Svenska Cellulosa SCA AB
STO:SCA B
Svenska Cellulosa SCA AB
STO:SCA B
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Sincerely welcome to this press conference and the presentation of SCA's Interim Report for the First Quarter. The report will be presented by our President and CEO Ulf Larsson, and our Chief Financial Officer, Toby Lawton. After the presentation, there will be an opportunity for questions. So please, Ulf, would you take the floor?
Thank you Bjorn, most welcome, happy to give you some comments about our first quarter 2019. And if I summarize, I can note that this is the best quarter ever for SCA, even if we take the time before the split into consideration, which is, of course, very nice. We saw in the end of [ 2018 ] that prices started to peak in most product areas, except from publication papers, where we've seen also price increase during the first quarter '19. Anyway, they have remained on a historically high level also in the first quarter '19. Sales was up quarter-on-quarter by 15%; price, currency and mix of course, but maybe more important is the ramp-up effect now from Ostrand that gives a 5% effect in sales.EBITDA was up as much as 33%, again, price, mix, currency, Ostrand. We had one transaction effect from the merger between Groupe ISB and SCA Wood France. And, I don't know if you remember, but we had a big fire in our French operation last year, and so we have also been covered for some extra costs and also loss of contribution from the insurance company. So that had also an effect during Q1. Otherwise, we have seen some price increases for raw material, not the least wood, in the first quarter. I will come back to the ramp-up of Ostrand, but I can already now say that it is progressing according to plan, which is positive.We had two events during the quarter, one was the merger between Groupe ISB and SCA Wood France that we will retain with 38.5% of the shares, so by that we will be the main owner in the new company. And we have also, during the quarter, finalized acquisition of 10,000 hectares of forest land in Latvia, and that is according to our strategy to increase our ownership in forest.If we then walk into some KPIs, we can see that we had SEK1.56 billion on EBITDA level, which is 33% up quarter-on-quarter and 4% better than we had Q4 2018. That gave us an healthy EBITDA margin of 31%, and we also increased our industrial return on capital employed with 1% from 16%, fourth quarter '18, up to 17%, calculated as last 12 months.During the first quarter this year, we have paid out dividends and after that we have a leverage of 1.6x, and I think I mentioned it before, but we have now been able to finance the entire Ostrand project from the operating cash flow.If we then walk into our segments, starting with Forest. As you can see on the left-hand side, we have seen higher prices in the market and so also in the first quarter '19. I think that we now have reached some kind of peak level in this perspective, also when it comes to prices for imported wood. We have in SCA increased our wood sourcing in order to meet the increasing demand from Ostrand, of course, and sales was up 27%, due to that fact, also due to higher prices, but not the least due to an increased volume. EBITDA was up 9%. One thing is higher prices, but on the negative side, we have the mix, as we now have [ some ] yearly basis to supply 2.5 million cubic meters more than we did in the past. That have, of course, an impact on the mix. So less from our own forests and somewhat more from import and what we buy from private forest owner in the region. And here we have a lagging effect. So that will be of course be charged to Ostrand, but we have a lagging effect between the Forest and the Industry.In Wood, as I mentioned, we have finalized the merger between SCA Wood France and Groupe ISB and that is a clear consolidation of the French timber market. This new company will have a sales of EUR270 million per year and the new company will have a market share of 50% in Nordic softwood against the Builder's Merchants. So it will be very exciting to see what we can achieve here. Otherwise, we have seen stable delivery volumes during the period, and our stock of orders is on a good level, as it is just now. Inventory level is equally high as it was in first quarter, sits on a good level.We saw somewhat lower prices in Q1 in comparison with Q4, and I think I said that we should see between 2% and 5% price decreases first quarter in comparison with the fourth quarter. And we came up with 3.5%, so that was almost spot on. And I foresee approximately the same movement also in the second quarter. So we will reduce prices between 2% and 4% also in the second quarter in comparison with the first quarter. And nevertheless, sales was up 12% quarter-on-quarter and increased volumes, and also due to prices and positive currency effect.EBITDA up 73%, and I mentioned the transaction effect of the merger between Groupe ISB and SCA Wood France, and also the insurance money. And if you take that away, the EBITDA was up 22% for the quarter. Again, also here we -- and that we see for all product segments that we have had increased costs for wood during the period.Then we walk into Pulp, and as I said, the ramp-up is progressing according to plan and I can start by commenting the volumes for the first quarter '19 and the deliveries. Last quarter I had a question why we didn't deliver what we produce. And the answer at that time was that we need to have at least 1 month in stock in order to fulfill requirements from -- service requirements from customers. And now we