Billerud Americas Corporation (BILL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call of BillerudKorsnäs. [Operator Instructions] I will now hand over to Christoph Michalski, President and CEO. Please go ahead.

Good morning, everyone. I'm very happy to have you all here and to present to you our very exciting project in North America. I'm with Ivar Vatne, our CFO, and together, we will present now. So most of you will remember the Capital Market Day. And as you know, we said that Europe is our home market and North America will become the focus for our growth. And after a long selection process and assessing multiple targets in the U.S., we're very, very happy that we have identified Verso and worked very hard in the last 3 to 4 months to come to a conclusion of this deal. So before I go into the detail, let me just try to portray what this deal is really all about. It will allow us to expand in North America and give us a sustainable capacity opportunities for 10 years to come. So that's very important. As you remember, we always said, with our existing assets, we can grow until 2025. And by then, we then either need new opportunities. With Verso, we will be able, from 2025 to continue on that growth trajectory in a good way. On top of that, Verso is in the middle of the largest and growing markets in primary fibers, containerboard and cartonboard. And I will come back to the market. But basically, by having an operation in North America, we will limit all the logistics. We will be a very cost-effective player over there, and clearly, for our American customers a much more secure supplier than having to ship paperboard across the world. It will be a world-class cost base. It's the lowest cost producer in the U.S., and in the top quintile cost base for export both to Europe and Asia. So it's a fantastic logistical point. And it will allow us to use the Verso assets in system to our assets in Sweden in order to provide product to our customers. We will end up at the end of this conversion with 2 state-of-the-art paperboard machines, which are fully integrated with pulp supply, situated in one of the best quality and abandoned wood's market, which has very competitive pricing. So it's basically not just only the operations and the factory, but also the access to raw material, which was a major decision-making in order to go for Verso. The acquisition will immediately be accretive in EPS and create a significant shareholder value because of the change into a profitable product mix, but also with the addition of capacity after the transformation. So what I will do now, I will take you through some of the details of these points and then I will hand over to Ivar, who will talk more about the financial and the transaction. Okay. Here's a picture of what we presented already at the Capital Market Day, why we think that North America is a very attractive market? So if you take, as an example, cartonboard, we see growth opportunity of about 1.3 tonnes between 2020 and 2030. And if you look at our operation with Verso and you add to 2035, it is closer to 1.9. So a very significant increase in demand over time. Then on the supply side, we haven't seen many investments. On the contrary, we have actually seen a decline in SBS of 0.5 million tonne over the last 2 years. And we do not see at this stage major investment programs being announced. So we believe that with this investment and the transformation to some packaging grades in North America, we will actually keep the market balance in a very attractive way. And then finally, if you look at the base customers, so brand owners are looking very seriously into switching from plastic into packaging -- into fiber packaging material. And clearly, our products are of very, very high quality. And you have a network of very strong independent converter very close where -- versus operating. So I think our route to market, the market balance when it comes to supply and demand and the overall demand increase makes North America a very, very attractive market. And the combination of BillerudKorsnäs and Verso will allow us to immediately tap into that opportunity. Clearly, you all know that operations is not everything, a very cost-effective wood supply is a critical success factor to not only have good quality, but also a reasonable cost structure. And I would like to show you, with these 2 graphs and particularly on the left-hand side, that the wood basket is very attractive. The surplus is significant in that area and we do not see any further significant competitors who will eat up these type of surpluses. And the surplus is not just in 1 type of wood, but in both types of wood, hardwood and softwood. If you compare the current cost of Verso average between the mills, which are operating, you can also see that in hardwood, we have about a 29% cost advantage in the Verso basket and the same for softwood, with around 30%. And what I cannot so easily portray here is that also the species, which are in this wood basket are very, very good in terms for high-quality paper. So when you look at the pine there are similar species that in the Swedish or Scandinavian forest with excellent fiber. And when you look at the hardwood, which is mainly maple it actually has some quality advantages compared to birch. So the combination of availability and good, good cost base and quality of the fiber is what we believe makes Verso's operation together with its wood supply unbeatable. Here's a quick overview of Verso. I will not really go into the numbers and the points on the left-hand side of the slide. But I would like to give you a little bit of a description of what these sites are. So both sites, Escanaba and Quinnesec Mill, are on the northern end of Michigan on the western shore of Lake Michigan. The facility of Quinnesec is nearly new, it's from 1985. The Escanaba Mill is much more traditional mill from having been created a long time ago and basically build up over time. Escanaba has 3 paper machine and produces about 700 metric tonnes of paper. I just want to let you know, you will find different figures because sometimes our American colleagues will express tonnage and short tonnes, so don't get confused with the numbers we are giving you versus published numbers. We are talking always about