Hello, and welcome to the Stora Enso Q2 Report 2022. Throughout the call, all participants will be in listen only mode, and afterwards there will be a question and answer session. Today, I'm pleased to present President and CEO, Annica Bresky, and CFO, Seppo Parvi. Please go ahead with the meeting.
Thank you very much, and welcome to our Q2 report for Stora Enso. Driving the sustainability transformation of our societies has never been more relevant than now. We are actively doing that through our purpose, being a responsible business to do good for people and the planet, and enabling the transition towards a renewable society based on the product portfolio that we provide. I'm very happy to say that we have once again had a continued strong execution, underpinned by outstanding performance for this quarter. This is the highest quarterly operational EBIT since the beginning of the millennium. We have been able to successfully mitigate higher variable costs and inflationary pressures. We have been able also to secure access to key input materials.
Our partnering with Northvolt is very exciting of course, because it is a significant milestone for the development towards world's greenest battery, made out of our product Lignode, and also ensuring a European local supply for the strategic transition in electrification. We've also raised our full year operational EBIT guidance to be higher than the full year of 2021. We landed at a result of just above EUR 1.5 billion, and we see that we can reiterate that we will be better than that with confidence for the full year of 2022. As you can see, we had a strong sales execution.
We have been able to increase our sales and grow by 18% year-on-year, and excluding our paper business by 21% year-on-year, which is a very strong indication that the demand has been solid for most of our products during the quarter. Operational EBIT landed on EUR 505 million, which is almost a 40% improvement compared to last year. We are significantly higher above our long-term targets on operational return on capital employed excluding forest. We deliver here almost 23%, which is above our target of 13. All in all, I'm very satisfied that we have been able, through quite turbulent and turmoil times, to deliver such a strong quarter.
We continue with our growth strategy, investing in Biomaterials Innovations. We're all very excited that we have launched a joint development collaboration with Northvolt, one of the leading battery producers, to take part in a joint effort now to commercialize our green batteries based on Lignode and grown in our Nordic forests. We are able to secure them a European supply of a fossil-free anode material, and that enables us now to customize the product according to Northvolt needs for that, and jointly kind of make sure that we get to the market a battery with a low carbon footprint, a sustainable green battery.
We have a feasibility study ongoing for the first industrial production facility for Lignode, and it's proceeding according to plan with a decision during the end of second half of this year. This is of course partnering up gives us the power to drive commercialization. If we look also to investing in renewable materials and packaging more specifically, we are also meeting the demand for recycled packaging board by initiating a feasibility study for a conversion of the newsprint machine that we have on one of our paper sites in Langerbrugge to containerboard. This is a fast-growing end use. The site is very cost efficient and has good accessibility to energy solution, a deep harbor, and good logistical setup.
The targeting end uses that we look at are industrials, e-commerce, furniture, packaging, and electronics, as well as within the agricultural and food packaging. Projecting a potential sales of EUR 350 million, it is another step that's possible in the growth strategy of our Packaging Materials division, and it would be a super sized machine of 700,000 tons of testliner and recycled fluting. We will conclude this feasibility study in the first half of next year, and if we have a possible positive decision, the production can start in 2025. The estimated CapEx for such a conversion is approximately EUR 400 million.
This is another significant step in growing our renewable packaging business. We're also continuing our partnering with our customers to enable them to become 100% circular and improve the resource efficiency in Europe. Together with Tetra Pak, we're taking the second step now to see if a possible recycling solution at the same site that I talked about before in Langerbrugge in Belgium. This is targeting the recycling needs of beverage cartons for the Western Europe in Benelux and surrounding regions. We forecast here that we would have a capacity to process about 50,000 tons of recycled cartons per year. This is the second step.
We took the learnings from our first collaboration and joint development project in Poland, where we set up the same framework for 75,000 tons of beverage cartons, and that enables recycling in Eastern Europe. These are really proof points of how we, together with partnering in the supply chain, can make sure that we drive the development of circular economy in our markets where we are active. Moving now to other updates for value creation on some of the strategic initiatives that we have completed during this year or this quarter. We continue with the feasibility study in our Oulu site. Just a reminder here where we explore the expansion of renewable packaging board for consumer board applications.
The decision here is due by end of second half of this year. We have launched a new product that's fully plastic-free packaging based on 100% virgin kraftliner. It's called AvantForte WhiteTop, and the target is demanding premium segment. This is a product that is very sought after on the market and where we can get a premium position for our production. We've also taken significant steps in strengthening our presence in the French wood products market. France is one of the big kind of drivers for construction based on engineered wood, and this is benefiting our Building Solutions business, but also our classic sawn business.
