Earnings Call: Q2 2017

Jul 21, 2017

Hello. My name is Bjorn Lindfeldt. I'm Vice President, Communications for SEA. Please be welcome to this presentation of our SEA's financial result for the Q2 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 atsca.com. So let me now introduce Ulf Larsson, CEO of the company. Thank you for that, Bjorn. Good morning, everyone. Happy to give you some more details about our Q2 2017. The Q2 has been rather busy due to the split. And nevertheless, now we have finally in a successful way distributed Essity from June 'fifteen. We've had some extra costs related to the split during the quarter, a little bit more than SEK100 1,000,000 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, plus 9%, if we compare quarter 2 'seventeen with quarter 2 'sixteen. That is depending on increasing volumes, but also, of course, to increasing prices and to some small extent also connected to the currency. EBITDA adjusted EBITDA for the quarter 2017 was also up 5% if we compare with quarter 2016. And on the positive side, as already mentioned, we have volume growth and we also have increasing 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 SEK140 1,000,000, which is about SEK70 1,000,000 more than we had quarter 2, 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 quarter 1, we have some planned extra costs connected to the big project in Ostrand and that is related to training of staff in order to prepare them for the start up mid-twenty 18. And 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, and 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 Ostrand 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 7,800,000,000. And as already mentioned, we did start up the first big part of the new mill, the Wood Handling Department on plan 14th July this month. So if we then turn over to our 4 segments and start with forest, we have a balanced situation in the forest today. We have started to prepare for the start up in Ostrand 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. But 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 increasing 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 positive small positive effect from decreasing harvesting costs. If we then 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, quarter 2, 2017 with what we had 1 year ago, quarter 2, 2016, prices has increased by 8%. In addition, we have also had an upturn in volumes in Q2 due to our building materials trade. And 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. And for the moment being, the main reason for the 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. And in order to fulfill our customers' expectations, we need to trade some external volumes, which theoretically will drive down the margin. But on the other hand, it will increase our return on capital employed. So then we turn over to pulp and also the pulp market is in general terms good and stable. We can now see fixed prices on $8.90 We have had some additional capacity coming on stream the 1st month this year. It hasn't so far had any impact on prices. Now we know that we will have another new capacity on stream from quarter 3, Anykorsky, that will add 700,000 tons on yearly basis. And in quarter 4, we will also see UPM Kyumis mill coming up with another 170,000 tonnes on yearly basis. And 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 weaker U. S. Dollars as oil prices are set in dollars in this business. If we then turn over to Ostrand, 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 Ostrand, which had a negative impact of SEK65 1,000,000 during the quarter, which is SEK41 1,000,000 more than we had quarter 2, 'sixteen. I've already mentioned the project related costs in Ostrand, which is during the month have a negative impact of minus SEK 29,000,000, which is SEK 25,000,000 more than we had quarter 2, 2016. Otherwise, again, just to underline the big projects is progressing according to plan and yes, we are happy about that of course. Then we turn into paper, where we have 2 sub businesses, one can say, 1 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 has went up quite substantially. We've seen close to €100 per ton price increase during the first half of 'seventeen and we have also seen announcements in the market of another €50 up for unbleached kraft in the second from August. If we then turn to publication papers, we have a slightly different situation. And as we are a little bit more exposed to coated grades, LWC, we were hit by price decrease in the beginning of the year. If we compare the price level quarter 1, quarter 2 with what we had quarter 4, 'sixteen, we had a price decrease in coated grades by 2% or €15 per ton. Prices have been flat in uncoated grades. Sales has been up 10% in paper and that is related to kraftliner and kraftliner is overcompensated the slightly less good market that we see in publication papers. So 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 2nd quarter. And here, we are just showing figures for the continuing business. So 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. So the large effect from the distribution of the EsaT share, which was some SEK 136 1,000,000,000 is not shown anywhere here. This reflects the ongoing business. So you can see net sales grew by 9% in the quarter, strong growth driven by prices and volumes, as Orf has presented. EBITDA grew by 5%, a somewhat slower growth level than net sales due to the maintenance stops, the Ostrand cost and the energy cost, which Arf also mentioned. So 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 the flat level of depreciation also means that we hold a flat level of EBIT margin. And then we come to the items affecting comparability. And here you can see we had an item relating to the split of the company in the second quarter, some SEK103 1,000,000, more than half was related to the separation of