Ladies and gentlemen, thank you for standing by, and welcome to the Stora Enso 2019 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. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, Thursday the 30th of January, 2020. I would now like to hand the conference over to your speaker today, Head of Investor Relations, Ulla Paajanen. Please go ahead, madam.
Thank you, Sandra. A very welcome, everyone, to Stora Enso's full year and fourth quarter 2019 earnings call. This is a memorable quarter for us because now we will have our new CEO, Annica Bresky, here for the first time presenting to us, and with me is also our CFO, Seppo Parvi. Annica, please go ahead.
Thank you, Ulla, and welcome everyone to my first quarterly call. 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.
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 EUR 721 million. Also, for the year, we had a very high and strong cash flow and o f course, this is a testimony that we are focusing on the right things, such as our working capital management And a lso we had an extra dividend and repayment from Bergvik Skog. We see a significant increase of our forest fair valuation of EUR 777 million, out of which EUR 600 million 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.
I'm also happy to say that we were proactive and profit protection program early. we have a very good momentum, and we have committed to delivering EUR 275 million by end of 2021. The program is proceeding ahead of plan. Already last year, we delivered EUR 150 million and rolling EUR 105 million, for the quarter, EUR 450 million in cost savings. I'll come back a little bit further on on how that is distributed throughout the divisions. Now moving into the key financials. Our sales decreased by 9% to EUR 2.411 billion from EUR 2.657 billion and t he main driver is significantly lower prices, primarily in Biomaterials, in Packaging Solutions containerboard business, in Paper, and in Wood Products Classic Consumer Board sales prices were more stable.
Operating EBIT decreased to EUR 112 million, down from EUR 271 million due to significantly lower prices. We could not, despite our efforts, fully compensating for that effect profit protection program. net debt to operational EBITDA landed at 2.1 times, close to the target of 2.0 times. We will continue working with strengthening our balance sheet. Major effects compared to Q4 2018 is, of course, our acquisition of Bergvik Skog. Our operational return on capital employed was 4.2% for the quarter and 12.4% compared with Q4 2018, this is below our strategic target of 13%.
Moving to how the result builds up in the bridge. You can see here a EUR 209 million effect on sales prices and mix, a negative effect. A small effect on volume as a result of us managing value over volume to protect our margins in some of our businesses. We have improved the cost position or reduced costs for our fiber, and you can also see our EUR 50 million improvement from profit protection. All in all, it was not enough to compensate. If we move over profit protection program, as we have promised, EUR 275 million we will deliver by end of 2021. The distribution between fixed and variable costs is approximately 50/50. 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. 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. I feel very confident that we will reach our target here. Moving over now to our forest fair valuation, this increased by EUR 777 million. Here we can see that we are a big forest land owner. We have totally 1.6 million hectares of forest holdings in Sweden, Finland, and in our plantations. With our DCF methodology that we use today, the value of that is booked for EUR 4.9 billion.
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 EUR 5,700 per hectare, and that would mean that the value of the Swedish forest where we have them in Southern Sweden would be around EUR 6.5 billion. This is a strong foundation for our future and creating shareholder value. The Board is proposing unchanged dividend at EUR 0.5 per share, and totaling EUR 394 million.
Between 2017 and 2018, we increased dividend by 22%, so we stay on the same level here and a s you may recognize, we have a policy of distributing 50% of earnings per share over the cycle. 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 Ännesjö, Skutskär, Gruvön CLT production are ramping up, according to plan.
We have made a $9 million investment enabling production of bio-based plastics in Langerbrugge Mill, and this is to be used for transparent packaging, to be completed by Q2 2021. I'm also happy that we continue our close collaboration within our startup community, and one example of those is the commercialization of a renewable and biodegradable straw together with Sulapac. 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. Last quarter, we closed down a 90,000 ton per annum packaging paper machine at Imatra Mills in Finland, and also closed down Kitee Sawmill in Finland, and had an agreement to divest our saw and construction timber mill at Pfarrkirchen in Germany. This is to be finalized during Q2 2020. Q1 2020, sorry. Last but not least, we have stepped out the Paper business in China by divesting the last 60% of equity stake that we had in that mill, and that was completed during Q4 and n ow, Seppo, please take us to the financials.
Thank you, Annica. 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 Annica already mentioned earlier. Full year sales 2019 at EUR 10,055 ,000,000. That is reduction of 4% year-on-year. Operating EBITDA margin 10.8% and operational EBIT margin 4.6% for the quarter, and earnings per share EUR 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 EUR 721 million, which is significantly up compared to EUR 323 million in Q4 2018, and full year cash flow at almost EUR 2 billion.
