Earnings Call: Q1 2019

Apr 26, 2019

Welcome to this press conference and the presentation of SCA's Intervene Report for the Q1. The report will be presented by our President and CEO, Ulf Larsson and our Chief Financial Officer, Toby Lawton. After the presentation, there will be an opportunity for questions. So please, Ulf, would you take the floor? Thank you, Bjorn. Most welcome. Happy to give you some comments about our Q1 2019. And if I summarize, I can note that this is the best quarter ever for SCA even if we take the time before the split into consideration, which is, of course, very nice. We saw in the end of 2019 that prices started to peak in most product areas except from publication papers where we've seen also price increase during the first quarter 'nineteen. Anyway, they have remained on a historically high level also in the Q1 'nineteen. Sales was up quarter on quarter by 15%, price, currency and mix, of course, but maybe more important is the ramp up effect now from Oerstand that gives 5% effect in sales. EBITDA was up as much as 33%. Again, pricemix currency, Ostrand. We had one transaction effect from the merger between Groupe ISB and SCA Wood France. And I don't know if you remember, but we had a big fire in our French operation last year. And so we have also been covered for some extra costs and also loss of contribution from the insurance company. So that had also an effect during Q1. Otherwise, we have seen some price increases for raw material, not the least wood in the Q1. I will come back to the ramp up of Ostrand, but I can already now say that it is progressing according to plan, which is positive. We had 2 events during the quarter. 1 was the merger between Groupe ISB and SCA Wood France, and we will retain with 38.5 percent of the shares. And by that, we will be the main owner in the new company. And we have also, during the quarter, finalized the acquisition of 10,000 hectares of forest land in Latvia, and that is according to our strategy to increase our ownership in forest. If we then walk into some KPIs, we can see that we had SEK 1,560,000,000 on EBITDA level, which is 33% up quarter on quarter and 4% better than we had Q4 2018. That gave us a healthy EBITDA margin of 31%, and we also increased our industrial return on capital employed with 1% from 'sixteen Q4 'eighteen up to 'seventeen calculated as last 12 months. During the Q1 this year, we have paid out dividends. And after that, we have a leverage of SEK1.6 billion. And I think I mentioned it before, but we have now been able to finance the entire Ostrand project from the operating cash flow. If we then walk into our segments, starting with the forest. As you can see on the left hand side, we have seen higher prices in the market and so also in the Q1 'nineteen. I think and feel that we now have reached some kind of peak level in this perspective, also when it comes to prices for imported wood. We have in SCA increased our wood sourcing in order to meet the increasing demand from Ostrand, of course. And sales was up 27% due to that fact, also due to higher prices, but not the least due to an increased volume. EBITDA was up 9%. One thing is higher prices. But on the negative side, we have the mix as we now have some yearly basis to supply 2,500,000 cubic meters more than we did in the past. That have, of course, an impact on the mix. So less from our own forest and somewhat more from import and what we buy from private forest only in the region. And here, we have a lagging effect. So that will be, of course, be charged to Ostrand, but we have a lagging effect between forest and the industry. In wood, as I mentioned, we have finalized the merger between S. A. Wood France and Groupe ISB, and that is a clear consolidation of the French timber market. This new company will have a sales of EUR 270,000,000 per year, and the new company will have a market share of 50% in Nordic softwood against the builders merchants. So it will be very exciting to see what we can achieve here. Otherwise, we've seen stable delivery volumes during the period, and our stock of orders is on a good level as it is just now. Inventory level is equally high as it was in Q1, so it's on a good level. We saw somewhat lower prices in Q1 in comparison with Q4, and I think I said that we should see between 2% 5% price decreases 1st quarter in comparison with the 4th quarter, and we came up with 3.5%. So that was almost spot on. And I foresee approximately the same movement also in the Q2. So we will reduce prices between 2% 4% also in the Q2 in comparison with the Q1. Nevertheless, sales was up 12% quarter on quarter and increased volumes and also due to prices and a positive currency effect. EBITDA up 73%, and I mentioned the transaction effect of the merger between Groupe ISB and SA Wood France and also the insurance money. And if you take that away, the EBITDA was up 22% for the quarter. Again, also here we and that we see for all product segments that we have had increased cost for wood during the period. Then we walk into pulp. And as I said, the ramp up is progressing according to plan. And I can start by commenting the volumes for the Q1 'nineteen and the deliveries. Last quarter, I had a question why we didn't deliver what we produce. And the answer at that time was that we need to have at least 1 month in stock in order to fulfill requirements from service requirements from customers. And now we are almost there. So that means that we have delivered what we produced in Q1, close to 170,000 tonnes. Q1 otherwise has been we have had some struggle, not the least in the beginning, as you can see the dip in January, and that is due to a leakage in one tube in the old part of the recovery boiler. We had one also in September, and in fact, we also had one in April, which you can't see because April has been fantastic in terms of production. That is something that we will fix, but we have to wait until the plant stop in October, week 41, 42, where we will stand still for 17 days. And at that stage, we will also replace this old part. But that is what you can expect. I mean, in a ramp up, we have 2 steps forward and 1 step back. What we now see in April