in Wood France following the merger with Groupe ISB and EBITDA was down 18% due to lower volumes, slightly lower prices. When you look at the left hand side in the graph, you can see that we more or less are on the same price level Q2 2019 as we had Q2 '18. But the main reason for declining EBITDA was maybe the higher wood cost, cost for wood in this business. And as you know, 65%, 70% of the cost is related to the wood cost in wood. And due to that, it's also positive for us that we've been able to improve the yield quite substantially during the period and that will have a positive effect of course on our cost level. We continue with pulp and start with the ramp up of Ostrand. And as you can see in the graph, we've had a very strong quarter production wise. We did increase the production by 22% in Q2 2019 in comparison with Q1 2019. We still have a problem with leakage in pipes belonging to the old part of the recovery boiler. But as I said, also last quarter that will be fixed in the planned extensive maintenance stock during week 41, 42 in the beginning of quarter 4 and we will at that point stand still during 17 days which is equal to 40,000 tons of pulp or SEK150 1,000,000 on EBIT level. As mentioned, we are in all areas focused on keeping a healthy stock level and in part that means approximately 1 month's production in stock and that is also the level that we have just now. As we have had strong production in Q2, we've had substantially higher share of overseas volumes during the quarter, which has had a negative impact on our mix in the quarter as you can see in the graph. Long term, we have a plan of course to deliver as much as possible to Europe and also to U. S, but short term we always have to balance the market. In pulp, we have a cautious market with lower prices. And as you might remember, we had price peak in November 2018 on $12.30 per ton. And step by step that level has eroded down to the current level of US9.50 dollars per ton and that is equal to US6.70 dollars per ton as a net price. And when we compare that with China, we can see that the current NBSK net price in China is $5.70 per ton. So the delta today is around US100 dollars per ton. And we see attempts in China to increase pulp prices and at the same time we see a pressure downwards in Europe and U. S. But sooner or later, I think these two markets will meet and create a more balanced market situation. Sales has increased 150% Q2 'nineteen versus Q2 'eighteen. That is due to increased volumes and of course due to the fact that we had extensive expansion stop in Q2 'eighteen when we started up the new milliner strand. EBITDA increased SEK456 1,000,000 in Q2 'nineteen versus Q2 'eighteen. And in Q2 '18, we had expansion stop that is already mentioned, which had a negative EBITDA effect of approximately SEK235 1,000,000. On the other hand, we now see substantially lower prices in the market. Last but not least, a few words about the paper segment. In kraftliner, we've seen substantial price decrease since the peak in November 2018 and that you can see also in the left hand graph. For unbleached kraftliner, we've seen a drop of €120 per ton during this period and for white top kraftliner minus €30 per ton. Anyway, we have now noticed the stable kraftliner prices 2 consecutive months. At the same time, as stock levels are reaching a more normalized level similar to what we had in 2018, in fact. In publication paper, the price went up since Q3 2017 as you can see in the graph on the left hand side. We have a structurally declining market for publication paper and we know that we will have a decline in prices for Q3 with between 2 3 percentage points, somewhat more for uncoated grades than for coated and that is a little bit of a difference if we compare with the past. And the reason for that is that we see now substantial capacity closures ahead mainly for coated grades. And then we are talking about Pergo more than 400,000 tons, Plattley more 150,000 tons. So more or less between 10% to 15% of the European capacity during the second half of this year. Sales was quite flat q2, 2019 versus q2, 2018, while EBITDA was down 21%. The main reasons for this are lower kraftliner prices, higher cost for wood and also higher cost for plant maintenance stops. On the other side, we have seen a positive price development for publication paper. So with that, I think I hand over to you, Toby. Thank you, Ulf. Good morning, everybody. So I will start with the income statement. And here you can see for the Q2, we had a growth in net sales of 12% versus the Q2 2018, and that 12% is driven primarily by volume. So it's a 17% increase driven by volume, which is also primarily due to the expansion in Ostrand, of course, but then offset by a 5% decrease in price. So that's really what's driving the net sales growth. On EBITDA level, we had an EBITDA of SEK1.34 billion this quarter versus last year. Of course, as Ofer has already mentioned, we had a maintenance stop or expansion stop in Ostrand, which costs some SEK235 million. So that's the main difference between the EBITDA in the two quarters. Then if we go down a bit further down the income statement, you can see financial items now on SEK 45,000,000 for the quarter. This is higher than last year. Of course, we have the impact of leasing this year, which we didn't have last year. We also had a positive impact last year because we capitalized some of the interest on the capital investment in Ostrand last year, which had a positive effect. So profit before tax, we're on just under SEK900 1,000,000 for the quarter, some 20% 21% higher than last year. But then on the tax line, this quarter, we have the charge of SEK194 1,000,000, which is effective tax rate of 21%, very close to the Swedish tax rate. But last year, here, we had the