Hello. My name is Björn Lind. I'm Vice President, Communications for SCA. Please welcome to this presentation of our SCA's financial result for the second quarter of 2017. This is our first report as an independent listed forest products company. We will have a presentation of the report by President and CEO Ulf Larsson, and our CFO Toby Lawton. After the presentation, there will be a questions and answers session by telephone. The call-in information is available in the invitation to this presentation, in the press release issued today, and in the report. All of this is available at our website at sca.com. Let me now introduce Ulf Larsson, CEO of the company.
Thank you for that, Björn. Good morning, everyone. Happy to give you some more details about our second quarter 2017. The second quarter has been rather busy due to the split. Nevertheless, now we have finally, in a successful way, distributed Essity from June 15. We've had some extra costs related to the split during the quarter, a little bit more than SEK 100 million, and the main part of that is connected to our separation costs in our pension scheme. Overall, it is a positive market situation in more or less all geographies and all markets, except from publication papers, where we, as previously announced, have some structural challenges. We've had rather strong sales in the quarter, +9% if we compare Q2 2017 with Q2 2016.
That is depending on increasing volumes, but also, of course, to increasing prices, and to some small extent, also connected to the currency. Adjusted EBITDA for Q2 2017 was also up +5% if we compare with Q2 2016. On the positive side, as already mentioned, we have volume growth, and we also have increase in prices. On the negative side, we have had large, extensive planned maintenance stops, and during the quarter, in absolute terms, that goes up to a little bit more than SEK 140 million, which is about SEK 70 million more than we had Q2 2016. We also have seen some higher raw material costs, and that is in latex, for example, and in recycled fiber, and also we have been forced to do some reevaluation of electricity certificates.
As also announced in Q1, we have some planned extra costs connected to the big project in Östrand, and that is related to training of staff in order to prepare them for the start up mid 2018. We also have had some extra costs during the quarter connected to the fact that we now have started up the first big part in the new project, the wood handling department. We had to reorganize the wood distribution, the wood transport, and that has also caused us some extra costs during the quarter. Otherwise, I'm happy to say that the Östrand project is progressing according to plan, and we will start up the new mill June 2018. We have now invested a little bit more than 50% of the project budget that is totaling to SEK 7.8 billion.
As already mentioned, we did start up the first big part of the new mill, the wood handling department, on plan 14th of July this month. If we turn over to our four segments and start with forest, we have a balanced situation in the forest today. We have started to prepare for the start-up in Östrand next year, and that is also according to plan. We have good availability in all assortments. We have seen some small price increases in the southern part of Sweden and also in the very northern part of Sweden. In our main market, one can say that price level is rather stable. Sales also, due to that, is stable quarter-on-quarter, and we have seen an increase in EBITDA margin and EBITDA level, and that is mainly due to an increased share of deliveries from our own forests.
We can also see some small positive effect from decreasing harvesting costs. If we turn over to wood, also here we have a strong market, and if you look to the bottom left, one can see that if we compare prices today, Q2 2017, with what we had one year ago, Q2 2016, prices has increased by 8%. In addition, we have also had an upturn in volumes in Q2 due to our building materials trade. We mentioned in our Capital Markets Day in May that we have been able to grow this business, our wood business, by 10% per year in a profitable way as an average during the past 20 years. For the moment being, the main reason or the engine for the growth is our increasing volumes into the building materials trade. It is a special business.
It is 45% of what we are doing in wood. In order to fulfill our customers' expectations, we need to trade some external volumes, which theoretically will drive down the margin. On the other hand, it will increase on our return on capital employed. We turn over to pulp, and also the pulp market is, in general terms, good and stable. We can now see fixed prices on $890. We have had some additional capacity coming on stream the first months this year. It hasn't so far had any impact on prices. We know that we will have another new capacity on stream from quarter three, Äänekoski, that will add 700,000 tons on a yearly basis. In quarter four, we will also see UPM-Kymmene's mill coming up with another 170,000 tons on a yearly basis.
