Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Full Year Q4 twenty eighteen Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session.
I must advise you, the conference is being recorded today, Friday, 02/01/2019. I would now like to hand the conference over to your speaker today, Ula Penon. Thank you very much. Please go ahead. Thank you, Rosie.
Good afternoon, everyone, and welcome to Stora Enso's full year and fourth quarter twenty eighteen conference call. We will start with the presentation and then we will have a Q and A session. And please, Karl, go ahead, our CEO, Karl Henrik Sorstrand.
Thank you, Ola, and good morning or good afternoon depending on where you are in the world. So we are here to briefly present the Q4 twenty eighteen. So we have had the eight consecutive quarter of sales growth, excluding the divested Puma market, it's 6.4%. Operational EBIT decreased with some $9,000,000 compared to the year ago period and came in at $271,000,000 on an EBIT margin of 10.2%, which is the sixth consecutive quarter with double digit EBIT margins. Unfortunately, we had operational issues at six of the mills, and I will come back to that.
We had some softness in the market and there was negative impact across basically all divisions of less volume, which had an impact of EBIT of €11,000,000 EPS increased by 75%. Cash flow after investing activities came in a little bit on the low side at €148,000,000 We continue to improve the balance sheet and net debt to EBITDA ended up 1.1 times. Operational return on capital employed came in at 12.4%. If you look what happened in the fourth quarter was that, as I said, we had lower volumes and that was basically happening towards the November, December. There were less possibility to get customers to take volumes.
And that was an impact of around $11,000,000 And that was signaling for me a bit of a slowness in the market. The bigger issue was the $40,000,000 in temporary operational challenges. And that is basically six mills. In biomaterials, we had a problem in skirtware starting up after the first annual shutdown after the conversion to fluff. And we also had some issues in Montes Del Plata.
The biomaterial impact was about €20,000,000 The challenge that we already talked about in Q3 of Nyumollah and the lack of water in the nearby lake continued longer than the expected time, plus that we had an issue with the pulp mill in Vetsiloto totaling a loss of EBIT of EUR 16,000,000. And last but not least, we had both small hiccups in Imatra and Fors totaling 4,000,000. So all of these operation issues are now cleared and we are ramping up production again. But unfortunately, in this kind of process industry this happens. But I'm very, very unhappy with having six mills basically towards the end of the year.
The Board of Stora Enso are proposing to the AGM to increase the dividend from €0.41 a year ago to €0.50 which is the fourth consecutive year where we are having increased dividends. And this time it's by 22% and that I would say is a vote of confidence from the Board to propose to the AGM on the future of Stora Enso. We also passed well above for the first time of 13% on return on capital employed for the total company for a full year. We actually ended up at 15.5%. This is the first time since 2000 where we are at this level.
And I'm very, very happy to say that we now after eighteen years are back to a good level. And now the challenge we have is to continue to make sure that we continue to deliver good return on capital employed. In conjunction with the fourth quarter report, we also issued a press release and it's referred to in the report and that is what we call a profit protection program to strengthen the competitiveness of Storanza that has been launched. And the reason for it is that we have seen cost increases and we see cost increases in the fourth quarter, especially continuing to the first quarter, especially in the areas of wood, chemicals and logistics. And just to take one number here, the wood costs are €50,000,000 higher we expect in Q1 twenty nineteen versus Q1 twenty eighteen.
We are also reducing the CapEx by €50,000,000 from the previously announced guidance of CapEx for the full year of 2019. The reason is also that we are entering into a more unsecured future and we want to be proactive, first of all, to get the competitiveness back and fighting back the costs. And secondly, be prepared if unexpected events are happening, because right now the macro situation is quite unpredictable. This in the first phase includes that we are closing down are planning to close down the PM6 in IMMA, so that's a 90,000 ton paper machine. And we are also doing adjustments at Aula sawmill in Sweden and IMMAware sawmill
This is just the beginning. The total program is €120,000,000 in cost reductions of fixed and variable costs. And we expect that we will get some 40% to 50% of the program during 2019 and the full effect of the €120,000,000 program will become by the 2020. There was a number of important events during Q4 and one of them is obviously the partnering with H and M and IKEA to be a fourth partner in the to industrial treated textile. We also launched the RFID, the only sustainable RFID tag in the market.
