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Billerud AB (publ)
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Ladies and gentlemen, welcome to the BillerudKorsnäs Interim Report January to March 2019. Today, I am pleased to present Petra Einarsson, President and CEO; and Kristina Schauman, acting CFO. [Operator Instructions] Speakers, please begin your meeting.
Thank you. Good morning, and welcome everyone to today's webcast of our quarter 1 report. I would like to start by sharing some key highlights of the report and then to invite Kristina to give a more granular update on the financials. And after Kristina's updates, we will open up for Q&As. These are the main highlights of the quarter. I am very pleased with the continued strong demand with something in 10% sales growth and the solid margin of 16%, not far from our long-term targets of 17%. However, we still experienced headwind regarding raw material costs and above the level of last quarter. And I'm happy and proud to inform that our strategic investment, KM7, in Gruvön, is progressing according to plan, and we have now entered into the start-up phase. And we will have stock on wire any day now, and I definitely believe that it will be in April. The Bergvik Öst transaction is expected to be closed in May, and the process to find a suitable investor continues as planned. We have now sent out the information memorandums to several interested parties, and the interest is very high. We are on a journey with good momentum in the first quarter towards unlocking the BillerudKorsnäs' potential. And if you look at the 3 focus areas that we have on unlocking the potential, the first and foremost attention for us has been to secure a successful ramp-up of our strategic investment in KM7 in Gruvön and to secure long-term competitive wood sourcing. Second, we need to continuously, day by day, improve safety and production stability. And third, it's last but not least, growth is our focus, and we need to accelerate regarding innovation and solutions. If you look at KM7 in Gruvön, it's a huge project, still far from being finalized. It's SEK 7.6 billion. And -- but right now, we have green lights on safety, green light on ad cost and green lights on, on time, thanks to a tremendous teamwork within the company. The start-up phase is now initiated, and we will have stock on wire in April. We plan to produce commercial liner already in May, June and to have certified material produced in October. The cutting machine will start up in August and the first material will, for our customers, as I said, will be sent to customers in October. Our guidance of SEK 500 million impact on EBITDA related to mix is still valid and the SEK 250 million regarding increased schedule depreciation is also still valid. Looking at the sourcing of wood, this accounts for roughly 30% of our total spend and because it's still in our focus from 2 different perspectives. First of all, we focused to finalize the deal with the letter of intent [ partnered ] on by Bergvik Öst in May or early June. And we believe that -- as was commented during the Capital Markets Day last year, we still believe that it creates more value for BillerudKorsnäs to invest forward in our packaging solution business than to own forest land. And we are now in the process of inviting robust investors for long-term collaboration and have sent out the information memorandums. The interest is very high, and I look forward to deepen the discussion with several parties. And now some words about safety and production stability. A safe company is a well-run company. And if you look at the safety performance of BillerudKorsnäs, last year, we have the -- we reached 7.2 lost time injuries for 1 million working hours, and this is very far from 0 harm. And unfortunately, if you look at the fourth quarter, we have moved in the wrong direction and are now on 8.7 lost time injury frequency rate. During the fourth quarter, we have now launched the BillerudKorsnäs safety program where we focus on structure, engagement and predictability, and with our focus to have safety as our first priority. And we are committed to achieve our targets of less than 1.5 lost time injury frequency rate by 2023. We believe that all accidents can be prevented, and we will never walk by to raising the voice to avoid an accident within the company. But we have it for -- it's a long way. And so this will be a long journey, and it's very much correlated to mindsets. Another area where we have total commitment is production stability. And here, we continuously need to improve our production stability, and we have seen no major disturbances so far during 2019. The first quarter had a soft start with a maintenance-related challenge in Gävle, but we also had a very strong finish of the quarter with months in-line and above our targets. The production targets have been triangulated based on external benchmark, internal benchmark and the nature of the loss to evaluate our performance by each segment and by each machine. We have sent availability targets for the next coming 2 years to improve by 4%. This is equivalent to SEK 400 million in EBIT improvement or roughly 1% units in EBIT margin each year. This program is now in execution phase to deliver on the committed targets with our key competence network set up to facilitate that cost-me learning and the best practice sharing. The lost -- the key lost initiatives are monthly tracked, and we also track corrective actions