significant positive one off item from the changes in corporate tax rates and the impact of that on deferred tax, which was €551,000,000 positive on the tax last year. So that means that when it comes to earnings per share, we have SEK 1 per kron of earnings per share, which is lower than the earnings per share last year because of this positive one off item on tax last year in the second quarter. If I turn to the next slide, the contribution by segment and quarter. Starting on the left hand side with Forest, you can see the steady increase in terms of top line net sales in forest, which is, of course, again, driven by the Ostrand expansion and supplies into the Ostrand mill of additional volumes. But again, these are not increasing our harvesting level from our own forest, which is where the profit is derived from. So they are sourced from the increased volumes are sourced mainly from third parties, which is then passed on at cost to the Ostrand mill. So the bottom line increase, which you also see a steady increase, is driven mainly by the increased price of wood. And that's the main effect. We're not increasing harvesting, as I said. And the margin, as Ulf mentioned also, you actually see the margin go down because, obviously, as the top line goes up and it's not having an impact on bottom line, then the margin goes down. When it comes to the Wood segment, you can see the net sales increased slightly versus Q1, but it's slightly down versus Q2 last year. Here, we have to remember we have the effect of the deconsolidation of our French business, which has an effect of around €100,000,000 per quarter in terms of top line, and that's coming now in Q2. Q2 is the 1st quarter where we have that effect full out. And then on the bottom line, you should remember also in the Q1, we had the positive impact from the transaction in France of some €90,000,000 Beyond that, we have the price of wood raw materials is increasing, which is partly offset by a better yield, but prices are clearly lower now than they were in the Q1. And as Ulf mentioned, we expect some continuation of that as well into the Q3. When it comes to pulp, of course, the top line is driven by the expansion. We had a 20% increase in volume in the Q2 versus the Q1, so quite a significant volume and volume produced and volume delivered impact. And we sold of the increased volumes, basically a large proportion of that was sold to what we call overseas markets, which is mainly Asia, where there was there is a different price level, and that also means we have a worse mix, you could say, in the Q2 versus the Q1. So we have a significant price impact on the negative side offset by a good positive impact on the volume side. And the bottom line is, of course, also impacted well both by the improved efficiencies from the high volume, but a significant impact from the price environment. So that's why bottom line is, yes, slightly down on Q1. Paper, basically top line, very similar to the Q1. And here, you could say publication paper is pretty much flat. Kraftliner, we have improved volumes versus the Q1 but lower price levels. And on the bottom line, we had lower price levels in kraftliner, which have an impact, but also the maintenance stop in Munksund, which we have to remember, which had an impact in the Q2. We didn't have any maintenance stops in the Q1. And beyond these segments, I'll just mention here, I think, on Others as well, which we don't show here, but we have an others line, which for the first half year is on a normal level. We have some SEK130 1,000,000 for the first half year. But the share between the Q1 and the second quarter is it was much lower in the Q1, €35,000,000 €95,000,000 in the second quarter. The main reason driving that is we have to provide for the profit in stock, which depends on the internal stock level. So that swings. And in the Q1, it was a positive effect. And in the Q2, it's a negative effect. So that's the main effect in the others line. Then on the next slide, we come to the net sales bridge. And here, the net sales versus the Q2 last year, we have a minus 5% impact on price, so significant impact here from the pulp and kraftliner segments, especially it's a positive impact when it comes to publication paper. Volume is, of course, driving the growth in top line and is significant at 17% growth in volume. We have a positive impact from currency 2% and then this impact from the deconsolidation in France is minus 2%. I'll just take the same bridge for EBITDA. The impact of the prices and it's mainly driven by pulp and kraftliner here is minus 25%. And then this is offset by the growth in volume, which is plus 24%. We have, when it comes to raw material, pretty much flat. We do have higher costs for wood raw material, the wood raw material that we source externally, but this is offset by an improved yield. Energy, we have a slightly positive variance on energy, plus 3%, currency is positive, plus 10% and then other, we have plus 18%, which again is this maintenance or expansion stop in Ostrand that we had in the Q2 last year. So overall, EBITDA increased from 30% to SEK1.34 billion with a margin now in the second quarter of nearly 26%. If I just take the cash flow statement quickly on the right hand side for the first half year, we had an operating cash surplus of SEK2.6 billion. We have a change in working capital of minus SEK651 1,000,000, which is really driven by the volume growth and expansion. We have current capital expenditures in the first half year of SEK516 1,000,000, which is in line with our expected annual level of around SEK1.2 billion for the year. And then we have a net operating cash flow of just over SEK1.2 billion in the first half year or SEK600 1,000,000 in the quarter. On the next slide, the net debt bridge, just to show