It remains to see what kind of impact that might have on the price level. We are, for the moment, being a little bit hit by a weaker U.S. dollar, as all prices are set in dollars in this business. If we turn over to Östrand, one can see that we have increased the sales volume, and that is due to better prices and better currency, and that has compensated for lower deliveries. We can also see a substantial drop in EBITDA, and that is due to our extensive and planned maintenance stop in Östrand, which had a negative impact of SEK 65 million during the quarter, which is SEK 41 million more than we had Q2 2016.
I've already mentioned project-related costs in Östrand, which during the month, have a negative impact of -SEK 29 million, which is SEK 25 million more than we had Q2 2016. Otherwise, again, just to underline, the big project is progressing according to plan, and we are happy about that, of course. We turn into paper, where we have two sub-businesses, one can say. One in kraftliner, and if we start with kraftliner, we have seen a strong volume growth during the quarter. We have also seen a strong market, and if we look to the bottom left, the chart there, we can see that prices have went up quite substantially. We have seen close to EUR 100 per ton price increase during the first half of 2017, and we have also seen announcements in the market of another EUR 50 up for unbleached kraft from August.
We turn to publication papers, we have a slightly different situation. As we are a little bit more exposed to coated grades, LWC, we were hit by a price decrease in the beginning of the year. If we compare the price level Q1, Q2 with what we had Q4 2016, we had a price decrease in coated grades by 2% or EUR 15 per ton. Prices have been flat in uncoated grades. Sales have been up 10% in paper, and that is related to kraftliner, and kraftliner has overcompensated the slightly less good market that we see in publication papers. By that, I hand over to Toby.
Thank you, Ulf. Good morning, everybody. If I flick on the first picture here, you can see is our profit and loss for the Q2. Here we are just showing figures for the continuing business. The effects of Essity and the distribution of Essity are not shown in these figures, or actually any of the figures in the presentation you have today. The large effect from the distribution of the Essity share, which was some SEK 136 billion, is not shown anywhere here. This reflects the ongoing business. You can see net sales grew by 9% in the quarter, a strong growth driven by prices and volumes, as Ulf has presented. EBITDA grew by 5%, a somewhat slower growth level than net sales due to the maintenance stops, the Östrand cost, and the energy cost, which Ulf also mentioned.
The margin when it comes to EBITDA margin is now on 19.6%, 0.8 percentage points below last year, but the underlying margin of the underlying business is still healthy. EBIT margin is on 13.1%, flat with last year, and the flat level of depreciation also means that we hold a flat level of EBIT margin. We come to the items affecting comparability. Here you can see we had an item relating to the split of the company in the Q2, some SEK 103 million. More than half was related to the separation of pension schemes. In the Q2 of last year, we had a positive item, SEK 119 million, which was related to the capital gain on the sale of shares in IL Recycling.
The swing there in the items affecting comparability, of course, has a big effect when it comes to the bottom line. In EBIT, we made SEK 451 million. When it comes down to the net profit from the continued operations, after financial items and tax, we made SEK 288 million. I can also mention here that when it comes to financial items. This is the reported financial cost we had for the first half, most of which was then as part of the larger previous SCA. Only a small part is then with our own financing structure, which started in the middle of June. This is not reflective of an ongoing financial cost going forward. If I flick on here, you can see then our contribution per segment. You can see first on the left-hand side, we have the forest business.
Here the net sales was down slightly in the second quarter, despite the fact that our industry showed good growth, and this is primarily due to a lower level of internal deliveries, because all the deliveries from forest are internal deliveries. That was driven by managing working capital tightly. We come to the wood segment, which has a record net sales in the quarter, SEK 1.6 billion. That is driven by strong growth in prices and volumes, and particularly by growth in the building materials trade. If I go to the right-hand side here, you can see paper also had a strong second quarter net sales of SEK 2.072 billion. Here, the strong growth in prices and volumes, particularly on kraftliner, has driven the growth in paper.