when needed to get back on track. So we are fully committed to deliver on these promises, and we definitely plan to increase OEE by at least 4% units by the end of 2020. And if you look at the full year production of 2019, we expect to reach 2.9 million tonnes. So now we have talked about what to secure and what to continuously improve, so let's talk about accelerated growth. Innovation is at the heart of what we do. The end results are new packaging solutions that create value for our customers and at the same time, support the profitable and sustainable growth for BillerudKorsnäs. When it comes to measure our performance to launch new packaging material, our long-term target is a new product ratio of at least 15%. A few years ago, we surpassed that level, but during the last 2 years, the level has decreased to 6%, 7%. This is primarily the effect of where we are in the investment cycle. But already this year, we expect to come up on the targeted level of at least 15% again. We have made one step closer to a fully biobased paper bottles during this quarter. BillerudKorsnäs and ALPLA joined forces to fulfill the shared vision of developing a fully bio-based paper bottle with biodegradable barriers. So this is something that is really exciting that we look forward to see the paper bottle out on the market soon. And finally, before I hand over to you, Kristina, the outlook. And looking at the next quarter, we expect the good demand of our products to continue. We also experienced an increase price pressure on some parts of our product portfolio. But for the major part of the portfolio, we need to focus on safeguarding the current price levels. And also the fact that we have newly negotiated price levels for the major part of our liquid packaging board. And finally, the cost of fiber expect to flatten out on a high level for the next -- for the quarter to come. So with that as an introduction, Kristina, I hand over to you.
Thank you, Petra. And I will now go through the results first from the group level, then I will give you some highlights on the different divisions. As you have already seen, we have started the year with a very strong net sales growth of 10% year-on-year, and this is a strong growth that we have seen across all the divisions. The increase is mainly driven by the fact that we have higher sales prices year-on-year, but we also have seen a positive currency effect. Of the growth, approximately 2/3 relates to organic growth in sales and 1/3 to currency. At the same time, our sales volumes for the group have been more or less unchanged compared to the first quarter in 2018. We have also continued to see high raw material costs in our production, the large defect we have on the fiber, and it has continued to increase somewhat in the first quarter. And now the prices have increased with more than 20% compared to the first quarter in 2018. We expect that this price increase will start to flatten out, but the level will still remain high. Cost for chemicals has also remained at a high level, but here we have seen that the increase has already flattened out. In addition, we have also, during the quarter, seen a negative impact from higher energy prices year-on-year. So looking at our EBITDA. Compared to last year, we have a small decrease, and we ended the quarter with an EBITDA of SEK 1.035 billion. So the main explanation is that although we have managed to increase our sales prices, we have not fully been able to compensate for the higher raw materials costs that we now see a full effect now in this quarter. I will now guide you through the effects on the different divisions, and I will start with Division Board. For board, we have seen a net sales increase with 12% in the first quarter whereof the major part of this has been organic, approximately 9%, and the remainder part is based on currency. The organic increase is a result of higher sales prices compared to last year, but also that we have had higher sales volumes in Division Board. The increase in sales volumes relates to a transfer of production capacity from Division Paper. And here, we have then increased the production of fluting and liner for board during the first quarter. The EBITDA decreased with 8% compared to the same period last year, and we ended the quarter with a margin of 19%. The main explanation is that the higher fiber and energy costs that we have seen, but also have we had costs in Gävle in relation to -- that we have replaced part of a digester in one of the pulp lines and used to dissolve pulp in the production, and this has also affected the cost. Our return of capital employed for the division ended at 9%, and this is the same level as we had seen at the group level. And as you know, the long-term target is 13% to be above that. The lower return is, of course, related to our large CapEx program and where the investment in our KM7, the carton board machine, is allocated to board. We expect to start depreciation of this machine as of May -- I'll see what happened here. Is it okay? Okay. Sorry about that. And then I'll just continue. So what I said -- last thing I said was that we expect to start depreciation of KM7 as of May. And Petra already mentioned that we also expect to have at the same level of SEK 250 million of depreciation for this year. The outlook for board is that we see that the market is expected to remain good, and the only segment where we have seen some weaknesses is the uncoated liner segment. Now Division Paper. And