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Good morning, and thanks for joining this webcasted conference call.We have today released our Q1 report. And our acting CEO, Lennart Holm; and our CFO, Ivar Vatne, will now hold the presentation. After that, we would be taking your questions.So from that, I hand over to you, Lennart.
Good morning, everyone, and thanks for calling in.Well, we're going to talk about the first quarter report from BillerudKorsnäs. And the headline sales, record sales volume and continued price pressure is what's basically would characterize the last -- first quarter.If we switch to the first slide, key highlights. What we can say is we had a stable production and a solid demand over the -- or throughout the quarter; and as I said, record sales volumes, up 9% compared to last year. And we also had, I will say, in the quarter itself limited financial effects to -- of COVID-19. I'll come back to that. Earnings were, though, heavily impacted by continued lower market prices, especially then on brown sack paper, which has been a continuing development over the last 3 quarters basically. We also have ramp-up effects from KM7. That affects the results with SEK 200 million compared to the reference period. We'll come back to that as well. During the quarter, we started up the coater in KM7 -- on KM7, and we have also now initiated the certification process for liquid packaging board. We'll talk more about that as well. Concerning the cost and efficiency program, I will say that is delivering according to plan.So if we take the next slide and just have a quick look on the effects of the corona pandemic. So far, I'm happy to say that we've had no major disruptions and limited financial effects. We do monitor the situation on a daily basis. We have actually, since roughly a little bit more than a month back, implemented the crisis management team. And we put that in place and it's working in 6 work streams where we basically cover all the different aspects of corona, and this group is reporting directly to me. We basically have daily updates on it, so I think we have a fairly good understanding of what's coming up, and we are preparing ourselves to be able to deal with matters that become urgent. We have as -- also as a consequence of corona initiated additional cost-saving measures and we're pushing through those.If we look on Division Solutions, the sales there were affected already in Q1, contrary to the other 2 divisions. Mainly that is, of course, due to the fact that a lot of the business we do in Solutions is related directly to China, and China had its big hit of corona directly after the Chinese New Year. What we see there going forward, just to make a comment on that, is Q2 is also going to be tough quarter for Division Solutions. Another change: first half year planned maintenance stops. We have maintenance stops in a number of our mills. We have basically postponed all those stops into the second half of the year. In Gruvön, that led to a negative effect of roughly SEK 40 million, as the cancellation of the stop came very late and we had -- we got some costs to do the rescheduling. On KM7, we will -- we're also expecting to have an additional negative impact of roughly SEK 100 million in the year due to the fact that at the planned maintenance stop we were going to do some rebuilds and some upgrades and basically some baby problems or whatever you call it in English with a new machine that we were going to correct. And now we cannot correct them until second half of the year. And that will have some effect on the product mix going forward, but we can deal with that. Rescheduled maintenance shutdowns at Skärblacka, Gävle and Pietarsaari mills, we had a bit more time there, so the full cost -- additional costs for those -- postponing those stops will be roughly SEK 35 million.And as you know, the Board of Directors has withdrawn the proposal for an extra dividend also as a consequence of the corona pandemic.Next slide, please, if we look on the market perspective and content (sic) [ context ]. I've already said that the demand in Q1 was solid. We could see strong market conditions for liquid packaging board. We could see stable markets for cartonboard and containerboard. The market for sack and kraft paper stabilized but at lower prices, so there we could see that especially once again brown sack prices continued downwards in the first quarter. Much of this, however, we need to remember, is a consequence of contracts that we entered into during the fourth quarter that's now coming in effect. So for additional contracts coming in, in the first quarter, they were, I will say, on level with the fourth quarter, not lower.What do we then think about the future here? Well, second quarter, there is a high uncertainty or concerning effects of COVID-19 and the impact of that still. However, I would say that we continue to see stable market conditions for products we deliver into Food & Beverages and Medical & Hygiene segments, surprisingly strong, I could say. So that looks quite okay.Market conditions for Consumer & Luxury Goods, there we do expect that they will become more challenging, but then they are smaller segments to -- for us relative food and beverage and Medical & Hygiene. Also, on the Industrial segment, we do expect weaker market conditions for the second quarter compared to the first quarter. We have some -- right now some logistical challenges. And we believe those will continue to affect us in the second quarter, which means that especially shipments to Asia in containers is somewhat difficult for us right now to keep the time schedules. And there is a certain risk that, that will have some impact on the volumes that we can ship over to Asia.Next slide, KM7 and the ramp-up of KM7. I'm happy to say that we started up the coater during the first quarter, and that start-up went overall very well. As perhaps could be expected, there were some initial challenges around that, but we have overcome those. And the coater today is running quite good actually. So now we are starting to do test runs with coated cartonboard products and coated white top liner and we have delivered those with good results to customers. So that looks really promising. We have also initiated certification of liquid packaging board products together with our big clients, and that process is still in its infancy, but so far, so good.Solid volume output centered around uncoated liner, which is our main product for the time being. Challenges