We actually completed the environmental impact assessment for Oulu. We divested JUNE and Balaj in Sweden and then there was a number of investments that we have announced during the fourth quarter. Also, we entered a binding agreement about the restructuring of Bergvik Skog. We are expected to finalize this during the 2019 and it's totaling a direct ownership of 1,400,000 hectares of forest land of which 1.15 is productive forest land. This is an increase of the Storenso balance sheet totaling about approximately $1,000,000,000 I also want to say that in the fourth quarter, we had two items affecting comparability.
One was the Latvian land sales, which gave us a gain of EUR 47,000,000 and the other one was the increased fair value of the biological assets in Storrenso EUR 49. Before handing over to Sppo, I would like to say that the transformation journey that started in 2006 from basically a paper company to a company more balanced and more focused towards the four growth divisions is continuing. Paper had a good 2018, but now the portfolio is more balanced and 83% of the profit are coming from the four growth divisions. With that, I would like to hand over to Seto.
Thank you, Pavel. And I start with some of the key figures from the report that we came out with earlier today. First of all, top line sales for the quarter grew 5.8 year on year and full year sales reached almost EUR 10,500,000,000.0. That is an increase of 4.4% compared to 2017. Operational EBITDA margin was 15.3% for the quarter that we are reporting at the moment and operational EBIT was €271,000,000 or 10.2%.
Full year operational EBIT reached €1.325 and that is an increase of 32% compared to 2017. Our net profit for the period, looking at the full year 2018 was €988,000,000 increase of 61% compared to the year before. And earnings per share was €1.28 Operational return on capital employed for the quarter four was 12.4%, slightly below the 13% target level, but the full year figure reached 15.5% and was higher than the targeted 13%. Then moving to the divisions, and I start with Consumer Board, where challenging market conditions continued, but first price increases have been achieved. It was actually a second quarter now that we are pushing through price increases that started in Q3 already.
Sales increased slightly to record high Q4, $637,000,000, and that's thanks to higher local sales prices that had €10,000,000 positive effect, but those were offset by lower volumes. Operational EBIT decreased €45,000,000 and was €24,000,000 significantly higher variable costs, especially for wood, pulp and chemicals, those that we have been talking also about earlier, last year in the reporting, they were partly offset by improved sales prices. Carbon port production was lower and operational challenges at Imatran Falls mills had a slight negative impact on the profitability. Operational return on capital was 5%. Packaging Solutions, their record sales and profitability continues.
Sales were up 5% to all time high €352,000,000 and we had improved prices and active sales mix management in the European based operations increasing the sales. Total containerboard deliveries remained stable. Operational EBIT also increased to a record high Q4 of €59,000,000 Clearly higher sales prices and good mix management in the Eurohub based units was offset by lower sales volumes in China as well as higher raw material costs overall and some spare parts write offs. Operational return on capital was at 25.7% level that is significantly above the long term target of 20%. This is driven by improved profitability in the division.
Then moving to Biomaterials division, where food market continues despite signs of price pressure. Sales were up 14% to another all time high of €415,000,000 Sales prices were higher, but delivery slightly lower. Operational EBIT was also at record high Q4 level of €91,000,000 an increase of €30,000,000 Higher pulp prices were partly offset by higher variable costs, especially for wood and energy. We also had some production progress at Montes De Plata and Skutsal pulp mills during the quarter. Operational return on capital reached the strategic target of 15%.
Also, Lineap by Sturanso was awarded for Innovative Product Award 2018 by Institutional Chemical Engineers. This is another proof point for the R and D and innovation work that we have been investing in over the past years. Then moving to Wood Products, where we had another record quarter. Sales excluding the divested Bulmerk increased 3.5%. That's very much thanks to improved sales prices in classic sawn business.
Operational EBIT was up 66% to record high Q4 of €42,000,000 Clearly, prices and improved mix partly offset by higher fixed costs related to increase in operations. Our return on capital continued to at record high level of 27.1% and that is clearly about the strategic target of 20%. Our investment at Kruger sawmill to new CRT unit is being completed and we expect to start commercial production now during the Q1 that has been starting now. This is according to the plan. Then moving to Paper division, where we had solid quarter, but impacted by operational challenges.
Sales increased 5% to €761,000,000 and clearly higher sales prices in all grades and a better mix was partly offset by lower sales volumes. Operational EBIT was stable at the level of €45,000,000 Significantly higher sales prices and all grades were offset by higher variable costs, especially wood pulp and chemicals. We had production issues, like mentioned earlier, production reductions caused by water shortage at Nyumur mill and some technical problems at the Itchlodar pulp mill, having total €16,000,000 negative impact on the result. We also had to take some market related dirt elements at the Oulu mill due to the softness of the coated woodfree market. And cash flow after investing activities to sales ratio was down to 2.5% and that was negatively impacted by temporary working capital challenges.