metric tonnes. What are they producing? They're producing graphic and specialty paper and some minor packaging grades. They have about 830 employees. And the mill is fully integrated, both when it comes to pulp, and there's a little bit of exchange between Escanaba and Quinnesec when it comes to pulp. Quinnesec, as I already mentioned before, it's nearly a new mill from 1985, 1 paper machine with an annual capacity of 400,000 tonnes. And basically, it has also pulp dryer for about 200,000 tonnes. So there is opportunity for market pulp. We, in our plans, we will, over time, using up all the internal produced pulp. So for us, it will be 2 significant mills fully integrated with our own pulp. As you have seen, there are also some other minor assets coming with this acquisition, which the biggest one is Wisconsin Rapids. It's -- currently, it's used as a converting facilities. But the papermaking and pulp making is idle. So we do not intend at this stage to fire up that mill. And we are now looking what is the future of that asset. And also there's a hydroelectric power company coming with that acquisition, where we're also looking what is the best solution for this type of asset to keep them or to sell them on. If you look at it from a global perspective, once the conversion is done BillerudKorsnäs will be the second largest fiber products manufacturer. And combining these 2 positions together, our positions in the Nordic countries and our position with Verso, will make us a very, very cost competitive player and also a very good quality player in that market. Just as a reminder, on the Capital Market Day, we were only in the fourth position. So this acquisition actually makes a significant step change in the ranking of producers. Good. So let me go into maybe some depth because I'm not sure we -- I mean, the press release was already long enough. So -- but I want to give you some color what actually our plan is. So we will operate Verso and satisfy the needs of our U.S. customers as they are today. Quinnesec, we will basically run on specialty paper, on some graphic paper and we will use some of the pulp in Escanaba for the transformation, after the transformation is done. The mill is incredibly cost effect, has very good cash flow. And the only investments we have put in our business plan which we think are very important is to bring the Quinnesec Mill on an absolutely world-class sustainability level when it comes to emission, usage of fuels, et cetera, and also when it comes to saving on water and energy. So basically, a very comprehensive review on the environmental part, which for today is not bad for American standard, but clearly not in line of what we want to see going forward. When it comes to Escanaba, our approach will be to transform one machine after the other. And this transformation is basically then very different of what you have seen with KM7. I will come to that. But the idea is basically, we will not sacrifice too much cash flow and too much existing business while we are doing that transformation. So the approach is we let everything run, but the machine which we are working on and then we ramp up that machine and then we will go after the next machine. So from a timing perspective, we will start the feasibility study now. We have done some desktop research. There were already some very detailed study done by Verso in the past because they clearly had the same idea. They were very uncertain about the packaging market, and that is why the project didn't go ahead. But clearly, we know the packaging market not only in North America but also with the opportunities in Asia and in Europe. So the first machine will, after feasibility study, be converted in '23 and '24 and should become onstream end of '24, beginning '25. And then as you know, there is a ramp-up period. But because we're already exporting products even today in the U.S., we will not start with an empty machine, so to say, when it comes to customer, but we will integrate the volumes currently flowing from Europe into the start-up in North America. Why is it different from KM7? Because I'm sure that some of you said, "Oh, you just finished this project," and that had a little bit of a difficult road from time to time. It's quite a different project. So what you have here is a fully operational mill in relatively good shape. We need to do minor debottlenecking, and we need also Escanaba to do some work when it comes to environment. But actually, we will only enlarge the machine and lengthen the machine. The buildings are already there. The whole infrastructure is there. So it's really about reconstructing a paper machine. And that clearly is something where we have learned a lot on KM7 and that part of the project of KM7 was never the issue. The issue, as you might remember with KM7 was a delay due to the civil works, which needed to be done prior of putting the machines together. So we have a great level of confidence that this can be done in a cost-effective way and also in a very good project management way, and little bit like we are now managing the Frövi boiler that we are building today. Good. Once the machine then is converted, the first one, and ramping up in 2025, then we will start to look at the second machine. This will be -- has 2 advantages: a, it will not stretch our cash flow too much because we will spread the CapEx investment over time, but also we can adjust the timing depending on the market situation in which we are in. As I said, we have -- we estimate the overall amount of growth to 1.2 million tonnes over the period of 2030. And therefore, I think this conversion by 2025, we really enter a market which starts to be a little bit under pressure from a supply side. And therefore, I'm pretty confident that the ramp-up will be as good as KM7 or even maybe a little bit better because we do not have such long periods of material qualification like we have in KM7 with the liquid packaging board. Good. I think I'll stop here, Ivar, why don't you take us a bit through the transaction and the financing of the transaction? But before I do that, let me reiterate, I think we found a jewel that together with BillerudKorsnäs will be an incredible opportunity. And I will come back to that at the end of the presentation. Ivar, over to you.