are almost there, so that means that we have delivered what we produced in Q1, close to 170,000 tonnes.Q1 otherwise has been -- we have had some struggle, not the least in the beginning, as you can see the dip in January, and that is due to a leakage in one tube in the old part of the recovery boiler. We had one also in September, and in fact, we also had one in April, which you can't see, because April has been fantastic in terms of production. That is something that we will fix, but we have to wait until the plants stop in October, week 41, 42, where we will stand still for 17 days. And at that stage we will also replace this old part. But that is what you can expect. I mean in a ramp-up we have two steps forward and one step back. What we now see in April is that we for a longer time has reached full capacity, almost 7 days on full capacity and now we are more focused on fine-tuning and trimming and so on. But again, first year with full capacity will be 2020, as we have said already in the past.Some words about the result in Pulp, I mean in terms of price, we have seen that prices still peak also in pulp in November at USD 12.30 fixed price per tonne. And in March they were down to USD 1,100 per tonne. At the same time Chinese prices went from [ 660 up to 710 ] in March. So by that the deviation between Chinese spot prices and, let's say, net prices in Europe was around USD 60 per tonne in March. Now we see that prices will go down another USD 30 per ton in April and we also see that Chinese prices picking up again. So, I mean, now we are soon reaching some kind of balance point here, which is positive, I think for the coming price development of the second part of this year. We are positively impacted by the increasing volumes, of course, and by that also sales was up 93% quarter-on-quarter and EBITDA was also up 97%,In Paper, you know that we have gathered both publication papers and containerboard and we have a slightly different picture in these two segments sales now. In publication paper, as I said, and as you can see to the left-hand side, we have had increased prices also for the first quarter '19, while we in kraftliner has seen reduced prices. And again, also here, we reached peak prices in November, and since November up to March we have lost around EUR 70 per tonne in unbleached kraft. And in white top kraftliner, we have a different, slightly, picture also, but we have lost EUR 20 per tonne during the first quarter '19. And what you see to the left-hand side is the combined situation for SCA. And as you know, we produce around 85% unbleached kraft and 15% white top kraft, so it's a mix of these two qualities.Sales was rather flat quarter-on-quarter. EBITDA was up 5%, due to higher prices for publication papers, positive currency effect, and also somewhat improved product and market mix. We have also, as you know, a project going on in Munksund where we try to increase the capacity of white top kraftliner. The total capacity would remain on the same level, but we will increase the share of white top bid around 50,000 tonnes, and that project it's also progressing according to plan. So we will be up and running in -- let's say, between Q2 and Q3, which is according to plan.I have one slide regarding renewable energy, and you know that we have a lot of exciting growth projects in this field. Maybe wind is not the most exciting area. But we have been very successful in this area in the past. We had a long-term target to reach 5 terawatt hours and now we know that we will exceed that target. So 2021, we will reach 6.7 terawatt hours installed capacity on SCA land, which is equal to around SEK 100 million on EBIT level, if you have the same conditions as we have today in terms of energy prices and so on. And we also have a big interest and lots of new projects in line, so we have also put a new target on 11 terawatt hours -- long-term target on the 11 terawatt hours installed capacity.Before I hand over to Toby, I'd like to finish up with this slide showing SCA's contribution to a fossil-free society. And we did some work last year in order to present this slide at our AGM in March and we did identify -- we did quantify and also validate the contribution we could do for a fossil-free world. Then if we start with the left-hand side, you can see that our well-managed forests growing fast, has a net binding capacity of 4 million tonne carbon dioxide per year, and that is due to the fact that before each tree that we harvest, plan to replant two new ones. We have -- we are really intensive in our silvicultural operations. On 15% of SCA land we use Pinus contorta, which has 40% higher growth than the normal conventional Scotch pine. We do some fertilization and so on. But all in all, net binding capacity of 4 million tonnes per year.If we then turn to the right side of this slide, you can see that we also with the renewable fiber can replace more fossil-based materials. Then we talk about paper instead of plastics, we talk about bio-energy instead of fossil fuels and solid wood products instead of steel, concrete and so on. And that also gave a contribution of 5 million tonne per year. Then, of course, we have some emissions from our industry that we have reduced by 50% since 2010 up till now, but still we are on the level of 0.9 million tonnes per year. But the net contribution is 8 million tonne, and that is as much as the total truck traffic in Sweden and also the domestic flights. So it's quite a lot and it has been very positively received at the AGM, but also afterwards in different locations.So by that, Toby, I hand over to you.
