Billerud AB (publ) (BILL) Earnings Call Transcript & Summary

Good morning and welcome to the presentation of Billerudkorsnäs year-end report for 2019. Our acting CEO, Lennart Holm; and our CFO, Ivar Vatne, will hold a presentation. And after that, there will be a Q&A session. By that, I would like to hand over to you, Lennart, please go ahead.

Thank you, Lena, and welcome all of you listening in on this presentation. Let's start off with the key highlights for the fourth quarter. We've had during the quarter flat nails (sic) [ net ] sales. But with an underlying growth, excluding the KM7 impact, weaker market continues. We'll talk more about that. KM7 Q4 impact in line with expectations. Finally CapEx SEK 7,950 million. Our head cost and efficiency program is on track, and we propose an ordinary dividend of SEK 4.30 per share, plus an extra dividend or rather the Board proposes this, an extra dividend of SEK 4.30 per share. And this in the wake of the buyback divestment. We also -- or the Board also proposes that the AGM. This gives a mandate to repurchase shares going forward. And operating profit, SEK 126 million for the quarter. Net profit then, SEK 333 million, including then the dividend from Bergvik Skog, which amounted to SEK 244 million. If we go a little bit deeper and start with market perspective and the context there. We can say that the Division Board had a stable market both for liquid packaging and cartonboard during the quarter. We had quite a strong quarter for those 2 products. When it comes to containerboard, we could see that our sales volumes were stable, but there was pressure on prices. And here, we could see both tendencies to weaker -- somewhat weaker demand but also an increased supply during the quarter. Division Paper was definitely weaker. We could see continued weakening market. This has been going on now since the second quarter for brown sack paper. And negative trend continued during the quarter for brown sack paper, but the negative trend also flattened out. So we do see, hopefully, then a bottom level on sack paper prices now. White sack paper volumes and prices also deteriorated following the brown sack paper down, but not to the same extent. Kraft paper volumes were stable, but we could see an increasing price pressure during the quarter. When it comes then to Division Solutions. We had stable sales, but a weaker market in general for Managed Packaging. We are repositioning our customer portfolio, which has some positive effects on the earnings and this is a trend that we continue -- believe will continue. We're also seeing an interesting trend that a lot of our customers are moving their businesses or activities from China to Vietnam. And this is a net positive for us as we are well represented in Vietnam as well. FibreForm had a good quarter, and both sales and earnings continued to grow. The Board then proposes an SEK 8.60 per share dividend, and it also intends to launch a share buyback program. On the dividend, SEK 4.30 of this is ordinary dividend, and SEK 4.30 is then an extra dividend in the wake of the Bergvik Öst transaction. And the intention is then to pay the dividend in one installment to be paid during the spring of 2020 after the AGM then. The share buyback program. The program -- the proposal there is to launch a share buyback program and ask them, the AGM, to give the mandate to the Board to buy up to 10% of all shares in the company. And of course, this is then subject to the AGM's decision and approval. With that, let's go into the financial figures. Ivar, I think this is your slide. Please go ahead.