how the net debt moves from Q1 to Q2. We ended the Q1 with net debt on SEK 9150 1,000,000, which included an impact from the leasing change this year of SEK 1,200,000,000. Cash flow, as I just mentioned, operating cash flow had a positive effect reducing net debt of SEK 619,000,000. We then had some strategic CapEx of SEK 156,000,000. Then we have the impact of acquisitions as well, which here represents the 20,000 hectares of forest land in the Baltics, which were closed in the Q2, that's SEK689 1,000,000. We had a tax payment in the Q2 of SEK 300,000,000 and then some others of SEK 50,000,000 and that gives us the end of the quarter or the end of the half year, we ended with our net debt of SEK 9.735 million, which is a net debt to EBITDA on a stable level of 1.6 times EBITDA. If we then turn to the balance sheet, I think I won't go through every figure here, but the total capital employed increased at the end from the end of last year at SEK 46,000,000,000 just over SEK 46,000,000,000 to now SEK 49,000,000,000. The impact is leasing is quite significant here. So the leasing impact of €1,200,000,000 affects the capital employed and the net debt and also the expansion in Ostrand. Then we have the net debt, which increased including the effect of leasing of SEK 1,200,000,000 from SEK 7,000,000,000 to SEK 9,700,000,000 and that's a net debt to EBITDA ratio of 1.6x. And net equity at the end of the second quarter is now on SEK 39,300,000,000. And then yes, a final slide here I'll show to on a review of the forest valuation that we would like to inform that we're initiating now and reviewing the method that we use value forest land in our balance sheet. And it's been clear, I think, to some of you and us for some time that the accounting practice that we use and other forest companies use has a significant difference when it comes to the level of market statistics that we also see primarily for smaller transactions. And recently, in the last half year, it's also become pretty clear that it's not just smaller transactions, but recent larger transactions have also shown a valuation in line or even at a premium to these market statistics. And you can see some of the figures on this slide. I won't go through the figures. But with that background, we've decided to initiate a review of the method that we use to value the forest land, and we expect to come back in the second half of the year when we've completed that review to present the findings and the outcome from that review. Okay. With that Yes. If we then try to summarize the Q2 2019, we can say that we have seen weaker market conditions when we compare with the peak in Q4 2018. But on the other hand, we've seen a stabilized situation now for kraftliner with 2 consecutive months with unchanged prices, which is encouraging, I think. Sales growth, we had a 12% in Q2 2019 versus Q2 2018. EBITDA was up 30% for the same period and that is mainly due to the successful ramp up of Ostrand. And also in Q2 2019, we have seen that the production has increased 22% when we compare with Q1 'nineteen. And still, we have to deal with this leakage in the pipes in the oil recovery boiler, but that will be done in the beginning of the in Q4. We have increased the production of white top kraftliner at Monkshoorn. The project is now finalized on time and budget and we think it's good to increase the share of white top kraftliner both long and short term and that will contribute in a positive way to our margin. We have during the 1st part of this year acquired 30,000 hectares of forest land in the Baltics and the ambition is to further increase our presence in these countries. And last but not least, we have sold out Rotterdam terminal. And by that, we have also reduced our net debt with SEK575 1,000,000. So with that, I think that we can open up the line for questions. So please, operator, if you can help us. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Linus Larsson. Please ask your question. Yes. Thank you very much, and good day to everyone. I'd like to ask around the potentially changed forest valuation methods that you are talking about today. And it sounds to me that M and A value is a central part of this potentially changed valuation approach. I wonder if you could talk more about that, how you could create a robust and transparent model based on that, given how few institutionally sized transactions there have been with maybe the exception of the recent history? Yes. I can say, I mean, the without going into detail on the accounting, one of the I think it's been obvious to people for some time that there's a big discrepancy between the market statistics that are out there, which are primarily for smaller transactions and the book values that we and other forest companies have. And the discussion or argument, if you like, has often been, well, the market statistics are for smaller transactions, and we cannot necessarily extrapolate that larger transactions would have the same value. And I think that's where while there's not been there's obviously not as many large transactions or small transactions, there have been more activity in the larger transaction area recently. And that's shown that actually the valuation for larger transactions is as good, at least as good, I would say, as for smaller transactions. So that argument does not seem to be relevant anymore. And we should think again about how we include then the valuation in our balance sheet. And we make without going into detail on the accounting treatment, there are a number of accounting regulations. We value biological assets in our balance sheet and we use a number of assumptions. And we can look at if those assumptions are really in line with how the market looks at valuing big assets. I think that's one of the main pieces when