BillerudKorsnas AB (publ)
OTC:BLRDY
BillerudKorsnas AB (publ)
OTC:BLRDY
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Good morning, everybody, and welcome to our second quarter press and analyst conference. My name is Christopher Casselblad, and I'm Head of Investor Relations. With me today, I have Petra Einarsson, our CEO; and Susanne Lithander, our CFO. We will use approx 30 minutes presenting our results and then open up for Q&A session.I think we are ready to start. The floor is yours, Petra.
Thank you, Christopher, and let's start with the key highlights of the second quarter. And to start with the positive note of the quarter, we had a strong demand in -- during the quarter. I think that goes for all business areas, and we had a very favorable mix and as well as sales price development during the quarter, especially, I would say, within Packaging Paper and within Corrugated Solutions.We have had stable production, and we actually had a production record, all-time high levels, in 4 of our 8 mills. So we had production record in Gävle, in Frövi, in Karlsborg and in Rockhammar. And if you look at production disturbances, we have had very few, if any, production disturbances during this quarter if you disregard the long-planned maintenance stop that we had in Gruvön and in Skärblacka. And looking at that, we had some start-up issues in the planned maintenance stop that we had in Gruvön and Skärblacka, as I said. And the main reason for that was the preparation that we did for launching the next project in Gruvön. KM7 will, as you know, start up and go live in March next year, and that is still the case. And this is the last time chance we have to prepare for that start-up. So there were things that we needed to do from a proactive point of view during this planned maintenance stop that we had. And that ended up in some delays in the start-up, some 6 days all-in-all delay.We have also suffered from increased wood costs during this quarter, and that is something that, if you look at it from an overall perspective, we have a competitive situation when it comes to wood and wood sourcing. And considering the fact that BillerudKorsnäs is the largest consumer of pulpwood in Sweden, this is something that is a great concern for us, and it's something that we are looking into very carefully.And on top of that, as you already know, also we have had some hit from wood shortage as we also did during the first quarter. And the hit that we had from the wood shortage situation was not as severe as in the first quarter, but we have had some negative impact of earnings also in the second quarter.Looking at other things that have been happening during the second quarter, we have a strong progress when it comes to ongoing changes. We launched a new organization during the second quarter, where we will look at the organization from -- to make it more agile and customer-focused. We will divide the organization in 3 divisions, and one of the 3 divisions will be solution-focused. So I am happy, also, to see that during the second quarter, we have had a positive development and performance from the solution initiative that we have called Managed Packaging.Other changes that we have also launched is that we have put in place a program office in Gruvön to really have a strong focus on risk analysis when it comes to the KM7 and the next project in Gruvön. And I'm very satisfied with what has happened during these 3 months in the second quarter, where we have actually come to a situation where we have daily performance and weekly pulse meetings, looking at all the risks considering KM7 when it comes to the machine, when it comes to the mill, when it comes to the product certification and when it comes to the business ramp-up.And thirdly, I'm also happy with the development during the quarter when it comes to operational excellence. We launched the operational excellence program in the middle -- mid of -- mid-June, and I look forward to the impact that we will see from that performance from the operational excellence performance program during the next coming months.We have also put a provision of SEK 450 million during the second quarter, and -- which will hit the EBIT result for the quarter, second quarter. And of the 200 -- of the SEK 450 million, SEK 200 million will impact the cash flow. You can divide this provision in 2 parts. One is strengthening the workplace environment, and it's also a result of the thorough scrutinizing of the development in operational excellence, where we have gone through all losses and looked at each improvement in all mills during that program that we launched. And during that process, we have also discovered some parts that needs to be approved of to really take, as we speak, when it comes to workplace environment. And on top of that, looking at BillerudKorsnäs from a more one company perspective, there are also some parts that we need to adjust in the balance sheet when it comes to unified accounting principles. And last but not least, the strategic investments that we have are progressing according to plan. We have the next project, KM7, that we are looking at no changes compared to plan. We will launch KM7 in March next year. And looking at PM10 in Skärblacka, that project is also up and running, and we will have the inauguration on September 5.So with that said, I think that there are a lot of things that are developing in the right direction during this quarter, which I am very satisfied with, but there are also been parts that has impacted the earnings heavily during this quarter.Looking a little bit at each business area. We have Packaging Paper, which has increased sales 7% compared to last year. And I think that they have done a very good job in taking advantage of the strong market situation that we have, and -- but they have not seen the effect on the EBIT due to mainly that they have been impacted by the maintenance shutdown and wood shortage that has hit especially Gruvön and Skärblacka. But I think that, compared to last year, we see a strong performance within Packaging