Ladies and gentlemen, thank you for standing by, and welcome to the STORA Enso twenty nineteen Full Year Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I must advise you that this conference is being recorded today, Thursday, 01/30/2020. I would now like to hand the conference over to your speaker today, Head of Investor Relations, Ula Payanen.
Please go ahead, madam.
Thank you, Sandra. Very welcome, everyone, to Stora Enso's full year and fourth quarter twenty nineteen earnings call. This is a memorable quarter for us because now we will have our new CEO, Annika Brezki here for the first time presenting to us. And with me is also our CFO, Seppo Parvi. So Annika, please go ahead.
Thank you, Ulla, and welcome everyone to my first quarterly call. We looking back, we have had a challenging quarter with difficult market conditions. I am not satisfied with our profitability levels. But considering the uncertainties on the market, we have focused on what we can influence our cash costs, our costs within the company and also managing value over a volume strategy securing our margins for the business. So before I dive into the key financials, I would like to highlight a few positive things about last quarter.
We delivered a record high cash flow from our operations at the value of €721,000,000 Also for the year, we had a very high and strong cash flow. And of course, this is a testimony that we are focusing on the right things such as our working capital management. And also, we had an extra dividend and repayment from Bergvik Skog. We see a significant increase of our forest fair valuation of €777,000,000 out of which €600,000,000 affecting our IFRS results. We are a major forest owner in the world, and this is a strong testimony of delivering shareholder value on our assets.
And I'm also happy to say that we were proactive and started our profit protection program early. We have a very good momentum and we have committed to delivering €275,000,000 by 2021. The program is proceeding ahead of plan. Already last year, we delivered 150,000,000 and rolling €105,000,000 and for the quarter €450,000,000 in cost savings. And I'll come back a little bit further on how that is distributed throughout the division.
Now moving into the key financials, our sales decreased by 9% to €2,411,000,000 from €2,657,000,000 And the main driver is significantly lower prices, primarily in biomaterials, in Packaging Solutions containerboard business, in paper and in Wood Products classic sawn. Consumables sales prices were more stable. Operating EBIT decreased to €112,000,000 down from €271,000,000 due to significantly lower prices and we could not despite our efforts fully compensating for that effect through our profit protection program. Net debt to operational EBITDA landed at 2.1 times, close to the target of two point zero times. We will continue working with strengthening our balance sheet.
Major effect compared to Q4 twenty eighteen is, of course, our acquisition of Bevyk Forest. Our operational return on capital employed was 4.2% for the quarter and 12.4% compared with Q4 twenty eighteen and this is below our strategic target of 13%. Now moving to how the result builds up in the bridge, you can see here a $2.00 €9,000,000 effect on sales prices and mix, a negative effect and a small effect on volume as a result of us managing value over volume to protect our margins in some of our businesses. We had improved the cost position or reduced cost for our fiber, and you can also see our €50,000,000 improvement from profit protection. But all in all, it was not enough to compensate.
If we move over to our profit protection program, as we have promised, $275,000,000 we will deliver by 2021. The distribution between fixed and variable cost is approximately fifty-fifty. And you can see here over the years the plan of getting there. Last year, mainly Packaging Solutions, Wood Products, Paper and Other had the biggest impact. But going forward, the increase is going to be also in the other divisions.
I feel we have a very strong commitment and momentum in the organization. So I feel very confident that we will reach our target here. Moving over now to our forest fair valuation. This increased by €777,000,000 And here we can see that we are a big forest land owner. We have totally 1,600,000 hectares of forest holdings in Sweden, Finland and in our plantations.
And with our DCS methodology that we use today, the value of that is booked for €4,900,000,000 We can also see here an example of if we would use the LRF statistics on transactions for forest lands, where the price would be around €5,700 per hectare, and that would mean that the value of the Swedish forests where we have them in Southern Sweden would be around €6,500,000,000 So this is a strong foundation for our future and creating shareholder value. The Board is proposing unchanged dividend at €0.5 per share totaling €394,000,000 In 2018 between 2017 and 2018, we increased dividend by 22%. So we stay on the same level here. And as you may recognize, we have a policy of distributing 50% of earnings per share over the cycle. So if I now would summarize some of the key events during Q4, I'm happy that we are continuing our transformation and the corrugating plant in Riga in Latvia is completing according to plan.
Also our conversions of Enosels, Skjutra, Groven, CLT production are ramping up according to plan. We have made a €9,000,000 investment enabling production of bio based plastics in Langebrugge Mill and this is to be used for transparent packaging to be completed by Q2 twenty twenty one. I'm also happy that we continue our close collaboration within our start up community and one example of those is the commercialization of a renewable and biodegradable straw together with Sulapac. And this has rendered quite a lot of attention on the market and we continue to work with other products as well. Part of our strategy is also making sure that we strengthen our asset base by divesting or closing unprofitable mills.