is that we for a longer time has reached full capacity, almost 7 days on full capacity. And now we are more focused on fine tuning and trimming and so on. But again, 1st year with full capacity will be 2020, as we've said already in the past. Some words about the result. In pulp. I mean, in terms of price, we have seen that prices did peak also in pulp in November at 12.30pixprice U. S. Dollar per ton. And in March, they were down to $1100 per ton. At the same time, Chinese prices went from 6.60 dollars up to $7.10 in March. So by that, the deviation between Chinese spot prices and, let's say net prices in Europe is around was around $60 per ton in March. Now we see that prices will go down another USD 30 per ton in April, and we also see that Chinese prices picking up again. So I mean now we are soon reaching some kind of balance point here, which is positive, I think, for the coming price development of the second part of this year. We are positively impacted by the increase in volumes, of course, and by that also sales was up 93% quarter on quarter, and EBITDA was also up 97%. In paper, you know that we have gathered both publication papers and containerboard, and we have a slightly different picture in these two segments just now. In publication paper, as I said, and as you can see to the left hand side, we've had increased prices also for the Q1 'nineteen, while we in kraftliner has seen reduced prices. And again, also here, we reached peak prices in November. And since November up to March, we've lost around €70 per ton in unbleached kraft. And in white top kraftliner, we have a different slightly picture also, but we've lost €20 per ton during the Q1 'nineteen. And what you see to the left hand side is the combined situation for SCA. And as you know, we produce around 85% unbleached kraft and 15% white top kraft. So it's a mix of these two qualities. Sales was rather flat quarter on quarter. EBITDA was up 5% due to higher prices for publication papers, positive currency effect and also somewhat improved product and market mix. We have also, as you know, a project going on in Munksund where we try to increase the capacity of white top kraftliner. The total capacity will remain on the same level, but we will increase the share of White Top with around 50,000 tonnes. And that project is also progressing according to plan. So we will be up and running in, let's say, between Q2 and Q3, which is according to plan. I have one slide regarding renewable energy, and you know that we have a lot of exciting growth projects in this field. Maybe wind is not the most exciting area, but we have been very successful in this area in the past. We had a long term target to reach 5 terawatt hours, and now we know that we will exceed that target. So 2021, we will reach 6.7 terawatt hours installed capacity on SCA land, which is equal to around SEK 100,000,000 on EBIT level if we have the same conditions as we have today in terms of energy prices and so on. And we also have big interest and lots of new projects in line. So we have also put a new target on 11 terawatt hours, long term target on 11 terawatt hours installed capacity. Before I hand over to Toby, I'd like to finish up with this slide showing SCA's contribution to a fossil free society. And we did some work last year in order to present this slide at our AGM in March. And we did identify, we did quantify and also validate the contribution we could do for a fossil free world. And if we start with the left hand side, you can see that our well managed forests growing fast has a net binding capacity of 4,000,000 ton carbon dioxide per year. And that is due to the fact that before each tree that we harvest, plant, replant 2 new ones, We have we are really intensive in our silviculture operations. On 15% of SCA land, we use Pinus Contorta, which has 40% higher growth than the normal conventional scotch pine. We do some fertilization and so on. But all in all, a net binding capacity of 4,000,000 tonnes per year. If we then turn to the right side of this slide, you can see that we also, with the renewable fiber, can replace more fossil based materials. Then we talked about paper instead of plastics. We talked about bioenergy instead of fossil fuels and solid wood products instead of steel, concrete and so on. And that also gave a contribution of 5,000,000 tonne per year. Then of course, we have some emissions from our industry that we have reduced by 50% since 2010 up till now, but still we are on the level of 900,000 tons per year. But the net contribution is 8,000,000 tonne, and that is as much as the total truck traffic in Sweden and also the domestic flights. So it's quite a lot. And it has been very positively received at the AGM, but also afterwards in different occasions. So by that, Toby, I hand over to you. Thank you. Thanks, Ulf. I will start with the a little bit on the income statement here. And you can see, as Ulf presented, our top line net sales grew by 15 percent versus Q1 last year to, yes, nearly SEK 5,100,000,000 in the quarter. EBITDA then grew by 33%, which relates to a margin of 30.7 percent EBITDA margin. If I then go down below the operating level, we have financial items in the quarter of SEK 30,000,000, which also includes now some financial costs from the new leasing accounting. So IFRS 16 effects are now have a small effect on the financial cost. And the tax, we paid SEK 230,000,000 tax in the quarter. We had an accounting charge of SEK 230,000,000 for tax, which is an effective tax rate of a little bit more than 20% close to the Swedish tax rate. All that means that we have a net profit of SEK 908,000,000 in Q1, which relates to an earnings per share of SEK 1.29 percent. If we then just talk a bit about the results per segment and focus a bit on the development versus Q4 particularly now. In forest, we see a growing top line, a growing net sales driven by 2 factors, but the biggest factor is the volume growth in supply to Ostrand, of course, which is growing. And we also have some higher prices coming through in the top line as well. When it comes to the bottom line, we have a seasonality in our business. So we always the bottom line is