Thank you, Lennart. So let's just start with a bit of an overview on the key financials. At first sight, net sales is flat, and the profitability KPIs are heavily down versus a year ago. But a bit of a reminder, in the same situation that we had in Q3, our figures are still impacted by the KM7 ramp-up, both on the top and the bottom line. So we'll do a little bit more digging and investigation to understand the underlying performance, and we will do so in the coming bridges on the sales and on the profitability side. Just one other comment, Lennart already mentioned this, but it's not very often we see a net profit number higher than operating profit. The vast majority of this is allocated to an extra dividend from Bergvik AB, and it's a bit of a one-off. Difficult to say if we will have an impact into 2020 of this as this is a company that will be dissolved very shortly. But an estimate that up to SEK 50 million is probably our best guess at the moment. But let's get into the bridges -- no, sorry. Before going to the bridges, just a bit of a net sales in context with the previous performance. You can see for yourself over the last 3.5 years that from the KM7 launch in summer 2019, it certainly has an impact. It also confirms that 2019 has been a pretty volatile year for us in terms of the sales result. And also, it's a bit of an indication of how the market has developed. We did communicate back in Q3 result that, that quarter was going to be the heaviest impact in terms of the KM7 impact. And we see that that's a clear evidence that it's still true also now when we have the Q4 results ready. KM7 had impacted the quarter, roughly 3 percentage point, but that is definitely less versus what we had in Q3. And in that sense, it helped to move back our negative growth rate to a flat or a stable one. But let's then go into the bridges, which I think is sometimes very interesting to understand the underlying performance. So if you just start kind of from the left and move over to the right. We had a very strong quarter in terms of volume and mix growth. All of that is pretty much offset by negative pricing. And you can say, in a nutshell, that the positive volume mix impact is pretty much solely coming from the Division Board, driven in particular by strong figures in liquid packaging board and cartonboard. While the negative sales impact has come from mainly Division Paper and the sack segment. In terms of the pricing. We see a strong negative price impact across most of the Division Paper, mainly on sack, but also on pulp and to a certain extent also on kraft paper. But for Board, pricing level is holding up well, in liquid packaging board and cartonboard. But as of November and onwards, there has been a pretty hefty pricing pressure within containerboard. And as well, we've had a 3 percentage point positive FX impact, and that somehow takes up our net underlying sales performance to plus 3%. That means that there is a balance, and that is then the volume and mix impact from the KM7 ramp-up that takes our net result down to flat versus a year ago. We will have a section in a couple of slides to explore a bit more about the KM7 status and progress. So I'll wait for now with further comments on that and come back to that in a second. Looking into the profitability bridge. A lot of this is following the logic from the net sales bridge. Pricing impact and volume mix pretty much follows straight through the explanation I just provided. Again, volume and mix has been positive, solely driven by Division Board. On raw material and consumables, we're starting to see an impact from lower wood prices. And to a certain extent, also in chemicals, in particular a bit on caustic soda. Impact we see in Q4 is roughly SEK 40 million just based on commodity pricing. The vast majority of that is, obviously, on the low wood pricing. Rest of that item on the raw materials and consumables is mainly related to consumption, and is linked to our savings and efficiency program that we have launched and we expect even further progress on for the next coming years. I'll also come back to that program. Just couple of words then on the other operating expenses. It's a little bit of a mixed bag. But some of the main items that are sticking out is that we have, as well as on previous quarters, an IFRS 16 impact of SEK 27 million. Have a bit more this quarter versus last year on the emission rights sales are roughly SEK 20 million. And then the remainder of this bucket is a combination of short-term tactical cost-saving measures that we're definitely pursuing now through the company as also the market is tough. And also in certain of the Division Paper, we are on a slow steam -- state at the moment. And that takes us up to SEK 788 million EBITDA, which is 3% versus a year ago. That means also the underlying result there is 14% of net sales, and that's pretty similar to what we saw a year ago. And then same logic as we had on the net sales part. The KM7 volume and mix impact came in at SEK 170 million, which is pretty aligned with our expectation, we had guided up to SEK 180 million. And that takes then the profitability down to SEK 618 million and 11% EBITDA. If you go into the next slide and talking a little bit about our cost and efficiency program. I have already given a little bit of indication that we're starting to see some small driblets coming in of that program. There's definitely several streams and activities underway and ready to really go. It continued to be one of our top organizational priority for 2020, and will be continue to be so going into 2021. Still on track to deliver the SEK 250 million for 2020. And we also have mentioned this in the past that we expect a bit of a back-heavy delivery during 2020 on that one. We're still also very committed to our SEK 600 million as an exit rate or the run rate going into Q4 2021. And are very much in the progress of identifying and converting good ideas into tangible building block to have enough ammunition to deliver this program. So with that one, I'm handing back to Lennart, who will give a little bit more perspective on the respective division.

Thank you, Ivar. Well, let's start with Division Board. And on the Division Board, I think we're happy to say that we had a very strong net sales quarter for the division, and most segments showed a solid growth. Liquid packaging board came in -- come in with a 16% growth, which is actually a stand -- a sales performance that stands out quite nicely this quarter. All that, we have to be aware that there is some phasing between the quarters in the results. As some of you remember, the LPB result for Q3 was slightly negative. Also in the fourth quarter, we had some positive inventory adjustments for certain customers. But all in all, a very strong year for liquid packaging board, with a plus 16% growth. And numbers probably reflects a bit better, the going run rate when we now approach 2020. On cartonboard, we had a positive trend during 2019 coming in at plus 15%, which is also the same result for total 2019. Containerboard, the situation is a -- has been a bit different most really related, I'd say, to negative pricing impact starting from November and onwards. In particular, white top liner has had a tough pricing impact during Q4. However, with that said, right now, we have a very good order inflow and a good order book here in January. So it doesn't look too bad. EBITDA profitability declining versus a year ago. But as Ivar just explained, this is then adjusted for KM7. If we take out effect from KM7, it's actually flat versus a year ago coming in at an EBITDA level of 18%. Operating fixed expenses, they increased. This was driven by volume, 7%, exchange rates, 3%, and the rest is largely related to KM7 one-off ramp-up costs and handholding. We have fiber and cost-saving initiatives for Board, but they are largely then offset right now by higher energy purchases or prices for that. If we then jump over to Division Paper. We can say that nails -- net sales for the Division Paper is a bit deja vu in terms of negative sales. They were down by 13%, but quite different between the main segments. Kraft paper is holding much better in Q4 and coming in with a slight growth, mainly driven by positive pricing and mix. For sack paper, it's both negative volume and pricing drives the change. And we see a significant decline for both brown and white sack. Net operating expenses. Well, mainly, they were driven by negative volumes, minus 4%. Fiber coming down. Pulp slow steam due to weak market cost and efficiency program. Division Solutions. Net sales declined by 3%. Here, this is, to some extent, due to a somewhat hesitant market, but mainly due to the fact that we are doing a customer portfolio optimization, focusing more on customers with higher margins and better opportunities going forward. What was very positive here was that we had a continued strong growth for FibreForm. Customer mix reduced top line, but helped to improve EBITDA. Ivar, let's have a look on the balance sheet.