We have become a 35% shareholder of the French wood processing company, ACDF Industrie SAS, and we have also signed a business partnership with Bouygues S.A., securing a stable delivery of CLT to their building projects. This is really an important step for us in gaining more presence to the growth market of France for wooden construction. Last but not least, we constantly want to challenge ourselves on what we can accomplish, what a tree can do actually. We have partnered up with Modvion, a Swedish company that's targeting to build 100+ meters high wind turbine towers made out of wood. This is a fantastic kind of win-win situation, renewable energy using renewable materials for the construction.
This is an area where we're very excited to see how far we can push this. The wind towers are then replacing steel as such. They have the same durability and of course are more cost efficient and quickly to construct. Moving on now, a few updates on the divestments. We are proceeding with the divestment of our four of our five paper production sites to be able to focus on growth. This will also give us funds to be able to fund the continuous growth within renewable packaging, Building Solutions, and Biomaterials Innovation. The sales is proceeding according to plan. We are having a lot of potential buyers visiting our mills, so we are in the middle of that process right now.
The Russian operations, from a divestment perspective, we have divested, the, industrial sites, the three corrugated packaging sites and the two sawmill sites to the local, Russian management, and that has been completed. There are minor formalities left for the Russian legal entities in the wood supply operations, and they are expected to be completed during the second half of this year. I'm very happy that we are now not anymore, significantly exposed to the Russian market and that we have been able to do that in a good way also for our former Stora Enso employees in Russia. Looking now at our resilience, I believe that we are very well-positioned, especially in the energy price environment that we see. It is resilient, our business, because we have a high self-sufficiency.
If you look at the slide here, you will see that, we have 70% self-sufficiency in electricity and, 70% also in fuels. If we look at the fuel split, 84% is biomass, and only 4% for us is gas. We are pushing forward investments also to get into even less exposure to gas. So far, we're using LNG gas outside of Russia, for the facilities that need that. When we divest paper and we complete that, our total energy self-sufficiency will be 78%, which is in a very good position to be, especially as we see what's happening in our surrounding world.
If we look at a 10% kind of sensitivity analysis, for us, it would mean about EUR 20 million of impact if the electricity market price changes 10% or fossil fuel price changes by the same amount. The hedging is high. We have 80% hedged for this year, and next year, we are 70% hedged. I believe that we are in a very good position and have a competitive advantage compared to central European players in this field. Moving on also to the bridge, a little bit to explain what are the moves within the quarter. We can see that we have clearly been able to mitigate the pressures from increased inflation in energy, logistics, chemicals, and so on by sales price increases and mix improvements.
Here we have a positive impact for the quarter by EUR 476 million. We see a negative impact on volume of EUR 39 million, and that has to do with a few factors. First of all, Biomaterials had the biggest impact in this area by EUR 31 million volume impact. A reason for that is that we have seen continued turmoil in logistical areas, so we get continuously delayed vessels and ships, lack of containers and so on, making it very difficult to transport our produced pulp from the mills that we have, for instance, in Latin America towards China. The logistical turmoil impacts between one quarter to the other. If a vessel is delayed by the end of the month, you will not get the volumes in your quarter. This is what happened for Biomaterials.
Also, Biomaterials had two maintenance shutdowns in Montes del Plata and Enocell that impacted in a negative way the volume for the quarter. The Russian exit from wood products and Packaging Solutions had a total impact of roughly EUR 20 million, so a negative volume impact for stepping out of Russia. Then, of course, we had a positive impact from Packaging Materials, Forest Division, and Paper. All in all, we ended up with EUR -39 million volume impact for the quarter. For the variable costs on fiber and other variable costs and fixed costs, mainly we see that fiber costs are moving up. It has primarily influenced pulpwood, while the sawn logs have stayed more stable.
For energy prices, higher prices impact by EUR 90 million, logistics by 75, and chemical and fillers by EUR 65 million for the quarter compared to last year. That said, we have been proactive, and we have been able to mitigate these increases by price increases and mix improvements. Our forest assets have continued to appreciate. With the closing of this quarter, the value was EUR 8.2 billion, and this is equivalent to EUR 10.4 per share, an improvement from EUR 8 billion compared to last year. The reason for that is fair value increased by EUR 196 million due to higher market transaction prices in Sweden. Then there are minor FX-related changes in plantations and some land acquisitions in the Tornator holding.