When it comes to pulp, of course, it is down versus the previous quarter, up slightly versus previous year, but is heavily impacted by the maintenance stop in the second quarter. When we come to EBITDA and EBITDA margin on the bottom half of the slide, you can see here on the forest segment, we have a strong EBITDA level and EBITDA margin driven by a higher share of deliveries of wood harvested from our own forests, which drives a higher profit margin. When it comes to the wood segment, we have a good absolute level in EBITDA, but the margin is down, also driven by the higher share from the building materials trade, which has a lower margin, but a good return on capital, as Ulf also mentioned.
The pulp segment has, again, been heavily affected by the planned maintenance stop in the second quarter, which had a big impact on profitability, and also by the costs related to the ongoing investment project in Östrand. On top of that, the energy cost is impacted by the revaluation of electricity certificates, which we revalued downwards in the second quarter. Paper has a very stable margin. A small increase in EBITDA margin to 14%, driven primarily by the strong price development in kraftliner. If I flick on, you can see our deviation in net sales, we have a positive effect from both price mix and volumes.
The price effect is coming mainly through positive prices in the wood segment, in pulp prices, and in kraftliner prices, volumes are also positive for wood and paper, due to the maintenance stop in pulp, it's a negative volume variance in pulp. Overall, that gives us the 9% increase in net sales. When it comes to adjusted EBITDA, we can see we had an increase of 5% as I previously presented. Aside from the increases coming through from price mix and volume, of course, we have a negative variance on raw materials, which is mainly driven by increasing prices for latex or latex fillers, which impacts mainly publication paper and recycled paper, which impacts mainly our SCA Eurokraft grade produced in Obbola in the paper segment.
When it comes to energy, we have an increase in electricity cost, a small increase, driven, again, by the revaluation of the electricity certificates. We have a gain when it comes to currency, a small gain due to a weaker Swedish crown compared to last year against most currencies. We have another variance on the right-hand side of SEK 124 million. The biggest items here, once again, we're repeating this a lot, it's the maintenance stops and the Östrand project cost. If I just move your attention, we have put a box in the bottom right-hand corner just to help show the development of underlying margin. Here we've normalized our EBITDA margin.
If you take the effect of normalizing the maintenance stop, replace the large maintenance stop impact we had in the second quarter, there are details presented on this in the report, you can see more numbers. If you replace the large maintenance stop cost in the second quarter with a normalized maintenance stop cost, an average quarter through the year, then you add back 2.1% in EBITDA margin. Similarly, if you add back the effects of the cost related to the project in Östrand and the electricity certificates, then we would come to an underlying margin of 22.7%, which is a healthy underlying margin position. If we come to cash flow, the next slide. Here you can see we've had an operating surplus coming through from the EBITDA development.
We have a good positive change in working capital where we've reversed some of the outflows in the first quarter, we have a lower absolute level of working capital on sales. A good performance in an environment with rising prices on managing working capital. Current capital expenditures there were SEK 163 million and operating cash flow SEK 821 million. A strong quarter in terms of cash flow. Strategic capital expenditures, which is driven by the Östrand project, which is almost all related to the Östrand project, is SEK 961 million, that means we've now invested some SEK 4.1 billion out of the total SEK 7.8 billion project cost for Östrand. Finally, if I come to the balance sheet, now we show at the end of June, we have the first quarter with our own independent financing structure.
Here, for the end of quarter one and the end of last year, we've added a pro forma figures for net debt and equity to show the pro forma balance sheet as it would have looked if we'd had our financial structure already from the end of last year. You can see our capital employed has grown by just over 1 billion SEK, which is driven by the Östrand project. That increase in capital employed has been financed to a large extent by internal cash flow, but also there's been an increase in net debt to 5.6 billion SEK. You can see our leverage ratios now we have net debt to EBITDA is a solid 1.8 times, and net debt to equity is 15.6%. With that, I'll hand back to Ulf to conclude.