pension schemes. And last year, in the Q2 of last year, we had a positive item, SEK119,000,000, which was related to the sale of shares, the capital gain on the sale of shares in IL Recycling. So the swing there in the items affecting comparability, of course, has a big effect when it comes to the bottom line. So in EBIT, we made SEK 451,000,000. And then when it comes down to the net profit from the continued operations after financial items and tax, we made SEK288 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 FCA. Only a small part is then with our own financing structure, which started in the middle of June. So this is not reflective of an ongoing financial cost going forward. If I click on here, you can see then our contribution per segment. And you can see first on the left hand side, we have the forest business. And here, the net sales was down slightly in the first 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 Forrester are internal deliveries. So that was driven by managing working capital tightly. Then we come to the Wood segment, which has a record net sales in the quarter, SEK1.6 billion, and that's driven by strong growth in prices and volumes and particularly by a growth in the building materials trade. Then if I go to the right hand side here, and you can see Paper also had a strong second quarter, net sales of SEK2.072 billion. And 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's down versus the previous quarter, up slightly versus previous year, but it's 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, 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 2nd quarter, which had a big impact on profitability and also by the costs related to the ongoing investment project in Ostrand. And on top of that, the energy cost is impacted by the revaluation of electricity certificates, which we revalued downwards in the Q2. Paper has a very stable margin, again, a small increase in EBITDA margin to 14% and again driven primarily by the strong price development in kraftliner. If I flick on and here you can see our deviation in net sales, and we have a positive effect from both price mix and volumes. Again, the price effect is coming mainly through positive prices in the wood segment, in pulp prices and in kraftliner prices. And volumes are also positive for wood and paper, but due to the maintenance stop in pulp, it's a negative volume variance in pulp. And overall, that gives us the 9% increase in net sales. When it comes to EBITDA, adjusted EBITDA, we can see we had an increase of 5%, as I previously presented. And aside from the increases coming through from pricemix 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 euro kraft grade produced in Obbola in the paper segment. When it comes to energy, we have an increase in electricity cost, a small increase, but 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 krona compared to last year against most currencies. And then we have another variance on the right hand side of €124,000,000 And the biggest items here, once again, we're repeating this a lot, but it's the maintenance stops and the Ostrand project cost. So 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. And here, we've normalized our EBITDA margin. So if you take the effect of normalizing the maintenance stop, so replace the large maintenance stop impact we had in the second quarter, and there are details presented on this in the report so you can see more numbers. But if you replace the large maintenance stop cost in the second quarter with a normalized maintenance stock cost an average quarter through the year, then you add back 2.1% in EBITDA margin. And then similarly, if you add back the effects of the costs related to the project in Ostrand and the electricity certificates, then we would come to an underlying margin of 22.7%, which is again which is a healthy underlying margin position. If we come to cash flow, the next slide. Here, you can see we've had 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 Q1, and we have a lower absolute level of working capital on sales. So a good performance in an environment with rising prices on managing working capital. Current capital expenditures there were £163,000,000 and operating cash flow £821,000,000 so a strong quarter in terms of cash flow. And then strategic capital expenditures, which is driven by the Ostrand project, which is almost all related to the Ostrand project, is SEK 9 61,000,000 and that means we've now invested some SEK 4,100,000,000 out of the total SEK 7,800,000,000 project cost for Ostrand. And finally, if I come to the balance sheet, and now we show at the end of June, we have the 1st quarter with our own independent financing structure. But here, for the end of quarter 1 and the end of last year, we've added pro form a figures for net debt and equity to show the pro form a balance sheet as it would have looked if we'd had our financial structure already from the end of last year. And you can see our capital employed has grown by just over SEK1 billion, which is driven by the Ostrand project. And 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 SEK 5,600,000,000. And so 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%. So with that, I'll hand back to Horst to conclude. Well, if we then summarize the Q2 'seventeen, 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. And last but not least, our big project in Ostrand is progressing according to plan, and we will have the start up June 2018. So So thank you, Ulf and Toby. We will now open for questions by telephone. As you call in, please state your name and your company, and 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 1 by 1. So please call Our first question comes from the line of Michael Jaff from Kepler. Please ask your question. Yes. Hello, everybody. This is Michael Jaff from Kepler Cheuvreux. I have two questions. First, a housekeeping