Yes. That's right. If we just go into some of the key metrics looking at here in terms of our net debt-on-EBITDA ratio. It's not a lot of movement since the Q3. Balance sheet is still very strong post the Bergvik. And I think, also, it's a good reminder that now we are moving into a different CapEx phase going forward with a significant lower level versus what we had in the previous years. It was already mentioned by Lennart, that we talk about a proposal of a dividend, and also initiating a share buyback program by the Board and will go through the AGM. Clear ambition for the company is definitely to stay below the net debt ratio that we have as a target of SEK 2.5x. And even that we've been initiating those extra shareholder payouts, there is a definitely a clear ambition that we will have a stronger free cash flow generation going forward that will be able to finance a very big chunk of this. So if you go into a different part, and I think this is something which is an interest for a lot of people on the call, and that is the status and what's going with the KM7. So I wanted to take a couple of minutes and talk this through different angles. And that's, needless to say, the top priority for the company over the coming years. Starting a bit with an update on the CapEx and total KM CapEx on SEK 7,950 million. It's fair to say that we are now coming to an end of the program and transferring over this to the site operation. Many, many hours and 4 years of planning and execution. And most of the components are now installed, paid and assets being activated. Out of this amount of SEK 7,950 million, the last SEK 190 million will be paid out during 2020. And that means, if you look at the table on the slide that we are guiding for next year a total CapEx of SEK 1,490 million, which is then a combination of the SEK 1.3 billion base CapEx and then a last reminder or last section of the KM7 of SEK 190 million. The SEK 190 million is pretty much more of a wrap-up on some of our existing last installments, and some section even linked to the coating installation. Also just as a bit of a comment, and you see that as a bullet point on the slide, the SEK 7,950 million, this number includes a deduction of SEK 200 million related to a withheld payment to a supplier used in the project. We can also inform that we've yet to land an agreement with this particular supplier and then the ongoing dispute will be now tried in legal proceedings. And I guess, there is an understanding that due to confidentiality reasons, we are not revealing exactly what supplier this is in mind. That also means then of the SEK 7,950 million, it means that our ongoing annual depreciation of KM7 is SEK 400 million. Yes, just a last comment on this one is that there is -- not too big of a surprise that, at the moment, we look at the group return on capital employed and 4% of 2019 is definitely below the target that we have said, but we still have that number intact. And we have very much calculations that when the full potential is up and running in 2023, we will be back on track within that target range. So if we go into the KM7 impact for Q4. We have communicated SEK 180 million as a guidance, came in SEK 170 million, in line with expectations. Significantly down versus the Q3 impact, as you remember, that was definitely higher. In terms of the volume output, we have roughly 90,000 tonne now produced in '19. This is mainly uncoated liner and cupstock. The vast majority of that volume is coming in Q4, so we certainly have seen a pickup on the volume output quarter-by-quarter. That also means that the total KM7 impact accumulating from Q2 to Q4 has been SEK 640 million. So what does it mean then for next year? Well, we are doing a little bit differently from what we have said in the past, we talked about the SEK 200 million number, and we'll moving this into an interval of SEK 150 million to SEK 350 million. So why are we doing this and what's kind of driving this change? I guess, you can say, a lot of this is still connected to the stage we're in and to the uncertainty connected to the ramp-up and our journey to moving towards more sophisticated grades, and that also represents the risk and the fall we have identified. And looking at this of 2 different, you can call it, axis. So one is a very simple, one, what volume do we think we are able to get out? And I think also, more importantly, what kind of contribution level per tonne is that going to generate? And modeling these 2 in the table, having a tight discussion with the team in Gruvön, I think it's fair to say that there is uncertainty on what volume we expect to get out. And a big chunk of what was going to drive our contribution per tonne will be about what product mix we're planning to do, and also what kind of primary versus second-grading we are able to do and how we're able to minimize waste. And all of that combined, looking at what we believe is a positive, realistic and probably a bit pessimistic scenario, enables us to find an interval between SEK 150 million to SEK 350 million. And needless to say, we will be updating quarter-by-quarter the progress and how we have been delivering on that piece. I also just wanted to give a bit of a recap on the table you see on the bottom of the slide, so there's no confusion around this. When we talk about the SEK 150 million to SEK 350 million, that's still versus the base year, in this sense, illustrated with 2018. We're definitely still planning and we'll expect to land the 2020 KM7 impact significantly better versus what we recorded in 2019. So it certainly have all the indication that this is -- for us is still a positive profitability block -- building block in the year to come. And in terms of the product mix, we probably also will have some, I guess, adjustments along the way. But I can say the starting point going into the year is that the commercial output will be centered around uncoated white top liner and cupstock. However, we will start the certification on the liquid packaging board, and there might be some elements of cartonboard of a lower grading that we might get a commercial effect. We have already mentioned this that we will start the coating in January, and that has gone live last week. And although it's very, very early indication, we need to be very careful to draw too fast conclusion on this. We have already been successful of producing coated material to a very large volume, but it's certainly a positive encouragement and a good sign that actually we've already seen that we are able to get coated material out. Just in terms of the timing of the impact then for 2020, we're certainly expecting to have the vast majority of that hitting first half. And with that one, I'm handing back to Lennart for a bit of an outlook on the next quarter.