If we summarize the second quarter 2017, one can say that we have a positive market in more or less all geographies and in all product areas, except from publication papers. We also have a stable underlying result. This quarter, we are hit by extensive maintenance stops, but they are all planned. Last but not least, our big project in Östrand is progressing according to plan, and we will have the start-up June 2018.
Thank you, Ulf and Toby. We will now open for questions by telephone. As you call in, please state your name and your company. Please don't ask too many questions in a row. There will be time to answer all questions, and it's easier to take them one by one. Please, call in.
Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Our first question comes from the line of Mikael Jafs from Kepler. Please ask your question.
Yes. Hello, everybody. This is Mikael Jafs from Kepler Cheuvreux. I have two questions. First, a housekeeping question. The separation costs taken so far, are those all of the costs, or will there be more separation costs during the coming quarters? That's my first question. My second question is related to publication papers. We know that there's one Norwegian competitor that seems to have some problems with their debt holders, and I wonder if this has any impact on the market for publication papers in Europe. Thank you.
I'll take the first question. Maybe Ulf can take the second question. We don't expect any substantial further separation cost. There will be some limited amounts coming through, probably in the third and maybe in the fourth quarter, no substantial amounts. By far, the majority of the costs are now taken.
Okay. Well, the other question, what will happen in the publication paper market? Well, it's hard to see. It's a question of supply, demand, of course. If changes will have an impact on the balance, of course, it might also have an impact on the pricing. Too early to say.
Okay. Thank you very much.
Our next question comes from the line of Oskar. Please ask your question.
Yes. Hello. This is Oskar Lindström with Danske Bank. I have three questions for you. The first one relates to your extraordinary costs that you had in this quarter, the revaluation of the electricity contracts and the costs relating to the Östrand project. First of all, do I understand it correctly that those costs impacted EBITDA adjusted that you reported?
Yes. EBITDA adjusted is only adjusted for the separation cost for the
Yeah
the cost of the split. Correct.
The electricity revaluation, is that something that we should expect to see more of impacting during H2, or was it really just sort of a one-off?
This is a revaluation to the market value of electricity certificates, now the certificates are valued to that market valuation. Unless there is a further change in the value of that electricity certificate market, which we don't know, but we hope, of course, does not happen, there will be no further change when it comes to electricity certificates.
It is something that you will be doing every quarter, sort of a revaluing electricity contracts.
Yes. We will revalue those electricity certificates to their market value per quarter.
Yeah. What was.
It can go up, and it can go down. That's.
Yeah. What was the impact in Q2 last year of electricity contracts?
It was zero impact in Q2 last year.
Okay. The project costs you mentioned were SEK 50 million in this quarter, and they will be for the full year, SEK 100 million at EBITDA level and SEK 150 million at EBIT level. Does that mean that the project costs will be lower in H2, and what were they last year?
There's SEK 100 million in EBITDA level and SEK 50 million in depreciation impact. The SEK 100 million in EBITDA level is split very evenly throughout the year. The depreciation, we've taken a bit more in the first quarter and the first half, because some of those items, like the wood handling yard, the new machinery has come into operation. On an EBITDA level, we expect it to be spread very evenly.
It was slightly higher than in Q2 at SEK 50 million?
Sorry. We didn't have SEK 50 million in Q2. What do you mean?
I thought it was, what was the project costs in Q2? Were they SEK 20?
Yeah. It was SEK 29 million in Q2.
Okay.
On an EBITDA level, yeah.
All right.
It was four, Q2 2016.
Yeah. Previous year it was SEK 4 million. Yes. On an EBITDA level.
Okay. Then the higher maintenance costs in Q2 this year, was that because it was some extraordinarily big and difficult maintenance or?
No, it has some connection to the project. Now we have start, of course, to prepare for the startup next year, it is a big project, we need to prepare for the connection next year, that's the reason for the extensive stop. Every year we have maintenance stops, planned maintenance stops. Now this year we have had one in Örnsköldsvik, we had one in Ortviken, then also we had one in one of our kraftliner mill. It was a little bit more in quarter two than normal, but you also have some extra days due to the big project. Nothing big and again, according to plan.