Thanks Ulf. I will start with the -- a little bit on the income statement here. And you can see, as Ulf presented, our top line and net sales grew by 15% versus Q1 last year to -- yes, nearly SEK 5.1 billion in the quarter. EBITDA then grew by 33%, which relates to a margin of 30.7%, EBITDA margin.If I then go down below the operating level, we have financial items in the quarter of SEK 30 million, which also includes now some financial costs from the new leasing accounting. So IFRS 16 effects now have a small effect on the financial cost. And the tax we paid, SEK 230 million tax in the quarter, we had accounting charge of SEK 230 million for tax, which is an effective tax rate of a little bit more than 20%, close to the Swedish tax rate. All that means that we have a net profit of SEK 908 million in Q1, which relates to an earnings per share of SEK 1.29.If we then just talk a bit about the results per segment and focus a bit on the development versus Q4, particularly now. In Forest, we see a growing top line, a growing net sales, driven by two factors. But the biggest factor is the volume growth in supply to Ostrand, of course, which is growing. And we also have some higher prices coming through in the top line as well. When it comes to the bottom line, we have a seasonality in our business. So we always -- the bottom line is driven more by the amount of harvesting of our own forest, which tends to be less in the first quarter. So that seasonality is there, but we also -- the profit in the bottom line is driven by the result from our harvesting our own forest. So, it's not -- we're not growing the harvesting from our own forest at the same rate that we are growing the top line, because of the increased sourcing for Ostrand's needs comes mainly from third party forest owners.When it comes to the Wood segment, we see increased volumes, but prices have come down a bit versus Q4, as Ulf mentioned. When it comes to the bottom line, we have this effect from the restructuring in France, which is SEK 90 million on the bottom line. Of that around 2/3 is related to the transaction with ISB, the merging of the company and around 1/3 is the insurance effect from this proceeds after the cost for the fire, which we had last year.When it comes to Pulp, we have increasing volumes of course, from the ramp-up of Ostrand pulp mill. Prices are a bit lower than they were in the fourth quarter and we also -- slightly was mix, because we're now selling a bit further away -- the increased volumes are a bit further away, so the mix is a bit worse than it was in the fourth quarter. When it comes to the bottom line, we have basically those effects from the price, we also have an increased wood cost feeding through into the Ostrand result, which is offset by better energy balance. So, we are improving the energy balance in Ostrand.When it comes to Paper, we have slightly lower volumes than the fourth quarter. The pricing on publication paper is positive towards boosting top-line, whereas kraftliner, the other way around, is slightly lower than the fourth quarter. And when it comes to the bottom line, you have those effects and we also had a maintenance stop in the fourth quarter. So, that's an effect that impacted the result in the fourth quarter and we had no maintenance stops here in the first quarter this year.A bit on the bridge between Q1 last year and Q1 this year in terms of top line. You can see here, we have price-mix improvements of 5% versus Q1 last year. We have a volume growth, which is also driven primarily by Ostrand's higher volumes versus Q1 last year, which is 5%, and we have a currency impact of 5% as well, which is mainly due to the positive impact from euro and US dollar and the weaker Swedish crown versus euro and US dollar.When it comes to EBITDA bridge, we -- of course we have the higher prices and mix, which is plus SEK 248 million. We have higher volumes, again, which you saw on a previous slide. So some SEK 95 million on EBITDA. We have an increased raw material costs, so an increased price for sourcing raw materials and primarily wood of course. On the other hand, we are working very hard to improve the energy balance in the company, which is driven a lot by the better energy balance in Ostrand and that improves our energy cost by SEK 51 million in the first quarter, and we have then a positive currency effect against the euro and US dollar, primarily, and then a positive effect on Other of SEK 46 million, which is largely again this effect from the restructuring in France, which drives that. So overall, the, yes, the EBITDA grew by 33% and the margin then increased from 26.7% last year to now 30.7% in the first quarter.When it comes to cash flow, we had EBITDA of SEK 1.56 billion. If we take away the revaluation effect, we are then, yes, SEK 1.3 billion. We've increased working capital in line with the ramp-up of the top line and of Ostrand. But the ratio in the working capital to sales is constant. Capital expenditure was SEK 168 million in the first quarter. Here, we also included some SEK 26 million, which is from the new leasing effect on current CapEx, which gives us a net operating cash flow of SEK 626 million, and we have strategic CapEx, which is outside operating cash flow, which is primarily Ostrand, which is SEK 143 million. So, we are still -- absolutely still financing Ostrand from operating cash flow, which we've done for the whole project.Just to show -- we had a change in net debt. And just to show where this comes from, so everyone understands. We have -- the net debt at the end of the fourth quarter was SEK 7 billion. We've had the positive operating cash flow, which you saw of 6 -- just over SEK 600 million. And we've had a strategic CapEx, which was SEK 143 million. We've had the acquisition, which is the new shares in France, which is the cost for the new shares in France related to ISB, which is SEK 158 million. So those effects, plus the dividend, which we paid out in the first quarter, and then the effect from the new accounting principles for IFRS 16, both add around SEK 1.2 billion. So that means we come out to the end of the first quarter with a net debt with the new accounting treatment of just over SEK 9 billion, which relates to then a net debt to EBITDA of 1.6x.When it comes to the balance sheet, again the IFRS 16 has affected then the balance sheet in end of March, related to the end of December and it affects primarily -- apart from the net debt, which I've just shown you, it also affects the other capital employed, which is primarily fixed assets in this picture, which also increases by around SEK 1.2 billion. So that's the main change. We also have, you can see, working capital to sales was 18% at the end of the fourth quarter and it's 18% at the end of the first quarter. So a constant ratio to sales. But of course the growth in the company drives a growth in working capital.Okay. I'll hand back to Ulf.