Thank you, Ivar. Well, as you have seen, the fourth quarter operational result was not on a level where we can be satisfied. What about looking forward then, the first quarter? What we see now is continued stable demand for liquid packaging board and cartonboard, which is of course, very good. We see that there's a little bit more uncertainties around market conditions for containerboard. But we do expect that market to stabilize. And as I said before, we have a good order book right now. And we have good inflow of new orders, both for white top liner and fluting. For sack and kraft papers, we do have to expect that tough market conditions will remain during the first quarter. We see signs that the market has bottomed out for brown sack, but we cannot detect any signs that prices are increasing yet. The total cost of fiber is expected to be reduced due to lower pulpwood prices, which is a positive development. Of course, we do expect that development to continue. However, in the short perspective, we see some risks for increased costs to bring pulpwood to our plants due to the fact that the very mild winter means it's very wet in the forests and we'll probably not be able to harvest in all the usual areas during the spring here, which means longer transportation and other handling costs. So let's see what the net effect is there. So let's summarize everything. Divestments of Bergvik Skog Öst resulted in a strong net profit for the year. As a consequence, we propose to increase the dividend for 2020. We do see a weaker market, which gave a challenging second half fourth quarter, especially for Division Paper, whereas the liquid packaging board and cartonboard remained solid. On KM7, start-up impact in line with expectations. And guidance for 2020, we now give a range SEK 150 million to SEK 350 million. Cost reduction program is on track. On top of that, we're also working with increasing our operational efficiency levels as we have declared earlier on. Those activities are going on, and I'm quite impressed by the team's efforts there in all the mills. Q1 '20, we see stabilizing market with some continued uncertainties, especially when it comes to Division Paper, where the market will be weak in the first quarter. I think this was a short summary of Q4 results. So with that, I hand over to you, Lena, again.

Yes. And we will now open up for questions. [Operator Instructions] So by that, operator, we're ready to take questions.

[Operator Instructions] Our first question comes from the line of Christian Kopfer of Nordea.

Just 3 quite short questions then from my side. Firstly, on the -- I think you mentioned that you had some positive inventory adjustments on Division Board. Can you perhaps put some details on that?

Yes. Okay. I think Ivar can take that question. Yes. I don't -- there was maybe a misunderstanding. There has not been an inventory adjustment. We had a receivable adjustment, but that is pretty much the only impact that we've had. That's a currency adjustment of receivable.

[indiscernible]

Yes, sorry. Yes, you're right. It was not actually an inventory adjustment with us, it was inventory adjustments with our customers. So they took some extra volumes which explains part of the increase, but only part of it. So it was still a very strong quarter.

Could you say how much approximately that was?

I think it was roughly 1/3.

1/3 of the total volume or...

No, 1/3 of the growth.

Of the growth.

Okay. Okay. Perfect. And then on the Paper side, you said that you see brown sack paper prices decline -- flattening out. Have you felt -- if we assume that they are stable now, have you felt all of the negative effect during Q4?

I think we should expect -- we have a delay in delivering on contracted volumes. So I think we should -- we need to expect that Q1 will be slightly below Q4 when it comes to prices. So I think Q1 will most likely be the rock bottom level. Definitely hope so.

Okay. All right. And then on cost savings, you said that you expect the -- it's going according to plan. But if I look at your earlier reports, then it was, at least from my side, quite clearly understood that you expected SEK 600 million cost effect from 2021, and now you say from end of 2021.

No. I think you should look at this that this is -- when we come into a Q4 2021, every single of our program items will be initiated, all of them will be running so what we're just saying is that the run rate going into Q4 is SEK 600 million. That might be -- there is a small impact going into 2022. But there's no new items then starting going into 2022. It's a bit too difficult yet at this stage to say exactly then how much impact 2021 versus '20 will be. But this is something we will update on along the next year.

Sure. But if -- did I understand you right that you previously expected the run rate to be SEK 600 million by the beginning of 2021?

No. I've been pretty consistent, at least I believe so, that we have been saying that the run rate in the Q4 2021 is SEK 600 million. So it has not changed from previous communication.

Our next question comes from the line of Alexander Berglund of Bank of America.

Just a follow-up on kraft and sack paper segment. I mean you mentioned that you hope or you expect to see a bottoming in the first quarter. I just want to get a bit more color on what drives that view. Is that mainly that you're seeing demand coming back? Or do you expect any kind of supply response to the weaker markets? Because if I look at the cost curve or the risk, it still looks like it's a very profitable market despite prices having come down. So I'm just trying to kind of get a sense of -- if we don't see a demand increase then where is -- where can we see kind of a floor on prices from here?