My second area of questioning is regarding the, you mentioned a little bit about it during your presentation here, the higher than normal harvesting level in, not normal perhaps, but the higher harvesting level in your own forest. Is that simply a seasonal thing, or was there something else that meant that this was actually higher than normal for a Q2? Yeah.
It is a timing effect. It differs a little bit how much we harvest on our own forest land and how much we harvest on what we buy from private forest owners. You can see it as a timing effect this year. When you look at the year, it will be more or less the same as last year.
The impact on earnings, is it so that you actually have a higher cash earnings, but then it has a negative impact on the revaluation of your own forest land since you're harvesting above the normal level?
Yes, that's absolutely correct. Yes.
On a sort of pre-tax or reported EBIT level, there should be no impact from you having higher harvesting levels or lower harvesting levels.
Net, we do gain slightly from having a higher harvesting level, but the absolute gain in cash terms is then offset by a smaller revaluation item. I think overall there will be a net gain from a higher share of our own harvested forest.
All right. Well, thank you very much. Those were all my questions.
Our next question comes from the line of Linus from SEB. Please ask your question.
Thank you very much, good morning to everyone. A couple of questions on the pulp division. First of all, obviously you had a maintenance shut down, and I assume your volumes were negatively impacted by that. If you were to comment upon your pulp volumes for the full year, how would that look and sound compared to last year?
We will have a stop also in the third quarter, I think, in pulp. That is also related to the project. Otherwise, it is a challenge to build up a new mill at the same time as you run the old mill. I'm happy to say as of now the old mill is doing well, and we can't really foresee a decrease in production in the old mill due to the project. Otherwise, then we have some extra maintenance stop days in the autumn.
By and large, I wasn't sure how to understand your answer there. By and large, should we expect in total roughly the same shipments in 2017 as in 2016, or will that be challenging given the changes?
No. It will be roughly the same.
Okay. Excellent, great. Also on the pulp markets in general, prices have been strong recently. We have, like you commented, new capacity entering into the market. If you were to comment around customer feedback now and the outlook for the second half of the year, what would you say?
Yeah. It's a fact we will have additional capacity on stream from quarter three, quarter four. It remains to see what kind of impact that will have. Just now it is a strong market. If you look at inventories, they are on a balanced level. We can also see that you have a lack of recycled fiber in the market in general, that I think also have a positive effect on the fresh fiber market. Just now it is stable. The big thing that has happened recently is that U.S. dollar has become weaker against the krona. That, of course, have a negative impact on the profitability for us.
Great. Maybe a question for Toby. You commented upon the fact that the new financial structure was in place only by mid June. How will that impact the financial net in the third quarter, please?
Yeah. Okay. You can see our net debt now is SEK 5.6 billion. That will rise slightly as we go through the Östrand project. If you take our average interest cost is somewhere between 1% and 1.5%. That would be on an annual basis, would be our expected financial cost, which I think you would see is somewhat lower than we had in the second quarter because that's only driven by the internal financing that was there before.
Yeah.
Great. Maybe just a final question in terms of CapEx guidance. Would you have a full year 2017 figure for current and strategic CapEx respectively, please?
Yeah, we don't have a figure. We're a bit behind in terms of strategic CapEx than we were last year. I think in terms of guidance, we would say we don't expect to be Sorry, in terms of current CapEx, I mean. We're a bit behind in terms of current CapEx where we were last year. In terms of full year, we expect to be at a fairly similar level than we were in 2016 for a full year. When it comes to strategic CapEx, we have the total project cost of SEK 7.8 billion. Most of that will be invested before the end of next year. The exact timing around year end, we don't want to give any exact guidance. Some things can fall in Q4 this year or Q1 next year, depending on the timing.
Mm. Okay. That's fair enough. Thank you very much.