initially around the quality have gradually been overcome. We also during the quarter started to produce some cup stock. And there we had actually initially quite big problems with sizing and some other topics around quality. I'm happy to say, though, that we now in April have had very good runs with that, so it seems as if we're getting that in order as well. Continued uncertainty, though, connected to the ramp-up and production mix, mainly production mix, I would say. Of course, we want to move into higher-value products as soon as possible, but that takes some time because we need to be cautious about really delivering the right quality.Negative impact on EBITDA for the first quarter was roughly SEK 200 million, and we have guided for the full year of an -- for an impact of up to SEK 450 million. And this is, let's say, we are in the range SEK 350 million to SEK 450 million right now where we believe we will come out. From 2021, we continue to foresee that we will have positive impact of KM7 on EBITDA versus then the 2018 base year level.Next slide, please. What has been good during the quarter is that we -- the fact that we've had excellent production, record volumes. And we've really focused a lot during the last couple of quarters here on safe and stable production. And there I think the different mills have done a fantastic job, and we see clear stabilization of production. So the actions that we have taken start to show results. For sure, we still will have challenges ahead and we have still a lot of work to do, but at least we're moving in the right direction. We also see that safety development is developing in a good way. So lost time injuries have basically closed to be -- reduced by half since 12 months ago, which is very, very, very positive.Next slide, cost and efficiency program. It's on track; positive impact in the first quarter roughly SEK 50 million, as expected. So we are, I would say, on track to deliver the SEK 250 million that we have committed in cost savings and efficiency in 2020. We expect a bit back-heavy delivery during 2020. So a lot of the results -- so the impact is kicking in, in the later half of the year. Work is then, of course, also in progress to identify additional building blocks to deliver the SEK 600 million run rate that we set for Q4 2021.Okay, I think we can jump to the next slide. On raw material costs, well, we can see that we have cost of pulpwood decreasing in first quarter. We have guided, we said that we expect that level to remain flat in the second quarter, but it's a bit uncertain due to the corona. Why flat? You might believe that they should continue downwards. Well, we most likely expect that list prices will continue downwards, but what is happening is, of course, also that the sawmills now are reducing their production capacity, which means that we are getting less sawmill chips from the sawmills. And that means we need to use more round wood, which means that we have to have increased transport distances on some of the stuff that we source. And we have some additional costs around chipping these, et cetera. So that gives that result and some higher costs. We also have the spruce beetle, which is affecting forest operations quite significantly right now and especially in southern parts of Sweden. And we, as all other users of wood, now we have to try to take care of that problem, so we're taking more and more volumes of this spruce beetle-infested wood, which means also longer transport distances. And processing that wood is also somewhat more expensive in terms of we need to use more chemicals. We get less bark for energy production, et cetera. So there we have some negative effects. We had a bit of a challenge during the first quarter when it was very wet out in the forests. That will also result in some, let's say, delays and some extra costs for the second quarter. We were quite close getting into a problem with birchwood supplies into especially Gruvön mill during the first quarter, but we managed to get through that and now the situation looks better.If we look on chemicals. Also there it's a bit uncertain where prices will go, but we could see that the caustic soda price decreased in first quarter, so that was a saving. Also, when it comes to pulp pricing and the pulp that we're buying for Pietarsaari mill, there we also could see an impact in terms of decreasing prices in the first quarter. On energy, spot prices for energy have dropped drastically, but of course, we hedge our energy purchases, so that means that we only saw limited impact in the first quarter.So with that, I think I will leave or let Ivar step in and take over and talk about the key financial figures. So please, Ivar.
Yes, thank you, Lennart. And good morning.So some highlights on the financials and focusing mainly on the Q1 '20 results and versus a year ago.Net sales is down 2%, certainly highly impacted by pricing. Volume growth is up, as we mentioned earlier, by 9 percentage points. And you also see that we have a positive net sales development and since Q4. We'll talk more about these items impacting net sales in a bridge in a couple of minutes. In terms of profitability, certainly significantly down versus a year ago, and it's also below where we want to be certainly long term. The decrease is shortly impacted mainly by negative market pricing implication, and that's the trend that we've seen and since end of Q2 '19. Now I think, as some of you remember for the last different quarters, it's also very important that we look into our profitability excluding the KM7 to get a view of what the underlying performance really is, and I'll cover that into the profitability bridge also in a second.Just one last point on this slide, and that is that the return on capital employed is further down. I think there's 2 reasons for that. One is just a pure calculation on how it is computed. It's based on a rolling 12 months average. And now when we take out the Q1 '19 EBITDA result that was very strong, the last 4 quarters EBITDA has come down versus what we saw in the previous ones; as well as now we have the -- fully the KM7 asset base in the numbers. So you can certainly say that this is in theory now really the lowest piece of that KPI, and it should go upward from now on.So if you move into the next slide and look into the net sales bridge, if you then start by looking at the top, on the green arrow there. So we are flat on net sales if excluding the KM7. I think the building blocks speaks for themselves, but just