We are 30% self-sufficient of wood supply. In Sweden, 52%, and we have good wood supply agreements through our holdings in the Baltics and in the rest of the Nordics. Therefore, we have also been able to mitigate the effects from the Russian wood not being available on the market anymore. All in all, our forests are a great asset to have, and we can see kind of the synergy effects of this holding in our performance. If we now summarize kind of where we stand before I hand over to Seppo to take you through each divisions, if we look at kind of the long-term group financial targets, it's mostly green. We have improved, continued growing with a strong growth.
Our net debt to operational EBITDA is for the first time at 1x, and our target is to be below 2x. This enables us and gives us headroom for continuing our growth actions, both in terms of having growth within our own operations, but also possibilities for M&A should attractive targets arise. Our net debt to equity is 21%. As previously said, our return on capital employed, excluding forest, reached almost 23%, a significant improvement compared to last year. For the different divisions, we see strong performance in our Packaging Materials, in Biomaterials and Wood Products exceeding the long-term targets in operational ROOC. If we look at packaging solutions, the main impact there has been the loss of the Russian operations.
Paper has been turned around and shows kind of improvement, and the retained assets are very competitive, and we are very positive about the prospects of completing the divestment process. With that, I hand over to you, Seppo, to take us through the different division performances.
Thank you, Annica. I start with Packaging Materials. The strong financial performance continued. Sales were up 24%, reaching EUR 1,222 billion, and it's all-time high. Sales was driven by higher sales prices and deliveries and supported by the new containerboard site ramping up here at Oulu in Finland. Operating EBIT up 31% year-on-year, and that is driven especially by containerboard performance. We had higher sales prices and volumes that more than offset higher variable costs that the division was facing. Operating return on capital at 22%, that is about the long-term target of 20%. In packaging solutions, our profitability was impacted by divested Russian operations and investments in the new businesses. Sales were up 11% year-on-year, reaching EUR 189 million.
That is a reflection of higher prices in European corrugated packaging business, as well as the growth in the new businesses. Operational EBIT was down by EUR 5 million year-on-year at negative EUR 3 million. This is affected by exit from Russia, as well as high ramp-up costs in the new businesses. They were partly compensated by input corrugated packaging prices. Operational return on capital negative at 4.7%. In Biomaterials division, we had higher sales prices, and sales were increased by that. Sales were up 15% year-on-year. This was record high second quarter at EUR 522 million. We had strong pulp prices in Europe and China, supported by good performance in bio product sales as well.
Operating and market pulp deliveries continued to be negatively impacted, especially by logistical constraints, as Annica already mentioned, and wood availability. Operational EBIT was down 15% year-on-year at EUR 123 million. Higher sales prices of pulp did not fully offset higher variable and annual maintenance costs and lower volumes. Our return on capital at 18.4%, that is about the long-term target of 15%. Moving to Wood Products, where we have all-time high quarter, both for sales and profitability, and also historically high price levels. Sales were up 32% year-on-year, and this was all-time high quarter at EUR 631 million, as mentioned, driven by higher sales prices. Operational EBIT up 35% year-on-year. It is all-time high quarter on record.
High profitability continued to be driven by prices, and that has more than offset higher costs, especially for raw materials for the division. Operating return on capital at excellent level at 74.9%, clearly above the long-term target of 20%. In forest division, stable financial results continued because of strong demand for both sawlogs and pulpwood. Sales were up 11%, reaching EUR 649 million. Higher wood prices were clearly driven by tight wood market. Wood availability was impacted by the discounted Russian wood imports. Operating EBIT continued at stable level, and return on capital was at 3.4%, slightly below the long-term target of 3.5%. Paper, where strong demand continued with tight markets and order books are full. Sales were up 4% year-on-year.
Higher sales prices from the retained business after close of the Veitsiluoto and Kvarnsveden paper sites in Q3 were reflected in the sales, and markets are very tight at the moment. Sales on retained business increased by 62%. Operational EBIT was up EUR 100 million year-over-year, reaching EUR 51 million, reflected by higher prices that were partly offset by higher variable costs. There were also structural changes that reduced fixed costs and volumes relating to the capacity closures done last year. Cash flow to sales for retained business was 3.7%, still below the long-term target of 7%.