Papers when it comes to market demand, and I think that they are taking a really good step forward. And I think they also still have more potential when it comes to selected price increases. Looking at Consumer Board. Also here, we have continued strong demand and a net sales that increases by 2%. We have high availability in production. As I mentioned, we had production records in Frövi and in Gävle during this quarter. But we also had increased raw material costs that hit Consumer Board during this quarter, and we have had no opportunity to increase prices when it comes to Consumer Board. And the market is expected to remain stable.When it comes to Corrugated Solutions, we have increased sales by 11% compared to last year. And also here, we see a very strong performance when it comes to the market and the sales and mix improvements that we have made. We also have a very strong sales when it comes to the solution part of Corrugated Solutions that we call Managed Packaging. And when it comes to the result, Corrugated Solutions has been negatively impacted by the maintenance stop in Gruvön and Skärblacka, mainly Gruvön in that case. And we also see a positive contribution now from the solution part, the Managed Packaging, where we have seen black numbers for the last 3 months, which I'm very happy to see. The market is expected, also here, to remain stable; and Managed Packaging is expected to continue with strong growth.When it -- talking about investments. As I said, the investments are progressing according to plan. Gruvön KM7 is keeping the time frame, and we are targeting the start-up of March next year. Skärblacka PM10 is successfully started in -- during the second quarter. And as we speak, we are trimming up the machine with really looking at the most difficult qualities in producing the paper. But so far, everything looks good, and especially the quality of the paper is fantastic. We have an inauguration in September 5, but we also have, open for everyone, to -- that are interesting to look at the new machine are welcome to visit Skärblacka PM10 on September 8. Operational excellence is something that we have put a lot of effort into, both during the first 6 months of this year but also last year. And we have really put a lot of attention to the prestudy. And we have now launched in the end of June a big operational excellence program that will cover all parts of BillerudKorsnäs and -- where the stable foundation in the program is health and safety. And then we have environmental performance as the second product quality and production stability. And we will also put in a lot of effort to make sure that digitally enabled program -- that this is a digitally enabled program, and that means that digitalization will be a very strong part of the improvement. And what we have done is that we have spent a lot of time at each mill. And we have made through -- we have made a loss analysis in detail, both -- especially when it comes to availability and OEE in production. And we have a pretty good picture now of what we will do and how much it will influence BillerudKorsnäs' result. And this is something that we will come back to and tell you more about during the Capital Markets Day, September 17.And as I said, the wood sourcing, the part of -- the dynamics when it comes to wood sourcing is changing in -- I think also as a consequence of the strong market that we are in. And considering the fact that BillerudKorsnäs is such a strong -- such a big pulp paper producer, it is something that, of course, is on top of our agenda. And here, we are looking through all parts of our sourcing strategy and strengthening that. We are looking into domestic purchases when it comes to Bergvik Öst. Also, if we can work in a more close way with private forest owners and also some parts that we are looking into new sourcing. And also, if we can import more than we do today from other areas than Sweden. And then we are also looking into the logistics systems if we can make cost per tonne sort of in a lower way. And all these 3 is something that is part of the strengthening of the wood strategy. And we are also launching a new organization. And this is something that we have already communicated, and we are now in the final phase of recruiting division managers. We will have 3 divisions. 1 division is Division Paper, which is very similar to the business area, Packaging Paper, that we have today. But in this context, it will include all the costs. So the division head of Paper will be profit and loss responsible. So within Division Paper, we include Karlsborg, Skärblacka, Beetham and Jakobstad. And if we look at the Division Board, we will merge together Consumer Board and Corrugated Solution. And the mills that will be included in division board is Gävle, Frövi, Gruvön and Rockhammar. And this also makes a lot of sense considering the fact that Corrugated Solution products and Consumer Board products, to a large extent, can be produced on the same machines. So it will be -- I think it's a good idea to have both businesses during one division head. And then last but not least, Division Solutions, which will enable us to really look into the packaging solution parts; and considering the vision that we have in BillerudKorsnäs, to challenge conventional solutions for a sustainable future, I think this is an area for us to grow and something that needs separate attention. So we are in the final recruitment stage of launching the new organization, and the new organization will go live on October 1.If you look at the financial targets. During the second quarter, we had 5% growth in the second quarter, which I think is a good performance of the company, and especially from Packaging Paper and Corrugated Solutions. EBITDA ended up at 11% adjusted and return on capital employed at 12% for the quarter. And net debt/EBITDA is still below 2.5 on 2.15.And here, we have also a little bit more sort of going into the details. And I think I would like to invite you, Susanne, to help me sort of scrutinize the numbers in this report.