Thank you, Christoph, and good morning, everyone. Starting with some coordinates on how our new consolidated company will look like. We look to add roughly 50% of net sales and be in the range of SEK 37 billion. Profitability moves to SEK 5 billion of EBITDA, with slightly lower margin coming from Verso over the past months. For reference, I do would like to add that the adjusted EBITDA of Verso in Q3 was above 19%. I I'd like also to just mention one word on the Verso's debt level because Verso is basically a debt-free company. It has a SEK 300 million liability of a pension fund, but we also sit with roughly SEK 150 million in a cash balance. So it is a very nice net debt level we are taking over into our consolidated company. CapEx coordinates also on the split by region and by category and starting by region, Europe will still be our home and most dominant market. And America is now clearly our #2 region and also the region where we expect to drive further growth over the coming years. By category, we have now a much more -- or we will have a much more balanced portfolio. And going forward, in line with what Christoph mentioned on the conversion plan, we would expect the graphic with a specialty to reduce in relative size, in particular paperboard is the segment where we expect to see the increase over the coming years. So if you go to next slide, and another bit of flavor around the transaction. So the acquisition will be conducted under the means of a merger agreement, which a wholly owned subsidiary of BillerudKorsnäs will merge with Verso. And as a result of the merger, BillerudKorsnäs will acquire all of Verso's outstanding shares at a price of $27 per share, in total USD 825 million, which is close to SEK 7.5 billion. In terms of multiples, we're looking at roughly 6x enterprise value over adjusted EBITDA over the past 12 months. In terms of what will happen next to get this fully approved? We have full support from Verso's Board of Directors to pursue this deal, but the completion of the transaction is subject to a Verso shareholder approval, meaning that 50% or more of the outstanding shares in Verso need to vote in favor of the deal at an extraordinary general meeting. It's also a condition of obtaining certain regulatory approvals. If we go to next slide and some words around the financing. We have a new credit facility of SEK 6 billion, which will be used together with existing cash balance to take care of the acquisition. The plan further on is to refinance this bridge loan into 2 parts, an equity rights issue and we've also used the front debt instrument on the last part. And regarding the rights issue, the plan is to issue up to SEK 3.5 billion execute during next year after we have full completion of the transaction. We have spoken to our top 4 shareholders, and in general, it's very good news. They support the transaction and have all expressed a clear interest to subscribe for their fair share. It's also worth mentioning that subject to certain conditions be the support from Danske Bank and SEB, the rights issue will be fully covered. And next slide, please, and some perspective around the financial implications. So as Christoph already mentioned, the shareholder value will come from different sources, but the business case is actually relatively pieced together. It's not too many moving parts. This incremental volume post our 2 conversions, coupled with a much more profitable product mix. We expect this to give a real margin boost and be clearly accretive versus where BK is today. And to the financing consideration, both the acquisition and the conversion CapEx will be financed through a combination. We already mentioned the SEK 3.5 billion rights issue; we'll also then have additional debt; and last but not least, use our operational cash flow over the coming years. We maintained the financial targets that we talked about in the CMD back in November. And for the top line, clearly, we will get the big injection when we take over Verso and put it into our books. But for the coming years, and again, going back to the points that we talked in the CMD, we do have enough room to grow in our existing [indiscernible] mill here in Nordics until 2025. And after that, we will need new sources to continue our revenue growth, and this is where Verso will fit to bill perfectly. And that's the first conversion that's been complete in the fact by the year of 2025. As I already alluded to, long term, we expect the Verso to be an important tool to lift the group's EBITDA margin. For the debt profile, we are planning to stay in line with our targeted level, and we should only be a small exception where we might go past the 2.5x EBITDA, but that should only be in a very temporary stage. We'll also come back at the later stage when we can share more details on the CapEx sequence for the first conversion. Dividend policy is kept intact and we expect no change to the current target. And maybe last but not least, we do expect to report SEK 135 million of items impacting comparability and also cost items, mainly related around the transactions, and we will do that now in our Q4 report. So with that, I'm handing it back to Christoph for some thoughts and perspective on the time schedule.