As the profitability has been improving, we are confident that we will be back on track going forward. Shortly on CapEx, before handing over back to Annica, we have now updated our CapEx estimate for the year and increased it to EUR 700 million-EUR 750 million from the previous range of EUR 640 million-EUR 680 million. This is a reflection of cost inflation and some additional investments that we are doing to mitigate the impacts of the war in Ukraine, for instance, relating to energy solutions and some other items and things. Back to you, Annica, and annual guidance.
Yes. If we look at the annual guidance, we updated that on the 13th of June. We are stating with confidence that our full year for 2022 will be better than our record year in operational EBIT that we had last year. Last year, we ended up in roughly EUR 1.5 billion. We see that there are still uncertainties due to geopolitics and changing macroeconomic environment, inflationary pressures and continued logistical turmoil. We have been able to mitigate for those, and we see that overall, a solid demand for Stora Enso's products. Consumer board demand remains strong, both for liquid packaging board and folding box board and other qualities. The demand for corrugated packaging in Europe is expected to stay stable.
Strong demand in pulp is expected to continue both in Europe and China. We see now a normalization happening in containerboard and traditional sawn wood. It is also from very high peak levels that we experienced during the pandemic. For containerboard, for instance, it is the end use of e-commerce that is reducing from very, very high levels during the pandemic. For sawn goods, it is the slowdown in the construction industry that we can see reducing the need for sawn good. However, both of those come down from extreme levels. It's more about the normalization than anything else. This gives us, as I said, confidence that we can reiterate a strong year going forward.
As a company, I see that we have taken significantly important steps to position ourselves for growth, agility, and resilience. All of these things, I think, are crucially important in the environment that we operate now. We have a competitive advantage. We have flexibility and security with high self-sufficiency of energy, fiber, and internal pulp integration. This gives us a competitive edge compared to many other players. We have decentralized our operating model, which drives market and customer centricity. Our people are enabled and empowered to drive operational excellence and cost savings and stay close to the changing market environment. This means that we are quicker in decision-making and implementation of action. We are accelerating our growth and innovation agenda by reducing cyclicality and risk.
We have seen that we have been able to very quickly successfully divest the main parts of our business in Russia, and therefore we can put management focus and attention to other topics than that business environment that's very challenging. We are on the way to divest our Paper business, freeing up funds and management focus. After the completion, the growth businesses will represent almost 75% of sales and 65% of our EBIT. This is showing clearly also that we mean business. We say what we're gonna do, and we do what we say. We have reduced unintegrated pulp exposure. As we are growing our renewable Packaging Materials business, we make sure that we integrate our pulp needs and therefore also reduce cyclicality.
If we can make positive decisions on our two feasibility studies, this will further enhance that. We are actively engaging and driving partnerships and collaborations in our value chain to improve and drive commercialization of new innovative materials that are bio-based and renewable and being a solution provider to the many sustainability challenges that are an opportunity for us as a company. By a reduced net debt, we gain headroom for investing and continuing investing in our growth businesses, be it through conversions or M&As. With that, I would like to just summarize and that I'm very happy with our performance during quite challenging circumstances. We are actively taking the strategic initiatives we need for long-term growth in our key strategic areas.
The partnership with Northvolt is an important milestone for the development of the world's first green battery made out of Lignode. We are positioning ourselves to accelerate growth in renewable materials and answering to all the important transformation needs of our societies towards better sustainability. With that, I hand over to you for the Q&A.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Kindly limit yourselves to two questions per person, and then rejoin the queue. Our first question comes from the line of Linus Larsson from SEB. Please go ahead.
Thank you very much, and a good day to everyone. I'd like to start off with the announced cooperation with Northvolt that you announced today. What does that mean practically? Also overall, if you could update us on the timing of the Lignode project, CapEx, and what is really the format of this cooperation with Northvolt? Previously, you have been talking about co-ownership. Is that still the plan? Are you still looking for additional partners? An update here would be appreciated. Thank you.
Thank you for that question. If we look at the collaboration, what it practically means is that it is the first step that we take together now to actively commit resources to put our material in the Northvolt kind of qualification process, to do common research together, to customize our product to fit the needs of Northvolt. What that means is that we develop now together a pathway to be able to commercialize a local supply of the Lignode material. We will come back as we progress, but this is a very important milestone in terms of showing the commitment together with an important partner such as Northvolt. That doesn't mean that this is the only partner we're discussing with.
