Billerud AB (publ)

STO:BILL

Earnings Call Transcript 2021-Q1

[Lena Schattauer, Head of Investor Relations]

Good morning, everyone, and welcome to this conference call about our first quarter results. Our CEO, Christoph Michalski; and CFO, Ivar Vatne, will first give us a presentation. And after that, there will be a Q&A session.So Christoph, please go ahead.

[Christoph Michalski, President & CEO]

Thank you, Lena. Good morning, everyone. I'm here with Ivar. So I will start the presentation and then hand over to Ivar over the time of this presentation.I think my first remark is that we had a very good quarter 1. We ended up with 5% net sales growth, excluding currency, which was driven mainly by very strong volumes. And our EBITDA margin also improved by 3 percentage points to 15%. And I think all these results were driven by 3 main activities that we discussed a lot and also, we mentioned already in quarter 4, which is clearly the ramp-up of Gruvön with KM7, and this time, KM7 reached EBITDA breakeven. We had a very good production quarter with high availability and good time machine efficiencies. And we continued to work on our operational efficiencies and cost savings, which also drove margin expansion.I think you have all noticed that the market is generally strong. We see that across most markets. We also believe that there is only very little stock increases, and it's only where stocks have been historically quite low. So it's a lot of flow-through. And I think it's all based on the expectation for the economic improvement and the normalization after corona in the second half of the year.So if I look across our business, we had a stable liquid packaging board production and sales compared to last year. Cartonboard was strong, and kraft and sack paper was stable as well. When we look at the outlook, we see not only better volumes, so we are pretty fully booked, but we also have started some price increases, of which some of them will take effect in quarter 2 and some will take effect after that.Maybe here, I will stop and hand over to Ivar to discuss a little bit our volume mix and net sales growth.

[Ivar Vatne, Executive VP & CFO]

Thank you, Christoph, and good morning. And a couple of comments on our net sales bridge. In general, you can say we had a very good net sales quarter, reaching an all-time high net sales result for BillerudKorsnäs with 2.5 percentage points up versus a year ago. And then excluding currency, we are 5.5% up. So indeed, a very strong top line quarter. As Christoph already mentioned, the biggest positive building block is coming from volume, and the vast majority of that is coming from product area Board, but more on that in a few minutes.So if you move into the profitability bridge, we had several sizable and positive building blocks then enabling our EBITDA to improve by 3 percentage points, up to 15%. So positive volume and mix, benefiting from lower raw material costs and another contribution from our cost and efficiency program, all important building blocks to improve our profitability.We have a slight negative FX impact, but the reason we're keeping that relatively minimal at the moment is because of a positive hedging result. We also have a negative other bucket which is a mix of several effects, the biggest being adjustment of our variable pay program and a salary -- or annual salary increase impact.I'll hand it back to Christoph for some excellent news on KM7.

[Christoph Michalski, President & CEO]