So last quarter, we closed down 90,000 ton per annum packaging paper machine at Imatra Mills in Finland and also closed down Kite sawmill in Finland and had an agreement to divest our sawmill construction timber mill at Fakihren in Germany. This is to be finalized during Q2 in 2020 Q1 twenty twenty, sorry. And last but not least, we have stepped out the paper business in China by divesting 60% the last 60% of equity stake that we had in that mill, and that was completed during Q4. And now, Setyl, please take us to the financials.
Thank you, Annika. And I start by looking at the key figures from the report that we published earlier today. Top line sales for the quarter went down 9.3%, as Annika already mentioned earlier. Full year sales 2019 at €10,055,000,000 that is reduction of 4% year on year. Operational EBITA margin 10.8% and operational EBITA margin 4.6% for the quarter and earnings per share €0.66 Operational return on capital at 4.2% for the quarter and 9.8% for the full year 2019.
We are very proud of and I'm happy with the cash flow that we are reporting for the quarter. Cash flow from operations at seven twenty one million euros which is significantly up compared to €323,000,000 in Q4 twenty eighteen and full year cash flow at almost €2,000,000,000 Net debt to last twelve months of presser EBIT period is at 2.1. It is slightly over the limit of two point zero that we have defined as a strategic target, but it has been moving down already during the second half of last year, and we continue to work on the cash flow also going forward. Then I move to the divisions, and I start with Consumer Boards, where successful value over volume management has continued and also shown positive result development. Sales decreased by 4% and was €640,000,000 due to lower port deliveries in Europe mainly.
Operational EBIT increased by 111% and was €51,000,000 Value over volumes approach decreased the volumes, but local sales prices were higher, improving the profitability. Also clearly lower variable cost due to pulp health. We also completed successfully key account negotiations with increased prices as also communicated during the year that we have been working on the price increases and being confident already earlier that we can reach the targeted price increases. Operational return on capital doubled during the year or during the quarter 9.5% compared to Q4 a year ago. Then moving to Packaging Solutions, where challenges in containerboard market continued, but corrugated market performs quite well.
Sales decreased by 17% from all time high level a year ago and was EUR $293,000,000. That is due to significantly lower containerboard prices, but as mentioned earlier, corrugated market was strong. However, there was somewhat softer demand in China. Operational EBIT decreased by €43,000,000 and was EUR 60,000,000. Here, it's good to notice that last year, Q4 was record high when it comes to operational EBIT.
And there, lower raw material prices for corrugated units offset were offset by lower containerboard prices. Operational return on capital decreased to 6.8% driven by significantly lower containerboard prices. And all of the mill conversion into kraftliner production is proceeding as planned and on schedule and production is expected to start by end of this year. And as communicated also earlier, we continued production of paper on the board machines until September this year. In Biomaterials division, challenging market conditions continue, as we all know, and there our focus has been very much on inventory management.
Sales decreased by 18% from last year all time high level and was €341,000,000 That is a reflection of significantly lower pulp prices, although that we had all time high deliveries during the quarter. Operational EBIT decreased by €103,000,000 to a negative €12,000,000 from last year's record high figures. Higher total volume impact, but that was affected by significantly lower pulp prices during the quarter. We also had higher maintenance costs at the Schutzar Mill compared to a year ago. And also important to note is that Montes De Plata pulp mill was also down for maintenance works during the Q4.
And all time deliveries took place to manage inventory levels and improving cash flow. Operational return on capital decreased to negative 1.9% compared to 15% a year ago. Then moving to Wood Products, where we continue to focus on margin protection and had record Q4 cash flow. Sales decreased by 6% and was EUR $374,000,000 that is driven by lower classic saw prices and lower deliveries through the quarter. Operational EBIT decreased by EUR 28,000,000 from last year's record high Q4 level and was EUR 14,000,000.
That is driven by lower sales prices and we also had lower total volumes mainly due to curtailments at the Nordic mills to manage inventory levels and also Kite sawmill closure had an impact. We had lower wood cost in Central Europe and in general lower fixed costs, improving the profitability at the same time. Operational return on capital decreased to 8.2% due to lower profitability. During the quarter, we also launched a new wooden office building design concept. And we also received Pooh Palkinter Award 2019 in Finland for the tallest wooden high rise building, Lighthouse Joensu, that has been made out of our materials.
Then looking at the Paper division, where strong cash flow was supported by good cost and working capital management during the quarter. Sales decreased by 9% to EUR $694,000,000 level. That is driven by significantly lower paper deliveries and lower prices in most of the paper grades. Also, Avang paper mill divestment had a slightly small slight negative impact, about EUR 30,000,000. Operational EBIT was stable at EUR 44,000,000 and there are somewhat lower prices in most grades and seems like the lower total volumes impacted by curtailments to manage inventories had an effect on the profitability.