to quickly go through them: I mean there's a significant pricing impact versus year ago. It's not every quarter, I can tell you. We have a 7-percentage-point negative pricing impact. I mean that pricing bucket is coming from several segments. Most of it is within Division Paper, where in particular the sack pricing has had a very brutal development since last year. There is as well a certain pricing impact within Division Board, clearly though much less than on Paper. Cartonboard and containerboard are somewhat down, while liquid packaging board is keeping the level up due to our longer-term contracts.Currency impact of 2.5 percentage points very much linked to a continued weakening of the Swedish krona. Then there's a sizable volume and mix impact reflecting then the strong quarter end of the production and demand that Lennart was talking about.And then last but not least, the KM7 impact of 2.5 percentage points, this is very much down to a negative mix impact. And that is a little bit also, as Lennart did refer to, lower-value or somehow on average more lower-value segments or grades within Division Board and also to a certain extent higher waste than we expected.So if you then move into the next slide and look to the similar one, just the EBITDA bridge, you will recognize there's a lot of the same impacts that I was just going through the net sales bridge. I mean SEK 460 million of pricing impact that wipes up 45% of the profitability versus last year, which is -- which obviously is massive. Now having said that, covering after the pricing, there are some positive building blocks that brings the numbers back up. Currency is obviously one of them; volume and mix; then the raw material of SEK 235 million, which is then is combination of some of the things that Lennart went through, wood fiber cost reduction of roughly SEK 80 million. We have pulp pricing coming down, and that's pulp pricing we are buying, of SEK 125 million. And then there's smaller or more limited impact coming from energy and hedging. In terms of our cost and efficiency program, that's a SEK 50 million delivered. And I think, when we launched this program, we talked about that, that will come from different streams, and that's also what we see now in Q1. Most of this effect this quarter is coming from operational efficiencies in sites and indeed in procurement, where we've done some good progress. There is also a smaller contribution from fixed costs, mainly from reduced external services; starting to see the impacts of some of the employee reduction; and just in general a lower level of SG&A activity very much in the wake of what the COVID-19 has imposed to us as a business. But as Lennart said, we certainly have expectation for that number to come up from Q3 and Q4 in particular.The last piece of the cost bucket of minus SEK 55 million is a combination of several offsetting items. In this context, the biggest items are -- I mean it's costs and impacts associated with the late maintenance delay we did in Gruvön of SEK 40 million. There is also a timing issue of products produced versus sold in last year's base. That's hitting more as a timing issue in the Q1 '19 number, but as I said, the bigger item here is certainly the late delay of the Gruvön maintenance stop. Then the SEK 200 million of KM7 that also have been mentioned, it follows very much largely what we had from Q3 and Q4. It's mainly a volume/mix component and versus then the 3 machines that we had in Gruvön in -- before we started to initiate the KM7. And as well, there is a certain fixed costs component in there, but the vast majority is then the volume/mix impact.So if you just go to the next slide and just a couple of comments per division.I mean Board had another good quarter and continued some very strong sales growth figures that we've seen for most of 2019, 5% net sales. And looking at the volume is up 13%, which is very, very solid, clearly done and driven by stability in production in pretty much all of our machines in sites and certainly also new capacity coming in from KM7. Yes, liquid packaging board, another strong quarter. I think everybody have realized that, in the wake of COVID-19, shopping behavior, in particular within food and drink, has accelerated, and that also spills over for us. Cartonboard had another excellent quarter. And we've had some quarters now in a row where we've seen double-digit net sales growth for cartonboard, so that's also positive to see. Yes, on containerboard, so fluting and liner, another growth quarter certainly driven a lot by more volume also coming out from KM7.The net operating expenses, up by 10%, mainly driven by the volume growth I was just talking about. EBITDA margin then of 16%, but keep in mind then the last comment there that, if excluding then the KM7 impact that we certainly believe is temporary and will structurally go away, we're up to 21%, which is on a very acceptable level and certainly within the range that we have ourselves a target.Moving to next slide and into Division Paper. And it is a different story than on Board, and that story has been also quite different for some quarters. Minus 18% net sales is pretty significant. Very much of that is coming from a negative pricing impact versus last year. We've actually seen volume being pretty flat. And well, at least that is positive in the sense that we don't really see that accelerating continuing, and we start to see probably the bottom now in terms of the volume. If we look then at what else is happening into the net sales: Yes, the pricing on sack is the main, main point; kraft paper holding up much better and white MG only somewhat on decline. We actually have a solid growth on some -- one of the segments within kraft paper.Operating expensing coming -- operating expenses coming down, partly due to the volume which is slightly negative but as well as some of a [ cost shift base ] between the machines. We also had some good operational savings in division on Paper which is starting to show. EBITDA of 14 percentage is down 6 percentage points versus a year ago, and there is no doubt that that's also a level that we are not really happy with. And of course, we're doing really what we can to improve that number going forward.Moving into Division Solutions; net sales coming in flat, which is actually a pretty good number given the circumstances; decline in managed packaging, which shouldn't be a big surprise given the exposure that we have in Southeast Asia. And China has certainly been impacted from