Our next question comes from the line of Justin from Jefferies. Please ask your question.
Good morning, everyone. Sorry, two quick questions. Just following up on the strategic CapEx. Of the SEK 1.476 billion in the first six months, I'm assuming all of that is Ostrand. Is there any other elements within the strategic CapEx that we should just be aware of?
No, there's some SEK 10 million, which is not Ostrand, which is the remaining CapEx from a previous strategic project last year. The rest is all Ostrand.
Okay. I appreciate you've talked about SEK 3.7 billion to go, as it were, before probably whatever June or possibly maybe spilling some into Q3 next year. Logically, should we take the first half spend of that approximately SEK 1.5 and double it, as it were, in terms of a full year 2017 CapEx, in terms of trying to get to something like a December 2017 net debt for SCA?
Again, we don't want to give a guidance because some things for the strategic CapEx can fall before or after the year end. It just depends on the timing. We don't want to give an exact guidance on exactly how much of that strategic CapEx will come this year. A significant chunk will come in the first half next year.
Yeah. Okay. Just moving divisions, sorry, just into paper and specifically in kraftliner, where obviously there's a very strong market at the moment. You talked about having EUR 100 a ton increases so far this year, and you and peers are targeting a further EUR 50 in, I believe, August. Can you just give us some sense of your confidence of achieving that further EUR 50? Assuming success, how quickly does that feed through to your reported earnings? Do you see that immediately, or is that potentially a quarter delay before you might see it coming through? Just trying to understand just how, in reality, price increases feed through to your reported results, whether that's instantaneously or a month delay, a quarter delay.
If we start with the announcement, we have done this announcement, we and other players, and the balance is really strong. We have a lack of packaging materials in the market just now. Still, it remains to see where we land. We still are in discussions with customers. It's too early to say, of course. EUR 50 per ton, that is our view, and then we need to agree with our customers. That will-
When it comes to the result effect, Justin, then it doesn't come through straight away. It does take some time to come through the contracts. I would say between a quarter and six months. Yeah, at least a quarter it takes to come through to the bottom line in terms of full effect, and there's a ramp up.
Okay. Thank you for that. Just, sorry, one final thing, just on, obviously, NBSK, pulp prices. You obviously very carefully mentioned the additional capacity coming on stream from Metsä and UPM. Over and beyond that, do you have any view on, I guess let's keep it simple, in US dollar pulp prices? We've seen some easing in Chinese pulp prices in recent weeks in anticipation of new capacity increases coming. Do you have any view on The outlook for NBSK pulp prices. Similarly, I guess to the question I asked on kraftliner, what's the typical timeline delay in terms of what we can see from, let's say, received pulp prices, and then what you report in terms of your average pulp price achieved? Is that typically a month or a quarter or potentially three to six months as you say in kraftliner?
Well, if we start with the price, SEK 890, that is where we are just now. We can see that the inventories are on a balanced level. As I said, we also see a lack of recycled fiber in the system. We can also follow the Chinese market. We have seen the development there. We don't speculate. We are where we are just now, and we have to wait and see. The time lag?
Yeah, the time lag. There is also a time lag in pulp. It's probably a little bit shorter than it is in kraftliner, but it does take around a quarter to come through.
Okay. That's very helpful. Thank you for your time.
Our next question comes from the line of Mikko Ervasti from DNB Bank. Please ask your question.
Thanks very much, and good morning. Going back to the market comments on kraftliner, it's a tight market. Could you confirm, is this really a demand-driven thing now, or are there still some supply issues ongoing that's affecting this market tightness and helping the prices? How do you see it? Thanks.
Well, I think it's demand-driven. We saw one year ago that Stora Enso, they came up with 370,000 tons in Varkaus. For a short while you had an impact in the market, but after a while we saw that it was all assimilated in the markets. I think you have, in general, an increase in demand for fresh fiber-based packaging materials, and that is more due to quality reasons and also due to the fact that also in this area, it's not so easy to get access to recycled fiber of high quality and to a decent price. I think it's demand-driven.