So to summarize, we had a strong quarter, strongest ever, and prices coming down from peak levels, but still remaining on a historically high level. Strong sales growth, mainly related to the Ostrand ramp-up, which is also -- which is a positive thing, of course. And EBITDA was also quarter-on-quarter, up 33%. We had two events during this quarter. One was the merger between Groupe ISB in France and SCA Wood France and then the acquisition of this Latvian forest land.So by that, I think that we open up for questions from the audience, please.
Gustaf Schwerin from Pareto Securities, I have three questions, I'll take them one by one. I mean, we've asked it before, but on the Ostrand cost base, you talked about the SEK 350 fixed cost reduction after the ramp-up. I mean just to get some feeling for where we are heading in the near term. I mean if I look at cost per tonne sequentially, I think it's up 10% even though the volumes are up. I mean, you mentioned the transportation costs and that's part of it. But I mean can you give some color on what's going to happen in Q2 and really what's driving up the cost per tonne sequentially in Q1?
Okay. I mean the cost per tonne is pretty flat Q1 versus Q4. I don't know what you're comparing the 10% with. But of course we have higher wood cost coming through, which is a significant impact. The cost per tonne benefit is also driven by the volume. So we need to get the top line -- once the top line is up, then we get the full benefit in terms of fixed cost per tonne, and we're not there yet. We don't see that benefit for -- out yet, but basically the two biggest effects is the raw material cost, which you saw is increasing and Ostrand is now taking that cost. And then the energy balance, which is positive. And that will get -- that energy balance is not fully in yet either. That will come through more as we ramp up the mill as well. So it was those two effects primarily.
But if you wouldn't have had those production hiccups in January, I mean, would we have seen a significantly lower number per tonne?
Well, I think if we'd had higher volumes lead to better fixed cost coverage, yes. And probably higher volumes also lead to a better performance in terms of energy. So, yes.
[indiscernible] I mean still we are in a ramp-up period and that also goes for use of chemicals and how much wood you need to produce total pulp and all that kind of things. I mean we have just started. 2020 we will have full capacity, but [indiscernible] I mean, be going on for many years. So, don't hurry too much, please.
Okay, great. And then also related to Pulp, I mean you had those hiccups. I mean, if you would have produced more in the quarter, could you have sold more? Then also just a few words on general pulp demand, I guess, primarily in Europe, but China as well.
As Toby said, I mean, you see an impact on the result for the first quarter due to the mix. So, I mean we have sold much more to Asia and also to U.S. than maybe the fourth quarter. That has had a negative impact, at least the volume for Asia. Otherwise, we feel a stronger pulp market out there. If you saw the statistics for March now, so far the inventory level went down to I think 3 days down to 38 days, and also in hardwood they went down 3 days. So, maybe feel lot of strong demand now again from Asia and we see that business has started well after the Chinese New Year, as we also predicted. And Europe, little bit slower, U.S. still strong. I think it's a rather balanced situation. But yes, we could have sold more. If we can produce, then we can sell, that's the answer.
Great. And then lastly, I mean the kraftliner market is obviously weaker now than it was a year ago. But when I look at your volumes year-on-year they seem quite low. I mean is this only demand-driven or are you optimizing your mix in order to get your sort of realized pricing up?
I think it's partly production-driven, is partly -- last year we were still selling some out of stock in the early part of last year. So, we were managing to sell ahead of production. We are not able to do that every quarter, of course. I would say it's not particularly demand driven. Yes, probably the European market is -- it's a bit softer than it was in the first half of last year, which is reflected in the pricing, but it is not particularly a volume effect.
[Operator Instructions] And to begin with a question coming from the line of Linus Larsson.
I'd like to start with the wood cost situation. Could you talk a bit more about that, what you expect in terms of wood, I mean, input -- the raw material cost trends in the next quarters to come? Should we expect lower P&L costs for wood in the second versus the first quarter, for instance?
Actually we expect -- when it comes to the cost the industries are paying for wood, we expect that to increase slightly for pulpwood in the second quarter. We do have -- as Ulf mentioned, we do have a time lag effect from the way the prices come in and the way they're sold on to the industries. And as you know, we source from our own forest, but we also source from -- yes, we have some import, we have third-party forest owners and we have some central sourcing and they will have a -- yes, you could say a different time lag. But, we have this lag effect until the way the prices go through to the market, but we -- through to the industries. But we -- in summary, we do expect the industries to pay us for pulpwood a slightly higher cost in the second quarter again versus the first quarter.
And for sawlogs in the second quarter?
Pretty stable. Yes, so not a big effect on sawlogs.
And when would you expect a decline on a sequential basis?
I think that remains to be seen. I think we expect it to be flat, we don't see further increases at the moment after the second quarter. And then it depends on the market development really how that pans out after that.