Thank you. Okay. Starting off with net sales. We have increased our net sales with 5%, as Petra just said. So growth rate 5% positive. Currency has helped us with SEK 155 million in this regard. And what is driving the growth is the increased sales prices that we see from Packaging Paper and Corrugated Solutions. Packaging Paper has increased their prices with about 13% and corrugated around 10%. If you compare it to the previous quarter, both business areas is around 3% growth in sales prices.When it comes to Consumer Board, we have not seen any increased prices. We can adjust our prices when it comes to cartonboard. There, we don't have the long-term project -- contracts with our customers. So there, we do still see an opportunity moving forward to also increase some of our prices.When it comes to sales volumes, we have been negatively affected by the wood shortage. The wood shortage -- overall, our volumes has gone down over 6 months' period compared to the 6 months last year. We have lost 80,000 tonnes in volume, sales volume. About 50% of that is related to the wood shortage. And the wood shortage has primarily impacted Packaging Paper and Corrugated Solutions. We have also lost additional volumes in our planned and prolonged maintenance stops that Petra has talked about in Skärblacka and Gruvön. Those are also impacting Packaging Paper and Corrugated Solutions, primarily. So this shows clearly that we also, in these numbers, have a negative mix as the record-producing mills are primarily within Consumer Board.Raw material costs. We see increased raw material costs primarily also as we have talked about, to a large extent. Wood cost continued to increase. The -- on the right side here on the chart, you see our wood cost index, that is a 12-month rolling index that shows the wood cost. And on average, we can clearly see the trend now, that it's moving in the wrong direction for us. Overall, over this first 6 months, our wood cost has increased with about 15% compared to the average wood cost per cubic meter in 2017.When it comes to chemicals, we see an increase and that has impacted us with some SEK 80 million. And even if we still feel the pressure that chemicals overall is pressuring upwards, the prices there, we can also note that the caustic soda, which is a significant amount of our chemical cost, about 25%, has flattened out on current level.To dig into the EBITDA and the development there compared to the second quarter last year, our sales prices has increased with about SEK 380 million. And Packaging Paper has increased their pricing with 13%; Corrugated Solutions, some 10% quarter on -- year-on-year. Quarter-over-quarter, we see an increase of about 3% within both business areas.Currency has helped us SEK 155 million, and SEK 118 million of those is -- you can see in the business area P&Ls. The hedging impact compared to last year has been negative almost SEK 90 million. And then you have a positive reevaluation of our receivables offsetting that, with about SEK 60 million. And you should remember also that in this currency amount, we do not include or we don't have the numbers for -- or the currency effects on our purchasing. The next item is wood shortage. And to clarify again, we clearly separate the cost or the impact from wood shortage and the demand-driven cost increases on the fiber side. Wood shortage is related to the weather, primarily in the last -- part of last year, beginning of this year. We said that we were going to have an impact of SEK 50 million to SEK 75 million in the second quarter. The impact actually became SEK 100 million, which was more than we anticipated, and that is due primarily to a lot more logistics cost when it comes to getting the wood to the right side and rerouting the wood to the wood yards.Our maintenance shutdown had an effect of SEK 401 million in the quarter. They were planned in both Skärblacka and in Gruvön. We had guided for -- or we had estimated SEK 335 million, so we actually overrun those with about SEK 66 million. And SEK 30 million of that is taken by Packaging Paper and SEK 35 million is Corrugated Solutions.And then we come to the demand-driven cost increase for fiber. It's about SEK 300 million in the quarter. 50% of that or SEK 150 million of that is pulp that we buy to our nonintegrated mills. And Beetham and Jakobstad are struggling in this environment with the increased -- with a really high or the record-high pulp prices, actually. The rest, SEK 150 million, is demand-driven wood cost. So that is actually what the wood costs us.We should add here when we talk about the pulp and the pulp exposure that we have previously said that this year, we think we will be able to have exposure to the pulp market of SEK 150 million, that we will sell 150 million more -- 150,000 tonnes more of pulp than we buy. This year, due to the wood shortage, we will not be able to do that. So we think the net exposure on the pulp market for 2018 will be 100,000 tonnes.Chemicals, SEK 86 million negative impact. SEK 15 million of those is currency related. And as I said before, caustic soda is a large part of that, which has flattened out now. As Petra mentioned, we have also made a large provision in the quarter, SEK 450 million, related to -- SEK 160 million of that is related to improving our work environment or the environmental issues we have on our -- in our mills, primarily. SEK 170 million is in related to unifying accounting principles that we have previously decided to take over time and that we now take in one shot instead. And the remaining part primarily relates to finished goods and accounts receivables, and IT systems that