All right. Thanks. My other questions were already answered. Thank you very much.
Our next question comes from the line of Mikael Döpfel from Handelsbanken. Please ask your question.
Thank you. Yes, a couple of questions. First, just looking at the cost situation. You're mentioning some latex costs and other costs moving up in the first half. Looking ahead to the second half, we know that latex costs have actually reversed and so on. What do you expect in terms of underlying, let's say, cost inflation for the second half of the year? Do you see an easing compared to the first half, for example?
I think we see the same when it comes to latex, so the cost increase was mainly in the first half, and that's flattened out at least, and it's not as significant going forward. Recycled paper prices, of course, they went up a lot in the first half. We don't speculate what they will do in the second half. Of course, wood prices have an impact on us as well. There, as Ulf presented, we have a stable situation.
There could be some relief, I guess, in the second half then?
I think those two items, at least, it then depends when we compare to quarter three last year, of course, there'll be a higher level. Quarter on quarter, we don't see those two right now being higher than they were in the first half.
Okay. On the sawn timber or the wood business, you mentioned that you have seen a strong demand there and that the prices have been rising. Is that market still tight? Do you still see further possibilities to raise prices in that business?
We still have a tight market. We have a good balance, we have also started to do some agreements for the third quarter, we can also see that prices are continuing up a little bit.
Okay. That's helpful. Just a final question on my part. Can we expect at some point in time, to get some more details around the pulp investment in Östrand, secondly, updated financial targets for the company?
Yeah, we can start with the financial targets, I think what we have said is that In general, we have the financial targets that we had before the split. We will probably have a discussion about financial targets in the new board of directors in the coming quarters here. The basic is, of course, that we will take care of our balance sheet, we will have a solid balance sheet, which we have a good rating. We also like to finance some of our development projects, the rest is free for dividends. That is what we are working for today, that will probably also be the case going forward. We will come back when we have some more news about that. What the Östrand?
Yeah, I think when it comes to Östrand, as we get nearer the project, we will give some more guidance on the expected effects of the project, going forward and also into next year. We will look into that, and I think as we get nearer, we will give some more information
Next year?
I won't comment on that. We'll look into it, and we understand the desire for some more detail, and we'll look into what we can constructively give that will be helpful. Yeah. See if we can do that.
Great. Thanks a lot.
Our next question comes from the line of Martin Melbye from ABG. Please ask your question.
Yes, good morning. I have a couple of questions. If we start with the most important segment, the forest. If you weigh all the extra costs you talked about on the CMD, the storm fellings, et cetera, and the harvesting levels that you see going forward, can you give some kind of guidance on what the EBIT should be like in a normal quarter?
No, we can't. Really, we don't guide. As I said, now we are not impacted by storm fellings in our harvesting cost, and we have also seen that the harvesting cost has went down a bit in the second quarter, and definitely if we compare with second quarter 2016. The big reason for the delta between the result we have this quarter in comparison with 2016 is the share that we harvest from our own forest. That is the main reason.
Okay. On the kraftliner side, these EUR 50 plus EUR 50 price increases that we have seen already, how much of that is already in the book as of Q2, and how much is yet to come?
From the first two steps, everything as of now is in the book. It has been gradually implemented during quarter one and quarter two, now they are fully implemented in the market.
Realized in your Q2 numbers, or is it?
No, I think Q2, they're not fully realized, there's still a ramp-up going on during Q2, by the end of Q2.
End of Q2.
Yeah, the pricing is fully implemented.
Okay. Lastly, on Östrand come next year, you've given comments about how depreciation should increase. Should we bake in some kind of ramp-up cost to be prepared and not overshoot come next year?