Okay. Thank you. Thank you, Ivar. So as you know, regulatory environment, shareholder voting and things like that, we have a clear path clearly for the shareholder voting. That will be early March 2022. We expect to get most of the regulatory approval between quarter 1 and quarter 2. I think if you take one normally of the biggest ones, the competition regulator, I think here, there's no issue. We do not have an overlap of any type of portfolio. So that's very good. But we need to go through the regulatory process also with some electricity boards because there is a power generation plant coming with the acquisition. We hope that by quarter 2 that will be done, and we will have closure. And then as soon as the closure has been achieved, then I think we will do the rights issue, which we hope that our shareholders -- which we expect our shareholders to be positive about in our Annual General Meeting somewhere in May. So that's the time schedule. If it goes faster, great. If it goes a little bit slower, it will not impact significantly in any way our business plan and the conversion that we are planning. Good. And in summary, we have basically used the same slide as you had in the first one, just to remind you. So it's a cornerstone of our expansion in North America and sustainable capacity opportunity for the next 10 years. The market proximity in a growing -- in a large and growing primary fiber market for containerboard and cartonboard. World-class cost based, lowest cost producer in the U.S. and very competitive even in Europe and Asia. Two converted paperboard machine, fully integrated and an incredibly cost effective and quality wood basket. And then finally, as Ivar already mentioned, accretive to EPS and will create significant shareholder value by the mix transformation plus the additional capacity that this opportunity has. So having said that, I think after this hard work over the last months, we are incredibly happy. And by closure, we will be very happy to welcome our Verso colleagues into the family. I also think that this acquisition puts us a little bit under strain when it comes to our current track record in environmental because we basically buy something which is not in the same shape as BillerudKorsnäs. But when you think about it, it is probably for all of these sustainability targets. It's a big step up because we have so many low-hanging fruits to bring Verso at a similar level than BillerudKorsnäs. So thank you very much for that. So that is the end of the presentation. And I think we can open up for questions now.

[Operator Instructions] And the first question is from Robin Santavirta.

Now I would like to start asking a question. I don't know if you covered that one, but I guess it's quite important. What kind of paperboard or paperboards will you convert the current capacity to?

Okay. Yes, we have only touched that in very little. As you know, the North American market today is mainly SPS. And in Europe, we have much more SPB. So it is our intention to basically push much more SPB, I think at the end of the conversion roughly because clearly, the details are not fully worked out. We expect Escanaba's volume to be 65 SPB, around 30% CUK and a minority of maybe food service board, FSB. But clearly, these are just indication. Our business plan is made on these type of numbers. But as soon as we have basically more understanding of the runability of the machines, we will fine-tune the mix. So as you can see, most of it will be on cartonboard, okay? And these are the type of segments that we are particularly focused on.

Okay. That is a clear answer. Then related to the, though I understand, both mills are fully integrated when it comes to pulp, what kind of pulp capacity do they have? How modern is that capacity? And do you plan sort of in this conversion plan? Is it only the paperboard machines or does that include the investment plan and anything with the pulp capacity?

So currently, as I said before, we have -- basically, we have fully integrated with the volumes that are currently produced in Escanaba and Quinnesec. And in Quinnesec, there is a surplus pulp supply of around 200,000 tonnes. So our intention is basically both mills are in very good states, in particular, Quinnesec, which is relatively new mill, but also Escanaba has very good facilities. We will continue to debottleneck some of the things, and we will clearly work on the furnace. And the mix in all will allow us to absorb 100% of our pulp in our board and paper production between those 2 mills. The mills are only 50 miles apart. So there is an opportunity to basically maximize and optimize the production of hardwood and softwood pulp between those 2 mills in order to further reduce cost.

Yes. I understand, but regarding sort of the pulp production capacity and everything that is involved into that, do you plan to renew anything, the recovery, boilers or something like that? Is that included in the investment or .

No. Basically, -- yes, okay, I understand. So there's no need to have major investment, neither in the pulp making nor in the recovery side on both sides. So it's really -- the job here is really to convert the machine and to increase why we're doing this conversion, the environmental standard going forward.

I understand. So it will be the machines that will be converted. Now final question for me, if I may? Now initially, you will become a quite big graphic paper producer in North America. And although the profitability at the moment is quite good, I understand that the sales prices have increased quite drastically in graphic papers in North America over the past year. Could you sort of describe what is the average EBITDA margin that Verso has generated over, say, the past 3 or past 5 years, number one? And number two, what kind of growth should we expect to the underlying sort of graphic paper markets over the next, say, 5 years? I understand this is a platform for paperboard growth. Still, initially, you will end up producing graphic papers in North America. So that's the background of the question.