Net debt to last 12 months operational EBITDA is at 2.1. It is slightly over the limit of 2.0 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. I move to the divisions, and I start with Consumer Board, where successful value over volume management has continued and also shown positive result development. Sales decreased by 4% and was EUR 614 million due to lower board deliveries in Europe, mainly.
Operational EBIT increased by 111% and was EUR 51 million. Value over volumes approached decreased volumes, but local sales prices were higher, improving the profitability. Also, clearly lower variable cost due to pulp helped. 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 early that we can reach the targeted price increases. Operational return on capital doubled during the year or during the quarter to 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 million. 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 EUR 43 million and was EUR 16 million. Here, it's good to notice that last year, Q4 was record high when it comes to operational EBIT. There, lower raw material prices for corrugated units were offset by lower containerboard prices.
Operational return on capital decreased to 6.8%, and are driven by significantly lower containerboard prices. Oulu Mill conversion into kraftliner production is proceeding as planned and on schedule, and production is expected to start by end of this year. As communicated also earlier, we continue production of Paper on the board machines until end of 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 EUR 341 million. That is a reflection of significantly lower pulp prices, although that we had all-time high deliveries during the quarter. Operational EBIT decreased by EUR 103 million to EUR -12 million 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 Skutskär Mill compared to a year ago, and also important to note is that Montes del Plata M ill was also down for maintenance works during the Q4.
All-time deliveries took place to manage inventory levels and improving cash flow. Operational return on capital decreased to -1.9%, compared to 15% a year ago. Moving to Wood Products, where we continued to focus on margin protection and had record Q4 cash flow. Sales decreased by 6% and was EUR 374 million. That is driven by lower Classic Sawn prices and lower deliveries during the quarter. Operational EBIT decreased by EUR 28 million from last year's record high Q4 level and was EUR 14 million.
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 Kitee Sawmill closure had an impact. We had lower wood costs 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.
We also received Wood Award 2019 in Finland for the tallest wooden high-rise building, Lighthouse Joensuu, that has been made out of our materials. 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 million level. That is driven by significantly lower Paper deliveries and lower prices in most of the Paper grades. Also, Kvarnsveden Paper Mill divestment had a slight negative impact, about EUR 30 million.
Operational EBIT was stable at EUR 44 million and t here, somewhat lower prices in most grades and significantly lower total volumes impacted by curtailments to manage inventories had an effect on the profitability. 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 of investing activities to sales ratio increased to 10.3%, great improvement compared to year ago, 2.5% but t his is thanks to very good working capital management.
Also good to keep in mind, as announced earlier, we are reducing paper capacity by over a million tons. That is 20% of our paper capacity with the Oulu 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 Annica, but maybe to highlight a couple of those. Net interest-bearing EBITDA, like I mentioned 2.1. It is coming down after the acquisition of Bergvik Skog lands and forests in Sweden, and we continue our work improving cash flow to bring down net debt further, and of course, on profitability improvement to get below 2.0 as set as a target.
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, 10.3% for the quarter. With that, I hand over back to you, Annica.
Thank you, Seppo. 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 products is expected to remain mixed. We have exceptionally mild winter conditions in the Nordics and the soils are not frozen. 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- 2021 the profit protection program implementation.
The fixed and variable cost savings target EUR 275 million 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. A comment from my side on that is that, of course, strikes are never good. As a country, Finland and Sweden and the Nordics, we 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 of between EUR 90 million-EUR 200 million of operational EBIT is expected for first quarter this year. During Q1, we will have one annual maintenance shutdown at Ostrołęka 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 EUR 60 million and EUR 10 million lower than it was in Q4 2019 and in Q1 2019, respectively and a s said, the various labor unions in Finland are currently on a three-week strike.
If this continues, the total impact will be around EUR 11 million 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 1st.
This targets to get even closer to our customer base in providing solutions for their journey towards more sustainable packaging materials. We formed a new division called Packaging Materials, where both Consumer Board and containerboard business is reporting to. We have also Packaging Solutions, the new Packaging Solutions, where we have our corrugated packaging together with the recently created formed fiber unit and t his 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. Here we include the Nordic Forest assets and wood supply operations in Nordics, Russia, and Baltics. 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, EUR 721 million, 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 EUR 777 million, profit protection program is progressing ahead of plan. We will deliver on our promise of EUR 275 million, and we had an impact of EUR 150 million 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 EUR 0.5 per share. With that, thank you very much. I hand over to Ulla.