driven more by the amount of harvesting of our own forest, which tends to be less in the Q1. So that seasonality is there, but we also the profit in the bottom line is driven by the result from our harvesting our own forest. So it's not we're not growing the harvesting from our own forest at the same rate that we're growing the top line because the increased sourcing for Ostrand's needs comes mainly from 3rd party forest owners. So when it comes to the Wood segment, we see increased volumes, but prices have come down a bit versus Q4, as Ulf mentioned. When it comes to the bottom line, we have this effect from the restructuring in France, which is SEK 90,000,000 on the bottom line. Of that, around 2 thirds is related to the transaction with ISB, the merging of the company and around 1 third is the insurance effect from this proceeds after the cost for the fire, which we had last year. When it comes to pulp, we have increasing volumes, of course, from the ramp up of Ostrand pulp mill. Prices are a bit lower than they were in the Q4, and we also slightly worse mix because we're now selling a bit further away and the increased volumes are a bit further away. So the mix is a bit worse than it was in the Q4. When it comes to the bottom line, we have basically those effects from the price. We also have an increased wood cost feeding through into the Ostrand result, which is offset by a better energy balance. So we're improving the energy balance in Ostrand. When it comes to paper, we have slightly lower volumes in the Q4. The pricing on publication paper is positive, so it's boosting top line, whereas kraftliner is the other way around is slightly lower than the Q4. And when it comes to the bottom line, you have those effects. And we also had a maintenance stop in the Q4. So that's an effect that impacted the result in the 4th quarter, and we had no maintenance stops here in the Q1 this year. A bit on the bridge between Q1 last year and Q1 this year in terms of top line. Can see here we have price mix improvements of 5% versus Q1 last year. We have a volume growth, which is also driven primarily by Ostrand's higher volumes versus Q1 last year, which is 5%. And we have a currency impact of 5% as well, which is mainly due to the positive impact from euro and U. S. Dollar and the weaker Swedish krona versus the euro and U. S. Dollar. When it comes to EBITDA bridge, we of course, we have the higher prices and mix, which is, yes, plus 248,000,000. We have higher volumes, again, which you saw on the previous slide, so some EUR 95,000,000 on the EBITDA. We have an increased raw material cost, so an increased price for sourcing raw materials and primarily wood, of course. On the other hand, we're working very hard to improve the energy balance in the company, which is driven a lot by the better energy balance in Ostrand, and that improves our energy cost by SEK 51,000,000 in the Q1. And we have then a positive currency effect, again, euro and U. S. Dollar primarily and then a positive effect on other of EUR 46,000,000, which is largely, again, this effect from the restructuring in France, which drives that. So overall, the yes, the EBITDA grew by 33% and the margin then increased from 26.7% last year to now 30.7% in the Q1. When it comes to cash flow, we had EBITDA of SEK 1,560,000,000. If we take away the revaluation effect, we're then SEK 1,300,000,000. We've increased working capital in line with the ramp up of the top line and of Ostrand, but the ratio in working capital to sales is constant. Capital expenditure was SEK168,000,000 in the first quarter. Here we also included some SEK 26,000,000 which is from the new leasing effect on current CapEx, which gives a net an operating cash flow of SEK626,000,000 and then we have strategic CapEx, which is outside operating cash flow, which is primarily Ostrand, which is SEK 143,000,000. So we're still absolutely still financing Ostrand from operating cash flow, which we've done for the whole project. Just to show, we've had a change in net debt and just to show where this comes from, so everyone understands. We have the net debt at the end of the Q4 was SEK 7,000,000,000. We've had the positive operating cash flow, which you saw of just over €600,000,000 Then we've had a strategic CapEx, which was 143,000,000 dollars We've had the acquisition, which is the new shares in France, which is the cost for the new shares in France related to ISB, which is EUR 158,000,000. So those effects, plus the dividend, which we paid out in the Q1 and then the effect from the new accounting principles for IFRS 16, both at around SEK 1,200,000,000. So that means we come out to the end of the Q1 with a net debt with a new accounting treatment of just over CHF 9,000,000,000, which relates to then a net debt to EBITDA of 1.6 times. When it comes to the balance sheet, again, with the IFRS 16 has affected then the balance sheet in the end of March related to the end of December, and it affects primarily apart from the net debt, which I've just shown you, it also affects the other capital employed, which is primarily fixed assets in this picture, which also increases by around 1,200,000,000 dollars So that's the main change. We also have you can see working capital to sales was 18% at the end of the 4th quarter, and it's 18% at the end of the Q1, so a constant ratio to sales. But of course, the growth in the company drives a growth in working capital. Okay. Jan? I'll hand back. So to summarize, we had a strong quarter, strongest ever and prices coming down from peak levels, but still remaining on a historically high level. Strong sales growth, mainly related to the Ostrand ramp up, which is also which is a positive thing, of course. And EBITDA was also quarter on quarter up 33%. We had 2 events during this quarter. 