Okay. So what I would do is I give you -- maybe I will enlarge a little bit the question in the sense that clearly, what is the strategic future of graphic papers, specialty papers, et cetera, in North America. So on graphic paper, you're absolutely right, the market is in a slight decline, around 2% a year. And this is also reflected in the many, many, many closures that the U.S. has seen over the past. However, we believe that in the current environment with our plans to conversion, basically, we will contribute to keep a good market balance from that perspective. And therefore, we are not particularly aware of any significant price movement because of overcapacity in the market. So it will be a cyclical market that we recognize, but it will not be because of the market balance. The second thing is our strategy -- or Verso's strategy even in paper is to focus much more on specialty paper. This is currently a smaller segment, as you can see in the data. But the whole growth approach is there. And specialty paper, everything like release paper, labels and things like that, which are anyways margin potential and growth potential much higher. This market today is about 1.2 million tonnes, I believe, and it's growing around 2%, 3%, so very much in line with what we also see on cartonboard in the North American market. So we will not -- I cannot speculate on the margins, so we will not talk about that in detail, but we are not particularly worried about a structural issue with the paper segment in view of our strategy of conversion. And we expect, in particular, Quinnesec, but also the machines in Escanaba during the transformation to deliver significant cash flow. And that is what Ivar mentioned by saying the transformation will be financed through our cash flow as well as the equity investment in that. Thank you for your question.

The next question is from Johannes Grunselius of DNB Markets.

It's Johannes here. I know you can't go into the details of my question, but can you maybe at least give us some indication or discuss it, what kind of profitability levels do you have in your mind for the coming years before you will convert the Escanaba Mill?

Do you want to take that, Ivar?

I can certainly do the attempt, at least. So I think the key is to go little bit back to what we said in the beginning of what we are planning to do, and then we are going through the transformation of moving the portfolio significantly into paperboard and cartonboard with a very attractive cost position. This is obviously what we are aiming for. And I stand by the statement I did early on that this will also be a very important tool to lift the group profitability average. Now I think going forward, you can see for yourself that the prices are good, the market condition are high. And I just wanted to stress the point that although we still expect a certain market decline of this graphical paper in the U.S., there is still a market. And there is also still a very good cost position of the 2 mills we're taking over. So when you compare to the historical financials, you might get variously a bit polluted in your view because that also includes a lot of the exits they've done. And these sites now that we have are strong, the cost profile is very good, so we would certainly also expect that we will have a positive cash flow going forward on this one. In terms of exactly what profitability level we would expect is tough to say. We do recognize that this is certainly more of a cyclical business than maybe what you can say that certain of our segments today. If you compare that to liquid packaging and also certain of our premium positions in cartonboard. But maybe just as a close on this, with these 2 sites now and the cost position they have, I think we are in a very good position also for the coming years.

Okay. When I look at this company, Verso, very quickly, it seems that they are not paying any tax, I suppose that's because of historical losses. Will that continue for a long time? Is it important?

No. Let's just say that you're absolutely right that there is an accumulated tax loss carryforward position as a result of the last year's financial performance. Clearly, if you overlay that and say that over the coming years, we start to expect positive figures or back figures, we will obviously use those. So it's no doubt that, that balance we currently have will be starting to be reduced once the positive figures hit the books.

Yes. And finally for me, I mean, you sound very enthusiastic when it comes to the conversion plans for -- I'm sorry about the sort of [indiscernible] pronunciation. But could you -- I mean, should we look at this as unique opportunities for conversion? Or is it -- should I look at good conversion projects when you think about the earning step up coming from the conversion?

Maybe I'll take that, Ivar. When we started this approach to look for what are the potential ways of creating more capacity within BillerudKorsnäs? We basically went 3 directions. The first one was to say, what would it take to be in a good wood basket, wherever that might be a stand-alone greenfield plant. And you get very, very quickly a question the viability of that because of the incredibly high investment you have to do on the pulp and the recovery side before you even start to produce paper. That then led us to investigate much stronger across the U.S. and some other markets of saying: are there stranded assets, are there assets we could make a partnership with some pulp mill owners and integrate our machines to those pulp mills, et cetera? And what we found is that generally speaking in the U.S., the asset quality, in particular, of those which are stranded, were not particularly good. And I think with Verso, we have found an incredibly good after all these years that they have struggled to sell mills, to close mills, to restructure and things like that, we are now basically getting what was the best in Verso and by far is in my belief today the best what you can acquire. So from that perspective, I'm very excited as this is a very special conversion case because we get recovery, we get pulp, everything is working, super attractive wood market, very good quality fibers. And the only thing we need to do is basically putting the machines which are there and transforming them into a paper -- cartonboard grade machines. So I don't -- I think this opportunity is quite unique. At least we couldn't find anything which came close to this. And as I said, we know about Verso since, I think, April or so, and we have started the project very seriously in August when we realized that a bid was made on Verso. And we have visited the facilities in November. As soon as the Board has opened in the U.S. and people came back in a very excited way of saying this is not just technical feasible, but this is actually financially a very good deal in terms of CapEx, acquisition price because we are buying a graphic paper business, not a packaging business, et cetera, et cetera. So very excited.