it comes to perhaps return requirements, when it comes to views on growth or views on income streams from forest land. We can also look at the land that we have in our balance sheet, where we value the land pretty much at 0, the value it was acquired many, many years ago, but clearly the land has a value higher than 0. And so I think there's a number of different components to this. I think it's in everyone's interest that the value that we have in our balance sheet more closely reflects the value that we think and reasonably think is the value of that asset. And now the just also here, just to be perfectly clear, is there a scenario where you would consider any structural real change to your forest ownership, I mean, in terms of selling or splitting or spinning or a sale leaseback or any of that kind? No, that's not part of this review or consideration. It's we're talking about the method used to value the forest in our balance sheet. We're not talking about anything else here. Okay. And then may I also just ask on the wood cost side, what you see in terms of market pricing here and now and the trends ahead? And also for you specifically, taking into account your mix aspect of wood sourcing? Well, as I said, I mean, we have now seen in the market that prices is starting to come down. And that goes, of course, mainly for import volumes, but we also see in our local market that prices start to go down. But as you know, I mean from the point where you buy wood from a private forest stone until you harvest it, it can last one year or something like that as an average. So I mean you have a longer time lag when it comes to prices in the forest compared with other areas, that's for sure. But we have seen lower prices in the market, no doubt about that now. And when do you expect to see sequentially lower wood costs in your own P and L? Yes. I can say we expect so the wood cost to be pretty flat for the second half of the year in our P and L. So the time lag, yes, means that we'll be pretty flat in the second half of the year. We don't expect any effect from these low prices, Ove mentioned, to have any impact, yes, in the second half. It will be more into next year. Okay. So for you as a group, as a net buyer of wood, 2019 is a year of higher wood costs and 2020 is likely to be a year of lower wood costs? I think the first part I can agree with. The second part is I think we're not looking at far forward. But you can I mean obviously with the time lag, yes? Probably it can be so, yes, because just now we are buying it to lower price and that will be harvested during 2020. So Right. Excellent. Thank you very much. Thank you. Our next question comes from the line of Robin Sundavides. Please ask your question. Yes. Thank you very much. Could you just remind us of how you have calculated the value of your forest assets before? If I remember correctly, it's a DCF calculation with your view of the cash flow and then you use the discount rate. Is this still how you have calculated the value until now? Yes, that's correct. There's a note in our annual report which describes how we do it. And today, it's because the market statistics are not viewed as and have not previously been viewed as reliable, it's a fair value calculation using a discounted cash flow based on future harvesting. And we take a cost assumption and price assumption, which you can read also in the annual report, but based on a historical of an average of historical prices and harvesting costs. Sure. But if you would now in fact revalue the forest, does that then mean that basically the cash flows that you have been looking at now recently has changed, the outlook of the cash flow from the forest has changed? Or the discount rate? I think what you can say is we can look through the assumptions we use. Cost of capital is one assumption, as I mentioned, which we should closely reflect what we think the market uses for cost of capital. But we also have assumptions regarding future growth. We also have assumptions regarding other income streams, which today we don't include, where we have more and more income from things like wind power and some other items which are not really a biological asset, so they're not included in any way today. And as I say, we also have land underneath the forest, which is not valued at all today. So there's I don't want to we will come back when we've completed the review, but I think there are many different aspects that we can look at here to basically try and more closely reflect how basically the market looks when valuing these assets. Sure. Thanks. Now in terms of the pulp business, how much are you now selling to Asia and how much to Europe? Could you just provide the geographical split? And then a few thoughts about what the target that geographical split is? Yes. Maybe I can a simple answer to that, Robin, is if you flick to Slide 10, where you see these volumes, and this is not exactly the sales volumes, but for Q1 and Q2, it's not that far from the sales volumes from Ostrand, if you're on Slide 10, where you can see we the increase basically that we had between Q1 in Q1, we had very small volumes to Asia. Nearly all the volumes were Europe and North America. The increase between Q1 and Q2 was almost all taken up by overseas or Asian volumes. So you could say 4 tier roughly is and we expect over time, we expect the bulk of our volumes, as Ulf mentioned, to be Europe and North America. But short term, the production increase, we put most of that into Asia. We always have to balance the market short term. And I mean, as you saw, the production has gone very well in the Q2 and maybe a little bit better than we thought. And we like also in this market situation to keep an eye on the stock level. So that's the reason why we have decided to sell out