Here we should notice that Q3 cash flow was significantly better at 8.3% to net sales. So now it's two quarters where the second half of last year were over 5%, but still below the targeted 7%. But we are confident that this is a temporary reduction in cash flow and Paper division will be back on track in the beginning of the year that has not started. Then moving to strategic targets before handing back to Karl, targets are progressing, but there is still more potential as you can see in the table. Most of the targets are on green, but there are still some on red or yellow.
When it comes to balance sheet, balance sheet has continued to strengthen. We are growing faster than the relevant market. But especially when it comes to fixed cost of sales, there we still have work to do to reach the target to be at 20% or below. For the full year, we were at 23.6% that is trending down clearly from 25.1% in 2017. Return on capital employed, I mentioned earlier, for the quarter was below 13% target level, but full year was clearly above it at 15.5%.
Looking at the divisions and divisional targets, Consumer Board below the 20% level, that is the target for them and that is due to the reasons that we also mentioned earlier. And the reason is that the cost increases that Consumer Board had been facing during 2018 have not been recovered through price increases yet. But the good positive signals are there. We are now again increasing prices in Q4 like we started during Q3, but the work continues there. Packaging Solutions, clearly above the targeted 20% level at 25.7% for the quarter as well as 27.2% for the full year.
Also Biomaterials at targeted level at the pulp. And Wood Products continues the good return on capital, 27.1% for Q4 and 28.1% for the full year. And like mentioned on the previous slide paper, was below the targeted level of 7%. Then handing back to you, Karl.
Thank you, Sefo. So as of now, we have also incorporated an outlook for 2019 that's new and we have changed the guidance also, I will come to that. So we in Stora Enso believe that 2019 is expected to be largely in line with 2018, provided that the current trading condition do not significantly change. Demand growth is expected to continue for Stora Enso's four growth divisions. However, we believe that the demand for European paper will continue to decline.
Group sales are expected to be higher and costs are also forecasted to increase in 2019. So Stora Enso will implement measures to mitigate these costs and that is included in the profit protection program of €120,000,000 but it's also for the increased uncertainties on the macroeconomics. When it comes to the guidance, we have stopped giving sales guidance for the following quarter and we have changed the way how we guide operationally bit. Instead of using adjectives, we will use numerical intervals. And I think that's in the spirit of increased transparency and simplification.
I would like also to remind everybody that the 2018, we did not have any annual maintenance stops. This year, we have changed the schedule and we will have two annual maintenance shutdowns. One at Australika PM5 and the other one Veracel Brazil. And that will give a total negative impact on maintenance estimated to be €20,000,000 compared to Q1 twenty eighteen. With that and then just before opening up for Q and A, so I would like just to give a couple of reflections of Q4 and the full year of 2018.
We have had eight consecutive quarters of sales growth. We have had six consecutive quarters of double digit operational EBIT margin. Annually, EBIT grew 32% in 2018 and we came out on a return on capital employed for the full year of 15.5%, which is well above the strategic target of 13%. We have continued to strengthen the balance sheet and the proposed dividend is an increase by 22%. And we are immediately implementing the profit protection program to be better prepared for the increased cost, keeping an open eye and for potential market weakness.
We believe it's better to act as fast as possible. With that, I hand over to you Ula for the Q and A session.
Okay. Thank you, Carla. Yes, Rosie, please we are ready for Q and A session. Thank And your first question comes from the line of Mikael Jafson of Kepler Cheuvreux. Please ask your question.
Yes. Hello. Good afternoon, everybody. So two questions for me. On you mentioned there that wood costs would be SEK 50,000,000 higher in Q1 twenty nineteen.
And then you have a chart also in your presentation pack about the wood costs in Finland. Two questions within that. Is the same wood cost picture valid for Sweden? And this wood cost increase, is that something that is temporary due to weather last year? Or is it something that we should expect going forward as well?
And then secondly, on your potential Oulu investment to convert the papermaking into packaging materials, when should we expect some news on that potential decision? Thank you.
So first of all, with the wood cost, if you remember, we did have a challenging first half year when it came to wood supply in general. So the wood cost went up quite steadily and we were actually giving including in our guidance the effect during last year. And then they have gone up a lot less lately compared to the previous. So the peak of the increased wood costs, which is now I'm talking the whole of Storanso is in the Q1. And it's including Sweden as well.