1 was the merger between Groupe ISB in France and SA Wood France and then the acquisition of this Latvian forest land. So by that, I think that we open up for questions from the audience, please. Thank you, Can you hear me? Yes. Gustaf Schwerin from Perksen Securities. I have three questions. I'll take them 1 by 1. I mean, we've asked it before, but on the S Front cost base, you talked about the $350,000,000 fixed cost reduction after the ramp up. I mean, just to get some feeling for where we're heading in the near term. I mean if I look at cost per ton sequentially, I think it's up 10% even though the volumes are up. I mean, you mentioned the transportation costs and that part of it. But I mean, can you give some color on what's going to happen in Q2 and really what's driving up the cost per ton sequentially in Q1? Thank you. Okay. I think I mean the cost per ton is pretty flat Q1 versus Q4. I don't know what you're comparing the 10% with. But we of course, we have higher wood costs coming through, which is a significant impact. We the cost per ton benefit is also driven by the volume. So we need to get the top line. Once the top line is up, then we get the full benefit in terms of fixed cost per ton, and we're not there yet. So we don't see that benefit full out yet. But basically, the 2 biggest effects is the raw material cost, you saw is increasing and Ostrand is now taking that cost. And then the energy balance, which is positive. And that will get that energy balance is not fully in yet either. That will come through more as we ramp up the mill as well. So it's those two effects primarily. But if you wouldn't have had those production hiccups in January, I mean, would we have seen a significantly lower number per tonne? Well, I think if we had had higher volumes lead to a better fixed cost coverage, so yes. And probably higher volumes also lead to a better performance in terms of energy. So yes. I think you have some I mean still we are in a ramp up period, and that also goes for use of chemicals and how much wood you need to produce 1 ton of pulp and all that kind of things. I mean, we have just started 2020, we will have full capacity, but then trimming will, I mean, be going on for many years. So I mean, don't hurry too much, please. Okay, great. And then also related to pulp. I mean, you had those hiccups. I mean, if you would have produced more in the quarter, I mean, could you have sold more? Then also just a few words on general pulp demand, I guess, primarily in Europe but China as well. I mean, as Toby said, I mean, you see an impact on the result for the Q1 due to the mix. So I mean we have sold much more due to Asia and also to U. S. Than maybe the Q4. That have had a negative impact, at least the volume for Asia. Otherwise, we feel a stronger pulp market out there. If you saw the statistics for March now, softboard inventory level went down to, I think, 3 days down to 38 days. And also in hardwood, they went down 3 days. So I mean, we feel a rather strong demand now again from Asia, and we see that business has started well after the Chinese New Year, as we also predicted. And Europe, a little bit slower. U. S. Still strong in some in. I think it's a rather balanced situation. But yes, we could have sold more if we can produce, then we can sell. That's the answer. Great. And then lastly, I mean, the kraftliner market is obviously weaker now than it was a year ago. But when I look at your volumes year on year, they seem quite low. I mean, is this only demand driven? Or are you optimizing your mix in order to get your sort of realized pricing up? I think it's partly, I mean, production driven. It's partly last year, we were still selling some out of stock in the early part of last year, so we were managing to sell ahead of production. We're not able to do that every quarter, of course. So it's I would say it's not particularly demand driven. Yes, probably the European market is a bit softer than it was in the first half of last year, which is reflected in the pricing, but it's not particularly a volume effect. Okay. Thank you. Okay. Then operator, do we have any questions from the line? Thank you. Ladies and gentlemen, we will now begin the question and answer question coming from the line of Linus Larsson. Please go ahead. Ask your question. Thank you very much, and good day to everyone. I'd like to start with the wood cost situation. Could you talk a bit more about that, what you expect in terms of wood, I mean, input raw material cost trends in the next quarters to come? Should we expect lower P and L costs for wood in the second versus the Q1, for instance? No. I mean, actually, we expect when it comes to the cost the industries are paying for wood, we expect that to increase slightly for pulpwood in the Q2. We do have as Ulf mentioned, we do have a time lag effect from the way the prices come in and the way they're sold on to the industries. And as you know, we source from our own forest, but we also source from yes, we have some import. We have 3rd party forest owners and we have some central sourcing. And they all have a yes, you could say a different time lag. But we have this lag effect in terms of the way the prices go through to the market, but we and through to the industries. But we in summary, we do expect the industries to pay us for pulpwood, a slightly higher cost in the Q2 again versus the Q1. And for sawlogs in the Q2? Pretty stable, yes. So not a big effect on sawlogs. Okay. And when would you expect a decline on a sequential basis? I think that remains to be seen. I think we expect it to be flat. We don't see further increases at the moment after the Q2. And then it depends on the market development really how that pans out after that. What you can see in effect though is the mix, of course, because now we I mean, Ostrand when Ostrand is ramped up, we need 2,500,000 cubic meters more. And that, of course, will give a less good mix than we had in the past for sure. Exactly, exactly. But that's part of your guidance when you talk about the Q2, I assume? Yes, absolutely. Yes. Yes, yes. Then on your wood business area, just on pricing, you said that you had a 3.5% price decline in the Q1. Was that on an average to average basis? Or how should I understand that 3.5% there? If I look on the realized Swedish kroner basis, the decline was obviously a lot less? That is the average for both species and included currency effects and so on. So I mean that is the average. I guess in local currencies, I guess, in pounds and euros and so forth? No, including currency