here, we have yet seen another strong -- very strong quarter for paper, and the net sales increased with 10% year-on-year. The main explanations is that we have been able to increase prices and keep this high price level throughout our segments. We have also seen positive currency effects and we have also seen an improved product mix, and this is due to the start of paper machine 10 in Skärblacka where we produce the MG paper. The EBITDA increased with 9% year-on-year, and we have a margin that remains on a high level of 20%. The return of capital employed in paper is high at 20%. The outlook for this division is that we expect the markets to remain stable, but we have started to see some price pressure, but our main goal is now to safeguard -- continue to safeguard the current price levels.Finally, Division Solutions. Here, we have a good growth also of 10% during the quarter and we had net sales of SEK 206 million. This is mainly related to new sales within our Managed Packaging segment, but we have also here seen positive currency effects. The EBITDA was positive at SEK 13 million compared to a negative number in the first quarter in 2018, and we ended the quarter with a margin of 6%. Since this division is solutions-oriented and therefore asset-light, here, we focus the follow-up on margins rather than return targets. The outlook for the solutions is that we expect the growth to continue in a strong way during the remainder of the year. So now some words about the balance sheet. We have had net debt ended at SEK 9.8 billion in the end of the first quarter compared to SEK 6 billion a year ago, and this is clearly a result, our large CapEx programs that are now coming to an end. In the first quarter, we had strategic investment of around SEK 700 million and the major part -- another close to 8 -- SEK 900 million is expected in the second quarter. If we exclude any effects from valuating the first instance here, I want to talk about it, we expect net debt to peak in end of the second quarter, and this is due to the remainder part of our CapEx for our strategic investments, but also that we have the dividend payout in the -- that we booked in the second quarter. But -- and if we include the closing of Bergvik during the second quarter, we expect this, as we have already mentioned, the cash-out effect of around SEK 5.4 billion then our debt position will increase even more. But as we have communicated, the sale of Bergvik is progressing well, and we expect to sell a majority of this during the third quarter. And even if we had Bergvik on our balance sheet, we still have headroom for our debt covenants. We have debt covenants based on net debt to equity and interest coverage. And we will start to see a decrease of our debt position in the latter part of this year, and we expect it to be in-line in late 2020, that is in-line with our net debt-to-EBITDA target. So finally then, I'll hand over to Petra for some final concluding remarks.
If you summarize the long-term financial targets, we reached the net sales growth of 10% and the EBITDA margin on 16%. Return on capital employed, 9%, which is below the long-term target, and also net debt-to-EBITDA is now on a 2.9% level. The dividend policy to be 59% to be decided at the annual meeting. And to summarize the quarter, it's definitely so that we -- what we see during this quarter is that the strong demand for our products continues, which is really good, and we see also a strong sales performance in all divisions. I believe the 16% margin to be solid considering the high fiber costs that we have had also in the first quarter. The ramp-up of KM7 has started and proceeds according to plan. And the process of finding a suitable investor for Bergvik Öst is ongoing. We definitely have a very good momentum in the company right now, and I would like to say that we have a quite optimistic view on our future. The strategy process is taking form now in the new organization with divisions in place and the management team and the division in place, and we plan to tell you more about our 5-year plan when we meet later this year in -- at the Capital Markets Day. But now I would like to open up for some Q&A.
[Operator Instructions] And the first question is from Linus Larsson from SEB.
My questions, I'd like to start just for clarification sake, just a follow-up on your Gruvön KM7 start-up you guided for SEK 200 million EBITDA impact in the second quarter. Should I understand that as the sequential impact is also SEK 200 million, i.e., on that basis, there were no such costs, no such impact in the first quarter? That's my first question, please.
Yes, that's correct.
And then going into the third quarter, is it then SEK 50 million less of an impact? Is that the way we should understand your guidance comments?
Yes, we foresee SEK 200 million roughly for the second quarter and then for the remaining SEK 300 million to be split evenly the next quarters.
Excellent. And also, I mean this -- the way I understand it, this is a guidance for the project in its totality. Does the guidance also cover some group-wide improvements like, for instance, the moving of volumes from, say, the closed machines at Gruvön to other mills in your system? Or does that -- is that outside of this particular guidance?
No, that is included in the guidance of SEK 500 million.
Okay. And then could you quantify that, how important is that, how much volume do you expect to move from Gruvön, for instance, to other mills in your system?