Yeah, we expect to come back with guidance. What we said, as we said in the Capital Markets Day, Martin, where you were there, that there will be an extended maintenance stop in line with the startup of the machine, next summer. There will be, of course, a volume loss from that maintenance stop, but we expect that volume loss to be offset by the increased volume coming after the maintenance stop in the second half of next year. We expect overall, when you look at volumes for next year, coming from pulp to be more or less in line with this year, and last year. That's what we can say. Obviously, the volume is the biggest impact on our P&L from the startup.
Okay. Excellent. Thank you.
Our next question comes from the line of Eric Gunnarson from UBS. Please ask your question.
Hi, guys. Just actually one quick question left. That is about the Easter effect in Q2. Do you see any effects coming from that?
You mean Easter? We don't see any major effects from Easter, no.
Your production is not stopped due to Easter holiday or anything?
Little bit in the wood part, but not in pulp and paper and
All right. Thank you very much. That's it.
Our next question comes from the line of Olof Grenmark from ABG. Please ask your question.
Good morning, Olof Grenmark, ABG Sundal Collier. A follow-up question on the Östrand project. You said that you've invested SEK 4.1 billion out of the total SEK 7.8 billion. Did I understand it correctly that it's fair to assume that that CapEx will be evenly spread until June 2018 when you start up? That's the first question. The second question, are you through the most critical hurdle in terms of that investment, or is there any quarter which will be more exciting, so to say, from that perspective? Those were my questions, please.
I can take the first. The part on the spread of investment. We haven't given any guidance on exactly which quarters the investment will come in, and we don't want to do that. What we can say is next summer when the startup is planned, most of the investment will be completed by then. There will still be a little bit, a few hundred million SEK probably coming in the second half of next year and perhaps into the following year. Nearly everything apart from that will be done by the middle of next year.
Yeah. I would say that the most tricky part of the project is in the last stage. When you shall connect the extended recovery boiler, that will be a challenge of course. We are well prepared, and we also are favored in a way that we can have a sequential startup of the mill. We have now started up the wood handling department, and we can also start up other parts as the time goes by. The reason for the extended maintenance stop or investment stop next summer will be to connect our old rebuilt recovery boiler to the new mill, and that will be the tricky part.
Okay, thank you.
Our next question comes from the line of Oskar Lindström from Danske Bank. Please ask your question.
The question has been answered already, so thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced.
There seem to be no more questions.
We still have.
Oh, we have one.
Sorry. Yes, sir. We still have one more question coming from the line of Christoffer Jansell from Nordea Markets. Please ask your question.
Thank you very much, operator. Just a quick follow-up from my side. You mentioned that the timber market is pretty balanced. On the other hand, we have seen some other players raising timber prices lately. Could you just comment a little bit on that? That's my first question. Thanks.
That's the fact. We have seen log prices going up a little bit in the southern part of Sweden, and we have also seen some announcements in the northern part of Sweden. In the log market, one thing is what you have as list prices, and the other thing is what you buy when you buy from private forest owners and so on. In our area, the pricing is always connected to the supply and demand balance in a special region. In our region, for the moment being, we have a stable situation. We are well-supplied in all areas and in all assortments. I think that for us, the price level during this year will be quite stable. That's my best guess.
Okay, fair enough. Finally from me on working capital. You managed to release quite a meaningful amount of working capital in the second quarter. Do you expect that trend to continue, or how do you see the third quarter here?
A significant chunk of that release was related to the Östrand project as well. We managed to reduce underlying working capital, but a big chunk from the Östrand project. I think going forward, we're tightly focused on working capital and managing working capital, but obviously in an environment of rising prices, you do expect working capital to increase somewhat. We will keep a close focus on.
Also, I think we need to.
Okay, thank you very much.
start to build up some inventories in order to prepare for the startup in Ostrand, and that will also have an impact, but that is also something that we have to come back to later.
Okay, thanks.
Yeah.
There are no further question at this time. Please continue.
Okay. Thank you then for the interest you have shown in our first quarterly report. We look forward to hearing from you again, if not before, so when we present the third quarter, which will be the 31st of October. Until then, have a pleasant summer and a good year. Thank you.