the volumes and to keep the goal that we have set now for to have 1 month production in stock more or less. Yes. Sino, Slide 8 in the presentation pack. Apologies, I have I mentioned wrong. It's Slide 8, not Slide 10, I'm talking about. Yes. And then you just talked a little bit about what you're seeing in the pulp market at the moment. But did I understand correctly that you too are pushing for price hikes in China and then possibly prices still coming down in Europe? I mean, as I said, I mean, the current price level, if you look at the fixed prices in Europe, we are on €950,000,000 which is equal to €670,000,000 when it comes to net price. And current price level in China is net China price is $5.70 And in China, we have seen prices coming up now for a while. And as I said, I mean, we also see attempts in China to increase pulp prices further. But on the other hand, we see a continued pressure downwards in Europe and U. S. And we are there exactly as now. Good, good. That is clear. And then finally, if I may ask about the Obbola kraftliner expansion project that you are planning. Could you update us where you stand on that and whether your plans have changed or and when can we expect a decision on that one? I mean, we have now finalized the pre project and we have also we've had all the environmental permissions that we need in order to start the project. And I believe that we will take a decision now during the autumn. All right. Thanks. That is clear. Thank you. Our next question comes from the line of Michael Doepel. Please ask your question. Thank you. Good morning, everybody. I would like to come firstly back to the question about the mix effect in the pulp business. Toby, you said that the increase that we saw from Q1 to Q2, which is roughly 30,000 tons or so, more or less goes all into Asia. But then if you think about Q1, what was the mix then in terms of geographical split in the volumes? Just to get you an understanding of the relative volume split there. You could say Q1 was very, very little outside our outside the Europe and North America. So that's really the difference is the growth in 30,000 to 40,000 tonnes between Q1 and Q2 is what's going overseas to Asia. So Q1 yes. And I guess North America there in Q1 was still fairly marginal or is that not right? North America, there was I don't have a figure for that. But I would say the price level between Europe and North America is there's not such a big difference. It's really the Asian business for you. I think it was probably better in U. S. In the Q1 than it was in Europe in terms of net price. So I mean that is so I mean we are striving to increase the volume to U. S. We have a distribution wise and also it's good and efficient and we also found good customers that suit their production very well. So I mean that is one of our core markets. Okay. And then in terms of the effect that this mix change has on your average selling price in the quarter? Would you in any way be able to kind of quantify that? How many percentage points negative effect do you get from this mix change? And also looking into Q, let's say, the second half of this year, you mentioned in your presentation that long term, the plan is, of course, to direct the volumes back to the main markets. But should we expect the second half still to be in a way burdened by this shift in mix right now? Or would you expect to see a change in that already the second half of this year? I mean, it depends, as I said, a little bit on the production. Q2 was really, really good. And I mean, we it is a continued stable situation in Ersteyn, which is, of course, positive. And I mean I've already said that the delta in price between Europe and China net price is $100 per ton. So I mean, I think it's fair to say that we will continue with a larger volume in Asia for a while now if market conditions continue. And as it is just now, we have a delta of $100 per tonne between U. S. And Europe and Asia. Which most people think will reduce as well. So I think the impact of the gap will Exactly. I mean prices in China have started to go up again and I think prices in Europe might come down a little bit. Yes. Okay. And then just a final question, again coming back to Obbola, which you already commented on. Based on what the EU Muhammed municipality is saying, the total investment there would be about SEK 69,000,000,000. Could you confirm that at this stage already? Or is it still a moving target for you? I think it's better you wait and see our figures than trust Umer Municipalities. We will come back to that during the autumn really. All right. That's fair. Thank you very much. Thank you. Thank you. Our next question comes from the line of Gustaf Schwerin. Please ask your question. Good morning. Thanks for taking my questions. Firstly, on your kraftliner deliveries in the Q2, which I thought was surprisingly strong after some quarters of declining volumes now. Is there any sort of internal inventory effect here? Or is this mainly related to restocking in the market? And then perhaps a few words about how you see volume development for Q3 as well? Yes. I mean, I think we have stable demand. As I said, I mean, we have seen prices on a stable level now for 2 consecutive months. And as I said also the stock levels are reaching a more normalized level similar to what we had in 2018. So yes, now we feel a good demand in the market for kraftliner and I think that will continue during the autumn. So as it is just now, I mean, we sell what we produce more or less. And we are as I said also, we have been very focused on keeping a good stock level in all product areas not only Kraftliner but also for pulp and solid wood products and so on. And we've been successful in that perspective and maybe it during the quarter during the Q2 it