Okay. Thank you.
And when it comes to Ulo, so the environmental impact assessment is ready. The feasibility study is not ready, and it will be in the 2019.
Thanks.
Thank you.
Thank you. And your next question comes from the line of Mikael Doepel of UBS. Please ask your question.
Thank you. Good afternoon. A couple of questions. Firstly, I was wondering if you could give some comments on what's happening in China, partly related to Beihai. Any progress there in terms of mix?
And also what's the demand situation for that business right now in China? And then secondly, on the pulp market, what you are seeing right now in China, what's going on there in your view? And what's your expectations there going forward?
So in China right now, it's quite unstable. So we are ramping up still. And we said in Q3 that we were basically halfway and that's still ramping up. In China, it is a bit wait and see situation regarding board. It seems to be more virgin board.
But at the same time, given that a lot of these boards are used for packaging of electronics equipment that is being shipped elsewhere in the world and mainly to The U. S. And other goods to The U. S, it's a bit of an uncertain situation that I think we clarified hopefully before the March 2 when hopefully, China and U. S.
Come to a good trade agreement. But it's like a little bit like a wet blanket over it. And it's a little bit uncertain situation right now, but we are ramping up. And we are a very small player in China. When it comes to the pulp prices, so when I look upon the pulp prices, I think it's too early to say really what's going to happen.
But the expectation when I speak to our marketing people and read a lot on report, it seems like we need now to pass the Chinese New Year. And then hopefully, we believe they will go up after that because it's not coming a lot of new capacity and the demand is actually increasing. However, now we will have a week or so of Chinese New Year's. And if you look on the and you know this better than me that you've seen the prices on FOEX for China, they went down further the first two weeks. And then the last two weeks of January, they started to climb up again.
So that's what we know. But I think also when you read about the inventories, yes, the inventories or imports are high. However, we believe the inventories at customers are very, very low because it was a lot less buying towards December. So I don't think the chain is overfulled. Did that answer your question?
Yes, yes. Sure did. Thank you. Can I just have one final one then on if we over to paper and packaging prices and perhaps then mainly in Europe? I wonder if you could just give some comments on what you achieved in terms of price gains in paper and a certain packaging grades than in Europe from the beginning of the year?
And maybe also give some comments on the grades where we have seen some price declines.
So we have seen and you've seen it as well that testliner is holding up quite well. It's been marginal decline in prices on kraftliner. FBB demand is actually quite good and prices are climbing up in Europe. But you have to remember that for us, some 80% of the contracts are a year or longer. So we are moving and we have not moved and done a lot of renegotiation yet on some of the liquid customers.
That's coming later. We will compensate for this because we cannot alone bear all of this and that we also have to take down costs, especially on variable. We have to be a little bit tougher on certain areas, but that's why we launched the program.
Okay. Many thanks.
Thank you. Your next question comes from the line of Linus Larsson of SEB. Please ask your question.
Thank you very much and good day to everyone. On maintenance, if you were to put the number on your guidance for the first quarter on a sequential basis, what's the maintenance tailwind, I would guess, in the first versus the fourth quarter? So
the fall maintenance in Q4 twenty eighteen was EUR 13,000,000 less than in Q4 twenty seventeen. And Q1 maintenance impact is estimated to decrease by €4,000,000 due to lower maintenance costs and less lost volumes in Q1 twenty nineteen quarter over quarter.
Great. And in that SEK 54,000,000 sequential improvement, how much of the SEK 40,000,000 is actually included there. You mentioned the six mills where you had production issues in the fourth quarter, which burdened the quarter by SEK 40,000,000 and Nothing. Nothing. Nothing.
Okay. So on You
that mentioned the maintenance. And like in Skutka, when we have start up problems, from the day when the maintenance should be over and then the ramp up is something, that's not maintenance. That is operational issues.
And Zeppej, just to be clear, this SEK40 million was all in Q4. There's no carryover to first quarter,
So but all those are some
for example, Nymolla started a week after Christmas to ramp up.
Right, right. Thank you. So I mean, all else being equal, I mean, if we were to add back the full SEK 40,000,000 impact that we saw in the fourth quarter, that's a SEK 40,000,000 improvement in Q1 and then another SEK 54,000,000 improvement, that's SEK 94,000,000. You have some price improvement coming through. Which are the big negatives here?