Yes. Thank you, Annica. We will now go for the Q&A session. Please, Ulla.
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. 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 as a through the cycle target? If I look historically, it seems like you already passed that when prices were at record levels. If we look currently at the different products versus history, pulp definitely screens at a 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.
On top of that, you do have, as you said, a deflationary or cost benefit from recycled paper prices being lower. Basically, o n your topic of focusing on what you can control, do you think profit protection program alone is enough to get to that 13% level on a through the cycle basis, o r do you think it looks maybe a bit too ambitious?
Maybe I can start, Annica can then take from there. 13% target rate was set. Of course, it's a long-term target and over the cycle, and it's clear being in a cyclical business that there are years when it's challenging to reach. I think also if you look past five years, we have been proven that it is a reachable challenging target, and 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. For instance, the acquisition of Bergvik Skog forests has changed the balance sheet quite big way, but so far we have not thought to change the target as such.
Yes, I agree with Seppo, 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 Consumer Board business for a second, firstly. I know you've got a described value over volume strategy here, but we've seen throughout calendar 2019 now consistent organic volume declines in this business. Whilst peers are reporting structural tailwinds of plastic to paper, perhaps 2%-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. Of course, our target is to get back to grow with the market. It has been an uncertain market last year, and a demand, especially China, has been more challenging than before. 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, Annica. Just following up, clearly congratulations on becoming CEO.
Thank you.
On the morning that you were announced, I remember dialing into the webcast of your news conference, and you profit protection program and clearly the Oulu conversion as some of your key 2020 priorities. When we think perhaps more longer term over the next, perhaps let's say five years or so, when you look about the Stora Enso group, now clearly you've announced recently a reorganization of the Consumer Board and Packaging Solutions division. The, 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? Are there Other sort of longer-term strategic visions that you could perhaps share with us from your initial few months as CEO now?
Yeah. Thank you. That's a good question. If we look at the Packaging Materials first, and the customer base, there are more and more requirements for recycled packaging for food applications and w e 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 t his 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 w hich are more similar in structure to the assets that we have in Consumer Board, and therefore requires a different type of management and leadership. Packaging Solutions is asset light. We are further down the value chain, and as you have seen, we have put in new formed fiber applications there, which we target to grow. I would not say that it is part of a spin-off strategy, rather a more focused approach on that part of last Packaging Solutions or the previous Packaging Solutions division.
Okay. Thank you very much.
Thank you.
Thank you. Next question comes from the line of Harri Taittonen. Please go ahead.
Yes, hello. Good afternoon. A question on the pulp and the very high deliveries, and sort of wondering, we know that there was heavy restocking, particularly in China. Was that all behind it all? Is it sort of a pulp moving to customer inventories? What is your feeling 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 w e see that also a small decline in inventory levels. Depending how the demand 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, i t's clear that the prices have stabilized, but there's been even some increase, not big one, but some increase in China.
Yeah. At bottom and pulp pricing. Yeah.
Right. Okay. Thanks for that. And then another question maybe on the forest value discussion, which has been, of course, very lively last year. You decided to do, it's a big number, EUR 777 million, but it's still not benchmarking the value to the peers. I was wondering your thinking there, that 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?
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 operation to use. 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-
Yeah.
...when market rates come down. Obviously, we 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.
Sorry, if I may add.
Yeah. 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. Yeah. Fair enough. The final question on the Consumer Board, given that you have achieved your targets in certain price negotiations, but then there are also trade press reporting that some folding boxboard, what would 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.
No but you are right that there are pressures in the folding boxboard in Europe, while in China it seems more stable levels. More than that, I cannot give you details.
Yeah. If I may add, I 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. I know many people who are doubting if we can increase the prices or not. 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 Mikael Doepel . 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. How would you expect this price hikes to impact the volumes for this year 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 boxboard, that business is negotiated on a yearly basis, and we go into a negotiation period coming quarter for that part of the business. 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 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, under pressure, the prices for containerboard have been driven by lower OCC prices and recycled fiber prices however w e see stabilization. We don't expect a major continued decline in that area. 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. Just a final question on the Paper business, particularly in Europe. We've seen below-trend declines in demand in 2019, and that's been driven by different things. Going forward, what's your take on the demand trends for Paper? What's your base case of what the structural demand declines will be going forward? Is this -10% or so the new normal, or should we revert to some sort of 5% or so going forward? What's your take on that?