effects. That's in SEK based. Really? Okay. It looked like a lot less in your P and L, I thought, on a realized basis. But maybe there's something else disturbing that picture. Well, we have you do yes. So we have a mix between timber supply where we have more wholesale kind of business than we have our sawmill side. So but it's basically the actual clean price difference is 3.5%. Okay. And you also said so what you said about the Q2, you said 2% to 4%, so let's call it 3%, that's also on an average realized basis in Swedish krona terms then? Calculated on the same way, I think that we will see around 3% down also in the Q2 in comparison with the Q1. I mean we have done 90% of the business for the Q2 now, and we have also set prices. And we have a good stock of orders, and we don't have too much to sell. So don't not too much of spot volumes for the rest of this quarter. So it's a balanced situation, but prices will go down approximately as much in Q2 as it did in Q1. And then just one final question from my side. What's the latest on the Obbola kraftliner project? I mean, we have more or less finalized now the pre project, and we are fine tuning a little bit and mainly related to permissions and things like that. So I think we will have the pre project will be finalized during this summer. And a board decision? That you have to ask the board about. But I mean the pre project will be finalized during this summer. Excellent. Thank you very much. Thank you. And your next question comes from the line of Mikael Doepel. Please go ahead, ask your question. Thank you. Coming back to the sawn timber market, we talked about the pricing there a lot. But how do you see the demand situation going forward? I think your deliveries were quite good in the Q1. How do you see demand developing and volumes developing in Q2? As I said, I mean, we have a good or strong stock of orders. And I think we've sold out 90% of what we produce in the Q2, which is normal, I would say. If we take a look at the inventory level, we are more or less on the same level in where we are now as we were 1 year ago. So I mean that is a stable sign. So we feel good demand in the market, and we have now also started up the sales to the business merchant sector and also a good start, reasonably good start. So it's a normal situation. Okay. And if demand is good, then what is pressuring prices down? Amit, it's always a question about balance. And I don't know if we have a different situation compared to our colleagues, but for us, it's a balanced situation. So I mean, what has pressed down the prices is maybe the Chinese situation. And if we've seen that you have normal activities now in China for pulp, maybe it's still a little bit slower in solid wood products, I would say. And also Japan, maybe a little bit slower. Okay. And then switching to kraftliners. You talked about some price pressure in that business. What are your expectations going forward? Do you see prices bottoming out now? Or do you expect to see some further price slippage there? Again, we don't forecast prices. But if you look into these indexes that you can publicly find, you see that prices still is continuing down, not dramatically, but you have EUR 2, EUR 3 per tonne down. And that is what we see, and that is what you also can see from public figures. Okay. Then a final question on the pulp markets. You talked about demand there in China improving and Europe still being pretty slow. You talked about European prices coming off in April, but I didn't really catch what you said about China prices. Were you expecting China prices to move up now? I mean, what we see now in the Chinese market is that they have moved up from 6.60 November up to 7.10, and we see a trend slightly point, yes, then you can judge yourself really what's going to happen for the second half of this year. But I mean, that is good. So we feel a much stable market now in pulp than we maybe did a couple of months ago. And what is your take on the inventory situation in pulp? If you look at the port inventories, for example, in Europe and also in China, they are undoubtedly very high still. What's your take on that and how that will impact the market? I mean they are high, but the trend is downwards. You saw that in for the March figures now, both for softwood and hardwood, the inventory went down with 3 days each. And but I mean the level is what it is. So I mean we see the same figure there. So Yes, sure. Then just a final question, maybe a bit of a technical more. But in terms of the SEK 90,000,000 booking that you did in the Q1, you said that twothree of that's related to the merger. Where are these numbers coming from? Why are you booking the kind of a one off for the merger? What we've done is we've sold our operation in France to the new company. So that's basically what drives the effect from the merger of the company. So we have basically 2 thirds of the CHF 90,000,000 is from that effect. And then the insurance is a separate matter and that's basically a and the result is the other third. But the cash flow effect is really is €90,000,000 as well, but it's driven from and that's a cash flow effect, and that's driven from the insurance impact. So it's a bit technical. I hope that was clear. But it's those two effects, which are all related to France and basically the yes, the whole of the our French business has now been restructured into the new merged company. Okay, good. Thank you very much. Thank you. And your next question comes from the line of Marco Jarvinen. Please ask your question. Yes. Good morning. I still had a few questions. Regarding pricing, Q1, we saw higher prices for publication papers. Are those price increases now fully in your Q1 numbers? And do we still see increases in Q2? And what kind of a contract structure do you have in place? I mean, they are in our resulting Q1, basically. And we don't expect further price increases in publication papers in Q2. And do you expect to sort of maintain this price level throughout the year? Or how does it look for H2? Do you have an annual contract? Is it sort of biannual or Yes. I mean in some areas, you have annual contracts. But at the same time, we