The next question is from Mr. Larsson of SEB.

Yes. Just to clarify, do I understand right that today, there are in total 4 paper machines running. And you are talking about first 1 paper machine conversion starting up -- ramping up sometime during 2025 and then the next one at around 2029? And if so, there are, I guess, 2 machines remaining? And what are your thoughts around those 2 machines? Just to clarify, please.

Okay. So first of all, like for yourself, 2030 seems very far away. So we made the plan for the next 10 years of what we think we can do. Clearly, when we arrive in 2030, we will look at the market condition and things like that. There's 2 options. I think it's important that we continue to serve our customers in paper, but depending on the market situation at that time, we can either continue to do that or there's also an opportunity in Quinnesec to transform the machine into cartonboard. That is currently not on the agenda, and it's not part of this project. That would require more CapEx than in 2032, '33, '34. And we would only do it if the graphical paper or the specialty paper market is really in dire straits. Otherwise, I think we have the most cost-effective mill in that segment in North America. And so we will review that. Then there is 1 smaller machine in Escanaba. We have not taken any decisions on that. It's a machine, which is currently -- it's about 120,000 tonnes, I believe. And it's running, and it's making money, and we will basically decide on the machine based on the pulp balance after the full transition of the 2 other machines, okay? So we have opportunities there, but we are not sure yet in that level of details what it does. The key one is, as we all know, we're not paid by tonnes, but we are paid in dollars. And we will basically optimize that industrial tool as best as we can.

Great. That's very helpful. And just to be perfectly clear, I mean, the way you talk about the 2 mills, it sounds as if there is -- you run it as 1 system, that there are elements of the integration between the 2 sites. Just to be perfectly clear, you're not contemplating, given that potential conversion for your core paperboard grades that Quinnesec would take place only into the next decade? It's not a potential for a divestment of that operation, which is not to be converted within the current decade?

Yes. That's correct. So there's 2 arguments for this. A, it's making money and it's working very well. B, there's a pulp balance system in place today, and we will even increase that when we change products. So the only assets we are currently contemplating to sell, it's basically Wisconsin Rapid and see what's happening there and the electricity provider because we do not see the same synergies here. And we don't know if this is a site sale or an asset sale, et cetera, and we will work that through between now and closing and after closing. We do not -- and also just to be clear, I think these assets or the benefit of selling these assets will not have a very significant impact to our business plan, okay? There's an upside, but it's not so material that's worthwhile to talk about it.

And is that also, from a valuation point of view, the hydro power business and the mill, which is today just converting operation, what's the monetary value of that if you end up selling those?

Yes. As I said, it's not really material. It has -- currently, the power plant has cash flow and makes money. And Wisconsin Rapid is basically closed other than the sheet plant we have there. Ivar, do you want to...

No, I can also confirm, I mean the book value of this is not very significant, talking just north of $100 million for Wisconsin Rapid, et cetera. But I think as Christoph said, this is now what we will assess in very close collaboration on what the future will be. But the lead option is to divest.

Great. May I just ask one final question, you talk about the graphic paper grades and you talk about the specialties, if you were to, let's call it, tonnage numbers or sales numbers on the split between the 2, what would you say?

We had that in your slide, no? So I can -- so I can maybe give some coordinates today on what we are currently looking at. So if you look at the portfolio that Verso has right now, you can literally split it into 4 main ones. So you have coated [indiscernible] divided to both rolls and sheets. That's roughly half of the revenue. You would have the coated mechanical papers coated to ground wood, that's around 14% of revenue. Specialty paper, we're talking release paper and labels, 17%. Yes, market pulp [indiscernible] last 16% and then there's a small left over 5%. So that's the main items and the split that they have today.

And the next question is from Oskar Lindstrom, Danske Bank.

All right. Interesting -- I have 4 questions, but I see here that there's a couple of questions in each one of these, but I'll try to keep it as brief as possible. And the first one is just on the investment as such. When you say that you have SEK 9 billion roughly for the conversion of the 2 machines at Escanaba, do you have quotes for this -- for the rebuild? Or is this -- what is that based upon? And then also, if it includes what is the sort of annual maintenance CapEx that you see in Verso excluding the rebuilds?