No. But we also have a lot of higher costs, wood cost, chemicals, pulp.
Right. Yes. You said previously that you see wood costs peaking in the first quarter. How much sequential wood costs increase do you expect sequentially in Q1 and Q4?
I don't have that in my head.
But is it cost because also volumes should be I mean, from a seasonal point of view, should be a positive Q1 on Q4. So is it actually cost that is the big driver offsetting the tailwinds that we just mentioned?
So I would say, to be very clear, Linus, on that one is that we had lower significantly lower wood cost in the 2018. The prices started to go up during Q2 and Q3 and a little bit in Q4, but not so much. But that's why I wanted to point out that the wood cost, if you compare the very, very strong 2018, we have a different cost situation, especially on wood. And that's the 50,000,000 I gave you. And that's why we need to reduce costs.
And also you have to remember that due to Q4, there was some downside on the pulp prices, but some of the volume was with the higher old prices. And now of course, even though they have stabilized, of course, there is some trade in Q1 with lower prices that are from the previous quarter, which is playing a role as well in the math. Sure.
Thank you very much. And then something completely different, you're expecting to include the Bergvik forest land operations into your operations and accounting during the year, how much of operational EBIT contribution would you expect on an annual basis from the Bergvik assets?
Let us come to that when where we get there. But I would say it's probably in the area of somewhere 20 to 30.
And now you're comparing with because you had some kind of contribution before, but this is the additional contribution after completing these transactions?
That's what I believe. But let us take that when we get there, because we also have to decide with transfer pricing and blah, blah, blah, right?
Sure, sure. But that's very helpful. 20,000,000 to 30,000,000 on an annual basis?
Would Thank you very much. To mention €25,000,000 20,000,000 to €25,000,000 JEAN Okay.
That's very precise. Excellent. Thank you.
Otherwise, you would take the midpoint and I wanted to be a little bit conservative. Right.
Thank you very much.
But I'm very, very happy to get Bergvik basically back into Storrenso. It's a huge possibility for us to make sure that we actually control our raw material.
Great. Many thanks.
Thank you.
Thank you. Your next question comes from the line of Justin Jordan of Exane. Please ask your question.
Thank you and good afternoon everyone. I've got three very separate questions. Firstly, can we just talk about inventories at the year end, I guess one for Seppo here. You had EUR 1,500,000,000.0 sorry, 1,570,000,000.00 of inventories, which looking through history is, I think, a nine or ten year high as a percentage of sales. Were there any particular divisions where inventories in Q4
I'm wondering whether in Packaging Solutions or Biomaterials, for example, deliveries were low versus inventories sorry, versus production. So were there particular divisions that were impacted by high inventory levels at year end and that's symptomatic of weak end market conditions? Or is there anything longer term we should think about here? Or should we be expecting, for example, this to normalize as we go through 2019?
I think first of all, we have to remember that end of last year, wood inventory was extremely low. You remember the harvesting charges started towards end of the year when weather was so wet, both in Finland and Scandinavia. That is one driver why you see increase now for instance compared to the year. And then towards the end of the year, we also mentioned that the voices were therefore taking some downtime in Paper division in whole due to market related reasons. And also, yes, the pulp market has been a bit more difficult than earlier during the year.
I think those were the three main reasons compared to past if you look at the trends as such. I don't think that we are deliberately increasing stocks as such now or going forward. So that's not the reason. So I would not expect that to be the case. It's more depending a bit on the trading conditions and business situation that might differ a bit from end of the quarter to another.
Sure. Okay. Thank you. Just moving to Consumer Board, you talked about having achieved some price increases from third quarter twenty eighteen onwards. One of your peers talked about price increases for a large global Liquor Packaging Board customer from January 28 sorry, January 2019 onwards.
But can you just give us some help as to when you might be able to achieve price increases in liquid packaging board?
So you will see during the year some smaller increases on liquid and then probably towards the 2019, early twenty twenty, because our big customer there is on a different calendar scheduling than the other competitor.
Okay. Thank you. Look forward to it. And just finally, sorry, I just wanted to just reclarify something you said regarding Packaging Solutions. You talked about testliner prices, and clearly, we're talking about here is as well as production from AustroLenka.
We can see clearly benchmark European testliner prices have fallen, I think, it's €35 €40 a tonne in Germany. So what sort of impact store ends have seen in the last, let's say, quarter in terms of falling prices?