I think, Linus, what we have said so far is that PM5 is now closed, and that has been already moved. That was MG paper and is now produced in Skärblacka. PM1 and PM2 is expected to be closed down in May. And the last machine, I think it's PM4, we have not taken a decision when to move those quantity -- that capacity yet, but we expect then to move those qualities going forward. So we have to come back to that.
Okay. But do you expect to retain the vast majority of the business that is now on the machines, subject to closure at Gruvön?
If PM1 and PM2 is now producing liner and fewer board, so yes, some of those volumes will be moved to KM7 as we ramp it up.
Okay. I see. Okay, okay, okay. Good. And then may I also ask on Bergvik? You hope to close a divestment or part divestment in the third quarter, if I heard you right just now. Is it your intention to release capital on a net basis in connection with these transactions?
I think that is too early to speculate as we are right now in the absolute beginning of the negotiation.
Understood. And maybe in connection to that, how important do you view the buyback option as part of this potential deal?
I think that is also something that will be part of the negotiations. But I think it's important to have some kind of mechanism to secure that BillerudKorsnäs has sort of taken this long-term. But if it is a buyback option or notice, it's part of the negotiations.
Next question is from Justin Jordan from Exane.
I just wanted to clarify something that's in the statement on Division Paper. You talk about transfer of production capacity in Division Board and clearly lower volumes year-over-year in Division Paper in Q1. So is this something that we should think of as a longer-term structural change within the divisions? So clearly, we'll have impact in Q2 to Q4, respectively, for 2019. Or is this a 1 quarter thing?
This is a 1 quarter thing, and that machine has not been closed down. And that's the machine where we moved the production to PM10 for paper -- for empty paper, and then it was used for production of liner meanwhile up until end of March this year. But now it's closed. So there's no effect from that going forward.
And just in terms of thinking on a group-wide basis again, your volumes were down 0.7% in Q1 year-over-year. For calendar '19 overall with the benefit of KM7, should we be thinking in terms of overall group volume as being up year-over-year? Or how should we think about that overall?
Yes, you should think that it should go up and we are aiming for 2.9 million tonnes. And if you divide it, you have the increased productivity targets that we have of roughly 30,000 -- 60,000 tonnes and then we also have contributions from KM7 and also thinking about the volumes that we lost last year due to the wood shortage. Also, if you add that back, then we are aiming for 2.9 million, roughly.
Okay. And just again staying in Division Paper, you talked about pricing pressure going forward. Can you just give us some idea of the particular product areas that you're expecting that or seeing that already as you are?
Well, we haven't really seen a price decrease so far. So we are able to safeguard our price levels. But then there are indications in certain segments that it could come, but we still are working towards keeping the price levels up. We're not overly concerned, but we need, of course, to keep an eye on it.
And I think also if you look at the safe performance in the quarter with the 10% sales increase where around about 2/3 were related to price, I think that, that is also a message.
Yes. But I'm just trying to clarify, so the certain segments that you're cautioning on, can you elaborate as to what they are, please?
It's mainly within well material containerboard. So it's uncoated liner where we are most worried, but we still just want to send a signal that the market is good, but not as good as it was last year. And we see some pressure out on the market, but we have so far been able to safeguard our price levels and feel confident about that.
Sure. Okay. And then just thank you for giving the EBITDA bridge, but can you just help us understand just on the 10% revenue growth at the group level year-over-year in Q1 over Q1 2018? I appreciate you've got a negative 70- basis points from volume. You've got, I'm trying to work it out here, about a 6% or so group FX tailwind, is that -- sorry, pricing impact and then something like a 4%, 5% FX tailwind year-over-year. Is that correct? So I'm trying to work out the 10%, can you bridge that for us between volume, price and FX, please?
The answer to your question is that we see 10% increase in net sales, and approximately 1/3 of those is currency-driven.
[indiscernible] prices.
And the rest is price increases. The volumes are more or less unchanged year-over-year as we said.
Yes.
Yes, that does it slightly.
Does that makes sense?
Okay.
Next question is from Oskar Lindstrom from Danske Bank.
Three questions. First on the operational side. In the Board Division, you had quite good increases in average sales price sort of a sales divided by volume shouldering the quarter. Does this reflect higher liquid packaging board prices? Or is there also some sort of a liner...
No, it's both.
It's both.
Yes, it's both.
It's both, what?