What you can see an effect of is the mix, of course, because now we -- I mean when Ostrand is ramped up, we need 2.5 million cubic meters more. And that of course will give a less good mix than we had in the past, for sure.
The best part of your guidance, when you talk about the second quarter, I assume.
Yes. Absolutely, yes.
Then on your Wood business area, just on pricing, you said that you had a 3.5% price decline in the first quarter. Was that on an average-to-average basis, or how should I understand that 3.5%? If I look on the realized Swedish krona basis, the decline was obviously a lot less.
That is the average for both species and included currency effects and so on. So, I mean that is the average.
I guess, in local currencies, I guess, in pounds and euros and so forth?
No, including currency effects, That's in -- SEK based.
Oh, really. Okay. It looked like a lot less in your P&L I thought on a realized basis, but maybe there is something else disturbing that picture?
So, we have a mix between timber supply where we have more wholesale kind of business and we have our sawmill side. So -- but it's basically the actual clean price difference is 3.5%.
Okay. And you also said -- so what you said about second quarter, you said 2% to 4%, let's call it 3%, that's also on an average-to-average realized basis in Swedish krona terms then?
Calculated on the same way, I think that we will see around 3% down also in the second quarter in comparison with the first quarter. I mean, we have done 90% of the business for the second quarter now. We have also set prices and we have a good stock of orders and we don't have too much to sell. So, not too much of spot volumes for the rest of this quarter. So, it's a balance situation. But prices will go down, approximately as much in Q2 as it did in Q1.
And then just one final question from my side, what's the latest on the Obbola kraftliner project?
We have more or less finalized now the pre-project and we are fine tuning a little bit, and mainly related to permissions and things like that. So, I think we will have -- the pre-project will be finalized during this summer.
And a board decision...
That you have to ask the board about, but I mean, the pre-project will be finalized during this summer.
And your next question comes from the line of Mikael Doepel.
Coming back to the sawn timber markets, we talked about the pricing there a lot. But how do you see the demand situation going forward? I think your deliveries were quite good in the first quarter. How do you see demand developing and volumes developing in Q2?
As I said, I mean we have good or strong stock of orders. I think we've sold out 90% of what we produce in the second quarter, which is normal, I would say. If we take a look at the inventory level, we are more or less on the same level in -- where we are now, as we were 1 year ago. So I mean that is a stable sign. So we feel good demand in the market and we have now also started up the sales to the Builder's Merchants sector and also a good start -- reasonably good start, so it's a normal situation.
Okay. And if demand is good, then what is pressuring prices down?
I mean it's always a question about balance and I don't know if we have a different situation compared to colleagues, but for us -- for us it's a balanced situation. So, what has pressed down the prices is maybe the Chinese situation, and if we see in that you have normal activities now in China for pulp. Maybe, it's still a little bit slower in solid wood products, I would say. And also Japan maybe a little bit slower.
Okay. And then switching to kraftliners, you talked about some price pressure in that business. What are your expectations going forward? Do you see price bottoming out now or do you expect to see some further price slippage there?
Again, we don't forecast prices, but if you look into these indexes that you can publicly find, you see that prices still is continuing down, not dramatically, but you have EUR 2, EUR 3 per tonne down, and that is what we see and that is what you also can see from public figures.
Okay. Then a final question on the pulp market. You talked about demand there in China improving and Europe still being pretty slow, you talked about European prices coming off in April. But I didn't really catch what you said about China prices, were you expecting China prices move up now?
I mean, what we see own, the Chinese market is -- that they have moved up from [ 660 November, up to 710 ], and we see a trend slightly upwards in China. So, I think you will reach some kind of balance point in this summer and when we have the balance point then you can judge yourself really what's going to happen for the second half of this year. But, I mean that is good. So we feel a much stable market now in pulp than we maybe did a couple of months ago.
And what is your take on the inventory situation in pulp? If you look at the port inventories, for example, in Europe and also in China, they are undoubtedly very high still. What's your take on that, how that will impact the market?
I mean they are high, but the trend is downwards. You saw that in -- for the March figures now, both for softwood and hardwood, the inventories went down with 3 days each and -- but I mean the level is what it is. I mean we see the same figure there.
Yes, sure. And then just a final question, maybe a bit of a technical more. But in terms of the SEK 90 million booking that you did, did in the first quarter, you said that 2/3 of that related to the merger. Where are these numbers coming from? Why are you booking the kind of a one-off for the merger?
What we've done is we've sold our operation in France to the new company. So that's basically what drives the effect from the merger of the company. So we have actually 2/3 of the SEK 90 million is from that effect and then the insurance is a separate matter and that's basically in the result is the other 1/3. But the cash flow effect is really -- is SEK 90 million as well, but it's driven from -- and that's a cash flow effect and that's driven from the insurance impact. So it's a bit technical, hope that was clear. But it's those two effects which are all related to France and basically the -- the whole of the -- our French business has now been restructured into the new merged company.
And your next question comes from the line of [Operator Instructions].