So they went down a bit in Q4, but they are holding up okay in so far in Q1. And you have to remember that recycled paper has not increased as much as
virgin fiber.
True. Okay. Thank you for that.
Thank you. And your next question comes from the line of Lars Kjellberg of Credit Suisse. Please ask your question.
Thank you. I just want to start with the profit protection program. You called out a couple of discrete, mean, sawmill and then the smaller machine at Imatra. Can you walk us through what else you're doing and what you expect in terms of cash and or other charges related to taking out those SEK 120,000,000?
So Lars, we have the program. And as we said in the press release, we drafted it already. We will not give any more information until we have actually announced what we're going to do internally because otherwise we might break laws. And also it's not fair with our employees, but we will come with it. What I said is we expect to have 40% to 50% of the savings in 2019 and the remaining part of the full program in 2020.
And I can assure you, we have delivered every single saving programs for many, many years. We know how to do this.
So and with reference to cost to achieve this, can you comment at all on that?
So it's going to be on fixed and variable costs.
Right now, what I'm saying is the cost for you to implement the 100
We €20,000,000 come back to that because it will be cost. And that's why we said in the press release that we will collect it under these items affecting comparability. So that's where we will put it.
Referenced in your prepared remarks challenging market conditions in Consumer Board. I just wanted to understand exactly what that means. Is that in reference to the price cost relationship? Or is there anything else that you would call out being challenging?
No, it's more the fact that we have been, as you know, not you're going to say behind in price increases because it's based on the contractual structure. So that means that it has been challenging and continues to be challenging at least for some time. And then also we have been facing some volume decline, but a slight volume drop, but nothing not so serious, but of course that is having an effect business as well.
The biggest has been that we have had increased chemicals, pulps for the non integrated, increased wood cost, increased logistics and we have not been able due to the contractual situation to increase prices. Are not alone in this.
I think you can see the same from our competitors that have reported already.
For sure. And then finally on the six mills that were operational issues, Can you give us any color on what actually happened, what went wrong? And how do we go about ensuring this So is not going to happen
I cannot it's a very unusual situation that you have too little water in a lake in Sweden in that part of Sweden. That's very unusual. And that lasted longer than we expected. We thought four weeks and then it was basically almost double. So that is unusual.
Then we had Skewed Square, which we actually had the first annual shutdown after the conversion. And that means that people were not that trained because now it's 100% fluff and certain things went wrong. Then we had some issues in Montes De Plata when it come to some equipment that we needed to change and that was more complicated than we thought. And maybe we are a bit surprised that a mill that was inaugurated in September 2014 had to change some equipment and doing that and that took longer time than we thought. That was a surprise and that was not good, even though they now they're up in production and producing a lot better than before.
But I would say that the possibility of having six mills in basically a month and a half, it's very unlikely and it's not been before. But the magnitude of the problem is in similar to some of our competitors had in third quarter. So it happens in the process industry. But I would say that if you take away basically more than half of it, these things can happen because we are in a process industry.
For sure. Just one final question, Seppuk. Have you maybe you have already in the report and I didn't pick it up. Have you showed the impact from IFRS 16 on your what you expect to be on EBITDA, depreciation, finance cost and your debt from that change should
expect that the effect on EBITDA will be some EUR60 million EUR70 to million. So of course, we come with more precise figures as the year goes and moves forward when we start to report accordingly. So positive? Positive, yes, sorry. And then on EBIT level, it's also somewhat positive, not big amounts, of course, because some of the things reported earlier about EBIT are moved to financial net, as you know.
Net income wise, it's basically no big change there at all. It's very, very small.
And for the balance sheet?
For the
sheet, we are talking about roughly €05,000,000,000 additional liabilities.
Got it. Thank you.
And a big part of it is the leach forests.
Especially in China. In China. Related to Beihai operation.
Okay. Thank you.
Thank you. And your next question comes from the line of Robin Santavirte from Carnegie. Please ask your question.
Thank you. So in Consumer Boards, you mentioned you had price increases some price increases in Q3 and also something in Q4. In what grades was that then and where was it? Was it in China?
No, it was mostly in Europe. Chinese market is a bit unpredictable right now. And in China, we are more going to we are qualifying new boards and so it's new products coming in. So it's not really about raising prices.
Okay. So in Europe. Now we've seen pressure actually on spot cotton ball prices in China, the heavy ones at the end of last year. And looking at the earnings you're generating in Consumer Board, probably the most important division you have, it's one of the lowest Q4s you have reported in several years. I think it would be fair to open up a little bit is going on with Beihai in this kind of situation.