might have had some negative effect in terms of price and mix. But long term with the market conditions that we have just now, I think that is the right position to take just now. So I'm pleased with that. Perfect. And then secondly, a follow-up questions on the situation for wood costs. Just in terms of market pricing in the Nordics now, what kind of a price drop are you seeing? Sorry, what kind of a The magnitude of the price drop for wood costs market pricing in the Nordics at the moment? I mean, yes, depends where you are. I mean, for import price, as I said, I mean, that we have in some areas, same prices has come down between SEK100 and SEK200 per cubic meter. And for us that is a minor part as we have we are big forest owners on our own. In the region around our industry, I mean, we're more or less we haven't seen any decreases in terms of list prices. But as you know, you have some we are not buying the wood to exactly to the list price. We have also buyers out there talking to small private forest owners and we see that the practical price level has come down a little bit. But I mean then we are talking about maybe SEK 30, SEK 40, something like that per cubic meter. Okay. Thank you. Thank you. Our next question comes from the line of Oscar Lindstrom. Please ask your question. Yes. Good morning, gentlemen. Four questions from my side, 3 about Forrester valuation and the last one about CapEx. Maybe I'll take the first one about Forrester valuation. If you were to increase your the book value of your forest lands, I mean, I presume that would also impact your gearing. Would you be looking to take on more debt in that case? I think you should not draw that conclusion. I think we're talking about the balance sheet valuation of the forest land. And I think we're not talking about the financial structure of the company here. All right. A second question on Forest Land Revaluation is when you Would you take that book value? Is the relevant book value in your case the one that is including deferred tax or after subtracting deferred tax? Yes. That's a debatable question as well. I think we look at it basically as the gross value. That's the SEK136 we have. If you reduce with deferred tax, you actually come to an even lower value. And yes, arguably, we have a tax effect in our valuation of today in our discounted cash flow. We reduced that value for tax and then we take a deferred tax as well. So I think what we view is basically the benchmarks we put here are the gross value. And I think that's how the market values other assets as well is the market value is more comparable when you look at it compared to the gross value because then you look at valuing an asset with the income streams and the tax costs that, that asset would have, which is what the gross value reflects in theory. And then you see the different values. I mean, I think you know those as well as we do. We think it's relevant to look per cubic meter is the most relevant indicator. And I think some of these values even represent that larger transactions attract capital that's after big transactions and even in many cases attract a premium versus the smaller market transactions. And obviously, the big one is the recent sale of Bewig Oost, which also had long term supply agreements and so on, which imply basically a rebate versus market in order to because it's not sold unrestricted as the smaller market transactions are sold with considerable restrictions. Just a follow-up on that. I mean, did that price level for that transaction surprise you? Or was it higher than perhaps you had expected? I think we didn't have any particular predictions, but it certainly didn't surprise us. Okay. A third question on forestland reevaluate or forests rather. You talk about your ambition to increase forestland ownership in the Baltics. Now you've bought 30,000 hectares so far. What's the long term ambition here to sort of own several 100 of 1000 of hectares in the Baltics? And or is it another 10,000? What should we be thinking? Yes. We have said that we should increase our presence in the Baltics. And we have also said that we at least as the first stage we will reach 100,000 hectares. So that is the first target more or less. But I mean we will not we are not in hurry, but we think that the Baltics is in I mean that is in our natural area for natural sourcing area for our industry. So we like that and we also like the growth potential in that area. So that's the reason. We have already present there with, let's say, purchasing companies. I mean, we already today buy a lot of several 100,000 cubic meters from the Baltics and that works well and that's also the reason why we tried to buy some land there. Could you sort of in the future imagine owning sawmills or more industrial assets in the Baltics as well to complement a more significant forest land ownership there? I mean, yes, now we are looking into buying some forest land, and that's what we are heading for. Sorry. My final question is on CapEx actually. I mean given the weaker general market environment, I mean what's your view on your strategic CapEx going forward? Do you feel that you can still focus on growth with a number of sort of expansion projects? Or are you more in the mode of taking down debt further? I mean, we always have to keep an eye on the balance sheet, of course. But on the other hand, strategically, I mean, we like the projects that we are planning and I mean sooner or later we will perform them, but it's always a question of timing, of course. But I mean, still it's a very for us, it's a very strong result and we have a strong cash flow and we don't foresee any catastrophe in the market. I mean, we as I said, I mean, we were on a kind of a peak in November 2018, but on the other hand that was more or less all