And lower variable mainly pulp and paper for recycling costs had positive effect on the result development as well as fixed costs due to good cost management in the division. Cash flow after investing activities to sales ratio increased to 10.3%, great improvement compared to year ago 2.5. This is thanks to very good working capital management. And also good to keep in mind, as announced earlier, we are reducing paper capacity by over 1,000,000 tons, that is 20% of our paper capacity with the whole paper mill conversion during this year. Then to summarize the development of strategic targets, most of these have been commented already either by myself or by Annika, but maybe to highlight a couple of those.
Net debt to EBITDA, like mentioned, 2,100,000,000.0. It is coming down after the acquisition of Bergviskoeg Lands and Forests in Sweden, and we continue our work improving cash flow to bring down net debt further and of course our profitability improvement to get below two point zero as set as a target. And operational return on capital employed for full year at 9.8% below the 13% targeted level when it comes to return on capital. On the divisions, I just want to once again highlight the good cash flow from Paper. Paper division 9.3% to net sales for full year and 10.3% for the quarter.
With that, I hand over back to you, Annika.
Thank you, Stefo. And moving now over to the outlook for 2020. We see that subdued and mixed trading conditions caused by geopolitical uncertainties will continue to impact Stora Enso for this year. The decline in demand for European paper will persist and demand for other group projects products is expected to remain mixed. We have exceptionally mild winter conditions in The Nordics and the soils are not frozen.
And this could, of course, impact harvesting and transport of wood and may therefore affect the stability of raw material supply and potentially increase wood costs to our Nordic mills. Stora Enso will continue active cost management in the coming 2020 to 2021 through the profit protection program implementation. And the fixed and variable cost savings target €275,000,000 to the end of next year. Various labor organizations in Finland are currently on strike, which you might know. This is also affected to impact our result negatively.
And a comment from my side on that is that, of course, strikes are never good. And as a country, Finland and Sweden and The Nordics, we are really have a really big exports for our products. It's important that we find an agreement with the unions on these topics. The mentioned uncertainties affect our guidance for Q1. We have a wider range between 90,000,000 to €200,000,000 of operational EBIT is expected for first quarter this year.
So during Q1, we will have one annual maintenance shutdown at Ostroleka Mill compared to two that we had last year where we also shut down Veracel Mill. The total maintenance impact is estimated to be approximately €60,000,000 and €10,000,000 lower than it was in Q4 twenty nineteen and in Q1 twenty nineteen respectively. And as said, the various labor unions in Finland are currently on a three week strike. If this continues, the total impact will be around €11,000,000 for each week. Of course, we hope that this will be resolved in the agreement, but we have taken that into account in our guidance range.
I would also like to remind you that we communicated previously that we have a new divisional structure as of January 1. This targets to get even closer to our customer base and providing solutions for their journey towards more sustainable packaging materials. So we formed a new division called Packaging Materials where both Consumer Board and Containerboard business is reporting to. And we have also Packaging Solutions, the new Packaging Solutions where we have our corrugated packaging together with the recently created formed fiber unit. And this strengthens our ability to bring new solutions and applications to the market.
I also want to say that we have our newly forest division formed to make sure that we increase transparency towards our shareholders on our assets development. And here we include the Nordic forest assets and wood supply operations in Nordics, Russia and Baltics. And with that, we have five growth divisions where we will continue to focus into leading positions for our Materials. So summarizing, we have had a challenging quarter four, but we have focused on what we can influence our cash, our cost and making sure that we protect our margins through a value over volume approach. We expect a subdued and mixed trading conditions for this year.
And our very strong cash flow from operations €721,000,000 is a result of our good working capital management in all the divisions that we have. We see a significant increase of our forest assets fair valuation to €777,000,000 and our profit protection program is progressing ahead of plan. We will deliver on our promise of €275,000,000 and we had an impact of €150,000,000 for last year. The new divisional structure will support our business ongoing, building on innovation solutions and a stronger partnership with customers and the Board proposal of unchanged dividend of €0.5 per share. So with that, thank you very much, and I hand over to Ulla.
Yes. Thank you, Annika. And we will now go for the Q and A session. Please, Sandra.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. And the first question comes from the line of Alexander Berglund. Please go ahead.
Thank you very much. I have a bit of a longer term question. When we're thinking about that 13% return on capital employed target, which we obviously are quite far from right now, is this something we should still look at, at a through the cycle target? Because if I look historically, it seems like you already passed that when prices were at record levels. And if we look currently at the different products versus history, I mean, definitely screens at historical low, but consumer board prices still look very high versus history.