Yes. I think you're right. If you look from a historical perspective, the prices are not bad. We've had a couple of years now, especially in 2018, with very high prices on brown sack. So prices are coming down to levels which still are decent, actually. What we do see is a stronger order inflow when it comes to brown sack. So that doesn't look too bad, actually, now in the first quarter here in January. So I would say it's demand-driven right now. Then let's see if there are any new effects then coming from the coronavirus, et cetera, et cetera. But that's I think too early to see.

No. I think that's fair. But can you, I guess, also tell then how is it different than kind of on the kraft side and also on the bleached grades?

Yes. I think bleached grades, they have been somewhat affected by -- white sack then has been somewhat affected by the fact that difference in price between brown and white sack, the price gap there, became quite large, which of course pushes some customers from white into brown sack. So there, we see that white sack prices are still going downwards somewhat, might do so continued in the first quarter. But we also there, I think, see stabilization and we see that the market is coming back to normal. It's mainly the industrial side that we see has been dropping. If we come to food packages, we see quite a stable market for white sack. For the kraft papers, I think they are -- there, the volumes are a bit weaker actually during the first quarter as we see right now than they have been earlier on. So that development is still uncertain.

And our next question comes from the line of Linus Larsson of SEB.

Thanks for the update on the KM7 ramp-up, and you said that the impact will be rather front-end loaded. I wonder if you could maybe discuss a bit more about that. It has an impact of SEK 170 million in the fourth quarter, what do you expect for the first quarter? That's my first question, please.

Yes. No, I can see why you're asking that. I guess we're sticking to the guidance overall for the year, and that is SEK 150 million to SEK 350 million. I think it's very fair to say that given now we are in the beginning of Q1 going into the, I guess, the coating production, and also with that uncertainty associated, we should expect a pretty large impact in Q1 and a negative probably also in Q2. And then from the second half, it actually should start to go the other way around. And that still lands within the full year range of SEK 150 million-SEK 350 million. I think that's pretty much as long as that would go for giving indication of what quarter or sequence we see for the year.

Okay. But could you also say that the first quarter will have a smaller impact than the fourth quarter?

I'm not even sure I want to go that far, to be honest, Linus. And I can see why you are picking on this. I mean they are a little bit different in challenges, but it's difficult to say that we will have a much less risk in Q1 versus Q4 given the coating and starting up on that piece. I think that's pretty much where I would leave it at.

We -- well, I was actually in Gruvön last week. And during that week, then the first volumes of coated products were produced, which I think went actually pretty well. But for sure, there's going to be issues around stabilizing operations on the coater. So that -- and right now, we will put a lot of emphasis on that in the first quarter. We also have the annual shutdown coming by the end of the first quarter in Gruvön, which will have an impact on the Q1 result. And that shutdown is important for us because, there, we will also do some rebuilds of parts of KM7 now where we -- which is quite normal, you see that some things are not working exactly as expected. Now we gain some operational experience and then we will do the improvements during that stop. So I think this, of course, will have some influence on the first quarter.

Right. Right. That's great. And then on the CapEx side, you previously talked about SEK 1.3 billion for 2020. Now you say, SEK 1.5 billion, but your main message remains that CapEx levels are clearly coming down from previous years. I'm just wondering, regarding other CapEx needs in the group, I'm obviously thinking about Frövi and/or Gävle foremost, could you say a few words about how long you can wait with those investments, please?

Yes. I think I can comment that. We are right now -- and you're correct, we are looking -- we're doing a deep analyze of the situation or where we stand when it comes to status on recovery boilers. And then we're talking mainly about Frövifors, where we will have to do an investment one way or the other in order to secure the recovery boiler there and the operations there. We will need to take a decision during 2021 on Frövifors. When it comes to Gävle, we also have a recovery boiler there that we're looking into. That is not -- timing-wise, we have more time to decide what to do there. But we're right now going through and looking on different alternatives on how to do this in the best way going forward. So I think you can just expect a decision in 2021.

And would you also look at the fiber line in that -- in conjunction with that?

Yes. We're looking at the entire concept around this to see what we will do and what we will not do.

Okay. Great. And then just finally, my third question regarding the buyback mandate that you're seeking from the Board. How -- what's your thinking around that? How will you plan to execute on that? Is that just kind of an autopilot to execute 10%? Or will you have certain price thresholds and certain other constraints possibly?

Yes. No, good question. I think the answer is, it's pretty much too early to go into those kind of details. I think now the Board has just proposed that this is something they really want to put forward to the AGM. I think all of those details, given we will get the support from the AGM, we will get back to those in due time.

Our next question comes from the line of Johannes Grunselius of Kepler Cheuvreux.