question. Now 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. And then 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. Shall I take I'll take the first question and then maybe Ove can take the second question. But basically, we don't expect any substantial further separation costs. There will be some limited amounts coming through probably in the 3rd and maybe in Q4, but no substantial amounts. By far, the majority of the costs are now taken. Okay. And well, the other question, what will happen in the publication paper market? Well, it's hard to see. I mean, it's a question of supply demand, of course. And if changes will have an impact on the balance, then of course, it might also have an impact on the pricing, but 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 Oscar Lindstrom 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 Ostrand project. First of all, I mean, do I understand it correctly that those costs impacted EBITDA adjusted that you reported? Yes. So EBITDA adjusted is only the electricity revaluation, is that something that we should expect to be sort of 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. And now the certificates are valued to that market valuation. So 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, then there will be no further change when it comes to electricity certificates. But it is something that you'll be doing every quarter, sort of revaluing electricity contracts? Yes. We will revalue those electricity certificates to their market value per quarter. And it will go up and it can go down. That's What was the impact in Q2 last year of electricity contracts? It was 0 impact in Q2 last year. Okay. And the project costs you mentioned were DKK 50,000,000 in this quarter and they will be for the full year 100 at EBITDA level and 150 at EBIT level. Does that mean that the project costs will be lower in H2? Or and what were they last year? We had so there's €100,000,000 in EBITDA level and €50,000,000 in depreciation impact. The €100,000,000 in EBITDA level is split very evenly throughout the year. The depreciation, we've taken a bit more in the Q1 and the first half because some of those items like the wood handling yard have now the new machinery has come into operation. So but on an EBITDA level, we expect it to be spread very, very evenly. So it was slightly higher than in Q2 at 50? Sorry. We didn't have 50 in Q2. What do you mean? I thought it was what was the costs for the project costs in Q2? Were they Yes, it was €29,000,000 in Q2 on an EBITDA level, yes. All right. It was 4, Q2, EUR 60,000,000. Yes, previous year it was EUR 4,000,000, yes, in an EBITDA level. Okay. And 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. I mean, now we have start, of course, to prepare for the start up next year and it is a big project. So we need to prepare for the connection next year and that's the reason for the extensive stop. But I mean every year we have maintenance stops, planned maintenance stops. Now this year we have had one in Ostrand, we had one in Utviken and also we had one in one of our kraftliner mills. So it was a little bit more in quarter 2 than normal, but you also have some extra days due to the big project, nothing big and again according to plan. My second sort of 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 I mean 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 Q2? Yes? It is a timing effect. I mean, 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. So you can see it as a timing effect this year. So it will when you look at the year, it will be more or less the same as last year. And the impact on earnings, I mean, is it so that you actually you have a higher cash earnings, but then you it has a negative impact on the revaluation of your own forest lands since you're harvesting sort of above the normal level? Yes, that's absolutely correct. Yes, yes. So on a sort of pretax or reported EBIT level, there should be no impact from you having higher harvesting levels or lower harvesting? 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. So but I think overall, there will be a net gain from a higher share of our own harvested forest. Our next question comes from the line of Linus from Saab. Please ask your question. Thank you very much and good morning to everyone. A couple of questions on the pulp division. First of all, obviously, you had a maintenance shut, and I presume your volumes were negatively impacted by that. But if you were to comment upon your pulp volumes for the full year, how does that how would that look and sound compared to last year? We will have a stop also in the Q3, I think, in pulp. And that is also related to the project. But otherwise, I mean, it is a challenge to build up a new mill at the same time as you run the old mill. But I'm happy to say just now the old mill is doing well. And I mean, we can really foresee a decreasing production in the old mill due to the project. Otherwise, then we have some extra maintenance stop days in the autumn. But by and large, do you I wasn't sure how to understand your answer there. By and large, should we expect in total the same roughly the same shipments in 2017 as in 20 16? Or will that be challenging given the changes? It will be roughly the same. Okay. Excellent. Great. And also on the pulp markets in general, I mean, there's been a lot I mean, prices have been strong recently. We have like a 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? Yes, I mean, it's a fact. We will have additional capacity on stream from quarter 3, quarter 4 and it remains to see what kind of impact that will have. Yes, now it is a strong market. I mean, 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 and that I think also have a positive effect on the fresh fiber market. So just now it is stable. I mean the big thing that has happened recently is that US dollar has become weaker against the