It's both. It's both liner, but it's also reflecting the liquid packaging board increased pricing.
But there is also some increase in liner prices sequentially, is that how we should understand it year-on-year in there?
Year-on-year. If you compare Q1 over Q1, yes, it's an increase in liner, yes.
But also sequentially?
Not in this quarter, no.
No. So did your average sales price for liner stay the same quarter-on-quarter?
Q1 over Q4, yes.
Yes, more or less.
All right. So the entire sequential price increase is due to liquid packaging board. Also, to folding box board?
Limited effects on folding box board. I would say it's liquid packaging board, mainly.
All right. Very good. And my second question is on the Bergvik Öst sale. Now you had a question on that already. But I'm just wondering, I mean, given your, at least at the moment, some slightly stretched balance sheet, is that in any way sort of impacting in how you -- how important the conditions that you attach to the sale are and to how much of Bergvik Öst you're looking to sell?
No, not at all, I would say. No, I don't think that, that influences this very much or not at all. We also have the negotiated loan, especially for Bergvik. So we can keep Bergvik Öst in our balance sheet for this year or for another year as well. So we are not at all forced to finalize this negotiation, and we will not do it unless we find a good deal. Now we can also keep it, and we have headroom to keep it, but we see that, that is not the wisest thing to do since we want to develop BillerudKorsnäs to develop forward into our packaging solutions business. So it's not that all guided in a way to -- from a balance sheet perspective.
All right. And then my final -- third and final question is on the PM7 start-up. You mentioned that you're aiming to sell certified material in October, if I remember correctly. Does that mean you will be selling sort of certified liquid packaging board already in October? I thought that was a process to get that...
No, we will -- in October, we will start up the coater in August and then we will provide the -- our customers with material to be certified in October.
Okay. And how long do you expect that process to take if it goes according to your plans?
If you look at KM7, the -- to have the machine fully ramped up, it will take up until 2023. So certification part of that will sort of continuously move towards the full ramp-up of the machine.
All right. So I mean does it take a year or 2 years to have material certified?
I don't want to speculate in that, but I think it's -- the message that you want to send is that we start up the certification period already in October.
Next question is from Robin Santavirta from Carnegie.
Now looking at volumes, actually, your volumes have now declined for 6 consecutive quarters. What are the key reasons for declining volumes? As I understand the market, the demand has actually been very good during this time. You say production has been running quite smoothly during these times. So what are the key reasons for the volume declines over the past 6 quarters?
If we start with the major effect last year, it was very much related to the wood shortage that we had that was, to a large extent, weather-related. And if you move into this year, it has been affected by the maintenance -- prolonged maintenance that we have the -- of the digester in Gävle. I think those 2 are the 2 major reasons.
But still, Robin, I'd say that the volumes, the net sales volumes -- sorry, the sales volumes are more or less in-line with last year, Q1. So we are up in this quarter, right?
I guess, the sales volumes are down by 1% year-on-year, the delivery while...
Okay. Yes. So there's a small effect, yes, but more or less in-line.
Sure, sure, smaller now. Smaller now, yes, sure. All right. So mainly weather-related problems last, but you're not sort of deliberately running machines slower compared to the time where you had a lot of production issues back in 2016, 2017? You avoid this.
No. No, we don't do it deliberately. And we do believe that -- or we know during the exercise that we have done in Production Excellence that we have a great opportunity to increase availability, and we now monitor that journey every month. So I think that we have quite rock solid plan to increase volumes and to release potential for the company during the next coming quarters.
Okay. Good, good. Then related to this OEE program, this Production Excellence program. I guess it has been now up and running for 6, 7 months since the Capital Markets Day in September. You promised an update on that at that time, and we have been talking about that, but can you provide some more materials or information about where we are standing, any sort of kind of numeric data you can provide of...
I think I would like -- I would be happy to do that the coming quarters. But in this quarter, we have -- we're happy to see that the Production Excellence, that the performance database that we have is working, and we also see some really good performance from the mills that are mostly advanced in this program like, for instance, Karlsborg. And here, we have also had a new permit that also enables Karlsborg to increase and release the potential that they have in Production Excellence program that was not -- they were not able to do before. So I think we see a lot of signs that things are moving in the right direction. But our plan is to update more in details the coming quarters, what the -- so that you can see for yourself the journey, how close to 2% this year and 4% in total for 2 years that we are.