How much of the volumes are directed to premium grades and clients that you sort of long focus on how much is sold on the spot market in China? And any sort of timetable, any sort of guidance on when we might see sort of the mix improving in Beihai?
The mix improvement you will see this year. However, we don't want to disclose individual mills more when you have troubles there and that's what we've done. But I hear what you say.
So I just want to add what actually Annika also told in the Capital Markets Day in November that we are sort of halfway through when it comes to working on the mix, yes.
All right, all right. Thanks. Regarding the guidance, it's a quite broad range now for Q1 given that we're already almost half into the quarter.
Could you just mention these sort of
key elements that of uncertainty related to is it related to the Chinese pulp market or the Chinese board market? Or are there any other elements? What's the key elements of So
the key element for the wide range is that it's partly around Brexit and the fall on effects Europe, because Brexit we don't know. And for us, it's less than 5% of our sales, but it's an important part and we don't know what will happen. That's one. Don't really know how the demand will affect the trade in general if U. S.
And China don't come to an agreement. Thirdly, absolutely is around the pulp prices, because it's a very interesting situation. Pulp prices has fallen quite a lot in China, not so much in the rest of the world, but there is increased demand overall statistics and it's very little new capacity coming, which makes it a very, very interesting situation and the worry is people just stop buying. So these are the swing factors that we have used when we brought the range. I don't think in my entire working life, I've been in a more uncertain situation reality what is really happening.
Yes, I agree. And what I want to add and highlight is that it's clear and I think you see it in other business also that as the discussions between U. S. And China, for instance, are going on when it comes to different trade war related issues, people are getting cautious. And even though it is not maybe directly affecting us, but then we are part of the supply chain in many cases.
And that's one of the uncertainties when it comes to us, needs for industrial packaging and that kind of things as an example and can have an effect on pulp demand temporarily if there are hiccups in the economy and flows.
And that's also why we are launching this not only to reduce costs, but to be prepared for an uncertain future if it affects trading, the profit Sure.
$350,000,000 plus the €20,000,000 on extra maintenance Q1 is just a very high number for me in Q1. So it's not only risk you're seeing, I guess, you're seeing also potential there? Then two questions related to volumes. What are you doing in pulp? Are you producing less this Q1 compared to last year due to the situation we have including the JVs in South America?
So we're giving guidance for the totality and by having that range, you see that the risk is a bit higher, but we don't give guidance on individual areas.
Okay. Well, I was just trying to ask whether you sort of produce restricted production, but perhaps you don't want to guide on that side either. Okay. And then just on the you mentioned somewhat more cautious clients, customers in November and December. What is that sort of outlook at the moment?
Is that was the temporary? Has it continued, getting worse, getting better?
I think we will see a lot more after Chinese New Year. So right now, and it's not that the quarter had passed. One third of the quarter passed yesterday, the two thirds left.
You're absolutely right. Thank you very much guys. Thank Thank
you. And your next question comes from the line of Harry Tatenmann of Nordea. Please ask your question.
Yes, good afternoon. One area which we haven't talked about is the wood products. And we have heard elsewhere that there's been some pressure on the at least the sort of the basic sort of standard grade sawn wood. But what are you seeing there? And obviously, you have more higher value add products there to mitigate that.
But what sort of outlook do you see there in light of the comments on lower pricing or standard So
one clue is actually when we you saw in the release that we are actually reducing in all that, That was on components. Components is basically the wood that goes into windows. And there is no surprise that the building starts in the Nordic are coming down a bit. However, we believe also that the substitution effect of replacing concrete with more wooden mechanical solutions are increasing and we see that. So I think it's a bit of a mixed picture.
So you have one substitution effect of what you call the higher value, but you also have a bit of lower building starts in many, many markets.
Yes. Does it you have a number of capacity additions, small ones there, mean, and also at the Internet, wood products side. Are you being sort of able to ramp those up still?
Believe so. And also we are driving hard on automatization because at the end of the day, the only thing you can control is costs.