Containerboard, even though it is down, is not at a collapse versus historical levels. And on top of that, you do have, as you said, a deflationary or cost benefit for recycled paper prices being lower. So basically, on your topic of focusing on what you can control, do you think that the profit protection program alone is enough to get to that 13% level on a sort of cycle basis? Or do you think it looks maybe a bit too ambitious?
Maybe I can start and Hanik can take from there. 13% target rate was set. It, of course, it's a long term target and then over the cycle. And it's clear being in a cycle to our business that there are years when it's challenging to reach. But I think also if you look past five years, we have improved, it is a reachable challenging target.
And that in that sense, I think it's valid. Of course, you need to keep in mind that our balance sheet has changed over the years. And for instance, the acquisition of Bergvik's Kug Forest has changed the balance sheet quite big way. But so far, we are not thought to change the target as such.
Yes, I agree with Sppo. And for the moment, we keep the target and we continue to work to get that.
Thank you.
Thank you. Next question comes from the line of Justin Jordan. Please go ahead.
Thank you and good afternoon everyone. Can I just focus on the consumable business for a second firstly? We've seen, I know you've got a described value for volume strategy here, but we've seen throughout calendar twenty nineteen now consistent organic volume declines in this business. Wealth peers are reporting structural tailwinds of plastic and paper and perhaps 2% to 3% organic volume growth. What is your longer term aspirations for organic volume growth in the Consumer Board business?
And when perhaps might we see this business return to that sort of longer term growth record?
What we see is that we have had to do this value over volume approach for the last year. But of course, our target is to get back to grow with the market. It has been an uncertain market last year and then demand, especially China has been more challenging than before. But introducing more premium products for instance in Beihai and working with the position there is something that will bring us back to a stronger position for the future. And that's what we are working on.
Okay. Thank you, Annika. And just following up, clearly, congratulations on becoming CEO. On the morning that you were announced, I remember dialing into the webcast of your news conference with and you cited the profit protection program and clearly the Oulu conversion as some of When your key 2020 we think perhaps more longer term over the next perhaps, let's say five years or so, when you look about the Sora Enzo Group, clearly you've announced recently reorganization of the Consumer Board and Packaging Solutions division. Shall we say, smaller slimmed down Packaging Solutions division, is that something we should now view as perhaps in the same light as the Paper division, a source of free cash flow for funding other growth areas?
Or are there other sort of longer term strategic visions that you could perhaps share with us from your initial few months as CEO now?
Yes. Thank you. That's a good question. If we look at Packaging Materials first and the customer base, there are more and more requirements for recycled packaging for food applications. And we have a very strong barrier development within current Consumer Board and we can benefit out of having that competence in one division and one leadership.
And this is for the benefit of retailers. It's for the benefit of our brand owners and the development of new packaging solutions following single plastics regulation. If we look at Packaging Solutions, I would rather see that we now can have a focused approach on a division where it's more light asset compared to previous containerboard parts, which are more similar in structure to the assets that we have in Consumer Board and therefore requires a different type of management and leadership. So Packaging Solutions is asset light. We are further down the value chain.
And as you've seen, we have put in new fiber formed fiber applications there, which we target to grow. So I would not say that it is part of a spin off strategy rather a more focused approach on that part of packaging lost Packaging Solutions or the previous Packaging Solutions division.
Okay. Thank you very much.
Thank you.
Thank you. Next question comes from the line Please go ahead.
Yes. Hello. Good afternoon. Well, a question on the pulp and the very high deliveries and sort of wondering, well, we know that there's there was heavy restocking particularly in in China, but was that behind it all? Is it sort of a move pulp moving to customer inventories?
And what is your feeling of of the inventory situation at the moment in the global system in the pulp market?
You're right that we have been destocking our inventories, and this is the right time to do it. If we look at the external market analysts, they say that the prices are probably going to stay on this low level for some time more coming months or even first half year. From an inventory and stock perspective, we can see that the stocks and inventories are not increasing anymore, which is positive. And we see that also a small decline in inventory levels. So depending how the demand kind of picks up in China coming this year, if we are lucky, we can see a major destocking.
And also look at the big indices that I think we all can see every week, it's clear that the prices have stabilized, and there's been even some increases not big one, but some increase in China.
Yes,
A bottoming out of of pricing. Yeah.
Right. Okay. Thanks for that. And then another question maybe on the on the forest value discussion, which has been, of course, very lively last year. And you decided to do it's a big number, $777,000,000, but it's still not benchmarking the value to the peers.
I was wondering your thinking there that is, was this some sort of an interim decision or something that you are still considering longer term, what sort of value to attach to the forest asset, particularly in Sweden?