we have put on our balance sheet that we want to write-off. So SEK 200 million of the SEK 400 million we expect to be cash flow or affecting our cash flow, the rest is not. We also have a part here on the chart that you see that says Other, it's SEK 90 million. That consists primarily of logistic cost. We have had also, in the outbound area, severe increases in our cost due to our delays in the start-up, and also our wood shortage to get it out to our customers has also caused a lot of rerouting and a lot of fees, extra fees and replanning. That is primarily driving the Other column here.So that brings us down to the clean -- to the EBIT of SEK 203 million. And if we exclude the provision, it's SEK 655 million for the quarter.So moving on to our net debt. We have increased our net debt to SEK 8.2 billion. And of course, that's driven by our strategic investment programs in Skärblacka and Gruvön. When we adjust our net debt-to-EBITDA, we come to a level of 2.15 compared to our target of 2.5. So if we adjust for the provision that is not cash flow impacting, we come to a 2.15 level. Always when we talk about net debt, we get the question about Bergvik, how that will impact us. And the news on Bergvik is that there is no news. We still expect the deal to be finalized by the end of this year.So the outlook that we will provide is that the demand and order situation continues to be strong. We expect it to continue to be strong, with normal seasonal variations for all business areas. We also see possibilities to increase our prices in selected segments. We also see that the demand on wood continues to be really high, which impacts the cost development also in the future here. And the last item on this list is just a reminder that we continue to have one-off impact from our investment projects for the full year for training and education of our extra personnel in Gruvön, SEK 75 million. And also, we have a decreased -- increased depreciation, we speed up the depreciation on the machines that we are closing down. That impact is SEK 60 million for the year. So SEK 75 million and SEK 60 million is just a reminder.So to summarize the quarter, we continue to see a strong demand in all business areas, strong growth. We saw really positive development on the pricing side from -- to our customers from Packaging Paper and Corrugated Solutions. We had 6 mills that were producing really well and 4 of them actually made production records in the quarter. We had big negative FX effect from start-up issues related to our planned maintenance stop and to the wood shortage. Good news is that our strategic investment programs are progressing according to plan. And we also see strong progress in the change activities internally in the company that we are taking to mitigate the cost development and also to become more agile and improve overall our performance.And this is also a reminder. On September 17, we have our Capital Markets in Stockholm; and on the 18th, a shorter one in London. And now we will open up for questions.
[Operator Instructions] The first question comes from Linus Larsson from SEB.
Maybe if we can start on the wood supply and wood cost topic. It's a very challenging situation, obviously, right now, and I guess the ongoing forest fires don't really help the situation. Could you maybe talk a bit about your Q3 expectations? So the impact in the second quarter in terms of supply constraints was SEK 100 million. So how much of an impact do you expect from supply constraints in the third quarter? And then secondly, on top of this, what kind of impact do you expect for potential price increases, which, like you said, Susanne, which are demand-driven? Those 2 items, if you could maybe help us bridge Q3 versus Q2, please.
First of all, the -- what was the question? The wood shortage and the expectations of cost for that for Q3. Right now, we have wood in our wood yards. So right now, we have a situation that is, you can say, under control. However, we all hear about the fires and the dry season that we are in and with the high risks of fires. So we have -- we are -- the harvesting is working on a reduced pace, you can say, and they are harvesting at night in the areas where they can harvest. We should remember also that this time of the year, in July, is typically a low period when it comes to harvesting. But there is a significant risk, of course, that we will see impacts also in the third quarter. But right now, we really don't know and we don't have a good estimate to give for that. So it's really depending on if there will come water. Second question regarding the price increases or cost increases for wood. And as you know, we typically don't want to guide on that as we are in constant negotiations with our suppliers. And what we can say is that we expect it to continue to go up, maybe not in the same pace as we have seen before, but that is as far as we're willing to stretch it.
Okay, that's helpful. And maybe in connection to that, you said that there is no news on Bergvik. But on a more, I don't know, general note maybe, I mean, what's going on now in the wood market? And considering what you said about BillerudKorsnäs being the biggest top wood consumer in Sweden, are those factors impacting your decision whether to own Bergvik long term or not?
I would say that, that is not something that has changed during this quarter. And I think that the prerequisites that we have moving into Bergvik and the letter of intent that we have published is still unchanged. And we are now in the final stages of negotiations. And as Susanne said earlier, we estimate this to be finalized by the end of the year.