Okay. Let's talk about KM7. As we discussed already in quarter 4, we have basically a dual strategy on KM7. The first one is to change the mix on the machine to move increasingly to higher added value products. And that's what we have done this quarter. The second strategy point is to actually increase the speed of the machine. And these 2 items together, I think quarter 1 had very good results, and that is the reason why we broke even.What we are also doing still during the year is to qualify for liquid packaging board. And we expect that KM7 will be a big provider on that in 2022. And really 2021, other than moving further, the mix is being used for the qualification of these specs.So positive EBITDA contribution expected for 2021. And this goes hand-in-hand also with basically moving products across sites. So this is also the reason why I think we will not report KM7 going forward [Technical Difficulty] machine. I think the ramp-up is done. And even internally, we manage now Gruvön and our different sites, but we do not have a specific project on KM7 as such.You're also aware that beginning of April, we had an annual shutdown in Gruvön. And this clearly was very difficult, not in terms of shutdown, but in terms of managing the corona pandemic around it. And what we basically did was implementing daily testing. We tested 9,000 tests. We had found 12 positive corona. These people were then isolated and we did track and trace. So that the overall stop could have -- was done with very high degree of safety, and we had no particular issues during that maintenance.This led to a little bit of higher cost. And also the whole organization around Gruvön also then basically resulted that we pushed the Skärblacka maintenance, which was also planned in quarter 2 into quarter 4 of this year. Our next slide is about the cost and efficiency program. You always heard me saying that this is basically not a project, it's an ever continuous activity. And we call it Project [indiscernible], but probably it's [indiscernible] 1, 2, 3, 4 as we go along. Really important for us is to bring our cost base to the most efficient way possible. This quarter, we could save another SEK 70 million in quarter 1. To date, that means we have delivered about SEK 405 million of structural savings and efficiency. And I think we can all assume that we will continue our goal towards SEK 650 million, of which SEK 250 million are planned in 2021 and then the rest will be carried over into 2022. Nevertheless, I'm pretty sure that by 2022, we'll start another round of [indiscernible] because, clearly, this is a continuous process. Let me talk a little bit about raw materials. So when it comes to some cost improvement, clearly pulpwood, compared to last year, was a big contributor. It was flat or relatively flattish compared to quarter 4, but to quarter 1 2020, clearly, it had a good effect. And while price pressures are are being seen, we had some big guys announcing already some increases. We also see very good wood availability. And therefore, we will manage that in a good way as we go into quarter 2 and quarter 3.Chemicals, much more volatile. You've probably heard about the Texan flooding and things like that, so we had some very significant increase when it comes to latex. That situation is going back to normal but clearly created some disturbance in. And then on the other side, you had things like caustic soda coming down. So overall, chemicals was a wash.Purchased pulp cost increase. You have seen the market numbers, pulp is at nearly all-time high, which basically means also higher prices for us. But we're also selling pulp, so overall, we have a very small positive effect and are not affected by the real increases that you have seen. Energy, mainly unchanged despite the movements that -- the volatility you have seen in the Swedish market. But thanks to a good hedging position, we had a very stable quarter 1 and also expect very stable quarter 2.Ivar, why don't you talk a little bit about our product areas and cash flow, please?

[Ivar Vatne, Executive VP & CFO]

Yes, I can sure do. So starting with the product area Board, and as we alluded to in the beginning, it's been an excellent quarter for product area Board. Net sales is up 5%. Excluding currency, we're up 9%. Sales volume is up 6%. So a very strong quarter for product area Board.Pretty similar to what we reported the last quarter, most of this growth comes from cartonboard and containerboard, which both had impressive growth figures. And in particular, 33% growth on cartonboard is something we are happy and proud to see as it continues to be one of our main expansion categories and focus area in the future. And the strong result for board is clearly enabled by continued excellent KM7 progress, which keeps improving its performance quarter-by-quarter. Liquid packaging came in with a slight growth versus last year, which is also very solid liquid packaging delivery. And overall, we're happy to see the trend and output versus Q4.Meaning then if you go into the profitability, we see excellent progress and delivery on the profitability improvement, clearly impacted heavily by the KM7 ramp-up, some positive pricing and clearly lower fiber costs offsetting the negative currency that we have seen.So if we move into product area Paper, the situation is a bit tougher, although there are certain signs now the situation is improving going forward. But for Q1, paper net sales was down by 6%. Back to growth though, when excluding the currency, with plus 1%. Sales volume is up 2%. So again, it is some signs that things are starting to improve. And the market is getting better, and that's also what we see going into Q2, in particular, for sack, which has incurred growth when excluding currency and also the situation is improving for the kraft paper versus what we've seen over the last quarters.In terms of the profitability, EBITDA is down and impacted by negative pricing, which is mainly then carryover impact for pricing taking place during 2020 and currency impact. It's partly offset then by lower input costs and our cost and efficiency program.So if we move into the cash flow and some comments on the financial position. I mean we see a heavily improved operating cash flow versus year ago, clearly helped by a strong EBITDA result for the quarter and a positive change in the working capital. Our net debt ratio is healthy and well below our internal target of staying under 2.5%. And in terms of the CapEx, there's basically no new news versus what we already have communicated. We expect to land the year around SEK 2 billion, coming then from SEK 1.3 billion in base CapEx and SEK 700 million in relation to the Frövi recovery boiler project. So I hand it back to Christoph for some closing remarks and outlook.