I still had a few questions. Regarding pricing, Q1 we saw higher prices for publication papers. Are those price increases now fully in your Q1 numbers, and do we still see increases in Q2, and what kind of a contract structure do you have in place?
I mean they are in our results in Q1 basically.
And we don't expect further price increases in publication papers in Q2.
And do you expect to sort of maintain this price level throughout the year or how does it look for H2? Do you have a annual contract or a biannual contract?
Yes, in some areas you have annual contracts, but at the same time we know that -- you can't really answer that. But, I mean we see now that capacity will be closed down, not the least in LWC, [ Virgo ] and some other place, also some in -- that will improve the balance quite a bit. But on the other hand, structurally, the consumption is going down in publication papers, we know that and so, capacity need to be closed down in order to keep the balance; that's for sure.
Okay. And on the kraftliner side, I guess we see prices moving down. How do you see that market developing, what's sort of driving the prices down and how long do you sort of expect that to continue?
I think one thing is the general situation, not the least in Germany and Central Europe, where I mean you see less activities. And if you don't have the same growth that you had in the past that will have an impact on the use of packaging materials, that's for sure. And the other thing is, maybe also the price development that you see in recycled fiber that put the pressure on the testliner prices and that will also have an impact on the kraftliner pricing.
Okay. And in terms of Obbola, I guess you're finalizing the pre-project now, what sort of a -- technically what follows the pre-project? Is it then the feasibility and how long would that last?
We are just now -- as I said, we are fine tuning some details here, mainly related to permissions. So, we have to wait and see a little bit, and I think we will have cleared that out in the middle of the summer. And after that the pre-project is finalized and then it's up to the board.
So, pre-project is followed by an investment decision -- it's followed by an investment decision, is that the way to look at it?
Yes, there is no other stage in-between. I mean the pre-project includes the feasibility.
Okay. So construction can start after a decision by board?
Yes.
Okay, good. And just on that topic, how do you view now, as Stora has announced the expansion in kraftliner, pending board decision there as well, and [ Klubiness ] also discussed a fairly sizable expansion. How do you see the market sort of absorbing of this new capacity?
I mean if you look in the past you see a rather solid growth in packaging materials. So 2% to 3% per year. And I think new capacity is needed in the market, definitely.
Okay. And then still on this front, could you talk about Chinese pulp market a bit more? Do you expect to move much of the sort of added capacity that's coming on stream when you ramp up to China or how should we sort of think about that?
I mean, our core market, our home market, that is Europe, of course, and will be going forward. Then, I think that -- the best development that we've had now has been in the U.S., where we see a rather big demand for the quality that we can produce. So, we have developed quite a good position in U.S. and we will build on that. And then of course as a complement, we will also sell some volumes to Asia. But, I think our first target after Europe will be U.S.
And another question comes from the line of [ Jesper Stein ].
I see you already got this question a couple of times this morning. But just brief update on the spruce beetle situation in your forests would be much appreciated.
Yes, I mean spruce beetle is not the problem for SCA. I mean we have been a little bit worried and we have done a lot of investigations and in our area, as it seems just now, it is very stable situation. In fact, better than last year at the same time, but we know it is a big problem in the southern part of Sweden and also in the central part of Europe, of course. But for us it's a better situation than we expected, really. And that means no risk at all, I would say, this year as it feels just now.
Okay. That means less risk or no infestation at all or manageable?
Nothing at all really to mention. I mean every year you have something, but that is really small things.
And our next question comes from the line of Cole Hathorn.
When you think about the cost line expansion at Obbola, how do you frame that when you speak to the board on the actual timing? Because, I mean, there are lot of capacity additions coming through and you don't want to be allocating capital in a glut in the market, how do you ensure that that new capacity is going to come on stream to meet the demand, but not too soon?
I mean, an investment like Obbola, if that comes through I mean it is a 30, 40-year perspective on that kind of investment. When we took the decision around Ostrand, I mean we didn't know that we should reach to market in a fantastic -- with a fantastic timing, you cannot really plan it that way. You have other perspective that you have to take into consideration when you take a decision like this. So I mean, now we have -- soon we'll have finalized a pre-project. It is a strong project. We know that fundamentally you have a strong growth in packaging materials. We have solid wood supply and a lot of advantages in the area around Obbola. So I mean that is maybe much more important than to reach to market exactly at the same -- in a certain point, because you cannot really predict the timing. If we take the decision now this year, we will start up in 2022 -- late 2022. So I mean that is the perspective we have.
It's a long time between decision and startup, so you can't really -- you can't try and time it.
I'm just wondering on your commitment to when you pull the trigger on ordering, effectively equipment and your cash flow is going out, is there kind of a time line, if things are a bit soggy in the interim, can you delay that and say, start up in 2023? What's your kind of lead time that you can delay the startup of that project before you're committed?
I think once you take a decision and start the project, then it's just to carry it through. You can't really change the timing on the key parts of the project once you've started.