And when you say -- because I'm thinking maybe there is a second aspect to this, you will buy back the forestland, yes, but what I'm kind of alluding to is that there might be a second phase where you sell or part-sell these assets maybe back-to-back. Would such a potential follow-on transaction also be concluded or announced if that was to happen before the end of the year?
I think that is still too early to reveal. And I think that is still ongoing discussions within the board of BillerudKorsnäs. So we have not yet decided. And the first step is, as we said in the letter of intent, to finalize the purchase of Bergvik Öst.
Okay, that's helpful. And maybe one final question regarding the SEK 450 million provision that you announced on the 10th of July. And you then said that this was part of the group-wide program for improved production efficiency. And as far as I can tell, the initiatives that you have announced so far aren't really affecting productivity so much. So my question is should we expect more provisions to -- of this kind to really address productivity going forward?
I think the provision, from a safety point of view or from an increased productivity and efficiency point of view, is something that we have really scrutinized carefully looking into the prestudy of operational excellence program that we launched in June. And it is a result of the fact that we have parts of our organization where we need to improve our safety perspective, but it's also due to the fact that we need to improve productivity and efficiency. Because the buildings that we need to dismantle and remove has, to a large extent, tubes and infrastructure depending on these buildings. So I think it's also, to a major extent, to reduce the risk of production disturbances. That we need to do this in a thorough, careful, proactive, risk-minimizing way. Because if we don't, we could have a production disturbance when this happens without us taking sort of carefully notice of it. So that, I think, it is the main reason of why we took the provision. We cannot wait for this building to fall apart and then have production disturbances threatening the infrastructures in the mills. So it is a safety precaution; but it is, to the larger extent, a production efficiency measure, avoiding production disturbances.
The next question comes from Kevin Hellegård from Goldman Sachs.
Maybe my first question relates to the Consumer Board division where the margin squeeze was quite significant. What is the path for margin recovery? Are there further pressure coming in 3Q within the full impact of cost now? And when do you expect price recovery to really start impacting the division?
No, I think looking at -- from a Consumer Board perspective, it's -- as Susanne said, with the price negotiations that will come during next year, we are in a very stable price situation with the Consumer Board. But that doesn't mean that we cannot improve the result because also, here, we have a big potential in operational excellence looking at improving availability, increasing the OEE in production, but also reducing cost of quality. So I believe that operational excellence and also -- so Consumer Board also has it in their own hands to improve the result.
So you think margins can improve before next year? Or -- but can margins recover to the sort of mid-20 -- or mid- to low-20 levels without price increases? Or will we have to wait until next year to see that level again?
I don't want to guide specifically on which quarter, but I can -- I expect Consumer Board to increase availability in production and improve. So reduce cost and to have a stronger availability in...
In 3Q.
Yes, internally.
Okay. And also, on the wood availability or shortage, you said that you don't have a good estimate for 3Q yet. Does that mean like -- is base case that we remain at this SEK 100 million level? Or is base -- or you just don't have any idea whether it's down, up or flat? Because previously, you said the situation was expected to improve into 3Q. Is there no longer an improvement expected on 3Q versus 2Q?
Maybe if I start and you continue, that makes [ best result ]. I think that it's -- the original cost of the wood shortage was the mild weather in the Baltic area, and that happened in like half a year ago. And then we had the extra effects of the wood shortage affecting us due to the fact that we had the logistical system in Sweden affecting the whole industry but also affected BillerudKorsnäs as a consequence. But the root cause of everything was originally the mild weather in the Baltic Sea. And I think -- in the Baltic areas. And that affected BillerudKorsnäs by SEK 119 million in the first quarter, and the wood shortage was SEK 100 million during the second quarter. We had not seen disturbances, to a large extent, caused by the hot weather condition that we have now in Sweden in -- during the second quarter. And I think, as Susanne said earlier, this is not yet something that we can calculate on how that will hit because that is totally dependent on the number of weeks that we will have now without rain. So I think it's -- from us right now, the wood shortage is very much tied to the root cause of the Baltic mild weather. Would you...
No, I agree. I don't have anything to add to that.
But -- yes. But -- so is the situation going -- like from 1Q going to 2Q, you had a small improvement or guided for an improvement in terms of how much this shortage impact would have. From now versus where we were going into 2Q, is it a similar situation? Or -- I get it you don't know how long the dry season will last, but just looking at it now, is it a similar situation as going into 2Q? Or is it better or worse?
No, it's -- looking at what we know now, we have good inventories and we have a low season. And we don't have problems that is tracked back to the Baltic mild weather. So I think it's the...
So the SEK 100 million headwind you had this quarter should -- could be 0 if you get rain and there's no impact from the dry season, but it could also be higher if the dry season continues for longer?