[Christoph Michalski, President & CEO]

All right. Thank you. Thank you, Ivar. So as I said already before, I think the improved market condition is expected to continue in quarter 2 and for the rest of the year. We -- because of the situation in the market, we have seen also some price increases, which will have the effect in quarter 2 and quarter 3.On the other hand, we have some slight movement of raw materials. And despite -- not despite, sorry, we also have a very strong impact on logistics in the sense that you have seen the situation in the Suez Canal, which was cleared. But generally speaking, since the beginning of COVID, we clearly have some disturbance in the container movements. And therefore, logistics is not only a little bit higher in terms of cost, but also it's a little bit uncertain. And that is what we have managed until now quite okay. But clearly, this remains a challenge for quarter 2 and quarter 3. I also would like to report that we had an incidence in Gävle where a heat exchanger exploded next to a digester, which manage -- or which runs our bleached pulp line. This will have an effect in terms of tonnage. So we probably will be out 2 to 3 weeks, which correspond approximately to 18,000 tonnes. But with all the different cost and net of insurance, et cetera, we do not believe this will have a very significant impact for the year. For the moment, we think in the range between SEK 40 million and SEK 75 million.And maybe I should also mention it, we had no harm to anyone in that explosion, which clearly is very comforting. And it's just about now to make sure we are up on production as fast as possible. Top priorities. As I mentioned before, it's the ramp-up in Gruvön. I think we should now add to it, as Ivar already mentioned also the recovery boiler of Frövi, which is clearly very important for the production going forward.Safe and stable production, I think, is progressing well when it comes to production stability. I think when it comes to safety, we still need to continue to improve. And the cost efficiency program is delivering.What we have also started, which I think is very important, that if you look at these programs, is that in principle, we will reach probably by 2025 about our maximum capacity. And therefore, it's very important that we start to look into opportunities which will basically drive profit and sales growth from 2025 onwards.All right. Let me stop there, and let's open up for questions. So I hand back to you, Lena. Thank you very much.

[Lena Schattauer, Head of Investor Relations]

Yes. By that, we're ready to take questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Alexander Berglund of Bank of America.

[Alexander Berglund, Analyst]

I hope you're all doing well. A couple of questions from me. First on -- if you can give a bit more color on the hikes you're trying to get on the sack and then in kraft paper into Q2 and the following quarters?Secondly, just a question on the explosion here at Gävle. Just trying to understand if there is -- is there anything here related to kind of the quality of the mill? And does this kind of maybe make you kind of think that you need to kind of, at some point, invest in the mill? Or is it just completely unrelated?And then finally, question just on currency. Because if I look at the consensus, it seems like the line here on currency and hedging was much more positive than the consensus expected. So just if you can give a bit more color there and maybe also kind of look going into the second quarter, how we should think about the currency swings because it seems like we're not getting that right in our estimates.

[Christoph Michalski, President & CEO]

Thank you. Thank you, Alexander. Let me first come to the sack and kraft paper discussion. As Ivar already mentioned, this segment has been in quarter 1 a little bit less exciting than we saw in containerboard. This is a mixture of different things. I think we still have the effect of some of the products, like away-from-home and restaurants and things like that are down and that only will recover after corona time.I think we see some encouraging sign when it comes to brown bags. I think we see the order volume when it comes to cement area, for example, increasing again. So I think in the quarter 2, we see good market performance, we hope. And I think we don't see any signs that this will actually slacken off, but will probably increase even further. We had some smaller price increases in the segment, which should also improve then our profitability as we go forward. And the order books, generally speaking, are very well filled. When it comes to the accident in Gävle, let me assure you this is not because of specific underinvestment or a major issue of the Gävle mill per se. I think, for the moment, we're investigating what the root cause is. This explosion happened in high-pressure pipes and close to this heat exchanger and therefore damaged the building around and things like that. We have experts on site who are looking for the root cause, and we have already secured most of the raw materials -- sorry, the spare parts and pipes and things like that you need and the people to repair.So for the moment, we see this as an entirely accident. We're investigating the root cause. Actually, the plant is operating even as we speak, but not at full speed. So we -- that is why we see this as an incident and disturbance, but which will not have a very significant impact or not at all a material impact for the total year.Maybe on currency, I will hand over to Ivar. So Ivar, if you could give us some...