krona. So that, of course, have a negative impact on the profitability for us. Great. And then 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 3rd quarter, please? Yes. Okay. I mean, you can see our net debt now is €5,600,000,000 That will rise slightly as we go through the Ostrand project. But if you take our average interest cost is between yes, somewhere between 1% and 1.5%. And so that would be on an annual basis would be our respective financial cost, which I think you would see is somewhat lower than we had in the Q2 because that's only driven by the internal financing that was there before. Great. And then maybe just a final question in terms of CapEx guidance. Would you have full year 20 17 figure for current and strategic CapEx, respectively, please? Yes. We don't have a figure. We're a bit behind in terms of strategic CapEx than we were last year. But 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. But in terms of full year, we expect to be in 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 CHF7.8 billion. Most of that will be invested before the end of next year. But 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. Our next question comes from the line of Justine from Jefferies. Please ask your question. Good morning, everyone. Sorry, two quick questions. Just following up on the strategic CapEx. Of the 1.476 billion that you billion sorry, sorry, in the 1st 6 months, I'm assuming all of that is Ostrand? Or is there any other elements within the strategic CapEx that we should be just aware of? No. There's some CHF 10,000,000 which is not Ostrand, which is the remainder of remaining CapEx from a previous strategic project last year. Just but the rest is all Ostrand. Okay. And I appreciate you've talked about SEK3.7 billion to go, as it were, before, hopefully, whatever, June or possibly maybe spilling some into Q3 next year. But sort of logically, should we take the first half spend of approximately 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 FCA? Again, we don't want to give a guidance because some things for the strategic CapEx can fall before or after the year end. And I mean, it just depends on the timing. So 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. Yes. 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 €100 a ton increases so far this year and you and peers are targeting a further 50 percent in, I believe, August. Can you just give us some sense of your confidence of achieving that further 50 percent? And 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 month delay or quarter delay? I mean, if we start with the announcement, we have done this announcement, we and other players. And I mean, the balance is really strong. We have a lack of packaging materials in the market just now. So but still it remains to see where we land. We still are in discussions with customers. It's too early to say, of course. But €50 per ton, that is our view. And then we need to agree with our customers. And that will Yes. 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, yes, between a quarter 6 months. But yes, 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. And then just sort of one final thing, just on obviously MBSK or sulphur pulp prices. You obviously very carefully mentioned the additional capacity coming on stream from Metair and UPM. But over and beyond that, do you have any view on, I guess, let's keep it simple, in U. S. 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 NBS kapul prices? And similarly, I guess, to the question I asked on kraftliner, what's the typical time line delay in terms of what we can see from, let's say, resi 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 3 to 6 months as you see in kraftliner? Well, if we start with the price, I mean, dollars 8.90 that is where we are just now. We can see that inventories are on a balanced level. And as I said, we also see a lack of recycled fiber in the system. We can also follow the Chinese market. So we have seen just now and we have to wait and see. The time lag? Yes. The time lag, I mean, 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. Our next question comes from the line of Mikko Urvazli from DNB Bank. Please ask your question. Thanks very much and good morning. Going back to the market comments on kraftliner, so 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. I mean, we saw 1 year ago that Stora Enso, they came up with 370,000 tons in Vargas. And for a short while, you had an impact in the market. But after a while, we saw that it was all simulated in the markets. I mean, 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. So 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 Doepel 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. But 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 easening 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 is not as significant going forward. Recycled paper prices, of course, they went up a lot in the first half. Yes, we don't speculate what they will do in the second half. And then of course, wood prices have an impact on us as well. But there, as all presented, we have a stable situation. But there could be some relief, I guess, in the second half then? Yes. I think those two items, at least, it then depends when we compare to quarter 3 last year, of course, there will be a higher level. But quarter on quarter, we don't see those 2 right now being higher than they were in the first half. Okay. And then on the sawn timber or the wood business, you mentioned that you have see 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? I mean, we still have a tight market. We have a good balance and we have also started to do some agreements for the Q3 and we can also see that prices is continuing up a little bit. Okay. That's helpful. And then 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 Ostrand? And secondly, updated