time high for many product areas. I mean we still have a rather strong market and we also feel that we have a stable demand out there. So we have a more normalized situation just now in comparison to what we had in the end of 'nineteen. I think we view just to add something to that. Oscar, I mean, we view we have a healthy, slow level of leverage in the company. We view our I think our integrated model means we have a relatively low volatility even though we are subject, of course, to global market prices, which go up and down, as we all know. But we can manage that volatility, and we have a pretty conservative level of financing in order to support that. And yes, so we're not worried. All right. If I just may ask on the Obla project, I mean, I realize you the Board hasn't made a decision on it. And what are the options? I imagine it's not only sort of either we do nothing or we do a huge project. Are there shades of gray in between there? Or what are the sort of main options for the Obbola project? I think I mentioned that when we did present the Q1 report, I mean, one option is just to reinvest and that will cost us, I mean, between SEK 2,000,000,000 and SEK 3,000,000,000 and that we have to do anyway. The second option is to reinvest and also do some improvements in the old paper machine and that will add maybe SEK1 1,000,000,000 or so, but will also increase the volume. And the third option is to build a complete new paper machine in parallel to the old one. And I mean you have pros and cons with all alternatives of course and but you have these 3 options more or less. All right. So only do a minor reinvestment would be SEK 1,000,000,000 to SEK 2,000,000,000? You have the reinvestment will be a little bit over SEK 2,000,000,000 anyway. Yes. Okay. So because I didn't quite hear the first option you highlighted was a renovation. Was that what you mentioned? That is yes, you can call it a renovation. That's what you have to do to run at the same to just keep up the status you have today. Extend the lifetime. Extend the lifetime, exactly. So I mean as we do in all industries that we have, so. Okay. Yes. That's great. Thank you. Those were all my questions. Yes. Thank you. Thanks, Oscar. Thank you. Our next question comes from the line of Alexander Berglund. Please ask your question. Thank you and good morning. I think most of my questions have been answered, but I have 2 left. First of all, just on the magazine and you're calling a bit weakness in the magazine prices into the Q3. Just remind us like how much of this is locked in for the whole second half and how much is just kind of quarterly or monthly contracts? And then my second question is on your harvesting. It looks like you're a bit in your first half, you're a bit above what you did in the first half given your second year and also a bit above your target for the full year. So just trying to think if should we kind of expect a little bit lower kind of EBITDA effect from that from your own harvesting just in the second half versus the first half? Those are my questions. Thanks. I mean, if we start with the magazine papers, as you said, I mean, we see as I said, I mean, we see now that we will have a price drop in publication paper in the Q3 in comparison with the first and second quarter. And I said 2 to 3 percentage points. And now it is a difference in the market. So now we will see some more for uncoated grades, improved news, newsprint and so on and somewhat less for coated grades and for us that means LWC. So that is for us a little bit better as we produce let's say 2 third of what we produce is LWC and 1 third is improved news and things like that. And the reason for that is, as I said, that we will now see some substantial capacity closures ahead in coated grades. Otherwise, price wise, I mean, normally we set prices for I mean quarterly, I would say. That is the normal pattern. When it comes to the harvesting volume, I would say that it's more a seasonal effect. So we keep long term harvesting level in good years and in bad years. And Toby, maybe you can comment on that. Yes, I can say, I mean, last year we held back a little bit in the first half from we had a tough winter and a dry summer, which we haven't had this year. Our long term plan is 4,300,000 cubic meters per year, but that doesn't mean we're exactly 4,300,000 every year. We go up and down. So I don't think there'll be a big change between the second half and the first half, in summary. Our next question comes from the line of Paul Hasborne. Please ask your question. Good morning. You've always talked about your growing forests binding CO2. And I was just wondering, do you get any benefit in your valuation of your forest or any financial benefit for the binding of CO2 as your forests grow? No. I mean not really in that perspective. No. Does that answer your question? So yes, there's no kind of Trading systems. Yes, yes, for forest land absorbing carbon dioxide. And I mean is there any debate around that whether you could potentially get same as you have carbon credits for other areas of your business, carbon credits for locking in CO2 for your forest? Or is that just kind of pie in the sky at the moment? I think there is some level of debate. We don't see it as something that's going to come in the short term. But I think it's becoming more and more part of the public debate, at least the impact of forest ownership on in terms of, yes, absorbing carbon. So but yes, I think it's still some way off in terms of carbon credits or anything like that even though we'd welcome that debate. Great. Thank you. Thank you. Our final question comes from the line of Marco Jarvinen. Please ask your question. Hi, good afternoon. I still had a few questions. First to start on the forest valuation. I guess for the