[Ivar Vatne, Executive VP & CFO]

Yes. No, absolutely. And I'll try to answer it, Alex, in a way that, as you know from our report and looking a little bit in the back pages of the report, we have this line called hedging, et cetera. And it's basically 2 parts on that. It is the hedging result stemming from currency growth. And then there is this piece which tend to be a little bit more difficult, and I also suspect that this is the main reason why some of the estimates differed a bit. It's the working capital revaluation.And I think on the hedging result, I mean we published even some of the rates per quarter. So I think it should be pretty transparent, that effect, for the coming quarters. And as a reminder, I mean, we sit on pretty good hedging positions for the rest of the year. So 2021 for us looks pretty well in terms of what we see the current spot rate at. We do expect, and of course that's still a rough estimate, that we would land 2021 versus 2020 relatively flat or maybe to a small negative impact on currency, including hedging. But that should be, again, a much bigger hurt if we hadn't had those hedging result -- positions.On this working capital revaluation, I mean, just as a bit of a reminder that we basically use the month end rate to value those positions. And just open a little bit up on there, we tend to have, it's a little bit volatile, but roughly EUR 120 million and roughly USD 60 million tend to be a good estimate of our quarter end position. And again, that should give a little bit more flavor on how the mechanism and what's including in that line and hopefully help a bit on the projections.

[Operator]

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

[Oskar Lindstrom, Senior Analyst]

Yes. I've got 3 questions. Should I pose them one at a time with you guys? Or would you like to have them all at once?

[Christoph Michalski, President & CEO]

Just give them all at once. And if we don't remember the last one, we'll ask again.

[Oskar Lindstrom, Senior Analyst]

Super. All right. So the first one is on the EBITDA bridge for the quarter, and you talked a little bit about the negative number there in the other box. What can we expect from that in coming quarters? I guess that one's for Ivar.And then a second question here also is, last year -- it is on raw materials, sorry, and last year, you announced a new pulp supply contract for the Jakobstad mill in Finland with UPM. If I recall correctly, that new contract was going to start to have an impact in June 2020. Is that now sort of fully in the numbers? And how much -- what has been the positive effect in Q1? And where do we find that?And then the third one is more of a general question to you, Christoph. I mean, you talked about opportunities to grow profit beyond -- or 2025 and beyond. Could you, I mean, even at this early stage, say anything at what you're looking at and what your thinking is on this? That would be very interesting.

[Christoph Michalski, President & CEO]

Okay, good. I will take the last one, Oskar, while, Ivar, why don't you go for the first 2.

[Ivar Vatne, Executive VP & CFO]

Yes. No, I think on the first question, Oskar, on the EBITDA bridge, and as you rightly comment out on this SEK 98 million on the other, I did mention that the vast majority of what sit in that box is related to a variable pay adjustment and partly a salary inflation. Yes, a little bit bigger part of that comes from the -- on the variable pay.And I mean, in nutshell, you can say that for the time being, we expect that to be pretty flat. So kind of Q2 versus Q1, don't expect a lot of changes. But the variable pay in a concept is some kind of a deal we do with the Board on certain KPIs. And of course, if that change, we will make some adjustments. But for the time being, all indications are that we keep this flat for the coming quarters.I think for the -- from the raw material and the Jakobstad, and as you rightly say, there was a new contract that we did as of June. So we get now the last couple of months of impact in Q2 before we are at the full year. We said that already at the time, but I maybe need to repeat that, that we do not reveal any details of that impact per month or per quarter and not go into those details per site.