We have more than 50 other partners that we discuss different types of partnerships, offtake agreements or collaborations like the one with Northvolt. A joint venture or any other kind of setup is more to make sure that we can finance kind of full scale. For the first phase that we have announced, the feasibility study for first industrial site, that we can fully finance by ourselves. We do not need a JV to do that. Of course, a partnership and collaboration with Northvolt gives us now more security to be able to move forward when we assess the feasibility study. That is, of course, gonna be completed by end of this year, and then we will come back to CapEx needs and so on and can disclose that once we are done.
Unfortunately, I cannot open up for that right now.
Okay. I think previously you talked about, if I remember right, EUR 1 billion in 2025. Has that now been delayed in any way? Or is that still valid?
Well, look, as we've said also, when we brought that up, it was a total different reality than we are living in today with the Russian war, a pandemic, and so on. A lot of things have happened. What we can see now with this partnership, this is the first step in commercialization in the electric vehicles area. There are many other products as well. It's not only about cars, it's also about energy storage systems and anything really, any tool or type of equipment that has a battery has the potential to use Lignode. The longest qualification times is, of course, for the automotive industry. We continue, and as we progress with partnerships, we will also be able to kind of come back with more specific timelines.
So far, kind of the things that we have in our control are proceeding according to plan. If we can make a positive decision for the industrial scale-up, that is, I think, the first milestone in achieving EUR 1 billion sales and being able to set up a business of its own. As we can see in Europe, I think the growth of electrification of mobility is just accelerating. We can also see that the impact of geopolitical factors that make even more pressing to have a local supply of some of the crucial materials for these batteries that today are sourced from mainly China, especially the anode materials. This brings to the center in a way that was not present before when we announced our ambition for sustainable batteries.
That is-
Yeah.
What we can kind of disclose right now. We are staying fully committed now to drive this scale-up.
Great. Thank you very much. My second question would be more on relating to your various guidance statements. You talk about normalizing of demand for, I think you mentioned containerboard and sawn wood going into the third quarter. If you could just add some color on that. Are you seeing declining prices in these segments and in if so, in which subcategories? Also, you obviously reiterated your full-year guidance.
That operational EBIT should be up year-on-year. Is that also valid for the second half? Do you expect operational EBIT to increase H2 over H2 of last year? Thank you.
If I comment on containerboard, and the end users mainly where we see a normalization, as I said, e-commerce is one of these areas where we see that, it was a very, very high demand during the pandemic, and now it's coming down. Other end users such as industrials, and, for instance agricultural purposes for food packaging, you know, the fruit trays and so on, they are more stable. There we have not seen that effect, yet. I think that pricing we do not comment, of course. From a demand perspective, we do expect a normalization and a little bit slower, kind of not so overheated containerboard market. And the prices in kind of end of Q2 are strong going into Q3.
Kraftliner demand is expected to remain on par with the previous year and also testliner demand is expected overall to be stable year on year. Then your second question was if second half of the year is projected to be better than first half, and we give full year guidance, so I will not be able to disclose that.
Thank you very much.
The next question comes from the line of Justin Jordan from BNP Paribas. Please go ahead.
Thank you. Good afternoon, everyone. Just following up on Linus' sort of question, I guess specifically on Packaging Materials. Just specifically in your page 9 of your results statement, you talk about slightly weaker recycled fiber-based containerboard demand in Q2 sequentially on Q1. I just wanna check that we should infer that means volumes in Q2 were down sequentially on Q1. Is that factually correct?
Yes, minor volume.
Yeah. Okay. Thank you.
That's why, going into Q3, we see that there is a normalization in containerboard.
Yeah. As you've outlined in e-commerce and consumer durables and the rest, industrial. Yeah. Okay. Thank you for that. Then just one quick, I guess really a question for Seppo. Thank you so much for the disclosure you've given on slide 10 regarding energy, and clearly there are a lot of nervous investors and looks out there in terms of gas availability and reliability and security of supply in the second six months of this year. Can you help us understand what contingency plans Stora Enso have in place if gas availability becomes slightly challenged, shall we say, in the second half of this year? I appreciate you are relatively well-positioned relative to many peers, but I'd just be curious to know what plans you have in place.