Well, like we mentioned in the separate press release earlier, we have continued to use discounted cash flow model, which we at the time believe and see as the most fit for our type of industrial company, industrial operation to use. And the increase is like we mentioned, it's mainly coming from lower discount rates, lower market interest rates And that is lowering the discount rate that we use when Obviously, market rates come follow the situation how the market practice develops. But it is still the most common way to value the forest asset discounted cash flow method.
Understood. Well, the final question on the Consumer Board overall.
If I
Yes, of course.
For your information, we have added also some statistics and information on the market prices. So you can benchmark them that against what we have as fair value in the balance sheet.
Exactly, yes, fair enough. Yes, the final question on the Consumer Board, given that you have achieved some well, your targets in certain price negotiations, but then there are also trade press reporting that some falling boxboard I mean, what will be the best kind of a broad guidance for the average price for the Consumer Board now going towards this year compared to Q4 or last year's prices?
Well, I cannot comment on that dividing the business as such. But you are right that there are pressures in the folding boxboard in Europe, while in China, it seems more stable levels. So but more than that, I cannot give you details.
Yes. And if I may add, think most important thing is that we have now finalized the price increase round of all the key accounts and customers in all the businesses. And I know many people are doubting if we can increase the prices or not. And I think we have proven and shown that we are able to increase prices and cover the gap between the cost increases that we have faced and prices that we have had in the past.
Okay. Thank you very much. Thanks.
Thank you. Next question comes from the line of Please go ahead.
Thank you. Good afternoon, everybody. I could continue a bit on the Consumer Board division. You mentioned the achieved price increases with major customers. We talked about the volumes there previously.
Would you expect these price hikes to impact the volumes for this year in the liquid in the Consumer Board division? As previously mentioned, you have had five quarters of declining volumes. Should we expect to see volumes down again in 2020? Or would you expect to see a rebound? That would be my first question.
I cannot unfortunately comment on coming price negotiations and the folding box for that business is negotiated on a yearly basis and we go into negotiation period coming quarter for that part of the business. But what I would see is that when the market becomes stronger, we have a good position to continue growing. The business as such is a strong business. We have leading positions with many of our products, and we are very well kind of perceived by our customers and partners. So I have no doubt that we can grow Consumer Board business in the future.
Okay. Then switching to Containerboards and corrugated, what do you see there in terms of demand and pricing and inventories right now?
Well, the containerboard demand is stable, but as you know, pressure. The prices for containerboard have been driven by lower OCC prices and recycled fiber prices. However, we see stabilization. We don't expect a major continued decline in that area. So and then if we take Corrugated Packaging, that has been unexpectedly strong, supporting the business, which shows also the importance of having both the parts in your portfolio, both corrugated and containerboard business.
Okay. Then just a final question on the paper business, particularly in Europe. We've seen below trend declines in demand in 02/2019, sorry. And that's been driven by different things. But going forward, what's your take on the demand trends for paper?
What's your kind of base case of what the structure of the demand declines will be going forward? Is this minus 10% or so the new normal? Or should we revert to some sort of a 5% or so going forward? What's your take on that?
Well, medium term, we estimate between 4% to 5% decline. We are prepared within the division to constantly kind of handle a declining market and we do not expect that to change. We have proven that we can deliver a strong cash flow and we are managing our cost levels in Paper division. When we have an opportunity, we convert units to more profitable business. And if there are opportunities to divest, we will do that as well.
So this is the strategy that we have had, and we will continue having that.
Got it. Thank you very much.
Thank you.
Thank you. Next question comes from the line of Johannes Grunzelius. Please go ahead.
Yes. Hi, everyone. It's Johannes here, Kepler Cheuvreux. So I have a question on your guidance for Q1. I mean, it's a pretty wide range, obviously, that you've mentioned here, Annika, in your presentation.
Could you give us some color what's behind the low end of the range? And what's behind the high end of the range? If you could give us sort of a couple of building blocks, that would be perfect.
Well, I think we all see how geopolitical issues are uncertain, and many of those are quite difficult to factor in. In our guidance, we factored in the three week labor union impact of €33,000,000 And that of course affects the low part of the range. And then of course, depending on how the market picks up, if for instance, biomaterials as many external analysts think that there will be a recovery in the second half of next year. That, of course, has a significant impact on our results. So for quarter one, 200,000,000 is achievable if China market picks up and if the labor union strike does not become too long.
Okay. Have you penciled in any impacts from the unusually warm and wet weather here in the winter in Scandinavia? I mean, you mentioned that will impact the wood sourcing of wood. Have you penciled in anything of that into this guidance?
No. So far, we have been able to manage our supply by redistributing kind of the assets that we have and transporting where it's possible and harvesting where it's possible. This is one of the big strengths we have as a big forest owner and with the ecosystem of forest owners that we have in both Finland and Sweden to utilize the wood where it makes most sense. So far, no, and we have not factored that in, in the guidance.