No, I can just say a couple of words on that, Oskar. No, it's not based on actual quotes. I can say that we've done a very thorough due diligence and looked at this not only with our eyes, we also have used external parts to come to a joint conclusion. So in that sense, you can say that we feel good about the estimate we put in. Clearly, more of details will be shared further down the road when we come to stage, as you mentioned, also to have the hard quote and more specific on timing. But that is something I can just mention where we are right now.

So just that I understand that correctly. So you've had some external consultants giving you an indication of what the conversion project would cost?

Let's just say that it's a combination with our own estimates because clearly, we've also done this a couple of times on ourselves. So we had a very good view internally, but we also use some third-party, yes, experts to verify that number to also to come with their own view. So that is a combination of that methodology where we base our number on. I think you also mentioned, by the way, a little thing around the maintenance, I think you talked about. And what we say though, is that we will have probably in the area of SEK 2 billion over the next 3 years in North America on maintenance CapEx, I think that also includes that we want to do some smaller upgrades. I think Christoph already mentioned part of this is also related to where we want to raise the bar in of our sustainability and environmental profile. Also doing a little bit of other work just to prepare for the increased capacity we're expecting on the machines. Now after this, the annual maintenance CapEx that we expect should be in the area of SEK 300 million to SEK 400 million per year.

So the SEK 2 billion is on top of the SEK 9 billion for upgrading...

No. No. Yes, so...

It's included in the SEK 9 billion?

Yes. Yes.

Okay, super. And then my second question is around the fiber supply, which you talked about quite a bit here, and I think, no, that's very good. Just a question, I mean, how does it work the fiber supply? I'm familiar with how it works in the Nordics. What -- how does it work here in Michigan? Is it long-term agreements or what's the setup?

So the setup is basically, you have a number of small- and medium-sized forest owners. So we don't -- you don't have the structural company like Stovall or FCA or Hallman. But you have basically private forest owners and you make, on a rolling basis, the deals with them. I'm not in the detail of what the length of these contracts are, but as you can see from the growth, basically, the forest is underutilized. I don't know, Oskar, if you remember, but if you take the Georgia Pacific tissue mills in [indiscernible] almost of these mills switched to recycled fiber, which basically creates a vast wood supply, which is currently fully underutilized because graphic paper company shut down and a lot of tissue companies went into recycled, okay? And that changed totally the forest utilization in that part of the world, be it Michigan, albeit Wisconsin for that matter actually as well.

I can maybe just add a couple of things on this on what Christoph has said that I can just say the wood is supplied from the nearby region, so we're talking of Michigan, typically delivered at gate, very similar to what we have. I mean, Verso doesn't own any forest assets directly, so they are also a big purchaser in the region. And it's mainly sourced from large to small private landowners.

All right, super. And then my third question is on -- and this one, I realized that it might be difficult to answer at this moment is the profitability of the converted machines. I mean you're currently earning an EBITDA of about SEK 1,500 per tonne in your board division. And that's also where you were, give or take, before the KM7 ramp-up, and I expect this to rise. But is that roughly a good guideline of where you expect the profitability of the converted machines to end up?

So the only thing I would answer there, I understand the question, it's not a bad question at all Oskar is to say that if you think about the selling prices that we typically have had versus what we expect to obtain you will find a very similar pattern. The big difference of where the profitability in need was to start to increase is on the cost side. So the cost per ton is certainly something that we expect to get a much more beneficial position in the U.S. And there's maybe not a big surprise that the biggest level of that will be in the area of the fiber cost per tonne.

Wood costs?

Yes.

Okay. Interesting. And then just my final question is on...

It's really a Christmas, Oskar, you get your fourth question.

Yes, I thought I'd sneak it in there. Just you say here in the press release that you're maintaining your dividend target of at least 50% of EPS and you will remain net debt below 2.5x EBITDA. I mean is this going to be at all challenging during this -- the most intensive part of the conversion period? Because obviously, you'll be doing a lot of CapEx and you won't have the cash flow from the new converted machines?