I mean, also you have a huge organization related to this true project like that. I mean it's a big thing.
And next question comes from the line of Justin Jordan.
I just wanted to perhaps explore a little bit more on the paper division. I mean it rolled [ down ] clearly on the successful Ostrand ramp-up and continuing, but just focusing on paper for a second and specifically on the kraftliner market where your deliveries were 7% down in Q1, how would you describe that? Is that just softness in end market demand? And when we think about that going forward, clearly as Europe's largest independent producer of kraftliner, would you consider taking commercial downtime if soft market demand conditions continue with soft pricing conditions, particularly with what's going on in the U.S. kraftliner market?
I mean, first, I think it's right to say that last year this time it was a fantastic kraftliner market, we have maybe never seen something similar. So, at that time we really sold out everything that we had in stock, were on the super low, record low level in terms of inventories. Now we are on the more normal level and -- so that is one reason why the sales just went down. And the other one is of course that we have a weaker market today than we had 1 year ago.
Yes. But given that weak market, is that something that you would consider potential commercial downtime to help balance that market demand?
I mean, we are -- of course, if that's needed then we will do it. But already today, I mean we have the biggest machine in Europe in Obbola and the third biggest in Europe in Munksund. So they are really cost efficient. But if we feel that we need to take downtime, then we will do it. But, we have a -- already today, we have a low cost level.
Okay, thank you. And just one follow-up question for Toby really. Can you just remind us the thinking on your CapEx for calendar '19 of overall, please?
Basically if we take a whole year basis, if we include the effect of the leasing, which also increases the CapEx because that now comes into the leasing amount, we expect around 1. -- you could say, on average, over time around SEK 1.2 billion as a current CapEx level.
And our next question comes from the line of Alexander Berglund.
I would just like to clarify two points. So, first of all, you mentioned on a negative mix effect that you had in pulp, because you had to sell to destinations further away, and then you also commented about kind of increasing your sales initially to U.S. and then maybe more to China. So, my question is really is this something we should kind of expect as a consequence of you having more capacity and the European demand being more lackluster, so that you would -- continue to -- going to see this negative mix effect? And then my second question once again relates to kraftliner. You mentioned that you -- given publications out there, we are seeing couple of euros per tonne lower prices. I mean if I look at the received prices for Europe in April, I mean most countries are -- at least non-bleached side seeing about [ EUR 20 million ] per tonne decline, April versus March. I was wondering if you could confirm if that is what you are seeing as well for your -- for April deliveries?
Let me start with the pulp. I mean, yes, short term -- I mean still Europe is our core market and we like to put as much volume as we can in Europe. Now for a while, we have had as good profitability for deliveries to U.S. as we've had for Europe. I mean we have our own logistical company, we have set up an efficient solution for supplying the East Coast of U.S. with pulp. And I think we are positively surprised about that, so that we will continue and we will develop that further, of course. But, exactly as the situation is for wood, I mean, now we start up -- Ostrand is starting to give some big volumes and we have to sell pulp in a slightly different way than we did in the past and we have to buy wood in a slightly different way than we did in the past, and step by step we also need to fine tune that part. I mean, we have to fine-tune the process and also we have to fine-tune our systems when it comes to wood supply and also to the selling of pulp, of course. Don't know if that's an answer, but I mean it is sometimes tough to grow. But, so far it's went very well. And again, it's according to plan, but will take some time, definitely.
And on the kraftliner prices, is EUR 20 per tonne in April lower than March, is that something that you're seeing as well for your April deliveries?
I see exactly what you see in the official statistics. And then we try to do our best in the market. So, no more comments about that. You can see it yourself.
Okay. So just thinking about the sequential -- given the visibility you have now into Q2, basically all prices are down, Q2 versus Q1, where we are now, with the exception of the publication paper, Is that correct?
Yes. I think that's fair to say.
And the next question comes from the line of Christian Kopfer.
Just two follow-ups for me. Firstly, on the raw material effect on Ostrand. You previously said that cost will come down some SEK 350 per tonne. Can you just help us understanding -- how much is the underlying cost inflation for Ostrand? So [indiscernible] obviously. So how much of this SEK 350 will be left after the cost inflation?
The SEK 350 per tonne is a fixed cost benefit. The cost inflation, you could -- or what we see is, wood cost is primarily where the cost of wood is going up and that's not fixed cost of course, that's variable cost. So that's a cost we see with pulpwood prices are higher, and we also flagged for -- that [ wasn't ] expected that we're going to have to source wood from further away. So we will see an increased wood cost, which then we see is offset to a large extent by the energy balance, which is positive. So we do -- yes, that's where we see the big -- not the big -- the big inflation is wood cost.
Can you just quantify it, how much has the variable cost gone up by tonne approximately for Ostrand?
We don't give out kind of splits between variable and fixed, but if you -- I mean you can see -- and I think the slide Ulf presented, you can see the pulpwood costs, you can see the graph there, which shows the increase year-over-year and quarter-over-quarter. So that's basically -- that's pretty much the impact that Ostrand is taking in terms of wood cost.