It's Johannes here. So I have a couple of questions. But first of all, perhaps you can give some color on what you see in containerboard? I mean, you're seeing more uncertainty in the market, but is it fair to say that you see lower prices Q1 versus Q4? I'm almost curious why you think that the market is bottoming out within soon.

Well, I think that's based on the fact that we have a good order inflow and we see that the customers are actually taking both white top liner and fluting. So I think this is -- we see quite a strong trend there. So we don't see any reasons why we -- why prices should continue downwards at this moment.

Okay. So do you think you are taking market share? Or do you think this reflects more of a market strength while bottoming in the market, I mean?

Well, I think you also, of course, need to see the total market, which means you need to consider the market also for recycled fiber products. And here, we might be taking some market share from test liner and from various kinds of recycled-based fluting products as well.

Yes, yes. Then I'm also curious about the wood sourcing here for this year. And I understand it's very difficult to give exact guidance, et cetera. But I mean, can you, for example, provide us with information, how much of the wood are you sourcing outside Sweden? And I mean, do you need to possibly buy more outside Sweden if the mild -- the wet winter continues here and so on? And what kind of sort of extra cost can be associated with that?

Yes. Okay. I think we have -- right now, we have the situation under control. In terms of that, we have a rather good inventory situation. We have a lot of wood. We have also done some replanning in terms of cutting operations to prepare for this internally in Sweden. So what I get from the forest is that we have the situation under control, and we expect to have it under control. And it shouldn't trigger any extraordinary events in terms of -- that we have to take more wood from other outside Sweden areas right now.

Okay. Okay. I mean could you indicate how you see wood costs coming down in 2020 versus 2019? Or is it too difficult to call that?

I think I'm not the -- I don't think we have -- we don't have any view on that right now. I think it would be wrong comment that.

Okay. Fair enough. And then my final question is on -- yes, on the CEO situation. Are you actively looking for a CEO now? And I mean, you indicated to us, Lennart, that you see now -- you're not in a hurry to find the permanent CEO, it's more important to get the right person on board and so forth. But what can we expect in terms of time period here? And have you come any further ahead in this situation?

Right. Good question. The process is handled by Jan Åström, who is our Chairman, as I'm focusing entirely on the operations. It's correct. We've said that there's no hurry. The process has been initiated. But I will continue to do the job for whatever time it takes to find the right person in that role. So realistically, well, I expect definitely to be here during this year. And then we see what and when a change comes.

The next question comes from the line of Oskar Lindstrom of Danske Bank.

Three questions from me as well. Just starting off with the first one here is, what are the components of other and currency hedging and et cetera, in the Q4 EBIT? Those were, well, higher than what we've seen during the previous 2 quarters anyway.

Yes. The -- I can take that straight away. The main thing that stand out is a revaluation of the receivables. So that sits under the line on one of the last pages in the report on currency hedging, et cetera. So that is pretty much the item that stands out.

What was driven by the revaluation of the receivables? Sorry, I haven't read that yet. But is that explained in the...

I think there's a couple of comments on this. But we have a process where we -- given that it fit with all of our stock and inventory in the different sites in Sweden, we're doing this pretty much by default every month. So it's an automatic calculation. And given there has been currency movement, and this impact now is a bit higher than what it's been in the past.

All right. Second question here, this is maybe to you, Lennart. You said something about not seeing signs of higher prices yet. What does that yet mean? I mean, do you expect price increases to come sometime during the first half of this year?

Perhaps, I hope. No, I -- to be honest, we -- as I said, I think we see quite a strong demand. Normally, that would result in an opportunity to increase prices. But I think there is uncertainty in the market. So it's difficult to say where this is going. So we don't -- right now, we don't see any changes in Q1.

And if I may follow-up on this. I mean you say you're seeing quite strong demand and orders anyway for containerboard here. Is this also for sack paper or only for containerboard?

With sack paper -- brown sack paper, the order inflow is decent, I would say. It's not extremely strong, but it's decent.

All right. So both of those have improved since compared to a couple of months ago, you would say or...

Yes.

All right. Interesting. I won't press you any more on that. My final question is on -- coming back to the wood cost. I mean, looking at your EBITDA bridges for the past 2 years, variable costs has -- the negative there had summed up to minus SEK 2.7 billion. How much of that has been wood cost? And how much has been other things? And -- yes.

I don't have that number straight off, Oskar. I mean, obviously, a large part of this. Needless to say, we probably can come back to this because that's not something that I had prepared. But I mean, I think we also have mentioned in the past that although we see that the wood list prices are starting to come down, there is a lag. And also, given that our inventories are still pretty high, it takes a bit of a lag of 3 to 6 months before we're starting to see them fully turned out. But there's no doubt that we have momentum going into 2020 now. And expect to see a sizable impact for the coming year.

But spontaneously, you're not feeling that, "Oh, but a large portion of the SEK 2.7 billion in negative variable cost over the past 2 years has been something else." I mean, it is primarily wood, is that how we should see it?