Okay. Then on pricing, I understand if pulp prices starts to move higher, I guess there is a couple of weeks lag before you see that in your P and L. Could Yes. You confirm Then I also have a question on
Sorry, how much just to be clear, where you are. It's not two weeks. It's more like a couple of months or a quarter that the price changes come through.
Okay. Usually say it's between four to five months before we see the P and L respect. And this is because of the long transport that we have and then the, of course, the inventory levels and so on.
But then it must mean the high end or the low end of your guidance range is more dependent on shipments rather than pricing?
Yes, you can say that.
Yes, yes. Okay. Okay. Yes, thank you very much.
Thank you.
Thank you. Next question comes from the line of Robin Sangavivya. Please go ahead.
Thank you. It's Robin from Carnegie. I was just wondering about what do you see in China sort of in general at the moment. First, sort of recent trends in terms of Consumer Board. I see some statistics pointing to a bit higher folding boxboard prices.
Is that something that you have seen over the past couple of months? And then what are you seeing in terms of the coronavirus we have now? Is your mill operating? Will it continue to operate? And have you so far seen any impact on demand?
Thanks.
Yes, good questions. Let me start with the coronavirus. We have not had any impact on our mills so far. We are, of course, monitoring what happens and taking care of our employees there and following all the restrictions that the Chinese government is imposing. Our mill is not situated in the same area where the first outbreak was done.
But of course, it's very difficult estimate how this will develop during the coming half year. I believe the Chinese government is taking all the measures that are necessary to contain the virus and has acted very, very quickly compared to what they did many years ago with the SARS virus. If we now go back to demand, of course, the Chinese economy is affected heavily by this, it will have an effect on our business as well. So far, we have not seen that. We have a stable and even a little bit stronger demand in Consumer Board grades.
We have a solid kind of growth of Food Packaging in general. So we see a stronger demand compared to before. And yes, then we'll have to see how the uncertainty with the virus develops.
Okay. Thanks. And then two additional questions, if I may. First, just maybe broader picture question for you, Anika. As I understand, when we met in December in Helsinki, the strategy going forward might be sort of to focus on the company's strength, whereas maybe in history, Stora Enso has been known on quite a broad sort of focus on containerboard, wood products, paper and what have you.
Is this sort of something that you want to formalize in some kind of way? Is there a CMD where you sort of will roll out the new strategy? Or is it sort of still just going in the same direction as before?
That's a good question. And I understand, as new CEO, you get this question many times. I have a new management team in place, and we are, of course, working and detailing kind of our path forward. Many of the elements will stay in our strategy. But we have a CMD in September, where we will go through a little bit more in detail how we are thinking.
In all our business, there are growth opportunities and there are strong assets. And we will build, as I said before, also on the places where we have leading positions and strengthen that business. More than that, I cannot go into right now. You'll have to wait till CMD.
All right. Thank you very much.
Thank you. Next question comes from the line of Martin Melby. Please go ahead.
Yes, good afternoon. So wood prices have dropped like 10%, 20% by different regions, countries. What do you see for yourself in Q1?
Sorry, prices Q1, what we see? Wood prices, yes.
Wood prices or wood product?
Yes, because I didn't hear. Wood
costs. Costs. Wood costs.
We expect them to be on the same level. So a little bit lower, perhaps gradually lower depending on how the market continues. However, as I said, if we have harvesting issues that might affect the wood prices if we are not able to deliver to our mill. But that we have not seen yet.
So there's no quarter to quarter positive effect from lower wood prices in Q1?
Depends very much on harvesting conditions going forward. Like I said, we expect some slight decrease assuming so that everything else being equal.
It also depends, of course, with the strike and how long that becomes.
In general, you could say that wood supply situation improves if the strike continues, if you put a positive note on that. Of course, we rather see that strike ends as soon as possible so that we get back to business here in Finland.
Okay. And then on Beihai, what is the status there now? How much is producing liquid packaging, for instance?
Yes. We are fully ramped up in terms production efficiency. I've been there since 2017, 2018. I do not normally comment on the split of liquid business and the rest of the business. Our target is still to have half the machine filled with liquid business and grow premium positions in the rest, for instance, CKB or other foodservice forms in China.
We still continue some of the qualification. It is very normal that you have up to three years of qualification for products. So most of the products with liquid, we have qualified. And many of our customers target growth in China. So we are happy to be localized there.
They Okay. Have this long term investment.
Thank you. Next question comes from the line of Linus Larsson. Please go ahead.
Yes. Thank you very much and good day to everyone. Just a couple of follow ups. Well, actually, one, first on Ennocell, if you could update us on how that is progressing. Are you producing dissolving at all?
And if so, to what extent? And what do you expect for 2020 in terms of product split at NSL, please?