[Christoph Michalski, President & CEO]

Okay, '25 and beyond. Look, I think you know actually most of the answers. I mean, there's no secret that we have quite a very strong innovation system in place. We are still fine-tuning. But my expectation is that something good coming is out of that. And then the question you always have to ask yourself, so what are the CapEx requirements to make new products and different products and things like that. And therefore, that is one big bucket.And you have heard already about Flow Wrap, that's clearly one of the things which we are now rolling out, but which we need to upgrade and do some CapEx investment, if that were to become very, very big.There are other projects we are running together with some of the liquid packaging board partners about barriers. I mean you're all aware of the plastic directive and the green deal in Europe, so we're working really hard to find better barriers and only single-material barriers with paper. And I think that is one major alternative or a very big growth opportunity going forward and clearly would require then different machines or different converting or different things of how we make paper.The second big part is scanning the world for where the growth opportunity are and to think about expansion, probably in our core business, but also then the question on different markets. You all know that U.S. is growing faster than market. Asia is growing faster than market. And we are basically scanning opportunities, going from M&A, over simple partnerships, over organic opportunities of what we could do to serve this market better. And as you know, Oskar, all these alternatives take a number of years to materialize. So that is why we start to progress now.Because M&A and partnerships are involved, I cannot go into much more detail, and we will brief you when the time is right. But these are the type of things we are looking at. And it is our intention to have a number of options available to us so that we can take the right strategic decisions in '22, '23 in order to be ready for a '25 ramp-up.The second thing, I think, to notice is that we're also reviewing in our existing portfolio a little bit the strategies and the priorities and things like that. And that clearly will also take a major input into this -- developing these opportunities. And we will brief you a little bit later during the year, probably towards the end of the year, where really we see the future and how we see how we can leverage BillerudKorsnäs in this, I think, very promising environment.

[Operator]

Our next question comes from the line of Martin Melbye of ABG Sundal Collier.

[Martin Melbye, Research Analyst]

Previous management have talked about an EBITDA effect of around SEK 1 billion from the Gruvön KM7. Would you say that, that is intact? Or should that be adjusted in some form?

[Christoph Michalski, President & CEO]

Okay, Martin. Yes, I think we -- as we said before, we have a great opportunity in Gruvön. And I think there is no particular change towards the SEK 1 billion target we have set ourselves. And I think this SEK 1 billion will clearly be delivered on 2 fronts, as I mentioned before. It's to maximize the mix on the machinery when it comes to added-value products together with a continuous increase in speed. And that should result very clearly '23, '24 to this SEK 1 billion compared to the plan of doing nothing.And just for you to remind, the plan of doing nothing was to keep the Gruvön mill as it was, with a number of very old machines. And the opportunity of KM7 with the right mix and the right speed is actually being about SEK 1 billion in EBITDA above 2019.Maybe, Ivar, you point to -- you were there when this SEK 1 billion came up.

[Ivar Vatne, Executive VP & CFO]

Yes. No, I mean, I can just add, Martin, because it's a good question, and it's quite some years since that business case was done. But even last year, we did an update on some of those assumptions. And we have ample evidence that the speed of the machine is there, so the capacity potential is certainly within very well reach. And also some of the assumption we made on, let's call it, contribution margin and the mix, it has basically been confirmed last year that the potential is there.So there's definitely no other kind of views from our side that we pursue this with everything we have. And it continues to be the, well, one of the main, main company priorities for years to come. Key is clearly on several fronts, I mean, getting higher speed of the machine and working very clearly with the mix and also use all of our board sites in Gävle, Frövi and Gruvön combined to create efficiency and produce the segments on the machines where they're best equipped to do so. So yes, there's certainly a continued journey, but very good progress over the last couple of years and confirm potential last year.

[Martin Melbye, Research Analyst]

And did you answer that question about how much the realized price increases would land at, say, for Q2?

[Ivar Vatne, Executive VP & CFO]

No. I mean, we didn't do that. So I can give a bit of an update because there's clearly a lot of things happening at the moment in the market, as I'm sure all of you know. In Q1 for us, we had a very limited price impact. It was basically under the containerboard price increase hitting us from mid-February, and we already talked about that in the Q4 report.So we have announced several price increases now during Q1, which will start to ramp -- to help us during Q2, and it's important for me to stress that it's during Q2. It's not necessarily that it's straight from April 1.But we have another EUR 30 to EUR 40 per tonne increase announced on containerboard. We have EUR 80 per tonne announced on cartonboard. And also going into paper, we're certainly also starting to expect a positive impact there. We announced EUR 90 per tonne on brown sack, EUR 50 per tonne on white sack and then on kraft paper somewhere around EUR 50 per tonne.And of course, pulp follows pretty much the market pricing as we all have pretty good transparency into. So there's no doubt that there are several pricing initiatives happening at the moment.