Yes, yes. I mean, there's a combination of a lot of stuff, but there's a big part of that. And of course, to certain extent, in chemicals. But, yes.

Our next question comes from the line of Robin Santavirta of Carnegie.

Now first, a question on the strike we have here in Finland that might be up to 3 weeks long or even longer. What kind of impact would that have on your production in Pietarsaari? Is that also covered by the strike? And then on the other hand, could there be some positive impact from tighter market in some of your segments?

Well, I think if we start with the second question there, if there's any positive effect, I think it's difficult to say, it depends on if the strike is limited to 3 weeks or if it continues. When it comes to FX on ourselves, it's right. Our mill is affected by this, so production has stopped in Pietarsaari, which means that over a 3-week period, we lost -- we will lose 12,000 tonnes roughly, which then implies a loss of revenue around -- well, what is that, EUR 9 million for this -- these 3 weeks.

EUR 9 million for the 3 weeks on the revenue side and then possibly some ramp-up, ramp-down costs. Okay, so not that much. Good. And then just on this replacement investments, the need you have. You have, obviously, have quite some challenges in Frövi and Gävle, and in actually some other sort of mills with the pulp production without that sort of pulp capacity. I was just curious, why are you now sort of not, with the situation you have today, deciding on sort of those investments to sort of set up the production capacity which has been a problem for you? I know also that you can secure the cash flow and earnings sort of mid- or long-term, why are you opting to sort of -- to now sort of pay back to investors, which then might suffer from continued -- but the problems with production? Is there a reason for sort of delaying these investments that -- or the investment needs you have?

Well, I think there is -- I don't think we are in complete agreement when it comes to the status of our pulp mills. I think they are -- there is a need for upgrades and reinvestments, for sure, in the pulp mills, but the basic equipment is still pretty much okay. So when we talk about upgrades there, it does not necessarily mean we have to do huge investments. On top of that, I'd say that we will not do big investments in the fiber lines until we have to do it. When it comes to reinvestments, we have a program for this and we will do it step by step. But we're not trying to push this forward. What we are focusing on is improving the stability of operations there. And this itself does not -- our judgment is that, that does not require more investments than the SEK 1.3 billion that we're talking about.

Sure. Okay. I understand. What is the total sort of investment, if I understand, it's both the recovery boiler and the fiber lines in Frövi, that can depend. Metsä Board is doing the same thing in Husum, that SEK 6 billion. That is a big investment, but what are we talking about if we combine Frövi and Gävle?

Just to be clear, the Frövi recovery boiler is not in the SEK 1.3 billion. That...

For sure, not?

No.

That is outside. And the total amount that we would invest in recovery boiler in Frövi and over time in Gruvön -- or not in Gruvön, the boilers that are in Gävle, I don't want to go into those amounts right now because this is exactly what we're looking into. It depends on what we decide to do.

Okay, okay. And then can I do, maybe for Ivar, a bit of a deeper sort of exercise, but I think this is extremely difficult now with -- important now with the statement you have of the quite expenses sort of repayment to investors at this stage. So if I look at the 5-year average operating cash flow, obviously, before investments and CapEx is around SEK 3 billion, SEK 3.1 billion on average. There's some good years, some weak years now recently. That's the average. And now you have a CapEx of SEK 1.5 billion and then a total dividend of SEK 1.7 billion indicating also that you will have more debt at the end of 2020 if your operating cash flow is the 5-year average in 2020. You just said 2020 is a challenging year, so I don't think that is sort of a too bearish view. So more debt at the end of 2020. But still you then said that you want to sort of most likely make the balance sheet more efficient by buying back shares. What is the reasoning? And then going into the Gävle and potentially -- or Frövi and Gävle investments after that. How are you reasoning, sort of in terms of the balance sheet? Or is it something I sort of guessed wrong in this calculation?

No. I mean, it's a good question, and it's an important question. And I guess the answer here is that -- I mean, we obviously done a lot of modeling. We looked at this from different angles, saying a good case, a kind of a medium case, also a worst case. There is no doubt that we have a very different expectation of our EBITDA delivery going forward. We have significant building blocks in the pipeline, including KM7 being ramped up being by far the biggest. Then we also have an expectation around what the cost and efficiency program will deliver as also as an expectation of our production stability will be improved. But you're absolutely right. I mean the market is difficult to predict and that can go either way. I think that's also going a little bit indirectly here that when we say up to 10%, we also -- in terms of the share buyback program, we'll take that into account going forward. But that's the plan. And even then modeling this in a pretty negative way, we are able to keep within the target range of max 2.5%. So I think that's pretty much the best thing I can give you.

Next question comes from the line of Markku Järvinen of Handelsbanken.

I had a few more clarifications. I guess on the efficiency program, I suppose you're saying that in 2020, the impact will be SEK 250 million. Could you sort of say what kind of run rate do you expect to have at the end of 2020? And what was the run rate at the end of '19? And what was the total impact for '19, if any?