Well, medium term, we estimate between 4%-5% decline. We are prepared within the division to constantly 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 the units to more profitable business. If there are opportunities to divest, we will do that as well. 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 Grunselius. Please go ahead.
Yes, hi, everyone. It's Johannes here at Kepler Cheuvreux. So I have a question on your guidance for Q1. It's a pretty wide range, obviously, that you mentioned here, Annica, 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 EUR 33 million and t hat, 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. For quarter one, EUR 200 million is achievable if China market picks up and if the labor union strike does not become too long.
Okay. Have you penciled in any impact from the unusually warm and wet weather here in the winter in Scandinavia? You mentioned that will impact the 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 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&L.
It's months.
Could you confirm that?
Yes.
And then I have also have a question on-
Sorry, just to be clear, Johannes.
Yeah.
It's not two weeks. It's more like couple of months or a quarter that the price changes come through.
Okay. Yeah.
We usually say it's between four to five months before we see the P&L respect and t his is because of the long transport that we have and then, 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.
Yeah. Okay. Thank you very much.
Thank you.
Thank you. Next question comes from the line of Robin Santavirta. 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 t hen what are you seeing in terms of the coronavirus we have now? Is your mill operating? Will it continue to operate? Have you so far seen any impact on demand? Thanks.
Yeah. Good questions. Let me start with the coronavirus. We have not had any impact on our mill 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 to 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 quickly compared to what they did many years ago with the SARS virus. If we now go back to demand, of course, if 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 growth of food packaging in general. We see a stronger demand compared to before. We'll have to see how the uncertainty with the coronavirus develops.
Okay, thanks. Then two additional questions, if I may. First, just maybe broader picture question for you, Annica. As I understand when we met in December in Helsinki, the strategy going forward might be to focus on the company's strength, whereas maybe in history, Stora Enso has been known on quite a broad focus on containerboard, Wood Products, Paper, and what have you. Is this something that you want to formalize in some kind of way? Is there a CMD, where you will roll out the new strategy, or is it still just going in the same direction as before?
That's a good question. 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 our path forward. Many of the elements will stay in our strategy but w e 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. 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 Melbye. Please go ahead.
Yes, good afternoon. Wood prices have dropped like 10, 20% by different regions, countries. What do you see for yourself in Q1?
Sorry.
Wood prices Q1, what we see.
Oh, wood prices.
Yes.
Was wood prices or wood product, Martin?
Yeah, because I didn't hear.
Wood costs.
Wood costs.
No. Wood costs.
We expect them to be on the same level. 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. That we have not seen yet.
There's no quarter-to-quarter positive effect from lower wood prices in Q1?
Depends very much on harvesting conditions going forward. Like 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 turn, 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 we get back to business here in Finland.
Okay. Then on the Behai, what is the status there now? How much is producing liquid packaging, for instance?
Yeah, We are fully ramped up in terms of production efficiency, have been that 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 a half the machine filled with liquid business and grow premium positions in the rest, for instance, FBB or Other food service boards in China. We still continue some of the qualification. It is very normal that you have up to three years of qualification for products. Most of the products with liquid we have qualified, and many of our customers target growth in China. We are happy to be localized there.
Okay, thank you.
Behai is a long-term investment.
Thank you. Next question comes from the line of Linus Larsson. Please go ahead.
Yes, thank you very much. Good day to everyone. Just a couple of follow-ups. Well, actually one first on Enocell, if you could update us on how that is progressing. Are you producing dissolving at all? If so, to what extent, and what do you expect for 2020 in terms of product split at Enocell, 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 and then continue with standard pulps while we're waiting and moving with the qualifications. Moving ahead as planned. Too early to comment the volumes for this year yet, of course, the plan is to move as soon as possible, more and more volume to dissolving pulp that we see as the specialty area for Enocell going forward.
Given where prices are right now, is that 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 Skutskär to fluff and Enocell to dissolving pulp. When it comes to standard pulps, we have very good assets in Latin America producing eucalyptus pulp in Uruguay and Brazil and t hose focus on more normal pulps than these Nordic mills on specialty pulps.
I guess what you're asking is that the dissolving pulp prices are quite low at the moment, and of course.
Exactly.
Yeah, it's always a choice that we have, what product mix we run in the mill. Even if we are ramping up the dissolving pulp for long term.