early on into the quarter. A good news there is that FibreForm has really managed another quarter of strong growth and offset the decline from managed packaging, yes.EBITDA margin pretty flat versus a year ago, EBITDA absolutely down versus a year ago. Most of that is due to some one-offs in the Q1 '19 base, more than anything strange happening in this quarter. And Q1 '19 base, basically it's a favorable outcome of some claims reversal we did last year.Moving into the next slide and talking a bit on our balance sheet and some of our net debt-to-EBITDA ratio.Net debt has gone up a bit versus what we had in Q4 ending, and I'll come back to this. You also see that from the table, that the ratio has increased from 1.9x to 2.3x, and I should probably spend a bit of time to explain why that is. Well, there's 2 reasons for it. First, as I mentioned a bit earlier, the rolling 12 months EBITDA has come down, given that, and Q1 '19 now is out from the base. And certainly that absolute number has come down. So that's one piece of it. There is also another piece around which is related to our energy hedging. And we've inserted SEK 400 million as a collateral deposit for negative value of electricity derivatives. And you can say that is a mechanism that is happening pretty much automatically through the instruments that we are engaged in on the energy. And now given the difference between the spot rates and some of our hedging positions have been quite significant, that value is certainly much bigger than it would normally be. In terms of the debt maturity, we have limited positions over the coming calendar year, so that's certainly good news.In terms of CapEx, we are also taking, while we can, a little bit into the points Lennart mentioned around the 6 streams that we're doing to manage the COVID-19 as good as we can. I mean we looked over all of our investment choices and list and trying to do the tough choices we believe are fair but certainly not hampering operation in any significant manner. And we have found, at least we are working very close now to finalize the details, around SEK 200 million. So it's certainly our ambition to bring down the expectation of CapEx by SEK 200 million, so that means the total goes from SEK 1.5 billion down to SEK 1.3 billion, which is the last number we communicated in Q4.And I think the dividend part has already been covered, that we're staying with the original -- the base dividend, while the extraordinary dividend has been pulled back.So with those comments, I'll just hand back to Lennart for summary and some Q2 comments.
Thank you, Ivar.So trying to summarize what we have been presenting: sales volume growth and production excellence during the first quarter, positive; EBITDA impact by continued lower prices and the KM7 ramp-up; limited financial effects of corona, so far, but of course increasingly uncertainty going forward; and finally, strong financial position. And we have taken precautionary measures to secure that position.I think that pretty much wraps it up. So with that, I suppose we...
Yes, we will now I think -- we have one more slide actually, yes.
Yes, okay. Perhaps that's of a certain [indiscernible] due to outlook.We -- stable market conditions expected for products that we deliver to Food & Beverages and Medical & Hygiene. We see a continued strong market there, which is of course our biggest segments. And when it comes to market conditions for Consumer & Luxury Goods, we see that they will most likely become more challenging going forward, as will then the deliveries of products into the Industrial segment, which mainly then affects our paper business. Fiber costs, we've said, are expected to remain flat compared to Q1 due to the fact that we have certain higher costs in getting the wood out of the forests. We do expect some logistical challenges that might affect our sales or, let's say, our possibilities to deliver some volumes to Southeast Asia and that region. Remaining KM7 start-up effects in 2020 estimated somewhere around SEK 150 million to SEK 250 million. I think we will actually be able [indiscernible]. And when it comes to then the IAS 41 revaluation exercise of biological assets, I don't know if we mentioned that, but we are undertaking that in Q2 and which might have some impact then on our results in Q2.I think that's roughly it then, no more slides forgotten, I think.
Yes. So that was -- yes, that was the end of the presentation, and we will now open up for questions. [Operator Instructions]By that, please, operator, we are ready for questions.
[Operator Instructions] Our first question comes from the line of Linus Larsson from SEB.
I'd like to ask around Paper and the market outlook, especially now going into the second quarter. Given that sales has come down a long way, I'm curious to hear a bit more about how much potential downside you see. And maybe if you could open up a bit on your price visibility within Paper and your order book situation. And if you like, any type of guidance in terms of year-on-year volume development in the second quarter, please?
Okay. I guess I can start and Ivar can continue. Order book for brown sack right now is around 40 days, which is not bad at all, but that is partly due to the fact that we didn't [ promised that ] so much. But we had a production problem at the Skärblacka mill on the sack paper line early April, which meant that we lost roughly 8, 10 days of production, something like that. So order book right now is pretty decent, actually quite good. However, of course, we see that inflow of new orders is coming down. So I will guess that deliveries in April and May will continue on level where they should be, but then we probably will have a weaker June. We haven't felt so much price pressure yet, but normally that comes as a consequence of a lower demand on the market, so I think we need to expect some further drop on prices on brown sack. The -- on white sack, the story is a bit different because on white sack you need to remember that most of the white sack actually goes to smaller sacks and packages for sugar and flour and stuff like that, and that market is actually pretty strong. Second big market for white sack is then bags for various kinds of chemicals that goes a lot to automotive, et cetera. And of course, there we probably will see a certain impact, but that is compensated then by a strong demand from other segments in white sack. So it's mainly brown sack that is affected. I don't know, Ivar, if you have any additional comments.