[Operator]

Our next question comes from the line of Mikael Doepel of UBS.

[Mikael Doepel, Executive Director & Analyst]

Just a couple of questions. First on the sack and kraft paper markets, if you could comment or give a bit more details. I mean you just talked about the pricing there. But on the demand side, I think you said that the brown sack is currently improving with cement bag getting better. What can you say about the demand trends for white sack currently and also for the kraft papers? Are there any signs of improvements on that side?And then secondly, on costs. You mentioned in the guidance that you see some costs picking up. You might have mentioned something on this early part in the call, which I missed, so apologies if that's the case, but just wondering if you could talk a bit more about what kind of cost inflation you're seeing for this year in terms of wood pulp in particular, but also in other areas, that would be very helpful.

[Christoph Michalski, President & CEO]

Okay. Let me start with sack and kraft improvement. Look, I think clearly, containerboard has already really started strongly in quarter 1. And sack and kraft, I think, is still a little bit hampered by the current situation in terms of economic development and also COVID.So when it comes to the industrial side, clearly, sack and kraft was pretty low last year, and that had to do with economic cycles of the construction industry, et cetera, et cetera. That is strongly coming back. So especially in Asia, we see continuous improvement. And therefore, I think the brown bags and the cement bags will continue to improve now during 2021. And then we have to see how long the economic recovery will last.Other of these products is actually used in the food and drink market. And here, I think we do not see yet a very strong recovery from the away-from-home market. So that market remains relatively weak, except for China. And -- but we expect that to improve as well as we go forward. And then on this particular segment, you also have a demand side, which is clearly another side of the coin, with some players basically converting machines and being with high probability presence in the future. And then other players having some difficulties, and that is probably a watch for the moment.So we see stability, but with a positive trend going forward for the whole paper segment. And some of the paper segment, as I mentioned, brown bags are accelerating well and others are more stable. Do you want to discuss on the...

[Ivar Vatne, Executive VP & CFO]

I can do that. So a bit on the, let's call it, input costs. I did relative reports since we have commented already on some of these parts earlier. But for the fiber costs, I mean, we do see signs of price movements in the market during Q1. However, the wood availability is still good. And we will certainly keep on fighting to protect the current cost position. The purchased pulp clearly will go up, in line with what you see in the market at the moment. It's a relatively commoditized and transparent market, so there's no surprises there.In terms of chemicals, I mean, we're expecting overall a pretty neutral price development for chemicals. We do recognize that the volatility is high and there's certainly uncertainty. But for the time being, our view, that it will keep relatively flat.In terms of energy, it's somehow a bit similar rationale. We don't expect any material changes to our energy cost in the near future, in the coming quarters. That is mainly because we expect our hedging position to remain effective, as we've seen in Q1.The one moment -- the one point I can mention is around the transportation, and logistic costs in general is pretty tight at the moment. We have several tenders that are up for negotiation and being renewed. We expect somehow SEK 20 million from Q2 onwards to be the incremental cost versus what we have seen in Q1.We also had then a point in the EBITDA bridge around the salary and the variable pay adjustment. We expect that to be kept flat going forward, but that will clearly mean some increases then versus year ago when we advance into the year.

[Operator]

Our next question comes from the line of Christian Kopfer of Nordea.

[Christian Kopfer]

Just a few follow-ups from my side. Thanks, Ivar, for the details on the prices here. So obviously, a lot of moving parts for logistics, prices, some production disturbances with costs and so on, chemicals, et cetera, et cetera. So if you take everything into consideration, is it still -- from your perspective, given what you already know and what you see clients are accepting, is it still realistic to see margins for the 2 key divisions gradually improving during the course of the year?

[Ivar Vatne, Executive VP & CFO]

Yes. I mean, I can answer that, and the answer is yes. There's actually, as you mentioned, some question mark on some of the input costs. But yes, the outlook is certainly pointing towards that. Just keep in mind, and I'm sure you do that, that the maintenance schedule will certainly impact the different quarters quite heavily, and Q1 was obviously maintenance-free quarter. But taking that into account, you would expect the underlying margin to improve with the information we currently have.