Yes, Seppo here. We are moving with the ramp up as planned. We commented during Q3 call that it's done in batches. So we are running dissolving pulp batches for the customer qualifications qualifications and then continue with standard pulps while waiting and moving with the qualifications. So moving ahead as planned.
Too early to comment the volumes for this year yet, but of course, the plan is to move as soon as possible more and more volume to dissolving pulp that we see as the special theory for Enercell going forward.
And I mean, given where prices are right now, is that like a strategic choice? Or is it so that you might actually choose to predominantly continue to run paper grade given current profitability?
Well, it is a strategic decision that we have done that we are converting Skutzar to Fluff and Ennocell to dissolving pulp. And when it comes to sort of standard pulps, we have very good assets in Latin America producing L Glutzar pulp in Uruguay and Brazil. And those focus on sort of more normal pulps and then these Nordic mills on specialty pulps.
But I guess what you're asking is that the dissolving pulp prices are quite low at the moment. Of course, always a choice that we have with what product mix we run-in the mill, even if we are ramping up the dissolving pulp as for long term.
Right. Right. Okay. So there might be some compromise to be made as you move along? Yes.
Yes. And then just coming back to your guidance for the first quarter, what have you baked in in terms of price changes and maybe particularly on the paper side?
Well, we have taken into account that paper is going to continue to be weaker and that the prices are under pressure for paper and continue to be that. For Wood Products in Europe, also there we have under pressure for classic sawn, while Building Solutions is more stable from a pricing perspective and also a growing part as Seppo was saying. Folding boxboard, under pressure in Europe and also containerboard, it's a little bit uncertain if it will pick up. So this is what we have put from a kind of pricing perspective. For folding boxboard China and for biomaterials Europe, we see more stabilization of prices.
One of your competitors earlier today said mid single digit price declines on graphic paper in the first quarter versus the fourth quarter. Is that something that you're seeing as well?
Well, we don't comment so specifically on our prices on paper. It is a case by case contracts that we do.
Okay. Great. Thank you.
Thank you.
Thank you. Next question comes from the line of Marco Jarvinen. Please go ahead.
Good afternoon. Marco here from Handelsbanken. I had a further question on pricing. You mentioned that you managed to increase prices on liquid. Did I understand correctly that you had the increase from Q4 to Q1 now?
Or how does that work?
Well, actually, the negotiations for liquid are annual, biannual or even triannual contracts, and they start from kind of from 2020 and onwards. So the effect comes this year.
So but we see the effect from Q4 to Q1 and then continuing. Is that my question?
Yes. For liquids business. Yes.
And then But then you
You have to understand that we have it's a mix of products, of course.
Sure.
We have more than box sold
as well.
Sure. Sure. Sure. Sure. But for liquid, you see higher prices?
Yes.
Okay. Good. Good. Then a bit of a clarification on the profit protection. I guess you saw €105,000,000 or €150,000,000 of savings in 2019, and you're going for $275,000,000 So is the $275,000,000 should we consider that 105,000,000 or the 150,000,000 So are you getting further 125,000,000 or
70 Let's point this million way. I hope I don't confuse you too much. The original target is based on all savings, this comparable to maybe another 150,000,000 But like you noticed in the report, we also mentioned continuous savings, 105 And looking at how well the program is running, I would not be surprised even if it's a continuous savings reaching EUR275 million. But the target originally includes also onetime type of savings, so it's this But it's moving well ahead.
So I'm still impressed by the organization, well they have committed to the program and worked hard on filing the savings.
Okay. Very good. Then on the forest value, I suppose you're now showing a value of 6,500,000,000.0 for the Swedish forest. I think at the Investor Day, you talked about EUR 7,900,000,000.0. I was kind of wondering what happened there.
You mean based on the statistics? Yes. Okay. Now I'm not done to comparison. Maybe there has been some change in the market prices.
Yes. But you can check with Ulf, our IR, if needed, later to look at the details. But statistics are, of course, leaving all the time.
Okay. Have you thought about sort of doing a more formalized valuation exercise, what the market value would be sort of for that asset? Or is that something that you consider in the future?
Well, like I said earlier, we think that at the moment, the best method is discounted cash flow being an industrial company. But also, as we have said also earlier, we follow how the market practice develops and then act accordingly. When it comes to sort of wider exercises and discussion on market values, etcetera, we try to provide you with this kind of statistics on the done deals in the regions where we have our forest arrest so that you can do your own math and judgment on the valuation. But we don't want to start to speculate more with the market value as such.
Good. Thank you.
Thank you. Next question comes from the line of Cole Hawthorne. Please go ahead.
Good afternoon. Two questions, please. The first on containerboard. What have you seen out in the market? And have you gone out similar to your peers with potential price increases?