know that you can't really answer that. But I mean, we see now that capacity will be closed down, not the least in LWC, Virgo and some other places. So I mean that will improve the balance quite a bit. But on the other hand, structurally, the consumption is going down in publication papers. We know that. And so capacity need to be closed down in order to keep the balance, that's for sure. Okay. Okay. And on the kraftliner side, I guess we see prices moving down. How do you see that market developing? What's sort of driving the prices down? And how long do you sort of expect that to continue? Yes. I think one thing is the general situation, not the least in Germany and Central Europe, where, I mean, you see less activities. And if you don't have the same growth that you had in the past, that will have an impact on the use of packaging materials, that's for sure. And the other thing is maybe also the price development that you see in recycled fiber that put a pressure on the testliner prices, and that will also have an impact on the kraftliner pricing. Okay. And in terms of Obbola, I guess you're finalizing the pre project now. What sort of technically, what follows the pre project? Is it then the feasibility? And how long would that last? We are just now as I said, we are fine tuning some details here, mainly related to permissions. So we have to wait and see a little bit. And I think we have cleared that out in the middle of summer. And after that, the pre project is finalized, and then it's up to the Board. So pre project is followed by an investment decision if it's followed by an investment decision. Is that the way to look at it? Yes. There's no other stage in between. There's no I mean, the pre project includes the feasibility. Okay. So construction can start after the decision by Board? Yes. Okay. Good. And just on that topic, how do you view now? Stora has announced the expansion in Kraftliner pending Board decision there as well. And Klabin has also discussed a fairly sizable expansion. How do you see the market sort of absorbing all of this new capacity? I mean, if you look in the past, you see a rather solid growth in packaging materials of 2% to 3% per year. And I think new capacity is needed in the market definitely. Okay. And then still on Ostrand, you talk about Chinese pulp market a bit more. Do you expect to move much of the sort of added capacity that's coming on stream when you ramp up to China? Or how should we sort of think about that? I mean, our core market, our whole market, that is Europe, of course, and will be going forward. Then I think that the best development that we've had now has been in U. S. Where we see a rather big demand for the quality that we can produce. So we have developed quite a good position in U. S, and we will build on that. And then of course, as a complement, we will also sell some volumes to Asia. But I think our first target after Europe will be U. S. Okay. Very good. That's all my questions. Thank you. Thank you. And another question comes from the line of Jesper Starn. Please ask your question. So I see you already got this question a couple of times this morning, but just a brief update on the spruce beetle situation in your forts would be much appreciated. Yes. I mean spruce beetle is not a problem for SCA. I mean we have been a little bit worried, and we have done a lot of investigations. And in our area, as it seems just now, it is a very stable situation, in fact, better than last year at the same time. But we know it is a big problem in the southern part of Sweden and also in central part of Europe, of course. So but for us, it's a better situation than we expected really. And that means no risk at all, I would say, this year as it feels just now. Okay. I mean less risk or no infestation at all or No, nothing at all really to mention. I mean every year you have something, but that is really small things. Okay. Thank you very much. Thank you. And our next question comes from the line of Cole Hathorn. Please ask your question. Good morning. When you think about the kraft line expansion at Obalon, how do you frame that when you speak to the Board on actual timing? Because I mean, there are a lot of capacity additions coming through, and you don't want to be allocating capital in the glut in the market. How do you ensure that, that new capacity is going to come on stream to meet the demand, but not too soon? I mean, there's always an investment like Obolife that come through, I mean, it is a 30, 40 year perspective on that kind of investment. When we took the decision around Ostrand, I mean, we didn't know that we should reach the market in a fantastic with a fantastic timing. You cannot really plan it that way. You have other perspectives that you have to take into consideration when you take a decision like this. So I mean now we have soon we have finalized the pre project. It is a strong project. We know that fundamentally you have a strong growth in packaging materials. We have solid wood supply and a lot of advantages in the area around Obbola. So I mean that is maybe much more important than to reach the market exactly at the same in a certain point because you cannot really predict the timing. If we take a decision now this year, we will start up in 2020 2, late 2022. So I mean that is the perspective we have. It's a long time between decision and start up, so you can't really you can't try and time it. Sure. I was just wondering on your commitment to when you pull the trigger on ordering effectively equipment and your cash flows going out, is there kind of a timeline if things are a bit soggy in the interim? Can you delay that and say start up in 2023? What's your kind of lead time that you can delay the start up of that project before you commit it? I think once you take a decision and start the project, then it's just to carry it through. You can't really change the timing on the key parts of the project once you've started. I mean, also, you have a huge organization related to this to project like that. I mean it's a big thing. Thank you. Thank you. And our next question comes from the line of Justin Jordan. Please ask your question. Thank