[Christian Kopfer]

Yes, that's fine, Ivar. I also meant -- I mean exclude maintenance, so that's fine. And could you also remind us, if you look at the deliveries, what -- because now you are up to 520,000 tonnes on board and we were at 255,000 tonnes on paper. So if the ramp-up goes according to plan for the next, what kind of quarterly volumes should we look at, just to remind, so if I didn't have it in my head?

[Ivar Vatne, Executive VP & CFO]

So I can maybe comment a bit on that. I mean, the overall starting point is that we are sold out at the moment, meaning that we are pretty much, let's call it, very close to the technical capacity on most of the machines. The clear exception of that is KM7, which is still expected to be progressing.Now we had a good Q1, and you can say that even keeping that as run rate for the rest of 2021 will be a good success. So I would say that I wouldn't expect much more for the different quarters in terms of the volume. Actually, to the contrary, given that some of the maintenance shutdowns will take out some volume in selective quarters.

[Christian Kopfer]

Right. But the maintenance is including lower volumes, right? So, I mean, if you take both down volumes and include your cost for the maintenance, then you double contracts?

[Ivar Vatne, Executive VP & CFO]

Yes. Completely.

[Christian Kopfer]

Yes. Okay. So basically -- okay, okay, fine. So the volumes that you are running at now, that has as much -- as good as it can get, so to speak, just in number of tonnes?

[Ivar Vatne, Executive VP & CFO]

Yes.

[Operator]

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

[Cole Hathorn, Vice President]

Just following on the pricing dynamics from here. You've given some color of how we're looking into 2Q, but we are seeing some further price increases on the brown kraftliner side of the market. How does that effectively pull-through to the wider markets of white top and fluting markets? Do you think if we get this further price increase in brown, there would be scope on the fluting and white top markets?

[Ivar Vatne, Executive VP & CFO]

Cole, it's a good question. Tough one to answer, because it will just be a lot of speculation. But I can say that, in general, we have seen, for instance, between brown and white sack, that it tends to be, over time, a correlation that somehow draws a little bit back to equilibrium.I think from our side, the channel and the, call it, end user situation is pretty different. It's more of a channel-specific, more than anything. And what Christoph alluded to in the beginning is that clearly, the industry part has picked up quite a lot of steam already now in Q1, where we have some of our sack, in particular, the brown, quite a bit exposed.I think the bigger question would be, and that will go into some of the kraft paper, also some of the white sack, when will we -- and when I say we, it's first and foremost in Europe, returns to a bit normal and [Technical Difficulty] pandemic coming a bit more contained. That will enable, let's say, some more normalized behavior in channels where we know that we have a pretty good exposure to.Food service is a clear example of that. So that's anything from the restaurants, catering to the on-the-go situation. And that's still hampered. But again, we see the trend being good and [Technical Difficulty].

[Cole Hathorn, Vice President]

And then just following up on pulp wood costs, I mean, you've talked about good availability of fiber. And I imagine that's a lot of sawlogs being harvested for the demand that we're seeing in building and construction and DIY markets. But how do you see that playing out in the second half and into 2022? Or -- is your base case assumption for some pulpwood cost inflation in the second half and into 2022?

[Christoph Michalski, President & CEO]

I think you're right in the sense that I think we have very good availability. We have also seen some closures of some mills announced for quarter 3. So I think, overall, we see a pretty good market dynamic from an availability perspective. Yes, I expect that wood cost might increase a little bit, and you have seen the first announcement, but this has to be seen in the context of its availability. So it's very hard to take a judgment on that matter. I think quarter 2, you will see stability, as I said before. And then we have to look into quarter 3 and quarter 4 and the beginning of next year how the market settles itself.

[Operator]

And we have no further questions at this time. Please go ahead, speakers.

[Lena Schattauer, Head of Investor Relations]

Yes. As we have no further questions, we will conclude this call. Thank you all for participating, and welcome back when we report our Q2 results, which is the 20th of July.

[Christoph Michalski, President & CEO]

Thank you very much, everyone, and have a good day. Thank you.