Yeah, sure. First of all, like mentioned earlier, already since March, we have been bringing LNG for our needs for us in Finland, and that has worked well, and we have good supply channels open there. We have done, and we continue to do some investments in our energy setup in order to make sure that we have different alternatives available in case there would be tighter markets when it comes to availability of LNG as an example or other fuels that we are using. For instance, that we are more able to use Biomaterials also in those sites that have not been able to do that earlier. It will help us going forward when in Finland, Olkiluoto 3 starts, and that will improve our self-sufficiency even further going forward.
Just to remind you that in Central Europe, we are not very dependent on gas. For instance, our Maxau mill in Germany is using biofuel. In that sense, if there would be a cut of energy supply to Central Europe, that would not really affect us directly. Obviously, it can affect demand for our products or demand of our customers and depending on dependency of our customers in their process when it comes to natural gas.
Thank you, Seppo.
The next question comes from the line of Cole Hathorn from Jefferies. Please go ahead.
Good afternoon. Thanks for taking my question. Just one on the wider pulp market. You mentioned operational and some logistics challenges. I just wanted to understand, does this mean that there's potentially some pulp shipments in transit potentially that will benefit the third quarter? I'm just wanting to also understand if the logistics impact is also to your mills to kind of getting pulpwood, et cetera, out of the forest is the first question. Then the second one following on the wood product market. You've called out you know opportunities in France. You've called out some opportunities in replacing turbines with wood. I'm just wondering how big could those potential opportunities be taking the wind turbines as an example? Thank you.
If we look at Biomaterials, as I said, the strong demand continues in both Europe and China. That means that we transport, and pulp is a global business, as you are well aware. We are dependent on the big ships arriving to the ports in Latin America, loading the pulp, and then unloading in, for instance, the port of Shanghai and getting it to the customers. This kind of logistical turmoils we have lived with ever since the pandemic has started, really. It's nothing new. It's just that this month, if a ship comes at the end of the month and it doesn't get in during this quarter, it's delayed, and you get it the next quarter.
The logistical turmoil as such and dependability on getting trucks, getting kind of the right things in at the right time has been one of the things that we have constantly kind of worked with ever since the pandemic started. We have been really good at handling this. I see that we just need to continue to be flexible and so on. Since the war in Russia started, we got an additional complexity with wood not anymore entering Europe, and then having to relocate wood from one site to the other and cutting out, for instance, the birch that used to be a big kind of export species from Russia on the European market.
Once again, you need then very quickly to be able to get the wood from one site to the other and adjust product mix. In our Biomaterials operations, for instance, we have changed product mix, reducing the use of birch and decreasing the use of other species. That takes kind of some time until it stabilizes, and it becomes more kind of in balance. That has affected Biomaterials operations as such when we do these product mixes and transports, and also Packaging Materials for that sake. It's not visible in the numbers.
There was also a shortage of railroad wagons before summer because of the increased transportation domestically in Finland. Now the situation is improving as the laws and regulations were changed so that foreign wagons are also allowed to be used for domestic transportation. That is gonna help a bit during the second half.
No, as Seppo said, containers are in the wrong places. This kind of is something that we've been living with for two years now. If we then look at the Wood Products, I wouldn't draw too kind of high expectations on collaborations such as Modvion. It is pilot project, but it still shows kind of the potential of where you can use wood for very challenging construction kind of opportunities. Because constructing 100+ meters of a wind turbine that has to withstand kind of the material or the surrounding environment impact is significant. We have seen that we can construct already 50+ meters. Taking it to this level also will kind of enable us to find new areas of growth. It is too early to say anything significantly about that.
On the other hand, if we look at Building Solutions and expansion in France, that is a significant opportunity as that market is very much driven by changed policy in France to enable more than 45% of all public and governmental buildings to be constructed out of wood. If we look now how the market is changing, the easiest application, such as sawn timber or sawn wood, that is normalizing from peak levels. But the engineered products, they are often longer projects, and there we have not seen a decline. Building Solutions is where we want to grow.
We also want to grow with sawn wood, but in engineered wood, that is countercyclical compared to kind of Wood Products, normal sawn, that is more cyclical and spot price driven. This is an opportunity for us to leverage on the French market, which is the biggest one in Europe and actively driving wood construction. In Europe, we see this market increasing by 10%-15% in growth. Wood is still such a small part of the total amount of construction materials that are used. Therefore, we do believe that we can take market share from other materials.
Thank you.
The next question comes from the line of Robin Santavirta from Carnegie. Please go ahead.