Yes. That's correct.
Okay. And lastly, do you have any guidance for full year CapEx? Can you just remind us?
There's no changes there.
The next question comes from Robin Santavirta from Carnegie.
So my question related to the delivery volumes. I think you're down in Q2, 44,000 tonnes year-on-year. And if it's so, did I understand it correctly that half of that 44,000 tonnes is due to the wood shortage you suffered during Q2? But why is the deliveries down otherwise? I understand that you have a prolonged shot in Gruvön, is that because of that? Or I'm a bit surprised that the volumes, the underlying volumes, are also declining quite significantly in this strong market.
Yes, that's because of the prolonged maintenance and that we didn't get the machines up in time.
Okay. So all of that is entirely because of the prolonged maintenance.
Yes, yes. Well, it's due to the planned maintenance in Skärblacka and the planned and prolonged maintenance in Gruvön. And they both had problems with their start-ups, and the start-ups were severely delayed in both places.
So during this quarter, we did not have any production disturbances more than very, very small, if any. And they were totally offset by the production records that we had in Gävle, Frövi, Karlsborg and Rockhammar.
Okay, I understand. I understand. Do you have some kind of guidance for the full year volumes as it stands today for the group? I think you used to say flat when -- at the end of last year for this year. But what is sort of -- do you have the values for us this year...
Yes. What we said was the guidance for the full year was that the total volumes were going to be flat. But with the wood shortage now, it's going to be really not possible to reach that.
Okay. Okay. Related to the price -- pricing. Now you're again up Q-on-Q in -- not in the consumable, but in the other sort of subsegments and segments. What do you look -- you see as opportunities to improve prices? What are you seeing in the market at the moment for Q3?
I think we see a very strong demand from an overall perspective, and we still see opportunities to increase prices and mix effects positively in selected parts of the businesses in all 3 business areas, I would say. But mainly within Packaging Paper and Corrugated Solutions.
Okay, good. And then related to the wood raw material costs. I think you said that they are up 15% year-on-year in H1. They were less up in Q1. Can you split that to sort of year-on-year Q1 and Q2?
Do you have that?
I don't have it in my head. We'll get back to you on that.
We're talking probably 20% or something like that year-on-year in Q2, and then closer to 10% year-on-year in Q1.
Let's get back to you on that.
Yes, okay. But what you're saying is that the year-on-year sort of increase in prices will most probably accelerate in Q3, the underlying sort of pricing?
Not accelerate.
No, not accelerate.
We see a 15%. We see...
Okay. I thought you said that the prices of wood you expect to continue to increase.
Yes. For the first half compared to first half last year, we saw a 15% increase. No, for the -- that's not how we say it. The 15% increase in cost for the first 6 months is compared to the full year average cost in '17.
Right, right. And you saw some underlying inflation in 2017 as well. So it doesn't necessarily mean that the year-on-year figure is higher in Q3, is that correct?
Well, we don't see it going up as quickly in Q3 as we have seen before.
Okay, okay. And then finally, related to these project-related one-offs. Is it so that they are booked as nonrecurring items, the SEK 75 million for training and the SEK 60 million for accelerated depreciation? Are those booked every quarter as nonrecurring items?
Yes. Well, the educational, the training, you can see is booked as -- they are both -- well, they are booked as items affecting comparability. That's the correct term these days. The depreciation though is under the -- you see that under depreciation line. So it's only the training that impacts EBITDA. But it is included. And you have a specification of all our items affecting comparability on Page 21 or 22 in the report, I think.
The next question comes from Oskar Lindstrom from Danske Bank.
This is Oskar Lindstrom from Danske Bank. Four questions from my side. The first one is you've mentioned that you have good -- or that you have wood in your wood yards. Would you say or characterize the sort of inventory levels of wood that you have currently as normal?
I would say so. Yes.
All right. So I mean, they're not sort of dangerously low or anything like that, it's a stable situation in terms of supply?
We have parts that you could say that maybe that they are on the low side, so we are not sort of totally satisfied. But it is more -- we are closing into a normal situation that we have compared to other sort of summer seasons.
All right. If I may follow up on that. Just -- and the supply of wood from the Baltic states, is that sort of -- has your mix changed compared -- currently versus where it was over the winter season? Are you buying less from the Baltics or more from the Baltics or -- as a result of all this turbulence?
That has not changed substantially. But I think we have more of -- we have looked into other sourcing opportunities. So we have -- we also source from other areas, but that is still something that we'll look into when to launch. But I think we have made precautionary actions so that we are prepared if this happens again in the Baltic countries, I would say. But we have not made any dramatic change in that we source from other areas, but -- so it's still a similar sort of sourcing mix that we have.