Right. Okay. There might be some compromise to be made as you move along.
Yes.
Yeah. Then just coming back to your guidance for the first quarter, what have you baked 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. 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 contract that we do.
Okay. Great. Thank you.
Thank you.
Thank you. Next question comes from the line of Markku Järvinen. Please go ahead.
Yes, good afternoon. Markku 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? How does that work?
Well, actually, the negotiations for liquid are annual, biannual, or even triannual contracts, and they start from 2020 and onwards. The effect comes this year.
We see the effect from Q4 to Q1 and then continuing. That's my question.
Yes. For liquid business, yes.
And there you-
You have to understand that it's a mix of products, of course.
Sure.
We have folding box for that as well.
Sure. For liquid, you see higher prices.
Yes.
Okay, good. Then bit of a clarification on the profit protection. I guess you saw EUR 105 million or EUR 150 million of savings in 2019, and you're going for EUR 275 million. Is the EUR 275 million should be considered at EUR 105 million or the EUR 150 million? Are you getting further EUR 125 million or EUR 170 million?
This way, I hope I don't confuse you too much. That original target is based on all savings, this comparable to where we are now at EUR 150. Like I mentioned in the report, we also mentioned continuous savings, EUR 105. Looking at how well the program is running, I would not be surprised even with the continuous saving reaching EUR 275. The target originally includes also one time type of savings. It's this EUR 150. It's moving well ahead, so I'm still impressed by the organization, how well they have committed to the program and work hard on finding the savings.
Okay, very good. Then on the forest value, I suppose you're now showing a value of EUR 6.5 billion for the Swedish forest. I think at the Investor Day, you talked about EUR 7.9 billion. I was kind of wondering what happened there.
You mean based on the statistics?
Yes.
Okay. Now I'm not done the comparison. Maybe there has been some change in the market prices. You can check with our IR if needed later to look at the details. Statistics are, of course, living all the time.
Okay. Have you thought about doing a more formalized valuation exercise, what the market value would be for that asset or i s 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. Also as we have said also earlier, we follow how the market practice develops and then act accordingly. When it comes to wider exercises and discussion on market values, etc. , we try to provide you with this kind of statistics on the done deals in the regions where we have our forest interests, so that you can do your own math and judgment on the valuation. We don't want to start to speculate more with the market value as such.
Okay, good. Thank you.
Thank you. Next question comes from the line of Cole Hathorn. Please go ahead.
Good afternoon. Two questions, please. The first on containerboard. What have you seen out in the market, have you gone out similar to your peers with potential price increases? Linked to that, you've got your Varkaus 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 Annica 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 the market.
...on containerboard?
it 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. Seppo, a question for you on the CapEx guidance, which you've lowered EUR 100 million to protect cash flow. How did 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 we have had, and we still have some unallocated CapEx that has been in the research. We have been also cutting from that, which means that there's less projects that we will then approve later during the year. We have taken from different places, putting project list in the priority order and cutting from the tail the projects so that we have come to this EUR 100 million.
Great. Thank you.
Yes. If I may here, Markku, to your question about the difference of the valuation. In CMD, we had a total hectares of 1.4 million hectares, and in this calculation, we have the productive land, which is 1,140,000 hectares so t hat'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. 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 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, profit protection program, as seppo, you mentioned, there's various components to this, but you were at annualized EUR 200 million 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.
Yeah.
What can you control? The other question I was thinking a bit about, I appreciate you're going to come back to this at the Capital Markets Day, but you have an awful lot of small things. You mentioned three, four various projects. That is the business, of course, but they're not really scalable and sizable that really makes a difference. If you look at your growth component, where are we really going to get that from? Do we think that these RFID solutions, Sulapac, etc. , 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 and so i t's not only things happening to us, but it is also our ability to generate value for our customers. 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. 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 I understand your question that our growth has, if you look at 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 25 years before the product actually 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 f or the whole value chain to change, it takes time. It's a lot of infrastructure and so on but w e want to be the leaders in the areas we choose to work with. 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 would come back to when I have had a little bit more time to work on it but i t is a good question.
Appreciate that. In terms of the, you're well down the road of taking out profit protection program, again, a run rate of EUR 200 million. Do you see more controllable cost takeout that you can do? If so, where would you 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. I think this is a testimony that our people have really 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 t his 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. I think we have found a good model to work on, and I'm confident that we can deliver here.
Ulla, I fully agree with Annica. 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 s o 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.