Okay. And when do you expect the fixed cost reduction to be met, not 2020, it's 2021 or --?
Yes, I think this year we're ramping up. So I mean you don't get the benefit at all until we are at the full volume. And then we will -- we will be -- for volume, as Ulf presented, [ 2020 ]. And then I think there will be still some optimization to be done, probably on the cost side during that time. So yes, we don't have a specific year that we say, but I think your assumption is pretty fair.
Okay. And on deliveries, just understand a bit what normal deliveries are for you on kraftliner and publication. On kraftliner, you have seen decreasing deliveries for fourth quarter in a row. Current deliveries around [ 192,000 ] tonnes, are those representative for the next couple of quarters?
That's the normal levels. And then it varies a little bit depending on sales versus stock and also production and we have some -- you have to take into account the maintenance stops as well. So, if you look in the -- basically in the second quarter, we expect the maintenance stop in paper.
And then on the publication side, what are you aiming for; stable deliveries from here or -- I mean, if you adjust for the maintenance stopover, obviously?
I mean, we basically sell everything we produce. So, yes, and our production capacity is stable, so we don't expect any of the changes.
And our last collection comes from the line of Oskar Lindstrom.
Three questions from my side or three sets of questions. First off on the pulp side, you mentioned a leaky boiler impacting your production in January. Is that something that's been stopped having an impact in February, March and April or what was the impact of that?
I mean the impact is -- when you have a leakage in the recovery boiler, then you have to stop, because otherwise you get big problem. And I mean the stop is -- don't remember exactly how many days in January. But I think, we were close to 5, 6 days, and that is something you have to do. And we also -- we had one also, as I said, in September and we had one in January and we had also one in the beginning of April. April was not too bad. I think we stopped 3 to 4 days. And due to that we have rescheduled. We first were thinking about fixing this permanently in 2020. But now we have re-plans and now we will do it during week 41 or 42, but we need -- and then we have 17 days of planned maintenance stop and now we will do this -- this work at that time. But, I mean it's a substantial impact, of course, when you have to stop down everything for a couple of days. But the positive key thing then in April is that after that stop we -- as I said, we have been able to produce more or less at full capacity for more or less 1 week in a row, and which is very positive, because then you can really start work fine tuning and find out how you can long-term achieve a higher availability and so on. So that has been very positive the start of the second quarter now.
My second question is on the capital allocation side. You answered a little bit about Obbola and so on. I'm just wondering about the status of your bio-diesel and bio-refinery projects and do you sort of see them as an alternative to, or competing against Obbola for capital?
I mean, every project are competing with each other in terms of capital allocation. On the other hand, just now we have a really strong cash flow. So -- and we have the feeling that our owners, they like us to continue to develop profitable projects. I mean -- but as always, you need to balance cash flow and what kind of investments you do. But I think they --I mean long term they will not compete with each other. They are complementary, I would say.
[indiscernible] project. So, we've talked about a new -- you see in our -- basically our project stairway slide, we believe we can fund all those from our own balance sheet and our own cash flow. So, it's all -- provided we are satisfied that they are good projects and they have a good return for shareholders, we think it's all doable.
But in the bio-diesel and bio-refinery projects, should they -- they are further other away in the pipeline, so, they're not -- for that reason, not competing against or alternatives to the Obbola project?
I mean we have started the process in getting a permission, but that's a long process in Sweden and -- but commercially, we don't know exactly what to do in an [ instance ]. I mean that we've said will be in 2025, maybe, or something like that. I mean that's a long way.
Decision in 2025?
We don't know. We don't have the find the solution. But I say, it's a long way. I'm -- just now we're talking about Obbola kraftliner, there we are ready for this -- technically we are ready for a decision in -- after summer. But I mean the bio-refinery, a couple of years ago ahead.
All right. My third and final question is on the Wood division or wood products. The Tunadal mill, you started it up after some major investments at the [indiscernible] second half of last year, if I remember correctly. Is that having any sort of significant impact on performance and earnings?
Definitely. I mean Tunadal startup has went well and it's contributing also well, and as you can see, I think when you compare our business -- wood business with other companies, we are doing very well, and of course Tunadal is an important part of it.
But should we see that Tunadal was not sort of fully in the results Q2, Q3 last year, but that it is now in Q1?
I mean we had volumes from Tunadal also last year. So -- but the -- yes the growth is improving and that improves the cost position as well. So yes, it has an impact. I wouldn't overstate the impact, because it's -- we have five sawmills and Tunadal is one of them. But it's one of the most efficient -- Tunadal and Bollsta are the two of the most efficient mills in Sweden. And they've got a growth potential.
And there are no further questions at this time, please continue.
Well done. Thank you for joining us in this press conference in this presentation of Q1 2019. We look forward to seeing you again when we present the second quarter on the 26 of July. Thank you.