Sure, sure. Maybe I don't
know if you want
to comment on this, It's partly what Robin was asking about. But if I recall right, the pulp side, the share of China has been around 20%. And now that the price differential is so wide between the Chinese prices and European prices, is there sort of a how do you kind of is there a change in the geographical pattern that you are looking to sort of divert volumes elsewhere or sort of stop selling in China? We
have down marginally in China, about one percentage point. And then you have to understand that the rebate structure between prices in Europe and China are slightly different. I'd add
also that in this situation, we are also looking more a bit how much more we could use internally because in some case for logistics reasons or for other reasons, have been buying pulp externally and also selling at the same time. But in this kind of market situation, we look at the opportunities to be more clever in that sense, yes.
Okay. Thank you very much.
Thank you, Andy.
Thank you. Your next question comes from the line of Gustaf Schwerin of Pareto Securities. Please ask your question.
Good afternoon. I have two questions left. First on Consumer Board. Just when you're saying that you had first price increases coming through, how much of that did we see in Q4?
So what maybe you can we had some price increases coming through in Q3. You saw some price increases coming through in Q4.
Yes. And actually, one of my slides I mentioned EUR 10,000,000 in Q4 coming from higher local prices in Consumer Board. Yes.
What I meant is, I mean, is there well, you give any sort of guidance on the further effect in Q1 from the implementations you've already
made? No, no, that's something we cannot comment. What we have said is that we continue hard to increase prices whenever the contract is coming to an end. And those we will then communicate as we move forward what we have achieved. We strongly believe we still remain confident that we can manage going forward.
Okay. Fair enough. Secondly, just looking at your maintenance schedules for this year. If we include Q2 as well, it looks like you're pushing most of it towards H2 versus previous year. I mean, is there anything sort of market related in terms of the risk for a weaker market towards the end of the year?
Maintenance schedule, it's very much driven by technical needs and maintenance schedules we have. Typically, what the only thing that is having an effect and a bit different between thirty years typically related is some mills are in twelve months, cycle, others in eighteen months, cycle and sometimes a bit depending on investment, stops might be tweak it a bit. But it's very much technical and engineering needs driven than anything else. Then comes taking market curtailments, that's totally different thing.
Okay. Thank you.
Thank you. Your next question comes from the line of Alexander Berglund of Bank of America. Please ask your question.
Thank you very much. I have two questions. First on the outlook statement when you're saying that you expect it to be largely in line for 2019. Just wanted to clarify, is that on an EBIT level? And does it include the positive benefits from both the IAC and then the small benefit also from the Bergvik scope transaction?
That was my first question.
So when we talk about largely, it's included in it is everything that we know today. The impact of the savings program is not fully in there because that comes as another sentence.
Okay. But it does but it's you get the benefit, the small benefit from Bergvik Skog and also the EBIT benefit from the new leasing accounting?
Yes. All that is, of course, included. I just want to remind that when it comes to Paretoics Kug, of course, effect this year will be limited as the deal is not even close yet. They are signing the binding agreement.
Okay. Thank you. That's very clear. And then I guess my second question is on the cost saving and we're saying that 40% to 50% you'll have in 2019, is that a run rate level? So that's kind of run rate at the 2019 or is that the actual benefit you're getting in 2019?
It is the actual benefit that we are getting already in 2019.
Okay. Thank you. That's very clear. That's all my two questions. Thanks.
Thank you. Your last question comes from the line of Cole Horton of Jefferies. Please ask your question.
Good afternoon. Could you give us a bit of an update on the coated fine paper markets and what you're seeing there and also the potential impact from Olu in 2019?
So wood free coated is actually a bit of a challenge. That's why we took market curtailments. And if we would go ahead with Oulu conversion, which we have not decided yet, I think an annual impact is that sales of paper will be reduced by 5%, about from the 29% to the 22% or something like that. Did that answer your question?
Yes. Thank you. But on your potential curtailment at the moment, is there any EBIT impact that you're guiding for in
No, Q1 or
curtailment was included in Q4. We have not talked about or announced additional curtailments. And if I remember right, if we go ahead, we are running it all into 2020, the paper machines.
Perfect. Very clear. Thank you.
Thank you. I would now like to hand the conference back over to Eula. Please go ahead. Yes. Thank you, Rosie.
So thanks everyone for your attention this afternoon and following us. And I will now hand it over to Kare for final words to this call.
So thank you very much for this. We came out towards the end of the year with some challenges that we have now fixed when it comes to operational issues. And we are seeing cost increases that we are now combating, but we also have a macro or a world situation that is more unstable. And that's the reason why we wanted to be proactive and start the cost reduction program in order to protect our profitability and ensure our competitiveness going forward. With that, I would like to thank you.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect. Would the speakers please standby?