Yes. No, it's a fair one. I can say that, roughly speaking, we haven't had a major impact in '19. Somewhere along the lines of SEK 30 million. Starting to see that coming into Q4. Most of the activities are now being really kicked off. We still stand then by the SEK 250 million. I don't really want to go into the run rate by the end of 2020. But yes, stand firm on the SEK 250 million commitment for the total 2020.

Okay. Good. Then just still on pricing. I guess you see now pricing sort of bottoming out but you're still saying that sack paper prices will, in Q1, be lower than in Q4. Could you quantify that a little bit, please? So how much do you expect track paper prices to come down in Q1 compared to Q4?

I don't think I want to go into that in detail. It's not -- I don't see the market pricing -- prices dropping further. I see that we have some remaining contracts that we had to fulfill, and that will give a certain negative effect for us in Q1. But the amount or the size of that, I don't want to go into.

Okay. Okay. Good. And then, I guess, kraft paper and liner and fluting? Do you sort of see Q1 prices being below Q4 levels? Or is it sort of at Q4 level? Or where are we at with that?

I think, generally speaking, for containerboard, I would say, in line with Q4. Kraft papers possibly somewhat down.

Okay. Good. And then just on KM7, what is your guidance for volume for 2020?

Well, I think its 2 things. When we look on KM7, it's -- volume is one parameter, but the second is also what grades we are producing. So it's not necessarily so that the best way to get the maximum financial performance from KM7 is to maximize the volume, it's also depending on what grades we are producing. So this is actually one of the reasons why we have a range here in expectations. It depends on, yes, the volumes, but also the product range. So it means that it's well worthwhile, for example, to lose some volumes, but then improve on the performance or the production degree of coated products that we're producing. Ivar, perhaps you have some more comment on that.

Right. But I can't say something more on this, Markku, because we have been modeling, just on the volume piece, somewhere between 200,000 tonnes and up to 350,000 tonnes. That volume range is probably something that has been used as an axis. But exactly as Lennart said, I would -- any day of the week take a lower volume number with a much higher primary grading, that generate a very solid and good contribution per tonne. So we're not necessarily chasing the volume by all means, but keeping a very close eye on those 2 parameters of what primary grade -- what grade are we getting out versus the volume. That's a little bit more, at least, how we model this.

And what kind of a qualification period do you foresee, let's say, for folding boxboard type of grades or cartonboard type grades or then, on the other hand, liquid packaging board?

I think, we expect to produce some volumes of salable cartonboard grades during the year. Liquid packaging board, I think we don't expect -- according to -- I think the plans have actually been shown previous when it comes to liquid packing board that the certification process there will take so long times. So we don't expect any real volumes during 2020 on that.

Our next question comes from the line of Cole Hathorn at Jefferies.

I was hoping you could give a little bit more color on the Finland strikes and the impact to your Pietarsaari mill. If the strike do go ahead for 3 weeks, how do you see that impact playing around -- playing out in kind of the white sack market? Do you feel like you've got enough volumes to support your customers? And do you believe that'll support pricing in white sack? The first question. And the second question, also relating to the strikes is, your 2 competitors in your -- the higher-grade SC fluting, Stora Enso and Mondi, have their mills in Finland, how do you expect that to impact the niche fluting market for yourselves?

Yes. Thank you. Well, of course, our main concern when it comes to Pietarsaari right now is to make sure that our customers get what they need. So they don't get into difficulties due to the strike, which means that we have been able to build a certain amount of inventory ahead of the strike. And we're also moving some of the Pietarsaari products to our Carlsberg mill. If we look on Pietarsaari itself, product distribution is roughly 75% sack and 25% kraft in that mill. Well, if the strike goes on, it will, for sure, have an impact on the market depending naturally on how long the strike is.

And then on the fluting side, is there any comment you can provide on that? And then the final question is, longer term, on the sack market, how do you expect the China ban on shopping bags to impact the wider market? I realize that you're not going to be sending your higher-quality stack paper to -- for shopping bags in China, but do you have any views on how that could impact the wider market?

Yes. Well, of course, there could be an indirect effect. I think the shopping -- the paper bags in China, well, should have a good development. But that will basically then be based on recovered fiber products. But indirect, you're correct, it could have a positive impact for sure over time. But we haven't made any calculations or any thoughts around that at this moment.

And the last question comes from the line of Martin Melbye at ABG.

I think my questions have been answered mostly. But you say prices probably -- the net effect of price is negative in Q1, right? And then you have a commentary about the wood costs. On the one hand, you say you have a lot of inventories, but then there could also be an effect from bad harvesting conditions. Is that second comment more a Q2 comment? Or could that be an issue already in Q1?

I think it's correct. It's probably more a Q2 comment than a Q1 comment.

Okay. Excellent. And depreciations on Gruvön, that is up and running now, there is no extra depreciation coming?

Correct.

And as there are no further questions at this time, I'll hand back to the speakers for the closing comments.

Okay. We have no more questions. So then we wrap up this conference call. Thank you all for participating. And we'll come back when we report our Q1 results, the 24th of April.