No, I think you summarized it well. The only maybe caveat I want to add -- and I think this should be hopefully clear, but the whole market on Paper started to move quite a lot in Q2 last year. We really did what we can to hold back quite well on pricing in Q2. So actually overall Q2 '19 is still a relatively strong quarter on Paper. And if I just look at some of the average for division, pricing level now that we're trading on versus how we did Q2 '19 maybe are 15 percentage point lower. So certainly versus its Q2 '19, this will be another quarter which you would expect a hefty quarter impact from pricing, but then I think it really should be, to a large extent at least, the end of it since from Q3 '19 it started to go down. But I fully share with what Lennart said that, Q2 versus Q1, it starts to be at least limited of what we should expect of further price drops, with some exceptions.
That's very helpful. And now just on the technical kraft papers just to maybe complete the picture on Paper, what are you seeing there?
Well, on products then delivered, once again, to food and health care, actually we're pretty optimistic. We think that, let's say, prices will probably be flat. Volume outlook is probably slightly growing on that segment. If we look on the nonfood retail, industrial, we don't see much changes on prices. They will probably also be flat, but there I will say that volume-wise it's probably slightly declining. So overall no dramatic changes.
Great. That's very helpful. And just one final question from me. And you did elaborate a bit earlier on your fiber cost situation. I was a bit surprised that you're seeing flat fiber costs from here, but I understand better now that you gave some additional information there. Having said that, is it your anticipation that later in the year we might start to see a more favorable trend? And also, if you could please update us on your current or, should we say, 2020 net pulp balance for the group.
Okay, if I start with the situation in the forests then. I -- well, we are uncertain where the market will go during 2020, considering corona. I think it depends much on the development. And there is a strong connection to how the sawmills will be able to operate, but it's not unreasonable to believe that there will be further price reductions on pulpwood going forward if the market stays fairly normal. But we're a bit cautious to -- as uncertainty is so significant right now. Then what was...
Yes, on the pulp. Yes, no, I can try to cover that, Linus. It's a good question on what kind of net pulp exposure do we expect to see. Just a bit of a reminder that our net balance or long position in 2019 was 140,000 tonnes. I mean, as a starting point, we certainly expect that number to come down. A lot of that is driven through KM7 being -- well, coming into gear and will consume quite a big chunk of what that balance normally would have been. Now having said that, given now what's happening in terms of COVID-19 and also the uncertainty of what we see in the different channels playing out, there's no doubt that, that can also probably trigger some -- call it, some internal optimization where we might actually produce some selective pulp a little bit more than expected. So it's kind of there's minus of that number for the KM7 absorbing more and then some big uncertainty what else could happen in the wake of some channel uncertainty. So it's probably the best I can give you. Number should go down, but it's very tough to say how much it should go down with.
What could happen is, of course, also if the -- if it turns out that the brown sack paper market weakens further, we have now then done a small modification of our plant in Skärblacka. So we can -- as an alternative to produce brown sack, we can also produce brown market pulp. And there is a big demand for brown market pulp in -- and so that means that Skärblacka might be producing more brown market pulp than previously. And that's sort of a hedge, in a way, or a contingency plan if market goes down further for brown sack.
And the next question comes from the line of Robin Santavirta from Carnegie.
Yes. So first, a question on the KM7. Could you just provide some details on what did you produce in Q1? And what is the target basically at the end of the year in terms of volumes and in terms of split of that volume? And also related to the KM7, this qualification process, can you do that now normally with this coronavirus pandemic, or is that limiting you or prolonging the process? So that will be my first question.
Okay. I can start and Ivar can continue. Well, talking about the first quarter. And we've actually -- I'm quite happy with the way that the coater started. I think we were expecting more problems than turned out. It started up pretty well. And that means that during the first quarter we have made more trials with coated grades than we were expecting. And of course, the reason for pushing that a bit in timing is that coated products pay better than uncoated products. So we want to move into coated products as soon as possible. The drawback of that is, of course, that those trials means that the output was reduced somewhat compared to if we just had been running flat out with uncoated white top liner. Uncoated white top liner production now is actually very stable, and quality output is great on KM7. So we could produce a lot of tonnes if we want to do uncoated liner, but considering the overall market there, as we don't have existing -- let's say, existing customers for white top liner that can take substantially larger volumes, we need to send those volumes to new customers. And then the market is not very strong, so we're a bit cautious of doing that. And when we do it, of course, we don't get the highest prices. So therefore it pays off over time to do more coated products. So that's why we're focusing on that. Distribution of products, basically we said [ that we distribute ] 350,000 tonnes roughly for the period...
Between 250,000 and 350,000 tonnes.
Between 250,000 and 350,000 tonnes. And I think we will most likely be in the upper end of that. I don't know, Ivar, if you have any [ comments ] on the volume...