you and good morning everyone. I just want to perhaps explore a little bit more on the Paper division. Well done clearly on the successful Ostrand ramp up and continuing. But just focusing on Paper for a second and specifically on the kraftliner market where your deliveries were 7% down in Q1, How would you describe that? Is that just softness in end market demand? And when we think about that going forward, clearly, as Europe's largest independent producer of kraftliner, would you consider taking commercial downtime if soft market demand conditions continue with soft pricing conditions, particularly with what's going on in the U. S. Kraftliner market? I mean, first, I think it's right to say that last year, this time, it was a fantastic kraftliner market. We have maybe never seen something similar. So at that time, we really sold out everything that we had in stock and were on the super low record low level in terms of inventories. Now we are on a more normal level. And so that is one reason why the sales went down. And the other one is, of course, that we have a weaker market today than we had 1 year ago. Yes. But given that weak market, is that something that you would consider potential commercial downtime to help balance that market demand? I mean, we are of course, if that's needed, then we will do it. But already today, I mean, we have the biggest machine in Europe in Obbola and the 3rd biggest in Europe in we have already today, we have a low cost level. Okay. And just one final, sorry, follow-up question Toby really. Can you just remind us, sorry, the thinking on CapEx for calendar 2019 overall, please? We've yes, we basically, if you take a whole year basis, if we include the effect of the leasing, which also increases the CapEx because that now comes into the leasing amount, we expect around SEK 1 point you could say on average over time around SEK 1.2 billion as a current CapEx level. Great. Thanks, Toby. Yes. Thank you. And our next question comes from the line of Alexander Berglund. Please ask your question. Thank you very much. Most of my questions have been answered. I would just like to clarify 2 points. So first of all, you mentioned on the negative mix effect that you had in Pulp because you had to sell to destinations further away. And then you also commented about kind of increasing your sales initially to U. S. And then maybe more to China. So my question is really, is this something we should kind of expect as a consequence of you having a more capacity and the European demand being more lackluster so that you would continue to see this negative mix effect? And then my second question, once again, relates to Kraftliner. You mentioned that you given publications out there, we're seeing a couple of euros per tonne lower prices. I mean, if I look at the RISI prices for Europe in April, I mean, most countries are, at least on the unleashing side, seeing about EUR 20,000,000 per ton decline, so April versus March. I was wondering if you could confirm if that is what you are seeing as well for your for April deliveries. Thanks. If we start with the pulp. I mean, yes, short term I mean, still, Europe is our core market, and we like to put as much volume as we can in Europe. Now for a while, we have had as good profitability for deliveries to U. S. As we've had for Europe. I mean, we have our own logistical Coast of U. S. With pulp. And I think we are positively surprised about that. So that we will continue and we will develop that further, of course. But exactly as the situation is for wood, I mean, now we start up, Ostrand is starting to give some big volumes, and we have to sell pulp in a slightly different way than we did in the past, and we have to buy wood in a slightly different way than we did in the past. And step by step, we also need to fine tune that part. I mean, we have to fine tune the process and also we have to fine tune our systems when it comes to wood supply and also to the selling of pulp, of course. I don't know if that's an answer. But I mean, it is sometimes tough to grow. But so far, it's went very, very well. And again, it's according to plan, but it takes some time, definitely so. And on the kraftliner prices, is EUR 20 per ton in April over lower than March? That's something that you're seeing as well for your April deliveries? I see exactly what you see in the official statistics, and then we try to do our best in the market. So no more comments about that. You can see it yourself. Okay. So if you're thinking about the sequential given the visibility you have now into Q2, basically, all prices are down Q2 versus Q1 where we are now with the exception of the publication paper. Is that correct? Yes. I think that's fair to say. Okay. Thanks. Thank you very much. Thank you. And we have 2 more questions. And the next question comes from the line of Christian Kopar. Just two follow ups for me. Firstly, on the raw material effect on this trend, you previously said that cost will come down some SEK 3.50 per ton. Can you just help us understanding how much is the underlying cost inflation for Ostrand? So what I'm getting at, obviously, is how much of this SEK 3.50 will be left after the cost inflation? The SEK 3.50 per tonne is a fixed cost benefit. The cost inflation, you could tell what we see is wood cost is primarily where the cost of wood has gone up, and that's not fixed cost, of course, that's variable cost. So that's a cost we see with pulpwood prices are higher. And we also flagged for that wasn't expected we're going to have to source wood from further away. So we will see an increased wood cost, which then we see is offset to a large extent by the energy balance, which is positive. So we do yes, that's where we see the big if you like the big inflation is wood cost. Okay. So can you just quantify it? How much has the variable cost gone up per tonne approximately? Estrand? We don't give out kind of splits between variable and fixed. But if you when you can see and I think the slide Ove presented, you can see the pulpwood cost. You can see the graph there, which shows the increase year over year and quarter over quarter. So that's basically, that's pretty much