All right. Good. That will be very useful. Then in terms of the start-up volumes of KM7, I assume that is mostly this uncoated liner. Now aren't you a bit concerned now if that market looks a bit softer, put it that way, at the moment and now you're bringing more volumes, have you -- have we needed a home for those volumes if it was spot market there is with current customers? What kind of pricing have you agreed on? Can you a little bit comment on that? Because I believe that the ramp-up -- I'm not that concerned about the technical part, I'm more concerned about the commercial part of the ramp-up.
I'm not really concerned about that. I think we have good contracts in place. And from a KM7 perspective and from an EBITDA margin perspective for the company, I'm not concerned about that.
Okay. So you have -- is it -- are you planning to sell those volumes on spot markets or Europe or overseas or with current customers? Or how does that work?
They differs. But mainly we already have contracts in place, and we'll not utilize spot.
All right. All right. And then just on the -- I guess, you guide for positive EBITDA in 2021. Where should we expect for KM7 or for all these sort of closing down the current production machines and then ramping up KM7? Where should we expect positive EBIT? Is it 2022? Or is it already in 2021? Can you already now provide some kind of info on that?
'21. We have said that we will have a positive effect in -- on EBITDA in 2021. I think we stick to that right now.
All right. All right. And then finally, just a technical thing for Kristina or Christoph, maybe on CapEx this year is SEK 2.8 billion a good figure...
SEK 2.9 billion, actually.
SEK 2.9 billion is a good -- yes.
Next question is from Christian Kopfer from Nordea.
Just one brief follow-up from me on the price pressure that you see in Q2. You say that you expect the majority or the portfolio to be more stable. Can you just be a little bit more clear on this? So on the majority, is that to be interpreted as 70% to 80% of the portfolio? Or...
No, but if you take the different segments in order, you can say that the area where we are mostly concerned is for the well products or the container board where we see -- where we do -- where we see price pressure now on the coated part of the containerboard. And then if you look at kraft paper and also packed, brown and white, we see a softening of the demand. But we don't see any real task price pressure on the niches where we are in. I think it's a different thing if we look at the full market. And then also if you look at the carton board, the carton board market as such is huge. I think it's like 15 million tonnes or something, but we operate on some 100,000 tonnes. So we're not really that price-sensitive on those sort of such a small slice of the market. And then we have the liquid packaging board where we have quite recently renegotiated like SEK 6 billion of the SEK 7 billion in liquid packaging board for new contracts that has a duration for more than 1 year. So if you add that together, I would say that the price pressure is not the most evident for the whole portfolio. But of course, we feel it in some parts of the portfolio, and that is what we are guiding for.
Okay. And just a follow-up on that. The price pressure that you do see on some parts of the portfolio, can you just say something about the magnitude? Is it low single digits? Or...
So it's no double-digit price pressure. I think it's single digit.
Next question is from Kevin Hellegård [ Nielsen ] from Goldman Sachs.
Yes. Just one quick follow-up. So your production guidance or target of around 2.9 million this year, that implies a pretty strong second half, or should we already expect that production pick-up from the second quarter? Can you just elaborate a little bit on that, is it mainly PM7-driven? Or is it all divisions, all machines sort of producing better in the second half?
It's all machines and all divisions. I think this is -- we have some potential to unlock in the company and to increase availability in all the machines. It's a huge potential for BillerudKorsnäs, and that is what we aim to do. So it's definitely all machines, it's Karlborg, Skärblacka, Pietarsaari, Gruvön, it's all over that we can list availability in all machines. And that is what we have spent time to make sure that we are definitely have that is proven in numbers, and we have also set up an execution plan that we follow now weekly, actually. But we have performance reviews with the management team every month to look at each task, each loss and each machine and each mill.
Next question is from Markku Järvinen from Handelsbanken.
Just had a few more clarifications on the KM7 project, if I may. Did I understand correctly that the SEK 500 million that you're guiding for this year, SEK 200 million of that will be lost production and SEK 300 million is some start-up costs?
No.
No. I think you should think of it like SEK 500 million, and the major part of that, slightly above SEK 400 million is mixed and volume effects from closing down and opening up the new machines. And on top of that, we will have around SEK 50 million to SEK 75 million that we expect to be babysitting costs, meaning extra consultants, extra personnel, et cetera, related to the early start-up.