No, I can just -- no, but I can make some comments, though, that as Lennart said, when we also guided on the interval, it's certainly between, well, the methodology. There's a volume range and there's also contribution per tonne range. And between 250,000 and 350,000 tonnes is probably where we expect to land. Now the vast majority of that is coming within containerboard and will be linked to uncoated white top liner. There will be some coated white top liner, but that should be very minor. And there will be some produced -- production of cartonboard and cup stock, but I will also say that that's on the minor side. So I think that's pretty much the summary we can give at this stage.
Actually, as you all know, if you look on volume versus margin contribution per tonne, that the volume itself is not so interesting. What's interesting is the margin contribution we get on tonnes that we produce. So therefore, of course, we're trying to push for higher-quality board rather than just running the white top liner. Certification was also a question. You're correct. I think, our liquid packaging board customers, right now they're experiencing a very strong market, which means that they are just trying to produce flat out. And that, of course, as always, does reduce a bit their interest to do -- spend a lot of time and efforts on certification. However, I think they also see the strategic importance of supporting us in that process. So we have ongoing work with certifying our products for their filling machines and -- but you're probably right that they might have some implications in terms of a certain delay when it comes to the certification process, but it is ongoing. I hope that roughly answers your question.
Yes, definitely. Secondly, I was wondering about -- thanks for shedding light on the CapEx for this year. I was wondering about what is the outlook then for 2021, 2022. I know it's early but just sort of a rough indication and maybe related then to you have spoken a little bit about Frövi and Gävle recovery boilers. When should we expect decision for that? Is that now pushed forward? So a little bit sort of more details on that, please, if you can provide.
Yes, okay. Well, I think we have -- as I think I said when we had our last quarterly report, we have been reviewing the status of our machinery, and I think the picture is becoming increasingly clear. So I think we're building up a picture of what we need to do. And I think what you can expect is that we will do an investment in Frövi. The scope is still to be determined, and that means also that the size of that investment is still to be seen. I don't think that will have any major impact on the investments we do 2021. Likely that will come 2022, '23, in that space. 2021, we haven't, of course, looked so much into levels of investments there, but I would guess that it will be basically on par or slightly above the level that we see for 2020. So that means SEK 1.3 billion, SEK 1.5 billion, somewhere in that region, but it's still early days.
All right. And then finally, just on the share buyback program that you have spoken about. Is that still something that you are looking into? And what is the sort of reasoning for that if you still sort of plan to proceed with it? I guess net debt-to-EBITDA of 2.3x is not really very low. The outlook is fairly uncertain for you and for a lot of your customers. So what is the reasoning? Surely, this cannot be on -- a too strong balance sheet at the moment. So a little bit color on that, please, if you can.
Yes. No, it's a fair comment, Robin. And let me just try to say something around it. And I mean we said from the start that we wanted to keep a close eye always on our kind of market conditions and how our performance is proceeding forward and certainly, as you say, within the internal targets we do have. I guess, the projection, if you talk about 3 months ago, the world was also a little bit different. And we probably see that now the market has certainly changed and there is much more uncertainty. So I mean that certainly impacts, I guess you can call it, the ambition of when we start and how much we will push the button. I think you will probably say that the Board wants to go and they will proceed towards the AGM, asking for a mandate, but we will have a very, let's call it, yes, closed dialogue and be careful of potentially when and how much we go for this in terms of executing. Given our prognosis, I mean, just looking in terms of the ramp-up how much it should do, some efficiency programs, some of the potential, it has been pretty clear that there should be room for doing this and still keeping within our all parameters and targets. But this is a dynamic world and things have changed, and I guess that also means it's just a natural evaluation we take with the Board of, yes, if we do it and when and by how much. So more information to come. I think that's the best I can say.
And the next question comes from the line of Oskar Lindstrom from Danske Bank.
Yes. So very impressive sales volumes during the quarter. A couple of questions on this. So first off, I mean, did your production volumes match the sales volume, or was there any overhang? And then second here on the volume theme, could you please describe some of the actions that you've taken to improve the production stability? And does this mean that you -- we should expect sort of these higher volumes going forward? Notwithstanding the COVID-19 situation, of course, but is this a new production level that we're seeing?
Okay. Thanks for the questions. Okay, I can start. Well, production volumes and sales volumes matched pretty well, actually, in the first quarter. So there is a -- and I will say that means that stock levels were more or less on the same level. So we had a good production in all factories during the first quarter this year, and you're right. I will say that, that is due to specific actions that we have taken. And a lot of that has to do, I will say, with a focus less -- allowing the different mills to focus but also really challenging them, putting in the right resources, following up very much on actions taken and putting in some experts in systematically identifying where we've had, let's say, bottlenecks and production issues. So we've spent a lot of time during the first -- let's say, last couple of months last year and the first quarter this year on improving stability in production through specific actions. Normally, there is a tendency to think that you solve availability issues with investments, but a lot of it is actually down to a lot of small actions taken in everyday operation. I think this is what we really spend a lot of time on, and I have to say that the different mill teams have done a fantastic job during the first quarter. And I would be -- I'm not saying that all problems will disappear forever, but I think, with the way we're working right now, I do expect us to have a production level that is higher than we've seen in the last couple of years and also going forward. On top of that, of course, we have KM7 that now also will start to contribute with more and more volumes. I don't know if that -- was that okay as an answer?