financial targets for the company? Yes. We can start with the financial targets. And I think, I mean, what we have said is that we will in general, we have the financial targets that we had before the split and we will probably have a discussion about financial targets in the new Board of Directors, I mean, in the coming quarters here. But the basic is, of course, that we will take care of our balance sheet. And I mean, we will have a solid balance sheet, which we have a good rating. We also like to finance some of our development projects. And I mean, the rest is free for dividends. I mean that is what we are working for today and that will probably also be the case going forward. But I mean, we will come back when we have some more news about that. What to Ostrand? Yes. I think when it comes to Ostrand, 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. So we will look into that. And I think as we get nearer, we will give some more information. Could we expect something already late this year or 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 will be helpful, yes, and 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 fillings, etcetera, 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, I mean, we don't guide. As I said, now we are not impacted by storm failings in our harvesting cost and we have also seen that the harvesting cost has went down a bit in the Q2 and definitely if we compare with Q2 2016. But the big reason for the delta between the result we have this quarter in comparison with 'sixteen is the share that we harvest from our own forest. So that is the main reason. Okay. Then on the kraftliner side, these €50 plus €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, I mean, everything just now is in the book. It has been gradually implemented during quarter 1 and quarter 2, but now they are fully implemented in the markets. And realized in your Q2 numbers or in the back? I think so Q2, they're not fully realized. So there's still a ramp up going on during Q2. But by the end of Q2, yes, then the pricing is fully implemented. Okay. And lastly, on Ostrand, come next year, you've given comments about how depreciation should increase. Should we bake in some kind of ramp up costs to be prepared and not overshoot come next year? Yes. We expect to come back with guidance. But what we said as we said in the Capital Markets Day, Martin, where you were there, that we there will be an extended maintenance stop in line with the startup of the machine next summer. And 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. So 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. So that's what we can say. And obviously, the volume is the biggest impact on our P and L from the start up. Our next question comes from the line of Erik Gunnarsson from UBS. Just actually one quick question left, and that is about the Easter effect in Q2. Do you see any effects coming from that? You mean Easter? No, no. We don't see any major effects from Easter, no. Your production is not up due to Easter holiday or anything? A 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 Ostrand project. You said that you've invested SEK 4,100,000,000 out of the total SEK 7,800,000,000. 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. And 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? That's those were my questions, please. I can take the first. I mean, 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. But what we can say is next summer when the start up is planned, most of the investment will be completed by then. There will still be a little bit a few 100,000,000 probably coming in the second half of next year and perhaps into the following year. But nearly everything apart from that will be done by the middle of next year. Yes. I mean, I would say that the most tricky part of the project is in the last stage. I mean, 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 start up of the mill in other I mean, we have now started up the wood handling department and we can also start up other parts as the time goes by. But I mean, 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. Our next question comes from the line of Oscar Lindstrom from Danske Bank. Please ask your question. The question has been answered already. So thank you. There seem to be no more questions. Then We still have. Oh, we have one. Sorry. Yes, sir. We still have one more question coming from the line of Christian Kofer 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 comment a little bit on that? That's my first question. Thanks. So, comment a little bit on that? That's my first question. Thanks. I mean, that's the fact. We have to see 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 in as list prices and the other thing is what you buy when you buy from private forest owners and so on. I mean, in our area and the pricing is always connected to the supply and demand balance in a special region. And in our region for the moment being, we have a stable situation. We are well supplied in all areas and in all assortments. So I think that for us, the price level during this year will be quite stable. That's my best guess. Okay. Fair enough. And then finally for 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 Q3? A significant chunk of that was released was related to the Ostrand project as well. So we managed to reduce underlying working capital, but a big chunk from the Ostrand project. So 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. But we will keep a close focus on. And also, I think we need to start to build up some inventories in order to prepare for the start up in Ostrand, and that will also have an impact. But that is also something that we have to come back to later. Okay. Thanks. 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 Q3, which will be the 31st October. Until then, have a pleasant summer and a good year. Thank you.