Okay. Very good. And then following on that, did I understand now correctly that you've discontinued all paper production at Gruvön now?
No. So what we have done is that the PM5 smaller machine is now closed. That capacity has moved to Skärblacka. It was an MG machine. The PM1 and the PM2 is now producing liner and pure board, and most of that capacity will enter into the new machine when it's open. So that is the situation right now. We will close PM1 and PM2 during May.
So again, have you sort of stopped producing Packaging Paper at Gruvön? Or are you still producing packaging? That's my question.
In PM4, we are still producing products that is related to paper business.
Okay. Okay. And that will end, I guess, next year, is that correct?
Decision is not taken yet, so it's too early to say.
But it will end in a year. But we haven't decided exactly the date, but it will end. We will not produce Packaging Paper in Gruvön.
Okay. Very good. And could you just clarify what your capacity now is for Packaging Paper after you've closed PM5 and closed those 2 other machines, how much capacity do you have for that business?
I don't have those figures with me. We will have to come back to that. But the major changes that we have closed down paper capacity in PM2 and now producing liner and board there, and we have closed down PM5, which is, of course, an impact on paper -- no, sorry, that is moved to Skärblacka, which means no impact on paper. And if there's any other changes, I need to double-check that and get back to you.
But in general, you can produce at the levels that you produced in Q1 in Packaging Paper and even more, I guess, if efficiencies improve so far.
Yes.
Okay. Very good, very good.
But you have the clarification on PM4, that is -- part of that production will be moved to Jakobstad, that is TFA paper, and there's also fiber form paper that will be moved to Karlsborg. But it's too early to say exactly when we'll do those changes, but it's in the pipe, and as Petra said, probably within the year.
Okay. Very good. And then just a detail, I guess we've talked about your increase in liquid packaging board for this year. Now that Q1 is behind us, could you sort of comment on what the magnitude of that increase in the end was?
No, we cannot do that on the numbers perspective, but we can reinforce the message that we are very happy with the negotiation, and also that it's a long-term contract and that it's also involved a partnership when it comes to innovation and actions in working closely between the companies that we have negotiated with.
Okay. Then finally, just -- you said that you have plenty of headroom within your loan agreements and so forth. Could you just clarify what your primary covenants are?
Our primary covenants is net debt to equity, and it's set to be above -- no, to be below 1.25. And then we have an interest coverage covenant as well, but that -- I mean it's likely to be above 3, by which -- way above that. But even the net debt-to-equity covenant, we have plenty of headroom.
Okay. So no EBITDA type of covenant?
No EBITDA covenants. No.
Next question is from Martin Melbye from ABG.
If we sum up the big changes quarter-to-quarter into Q2 starting with depreciation, how much will Gruvön be depreciated in Q2 compared to Q1?
Yes, we're starting depreciation in beginning of May, and we expect it in the -- for Q2 to be around SEK 60 million -- a little more, around SEK 60 million. And then for the remainder of the year, it's about SEK 30 million per month going forward.
Okay. And then we have maintenance of SEK 300 million and around cost of SEK 200 million. Is there a price impact from these covenants? We've been hearing now already in Q2 already. Or is that more second half?
I'm sorry, the last part, is there something -- a sudden effect...
Is there a price effect already from these comments about the price pressure already in Q2? Or is it more second half?
Maybe on uncoated liner area, if we should point at anything.
Okay. So then we're left with, say, EBIT of close to 0 if we sum up everything starting with the 650 we had in Q1-ish?
That's [ subject ] from these numbers.
And there are currently no further questions registered. So I'll hand the call back to the speakers. Go ahead.
Okay. So thank you all for listening in. Petra, would you like to say anything, final words before we...
I think that if you look at the quarter, I'm very happy with the demand actually and that it's such a strong momentum both in the market, but also within the company. I think that we have -- we did a lot of things to reorganize and to put the house in order last year, and I feel very confident now with the new organization in place, everyone is hungry, and we can work with real staff now to improve the result. And we see a lot of improvements that we can do, so I feel very, very confident about this year and I feel confident about KM7.
Fantastic. Thank you all for listening in. Bye-bye.
Thanks.
This now concludes your conference call. Thank you all for your participation. You may now disconnect your lines.