biological asset, you can look at your assumptions. What's the mechanism to increase land value? Well, there are different I mean, we're getting into accounting regulation, but there are different ways you can either value land according to the value it was purchased at, which is what we do today, which is 0 basically because it was many, many, many years ago. But you can also value according to a market value. We can also look at the income streams which are linked to the land but are not linked to the biological assets, which is where you categorize, for example, wind power. We get incomes for things like gravel and other things which are linked to land. Accounting. Yes. So without going into the accounting mechanism, those are and you can look at market value. So you can take a market value for land and decide to value your land according to market value. So it's sort of a fair valuation and then you write that to your book value? Yes. You can basically instead of using the original purchase value, you decide to have a fair value every year of your land basically. And then how you do that fair value, then you're going to include all these factors. And then sort of more sort of accounting questions. If you do your valuation now on your land and your biological asset to your balance sheet value, does that go through your P and L? Probably not. I mean that we have to come back on that, but and that's really subject to the review. But it would probably be something that would go straight to equity to a large extent, but there may be parts of it which go through the balance sheet. But I think our view is that's really not the point. It's not kind of the one off boost to earnings from the revaluation. It's really about having the correct value in the balance sheet going forward. Good. Good. Then still on pricing. You said kraftliner is now stable for 2 months. Is the price still down sequentially in Q3? Or how does that work? We will probably see somewhat decreasing prices in Q3, but Yes. You see, I think the OIBDA and the PPI are stable in basically the last 2 months, but there is a time lag also in the way that, that's implemented in the pricing going Q2 to Q3. So we do expect a small, yes, decrease due to that time lag coming into Q3. 2% or 3% maybe. Yes. Okay. Good. And then in wood, did you say pricing will be down 5% to 6% in Q3 compared to Q2? And I'm just wondering, your EBIT margin in wood was 7% in Q2. Do you think that Q3 is now bottom in pricing? Or how does it look? I mean, we don't do forecast. But I mean, as I said, we've done 75% of the volume for Q3. And yes, you're right, we will come down 5% in Q3 in comparison with Q2. So but still as I said, I mean it's a rather special situation because you have a rather good demand out there. So stock level is on a good level more or less and we see a rather strong market in Scandinavia and also in U. S. And so on. But this is the situation. And I think also the market has been a little bit impacted by the spruce beetle disease that has made a lot of low quality wood available in the central part of Europe, but also in the southern part of Sweden. We are not directly impacted by that as we don't have that spruce beetle disease in our area, but at the same time if you add volumes in the market that will have a secondary effect also on our business for a while. Okay. And then the maintenance that you have in Q4 in Ostrand, that 40,000 tons that you won't sell, is it fair to assume that that's Asian volume that will then be taken out and that's included in the SEK150 1,000,000 estimate? As I said, it's a question on the market. We try to place as much as we can in Europe and U. S. But if we have a strong production or a bad market, then of course we have to balance the market situation. So but I mean a big part of it probably should be taken back from Asia, yes. I would just point out, Mark, when we calculate though the impact of maintenance stops, which actually the cost coverage that we included in €115,000,000 So we don't try to estimate which markets and which the volume comes from. It's actually the fixed cost coverage we lose due to the maintenance stop. So that's the direct impact that we and the direct maintenance costs, which go into that SEK115,000,000. Okay. So that's okay. And on Obbola, I was just a bit unclear. Is it sort of possible that you run both machines if you could go with option 3, sort of keep the old one and run the new one as well? Yes. I mean, if you take the 3rd option, then at least you probably you will have a short stop to connect the new paper machine. But it is a big difference in that perspective between option 1 and option 2, I would say, because in these cases you need a rather long maintenance stop or ramp up stop. But if we build a new paper machine then you can just redirect the pulp and then it will be a minor stop. But I mean, would you close the old paper machine after starting the new one? Or would you keep running both machines? In that case, we will close the old one. But that will be I mean, in the startup phase, it will be, let's say, security and insurance, of course. I mean, we will keep it for a while, but then we will close it down. Sure, sure. And the Muxun to 50,000 tonnes, when do you expect to have that in sort of pure mix? I mean, in we have it already in the mix. I mean, that one is up and running and it was, I mean, very well performed project. So I think we started to see the future share in the production already from day 1 more or less. So it's up and running now. Good. Okay. Those were my questions. Thank you very much. Thank you. Thank you. There are no further questions at this time. Okay. Thank you for all your questions and for the interest our next report, which will be on the 30th October. Thank you and have a pleasant