No, I think that's very interesting and since just production stability has been the issue for the company for a couple of years now. And it's nice to see production stability returning. And a second question here, on a different theme, is you talked about sort of stable food and beverage, potentially weaker consumer and luxury, Industrial segments. Respectively, how large are those segments for you in terms of sales? And what are you seeing right now or, let's say, in April in terms of demand for those various segments?
Okay. Well, just to try to give you rough figures. I think, if we talk about food, beverage, medical, that corresponds to roughly 60% of our volumes. What we define then as consumer and luxury, I would say, is 20%. And the remaining 20% is then roughly industrial applications, just to give you a rough overview on that.
And what are you seeing in these segments? I realize you've touched on it already a little bit, but I mean now in April.
Yes, I can try to give -- I can give you a little bit of a flavor just to give you some more data points at least. So if you talk about Food & Beverages, it shouldn't be a big surprise that, that is dominated by liquid packaging board. And there is also a big chunk -- I mean the majority of containerboard also belongs to that section. And then there is a minority, let's call it 15%, 20%, from cartonboard. And then there is a good chunk, let's say 30% to 40%, of white sack and then kraft paper also belonging to that piece. Medical & Hygiene, all coming from kraft paper. And if you're thinking about the consumer and luxury, that is split between more segments, but just doing a bit the rough and fast view: Cup stock certainly belongs there. We talk about cartonboard. It's not a big surprise. The majority of that belongs to consumer and luxury; smaller piece, 10% ish, of containerboard coming in there; and then somewhere between, yes, 20% to 25% of white sack and kraft paper sitting there. And then on the Industrial, dominated by brown sack, but there is also a good chunk from kraft paper, 40%. And then there is a -- about 1/3 of white sack as well. So it might be going a little bit fast here. I hope you got most of the points, but that's [ a quick view ], yes.
And the next question comes from the line of Markku Järvinen from Handelsbanken.
This is Markku from Handelsbanken. I had a few more questions. And you mentioned that energy prices are lower as we can -- have seen. Could you just remind us, how much power do you purchase? And then give a description of what your sort of hedging strategy is. I suppose you mostly deal in annual forwards, so this year, probably not that much of an impact, but what's the situation for next year? And when does that fully roll in, the lower price?
Yes. Well, I think it's a question for Ivar, but well, as you know, spot prices for energy have dropped by where they're basically less than half now than they were a couple of months ago. I don't know if -- do you have the figures, Ivar, on consumption?
Yes. So the total of -- is 3.6 of terawatts that we have in general consumption; and then 1.8, so about half of that, we purchase basically. And the other one, we produce. I think, in terms of the hedging policy, we can say that within the next 12 months we hedge the vast majority. And that typically means somewhere between 80% to 90%, so that means for the coming 12 months that's the level we are. And a lot of those positions were locked on or locked into kind of end of last year and beginning of this year, certainly before we see a lot of these dramatic declines that has -- now has happened. Now going into then 2021 and 2022, I mean, those hedging positions starts to dramatically decline. So I mean roughly you can say that for 2021 we have somewhere between 40% to 50% already locked in, and then from 2022, we're down to 20%. At least that should give you a flavor of the current position we have.
Yes.
Okay. Very good. And just further on that is what's your sort of spend on fossil fuels.
Yes. I think, to be honest, Markku -- that's a fair question. I don't have that [ trade-off ], so I think we'll need to come back to you on that.
[ We are not a big user of ]...
It shouldn't be a crazy amount, but let -- we can send you a note on that. So we don't have that upfront here.
Yes, yes, okay. Then I guess you mentioned that you had some issues at Skärblacka in beginning of April. And perhaps you already mentioned what the sort of financial impacts of that will be in Q2, but maybe you could just remind me because I maybe missed that.
I'm not sure if we gave any figure or not, but it's around SEK 30 million.
And the next question comes from the line of Martin Melbye from ABG.
Could -- you gave some hints on price direction for the coming quarter. Could you be more specific on brown sack paper, the price decline for Q2?
No. You tell me. No, I think prices are -- we don't see any big price change right now here in April, May. I think there is some possibility that prices might drop further. I don't know. Some further down in, let's say, around June, but to give a figure on that, my guess is probably as good as your guess but possibly another further 10%. I have no idea. It depends on the [ development work ].
And then you talk about maybe hiking the value of the forests. Could you give a rough magnitude for Q2 how much that could be on EBIT?
Yes, it's a tough one because, I mean, we're literally in these discussions. And it's basically too early to say, but I can say that, when we talk about the book value we have, it's currently SEK 70 million. And I think we will be looking into the biological assets of 18,000 hectares. And there starts to be some external benchmarking that you can do just to give a bit of a flavor, but they also vary a lot. And I think we also will definitely have a thorough discussion and including the methodology with several stakeholders on this before we decide. So I don't want to give you any number more than that, but at least then you have some coordinates of the starting points of where we are.