And if I understand correctly, that slide which you showed in the presentation today, are you reviewing your sourcing sort of strategy? And could we, therefore, expect changes in how and where you source wood in the future?
We are reviewing the sourcing strategies, and this is something that we will come back to at the Capital Markets Day in September 17. But I think with dynamics changing as much as they are when it comes to sourcing of wood, I think we all need to look into that question. But we are not about to launch any dramatic change. But we will let you in on our way of thinking at the Capital Markets Day.
All right. My second question pertains to the operational excellence program, which you've mentioned a couple of times today, and talking about increased efficiency. And I understand, at least partly, the provision was related to this program. Are you able to give us any quantitative goals or parameters to that program?
Yes, I am, but not today. This is something that we also will provide you in the Capital Markets Day. We still need time to work through thoroughly all the mills. We have done one part now when it comes to the prestudy, and I think we have a pretty good picture of the potential and how much it would increase our future earnings if we release and unlock that potential. But the next step now is to really make sure that we have a local ownership at the mills and that we make a continuous improvement every month, every quarter, and that is something that we will be transparent with. But we are not yet on that note where we can disclose per each mill what they have committed to. But that will come soon.
But -- yes. In terms of sort of the overall potential of the operational excellence program, would you say that it's significant or...
Yes, I would say that it is significant.
And then we should expect this in terms of primarily increased volumes or...
Yes, increased volumes mainly look at targeting OEE, but also looking into mix.
Should we expect further sort of provisions or costs relating to this operational excellence program, the way you see it now anyway?
I think that the -- not -- we have looked through it and we have really scrutinized where we are visiting all mills and looking into this. And what we believe that we can take upfront, we have communicated in the provision. And I can't -- what I see right now, it's not part of the operational excellence program to come with yet another provision. I think we have a pretty clear picture of what needs to be done. It's more hard work that we'll take on now.
Good. My third question is just the Gruvön mill. After this 6-day extra or delay in the start-up, is it running well now or...
Well, looking at Gruvön and the preparation that we have been doing, I think this is the last chance that we have to make sure that we have everything in order in Gruvön. And considering, as you know, all of the prerequisites in the next investment is the fact that Gruvön has several machines from 1930 and also an infrastructure from 1930. So one part of the next program is to really make sure that we are set to go with KM7. And that also include what we call the brownfield part of next in Gruvön. So I think that is something that we put a lot of attention to. But I think it was also the root cause of making sure that we took proactive measures in dusting and evaporation plant to make sure that we have a stable energy balance launching KM7. So that is -- I think that is -- it took longer than we thought. And Gruvön needs to be in good shape now also to take care of the launch of KM7.
Okay. But that it took longer than you had planned, that does not -- I mean, it's now running well. And the fact that it took longer than you planned is not an indication of that we'll have problems next year. That's what I am trying to get at.
No. Exactly. It's not.
Yes. Okay, great. Yes, great. And then just my final question is, I mean, the way I see it, much of the weaker earnings performances is related to the inability of the Consumer Board division to compensate for higher raw material costs. And I know that you're, I think, renegotiate a couple of the major contracts that you have at this division next year or you'll have new pricing in place next year. I mean, are there any clauses that will be triggered in the meantime during H2, given the raw material cost inflation that we've seen? That was my -- the first -- yes. And then there's...
I really hesitate to really reveal that kind of information because we are in pricing negotiations as we speak now when it comes to Consumer Board. So that is too sensitive to have as a discussion after the second quarter in this room.
Yes. And maybe you can't answer the second question here as well. Is -- I mean, is there any way for you to change your product mix? Or will the product mix change during the second half of the year to -- and is there any way to compensate for the higher raw material costs in this division, short term?
I think that -- I mean, to a large extent, short term, Consumer Board has it in their own hands to increase OEE to have a higher availability when it comes to production and also to decrease cost of product quality. And we also, from an overall perspective, have an opportunity to steer the mix. And I think that is something that is very much in focus when it comes to Packaging Paper, where they are doing a great job with mix, and also within Corrugated Solutions. And comparing Consumer Board and Corrugated Solutions, we also, to some extent, have -- they are competing of the same capacity. So here, we also have an opportunity to look at favorable mix for the company.
[Operator Instructions] The next question comes from Linus Larsson from SEB.
Linus, we cannot hear you.
I'll try again. It's relating to the Gruvön project. The start-up is approaching with the planned start-up in March. It will have an impact on your earnings in 2019. I wonder if -- I mean, how much more are you going to guide the market around the impact of closing old capacity and ramping up the new capacity? And at what point in time should we expect that?