Yes. No, it's -- again, it's a good point. I can say that if I just start with the dividend piece, there's no really change to what we already said, and there is quite deliberate. We also said above 50%. This is again, as you know, a discussion we have clearly with the Board of Directors. But you're right in the sense that we would expect net profit to fluctuate partly. But for the time being, that is intact. So there's no change versus what we said back on the CMD. I think in terms of the net debt leverage and how much multiples or the ratio we're going to get on EBITDA, yes, I mean it's going to get tight. At least the projection we do is that it will be tight in some years. But there's also a reason why we then do the rights issue now to have that as a bit of a tool or a vehicle along the way. We shouldn't be very tight straight away. But in a couple of years, we probably would have some deviation, a bit above the 2.5.

The next question is from Harri Taittonen of Nordea.

Yes. Yes, my colleagues have made a lot of good questions, so not much to ask, but maybe some color on the -- what you think of the sort of the machine or what does the sort of Escanaba machines, how well are they suited for conversion in terms of sort of why or what are the kind of the features that make them particularly well suited for converting those for containerboard -- sorry, cartonboard? And also, if you sort of said that you are prioritizing folding boxboard, I mean that will probably imply that you would require some mechanical parts. So would that be sort of a sourced from somewhere else or sort of built around sort of the machine or how does that go, please?

Okay. Harri, you have to admit, I'm not a technical expert, so I will tell you what I was told, okay? So when it comes to the machines, so basically, what will happen is we will change the wet area of the machine and we will lengthen the dryer of the machine. And the building in which the machine is currently building is basically long and strong enough in order to take these changes. So the machines are wide enough. So basically, we will end up with a, call it, a KM7 type quality of machine and the intention is to build 1 for middle to heavier grades and build another one to the middle to a little bit lower grade. So that we have the piano to play in order of market requirements, okay? When it comes on the pulp side, yes, you spotted this directly. It is our intention to add some CTMP capacity or capabilities in, I think, it's in Quinnesec as we do this transformation. But these investments are very low. There's already something available. So we will build on existing kits and just make it more significantly bigger.

Okay. No, that's great. I'll the rest of the questions later. I mean...

Yes. But I just want to confirm that we are planning to have a CTMP line based on the total plan. So that is already into the SEK 9 billion we talked about. Yes. Good. I think we take 1 more question. And then I think it's time for you for me to wish you Merry Christmas and send you all for lunch.

Okay. So the last question is from Cole Hathorn at Jefferies.

Just following up on how you think about the rest of the portfolio. I mean you talked about your Capital Markets Day, how you're focusing on effectively the cartonboard folding boxboard side. How do you think about your kind of your managed package business, the other portions of your business, does this accelerate kind of some disposal plans to bring through cash flow while you're doing the conversion is the first question. And then the second question is, as you ramp up this mill, we've heard a lot about extended lead times for machines and working with the suppliers, how comfortable are you that the kind of the 2025 time line is robust or is there any risk of that getting shifted out a little bit later?

Okay. Good. Look, Managed Packaging, no new since Capital Market Day. We were busy with West. And as I said, we will now review a little bit how these smaller parts of the business fits into our portfolio and have -- can be leveraged or not. And then we will take a decision probably mid '22 on that. So that's the only thing I can say on that. When it comes to lead time, you're absolutely correct. I mean, you're well aware that we are running our recovery boiler project in Frövi. We are confronted every day with these type of issues in terms of not just getting actually the kit, but also having the logistics of getting it in. And then you have the whole area of the electronics side and switchgears and whatever you have, which is quite challenging. For the moment, I can only talk about our experience in Frövi. We are managing very well. We had no delay so far. And we are pushing really hard on a daily basis to get this thing done. So yes, we have a tough lead time for the first conversion over the next basically 3 years. And we know that this will be a challenge. But at this stage, it's very hard to have an estimate whether or not how the situation will be in '23 and '24. I think we are buying not the full paper machine, as you know, but we are only buying certain aspects of it. And these aspects of the paper machines that we will buy in are, how would I say -- it sounds a little bit simplistic, but our standard kits. So it's nothing particularly sophisticated. And therefore, I think there's a number of suppliers who could deliver that, and we will do our best to keep to these timings. But I think it's absolutely fair to say once we have the feasibility studies over and we know exactly what we are talking about, then in that CapEx announcement, we will probably give you some very clear timelines much more precise as we did in Frövi when we announced Frövi at the end of last year. Good, ladies and gentlemen. Thank you very much for your time. And because we were quite late, we put this press conference a little bit later than usual. I think as the last point of the day, I would really like to wish you a happy holiday or Christmas or New Year or whatever you are celebrating. It was a pleasure to have you for the Capital Market Day, and it was a pleasure to talk to you every quarter. I'm sure our story will be exciting as we continue. I hope to all see you on the 28th of January, I believe, is our next announcement. And thank you for your interest in BillerudKorsnäs. Have a great break.