Okay. And on these remaining ramp-up costs in Gruvön, will that be booked in Q2 mainly, or is it spread over more quarters?
Sorry. Once again. I didn't hear the question.
These remaining ramp-up costs on the KM7, will those be -- mainly be booked in Q2, or is it later in the year as well?
I can try to answer. I think it's fair to say that we expect the vast part of that balance to come into Q2. There should be -- maybe be something coming in, in second half, but our expectation is certainly that it starts to dramatically decline, a lot even, when we come into second half.
Great. Last question for me: These wood costs that dropped maybe less than one could thought -- could have thought, is that Billerud specific? Or is it more a reflection of the market, do you think?
I think it's a reflection of the market.
And the next question comes from the line of Johannes Grunselius from Kepler Cheuvreux.
It's Johannes here. I have a couple of questions on liquid packaging board. And could you just remind us about your pricing sort of structure there? I know a lot of those volumes goes on annual contracts. So if you can remind us about how the contracts looks like going forward here; and if you can sort of elaborate a little bit on prices over costs, what you see in liquid packaging board for the near future.
Yes, I can start, and then probably Lennart can jump in. I think, as you know, I mean, it's a very consolidated market, so we're not talking about many players who constitute the customer base for us; and that the contracts typically are done somewhere between 1 to 2 years basis. That means that typically 1 of the 3 is due up for discussion, negotiation almost at some point of a year. We don't really guide any specific on what contracts specifically are negotiated when. So I think that is just, yes, let's call it, a -- the 3 parties kind of rolling over in cycles of 1 to 2 years. I think in particular, on the cost base, I'm not so sure if there's anything particularly I want to kind of add on that since a lot of it is down to the fiber costs that we have already mentioned, quite a lot of it, and some of the chemical, energy. I don't think there's anything specific that I feel is worth mentioning unless there is something in particular you have in mind.
No. I was -- just wanted to get a feeling if you could help me on -- about your thinking about EBIT per tonne here is what we see in the first quarter, is that sort of representative for the next few quarters? Or do you see sort of a EBIT per tonne improvement or EBIT per tonne decline? That's sort of what I'm thinking about.
Yes. I mean I think, the answer, at least on net sales per tonne, that don't tend to change a lot over the quarters. So I think that's with some, again, caveats around new contracts coming in and out, but that tends to be pretty stable. Certainly the mix can have some impact, but in general that's one of the very flat segments we have. I think liquid packaging cost base is impacted like everybody else, depending on how we are obviously in the market. And so yes, I think we already went through that. I think that's pretty much the best information we have. And I don't know, Lennart, if you have anything else to add.
I think I would say that, that is a very stable business, so [indiscernible] don't expect any big change...
Sure, sure. And just continuing with liquid packaging board but on volumes. I mean, could you mention what sort of capacity utilization you are running at? Could you sort of take out more volumes since there's appears to be very good demand for liquid packaging at the moment?
Well, I think you can expect that we will do some marginal increases, but until we have KM7 certified for liquid packaging board, we don't have too much additional capacity to put in there. But step-wise, as we get KM7 into liquid packaging board, of course, we intend to increase our volumes there.
Yes. Then I have a kind of a detailed financial question because I saw in the report that net working capital was impacted, I think, in the magnitude of SEK 400 million because of some sort of electric -- how you book basically hedging on the electricity side. So I guess that's more of a technical accounting thing, but should we assume that this was a negative one? Or can you reverse this net working capital change?
Yes. I mean it's -- as I said, it's SEK 400 million, and that sits now. I mean it's moved out from our cash balance and sit in other receivables, and then you can certainly say that we will get that back. I mean I hope so. I think it really depends then on the spot price, yes. And if the spot price will come up, part of this will be automatically coming back to us. And certainly if it stays like this, then that's how it is, based on our contract but anybody's guess. I'm not going to sit here and say that I'm an expert on how to read the energy market, but yes, I think, if the spot rates will go up, then that will start to come back to us in the coming quarters.
And the last question comes from the line of Cole Hathorn from Jefferies.
Just one follow-up on brown sack kraft paper. You mentioned that, Skärblacka for example, you can produce some brown market pulp if sack demand declines. What else can you do among your production portfolio to kind of manage production to demand?
Good question. We are putting quite a lot of efforts into looking into product mix and product mix alterations right now. So of course, there are opportunities to go into other niches, and we might very well do so if they give a better margin contribution per tonne. I wouldn't expect that we can do that for all our products, considering that the market is as it is and the fact that we have certain limitations on our different paper machines, but let's say we might be able to move some 10%, 15% of our sack production into other segments, disregarding now market pulp.
As there are no further questions, I'll hand it back to the speakers.
Okay then. So that concludes this conference call. Thank you all for participating. And welcome back when we report our Q2 results, which is on 17th of July. Thank you.
Thank you.
Thank you.