Thank you very much, and hello to everybody. Now, two questions. First of all, if I look at Q2, your cost per ton, and I guess all divisions are up by double digit Q on Q. I was wondering, I can understand the pressure in the input cost, but what is the outlook for Q3? Do you still see some upward pressure when it comes to energy, logistics, chemicals and pulpwood going into Q3? The other question I have is related to the supply chain problematics. I can understand essentially sort of your deliveries might be a bit delayed. Do you see?
I mean, everybody's facing the same situation, and I can assume the buyers are trying to make sure that they have something to produce or sell. Do you see a risk that once this surely normalizes at some stage, the customers in fact will be oversupplied when it comes to pulp or containerboard or consumer board? Thanks.
I will start with the second question and then let the first one Seppo take. If we look at the inventory levels, we follow of course very closely our customers' inventory levels, and we do not see heightened inventory kind of levels for the products that we do. If you look pulp, for instance, we are on a normal region compared to the five-year average. So I wouldn't say that is the case. Also, it takes a while before such a turmoil that we have logistically actually normalizes. It's not gonna be from one day to the other if we come back. Many expect that this is gonna continue for another year minimum before everything is in balance, if nothing more kind of unexpected happens now.
I do not see that the inventory levels are high. Managing kind of the inventories is something that we constantly do with our customers and follow up where we have our products and how we kind of support them through special arrangements with inventories and so on. Here I am very happy to say that our operating working capital to sales is on the level of 11%, which shows that we also have good control of our working capital. Even though it is increased, it is still on good levels compared to sales for our type of business. We are managing that in a good way as well despite this turmoil.
When it comes to cost pressures that you're asking, Robin, I think it's fair to say that the biggest pressure in most of the cases seems to ease. It's not coming down, but getting more stable. There's still probably some pressure, depending a bit how market and situation develop on recycled paper and wood, so fiber prices some additional pressure. Other than that, rather stable.
Thank you, Seppo and Annica.
The next question comes from the line of Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you. I just wanted to come back a bit to the volume outlook. You're exiting the quarter with somewhat slowing demand trends, it appears, in parts of the cyclical business and the, I guess, second quarter volumes weren't quite as good as potentially one would have expected. I just wanted to hear about your order book situation. You mentioned, of course, some consumer board you're fully booked, sold out for the year. What about the balance of the business? How is it looking now if you compare to where you stood as when we spoke, after Q1?
We are fully sold out for pulp. We are fully sold out for consumer board. We have a good balance there. As I said, we see some weakening in demand for wood products, but we still have strong order books. I think that what we see is that we have a solid kind of pipeline of orders, and then we do inventory management as we see fit if the situation changes. That is what I think we can comment on that. I don't know if you can give more insight, Seppo, if you have any other perspective.
Well, in general, I would say that underlying market sentiment is still quite good and positive. We don't give guidance on volumes. There is some more maintenance in Q3.
Quarter three and quarter four are normally kind of the time of the year when we do the annual shutdowns of many of our mills. They are more maintenance-heavy compared to other periods of the year.
We have one more question from the line of Brian Morgan from Morgan Stanley. Please go ahead.
Hi, thanks very much for the time. I've just got a question, perhaps it's a long shot to ask it, but talking about these logistics issues and the constraints and all of that, in Biomaterials in particular, would you have an idea, perhaps an order of magnitude idea of how much, well, that's on the table in, say, millions of euros as a result of the logistics issues, either through volumes or through additional costs that you had to absorb? Just try to get an idea of what that business would be able to earn under normal circumstances.
We do not disclose any kind of breakdowns, like that. For the full volume effect, including kind of the operational challenges, from the maintenance shut and the logistical, kind of impact for Biomaterials, it was EUR 31 million.
In general, you could say that in Biomaterials or any of our business, when it comes to logistics constraints, doesn't mean that we would necessarily miss sales. It's that the deliveries are delayed and in some cases might move from one quarter to another if there are some quarter-end deliveries. It's more a logistics cost issue, how that is then affecting the business input costs, so to speak.
Okay, cool. Thank you.
As there are no further questions, I'll hand it back to the speakers.
Thank you very much for all the questions. I still believe that we made a very good quarter, a strong quarter with 40% improvement compared to last year on operational EBIT level almost, and continued strong growth. I would like to thank you all for all the questions and welcome you back on our virtual Capital Markets Day, which we will have on the thirteenth of September, where we will go through in more detail and you get to meet the business people behind our growing business of Packaging Materials and Wood Products and also in Biomaterials. See you all back then, and I wish you a good summer.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.