Yes. And what we have said, and we repeat it now, that we will reveal more details around the ramp-up and ramp-downs that will happen when we go live with KM7 on our CMD on September 17. So we will provide more details on that then.
Okay. And you have guided on a volume figure for the project. Is that still relevant?
We will come back with that information on CMD.
So you're not reiterating that tonnage figure that you have communicated before?
We are reviewing all of the numbers that we had previously in our calculations, of course. And we are -- so we will come back with all the information on CMD.
And one of the reasons, Linus, that we are not answering that question is that we have, as you know, put in place the program office in Gruvön and that was put in place in -- at the end of March. So we are right now in a risk analysis gathering phase. And we divided the project in 4 different parts: machine-ready, mill-ready, product-ready and business-ready. So we really would like to have an opportunity to thoroughly go through all the risks and to make sure that we are not only talking about the machine part. We have to be able to look at the successful start-up, business mix and that sort of -- so that is why we have made a review of the whole investment and the whole project. So that is -- we need more time so that we can come back to you with the numbers in -- at CMD.
The next question comes from Harri Taittonen from Nordea.
Two quick questions. You mentioned the Managed Packaging making black numbers for 3 months in a row. Can you just put that in historical perspective or on a year-on-year perspective, and how is this sort of a new situation? And the second question is about kind of a follow-up on the -- in which grades you might be able to raise pricing. And there's been kind of reports on at least attempts to raise white top liner prices in the corrugated side. So what's your view on that? So those 2 questions, please.
First, I would like to say that I'm very happy with the development when it comes to Managed Packaging. And I think it's the -- during the right -- it's the right timing now to put the solutions as a separate division within BillerudKorsnäs. And -- but I think looking at the exact numbers and the details on Managed Packaging in previous years, I have to lean on you, I think, Susanne.
Well, as we have communicated before, they have not contributed positively. They have been a burden. The burden has not been very significant, however. For the first half last year, they were a burden of minus SEK 15 million. And now they are positive, slightly positive, around the SEK 10-ish million. So we're not talking big numbers. But nevertheless, very important that they had turned the corner. Because it was completely according to the plan that they were going to be negative for the first half and then turn the corner in the third -- in the second quarter. And they did that a little bit earlier than planned, so that is a very good job that they have done.
And I think all the great opportunities always sort of start as a small burden. And I think that they will be a substantial part of BillerudKorsnäs going forward.
Correct.
But you also had another question. The second -- it was exactly in which segments that we have targeted the price increases, if I don't remember incorrectly.
Yes. Exactly right. And I'm just sort of -- given the recent news about some competitors apparently were trying to sort of move up or get the white top liner both -- pricing up, so that was kind of a specific question on that grade.
I think it's tricky for us to answer that in a more sort of specific way. But it is -- we have selective segments within Packaging Paper and within Corrugated Solutions where we have good opportunities for both price increases, but also mix opportunities. But it's -- I would like to avoid moving into each and every product segment and comment about that.
The next question comes from Martin Melbye from ABG.
Could you give some more information on, let's say, geographical mix of your wood purchases? You bought 10 million cubic meters, how much is coming from Sweden, Norway, Baltics, et cetera?
Can you take that one?
Sure. 10% we buy from Bergvik Skog, 20% we buy from the Baltics and the rest we buy from Sweden. That has been the historic split.
And has that changed lately?
Well, not significantly. We are importing a lot more. We are importing eucalyptus, we continue to do that. But not to that it throws -- or completely changes the mix. But we are looking at possibly changing the mix moving forward, but so far, it hasn't changed that much.
In which direction -- are there any regions which are cheaper, so to say?
That I think -- that is too early to comment.
Yes.
Okay. And did you say Norway, how much that was?
Well, it's not big enough to get on the map. But it is a small amount.
We have no more questions in today's conference call. I now hand over to the speakers of the call. Thank you.
So thank you. Do you have a question, yes?
Yes, but I can take it afterwards.
Oh, okay.
Okay. It's time to wrap up then.
Yes, so I would like to summarize the quarter that I think it's -- from my expectation when looking at the company moving forward, I think that I am quite satisfied with the changes that we are putting in place. And I think the result and the outcome of the second quarter was, in large, what we expected from the second quarter. So we are moving ahead now with high expectations, both from ourselves and also from our shareholders and analysts. So -- and that I think -- that's a good thing. And I think that we can definitely deliver on higher expectations. So thank you for listening.
Thank you.
Thank you.