the impact that Ostrand is taking in terms of wood cost. Okay. And when do you the fixed cost reduction to be met? Not 2020, 2021 or? Yes. I think this year, we're ramping up. So I mean you don't get the benefit at all until we're at the full volume. And then we will be at full volume as well presented at 20 21st 2020. And then I think there'll be still some optimization to be done probably on the cost side during that time. So yes, we don't have a specific year that we say, but I think your assumption is pretty fair. And on deliveries, just to understand a little bit what normal deliveries are for you on Kraftliner and publication. On Kraftliner, you have seen decreasing deliveries for 4th quarter in a row. Current deliveries around 190,200,000 1,000 tons, are those representative for the next couple of quarters? Yes, that's the normal levels. And then it varies a little bit depending on sales versus stock and also production. And we have some you have to take into account the maintenance stops as well. So if you look in the basically in the second quarter, expect a maintenance stop in paper. Yes. And then on the publication side, what are you aiming for? Stable deliveries from here or I mean if you adjust for the maintenance top of August? Yes. I mean we basically sell everything we produce. So yes, and our production capacity is stable. So we don't expect any changes, yes. And our last question comes from the line of Oscar Lindstrom. Please go ahead. All right. Three questions from my side or 3 sets of questions. First off, on the pulp side, you mentioned a leaky boiler impacting your production in January. Is that something that then stopped having an impact in February, March April? Or what was the impact of that? I mean the impact is when you have a leakage in the recovery boiler, then you have to stop because otherwise you get a big problem. And I mean the stop is I don't remember exactly how many days in January, but I think we were close to 5, 6 days. And that is something you have to do. And we also we had one also, as I said, in September, and we had one in January, and we had also one in the beginning of April. April was not too bad. I think we stopped 3 to 4 days. And due to that, we have rescheduled. We first were thinking about fixing this permanently in 2020, but now we have replans. Now we will do it during week 41, 42. And but we need and then we have 17 days of a planned maintenance stop, and now we will do this work at that time. But I mean, it's a substantial impact, of course, when you have to stop down everything for a couple of days. But the positive thing then in April is that after that stop, we as I said, we have been able to produce more or less at full capacity for, yes, more or less 1 week in a row and which is very positive because then you can really start work or fine tuning and find out how you can long term achieve a higher availability and so on. So that has been a very positive start of the second quarter now. Okay. My second question is on the capital allocation side. You answered a little bit about Obbola and so on. I'm just wondering about the status of your biodiesel and biorefinery projects. And do you sort of see them as an alternative to or competing against Obbola for capital? I mean every project are competing with each other in terms of capital allocation. On the other hand, just now, we have a really strong cash flow. So and we have the feeling that our owners still like us to continue to develop profitable projects. I mean, but as always, you need to balance cash flow and what kind of investments you do. But I think they I mean long term they will not compete to each other. They are complementary, I would say. And you could say all the projects that we've talked about and you yes, you see in our basically our project stairway slide, we believe we can fund all those from our own balance sheet and our own cash flow. So it's all provided we're satisfied that they're good projects and they have a good return for shareholders, we think it's all doable. Right, right. But I mean the biodiesel and biorefinery projects, I mean, should they they're further away in the pipeline, so they're not for that reason not competing against or alternatives to the Opelah project? I mean, we have started the process in getting a permission, but that's a long process in Sweden. And but commercially, we don't know exactly what to do in Ostrans. I mean that we have said will be in 2025 maybe or something like that. So I mean that's a long way. Decision in 2025? We don't know. We don't have the final solution. But I say it's a long way. Just now we're talking about Obbola Kraftliner. There we are ready for technically we are ready for decision in after summer. But I mean the biorefinery a couple of years ago ahead. All right. My third and final question is on the wood division or wood products. Is the Tuna Dal Mill, you started it up after some major investments at the well, and or second half of last year, if I remember correctly. Is that having any sort of significant impact on performance and earnings? Definitely. I mean, Tunadal start up has went well, and it's contributing also well. And as you can see, I think when you compare our business, wood business with other companies, we are doing very well. And of course, Tunadal is an important part of it. But should we see it that Tunadal was not sort of fully in the results Q2, Q3 last year, but that it is now in Q1? I think, I mean, we had volumes from Tunadal also last year. So But the yes, the growth is improving and that improves the cost position as well. So yes, it has an impact. I wouldn't overstate the impact because it's we have 5 sawmills and Tunadal is one of them. But it's one of the most efficient Tunadal and Bolster are the 2 of the most efficient mills in Sweden, and they've got a growth potential. All right. Super. Thank you. Those were my questions. Thank you. Thank you. And there are no further questions at this time. Please continue. Well then. Thank you for joining us in this press conference and this presentation of Q1 2019. We look forward to seeing you again when we present the Q2 on the 26th July. Thank you.