And linked to that, I mean, you've got your Farquhar's mill and you've got your Fluting mill. Are those impacted by the strikes? And how are the inventory levels in those grades? Will that downtime potentially support the industry supply demand balance at the moment?
Maybe I can comment on the market. When it comes to fluting and kraftliner mills in Finland, they are down currently because of the strike.
And any commentary around the pricing on
On the the market, is under pressure, as I said. Containerboard prices are under pressure. And demand is stable. We follow very closely. And when we think it's appropriate, we come out with price increases.
Okay. And then, Szepo, a question for you on the CapEx guidance, which you've lowered €100,000,000 to protect cash flow. How you think about those projects that you've effectively postponed for CapEx?
Well, we have been looking at the priorities that we have for different CapEx projects. Also, have had and we still have some unallocated CapEx that has been in the reserve. So we have been also cutting from that, which means that there's less projects that we will then approve later during the year. So if we have taken from different places, putting projects list in the priority order and cutting from the tail the project so that we have come to this 100,000,000.
Great. Thank you.
Yes. If I may hear, Marco, to your question about the difference of the valuation. So in CMD, we had a total hectares of 1,400,000,000 hectares. And in this calculation, we have the productive land, which is 1,140,000 hectares. So that's the difference.
Thank you. And the last question comes from the line of Lars Kjellberg. Please go ahead.
Thank you. Your guidance have been wide for some time. And clearly, in the fourth quarter, you came down in the lower end of that guidance. There seems to
be a lot
of things happening to you and less things that you control. Can you think about or can you share with us the controllables that you have to improve earnings in 2020 from where we are today? Again, considering, of course, quite a chunk of your prices have continued to go down into Q1. If there are anything that you can do because, again, profit protection program, except we mentioned there's various components to this, but you were at annualized EUR 200,000,000 already in the quarter in Q4 and yet you have quite a weak number to be clear relative to your earlier guidance, if you like, and even the midpoint in Q4. What can you control?
And the other question I was thinking a bit about, you know, as I appreciate you're gonna come back to this Capital Markets Day, but you have an awful lot of small things. You mentioned the three, four various projects that is a business, of course, but they're not really scalable and sizable that really makes a difference. So if you look at your growth component, where are we really gonna get that from? Do we think that these RFID solutions, Sulapac, etcetera, will actually generate anything that is meaningful that's going to make a difference for you?
If I can start with what is controllable. Of course, negotiating prices is one key capability of ours. So it's not only things happening to us, but it is also our ability to generate value for our customers. And that is, of course, something that we continue to develop in our organization. The other part is, of course, operational excellence.
And you have to remember that we have during several years now converted a lot of assets into new product areas. Each such conversion takes a lot of effort and it takes time before you can fully ramp up, fully get the product portfolio there, fully get operational efficiency in place. And I think we are moving into a period now after Oulu conversion, where most of the areas where we can convert have been converted. So this gives us also opportunity to get stability in our operations. And this is something that we definitely will put even more focus on.
If we look then at our innovation portfolio and understand your question that our growth has if you look at kind of the full Stora Enso portfolio, it has not been growing much. Introducing new products and materials to the market takes time to ramp up. PET bottle, when that was introduced first time, it took twenty five years before the product actually kind of hit the market. The difference now is that there are a lot of regulations coming on stream, which clearly support many of these areas for the future, where CO2 footprint is going to become more important, recyclability is becoming more important. But for the whole value chain to change, it takes time.
It's a lot of infrastructure and so on. But we want to be the leaders in the areas we choose to work with. Then coming back to what type of innovation products we should have in our portfolio, we are making the assessment of where to focus, where we can become really big and what positions we will take. So this is an area which I will come back to when I have had a little bit more time to work on it. But it is a good question.
Appreciate that. And in terms of the well done road of taking out of this profit protection program, again, a run rate of €200,000,000 Do you see more controllable cost takeout that you can do? And if so, what would you kind of focus on?
The beauty of this profit protection program is that it consists of many, many smaller actions and that it is very distributed throughout the company. And I think this is a testimony that our people have really kind of committed to delivering and also reducing the risk. If one project is not proceeding ahead of plan, we can find other projects to complement. And this is a way of working. We have a very structured way of working now in place.
And I expect us to continue to constantly look at our cost position and improving year by year. So I think we have found a good model to work on, and I'm confident that we can deliver here.
Yes. I fully agree with Anika. This good momentum, And it's obvious that even when this program ends, continuous improvement should and must continue, will continue. Yes. There's always something you can do.
Sure. Very good. Thank you, and good luck.
Thank you.
Okay. Operator, I believe we are in the end of the call. So thank you everyone for listening in to our full year results conference call and hope to meet you again in April when we are out with our Q1 results.
Thank you, everyone.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.