Good day, welcome to the fourth quarter 2015 Stora Enso earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Paajanen, Head of Investor Relations. Please go ahead.
Hello. Good afternoon, everybody. We have a sunny day here in Helsinki. I hope you have too, wherever you are. We will start now presenting our Q4 2015 and full year 2015 result. Please go ahead, Karl.
Thank you. Very welcome, good morning or good afternoon or wherever you are in the world. I would like to start with a statement that we continued to deliver a very solid result in the fourth quarter of 2015. We have a dividend proposal that we're taking to the AGM, which is an increase of 10% to EUR 0.33. Sales in the quarter declined nominally, that is due to the structured declining paper. If you deduct both the paper as well as divested businesses, you have seen an increase. Operational EBIT has improved. Cash flow has continued to be strong. EUR 412 operating cash flow and EUR 75 million on net cash flow in a quarter we're taking investments in CapEx. Net debt to EBITDA has improved from 2.6 times a year ago to 2.4 times.
The annual EPS increases from EUR 0.13 a year ago to EUR 1.02 by the end of Q4. If you look upon the sales, you can actually see that we declined, in total terms, 2.5% for the quarter as well as 1.7% for the full year. If you deduct the structural declining paper, Correnso Barcelona, we actually, for the fourth quarter in a row, increased sales by 5.4%. If you do the same for the full year, you can see it's almost 5% increase. That is obviously driven by the strong performance of Biomaterials with the ramp-up of Montes del Plata, but also in most other divisions, we have had some growth. But the big-ticket item is the Biomaterials division.
If you look upon the operating margin, it has increased by 15.8% between the fourth quarter of 2014 and the fourth quarter of 2015. I think it's important to recognize here that in these numbers, which has actually increased at 1.5 percentage points, there are also included a maintenance increase in the fourth quarter of EUR 16 million, higher in the fourth quarter of 2015 versus the fourth quarter of 2014. We have the Correnso, which is included in the number by EUR 4 million, and we have the startup of Varkaus, which is an additional EUR 9 million. That is another 1.1 percentage points in increase in operating margin that is in the underlying business. The increased profitability and the strong focus on working capital has actually taken the return on the operating capital to a different level.
As you can see in the graph here, we have continuously improved this, both including the strategic investment and excluding. For the second time in about a year, we have actually passed the magical 13%, and that is for the fourth quarter of 2015, when you exclude the Beihai investment. We're at the strategic targets. We have completed a number of transformation steps. As I mentioned early on, one of the reasons why we have growth this year and improved profitability is actually the very successful start-up and ramp-up of the Montes del Plata pulp mill. We have also, in the Biomaterials, during 2015, in the early part, started up the lignin production at the Sunila mill. We made an acquisition in the early part of 2014, which is Virdia.
We have started up a sawmill in Murów in Poland to benefit from the competitive situation in Poland. We have debottled Imatra to get even more out of the mill in Imatra producing consumer boards. We have finally, in the fourth quarter, concluded a conversion of the 280,000-ton paper machine to 390,000 kraftliner machine. These are the reasons why we will continue to grow. During 2015, we have also continued to streamline and focus in on the core of the business, which has meant that we have made a number of divestments on non-core assets. The Uetersen, the Barcelona, Komárom, and the recently announced sale of Arapoti mill that will be concluded in Q1 2016. We closed down the corrugated unit in Chennai in India. We closed down a production unit within Wood Products, Pälkäne, in the second quarter of 2015.
What is left on the plate to be continued in this phase of investment that we've been doing for the last five years? We need to conclude the consumer board mill in Beihai, and the investment value, as you know, is EUR 800 million. That will be up and running during 2016. This is a bit earlier than we thought before when we talked about by the end of the second quarter. That is because right now we are proceeding ahead of plan. We will also, during Q2 2016, start up the second part of the investment in Varkaus, which is the wooden building elements, which is a EUR 43 million investment. Then we continue with the demonstration plant and the market development plant based on the Virdia acquisition, and that should be ready by early 2017. We have taken a number of important steps in innovations.
We have a cooperation agreement with NXP on intelligent packaging, and we are working on a number of customer projects. We launched MFC product in Q2 2015, and deliveries have started in source reduction and new capabilities of consumer boards. We innovated an innovation center for packaging in Helsinki in November, and we inaugurated an innovation center for biomaterials in Stockholm in the middle of December. The transformation journey continues. We are now at the end of 2015 in the fourth quarter. We are having two-thirds of the sales coming from the growth areas and one-third of the sales coming from Paper. We have moved from a 38% of the profit coming from the growth areas to 83% in the fourth quarter of 2014. We had a seasonally strong performance, as usually, in the Paper business, which now represents 17% of the EBIT.
With that, I would like to hand over to Seppo to give some insight on the numbers.
Thank you, Karl. I start with some of the key figures in addition to what Karl already mentioned. First I want to highlight that we had record high annual operational EBITDA margin, 13.5%. That is a bit over 1 percentage point improvement compared to 2014. For the last quarter, it was 13.7%. Operational EBIT EUR 242 million. That is 16% increase in Q4 compared to a year ago and 13% improvement for the full-year result at EUR 915 million. Operational return on capital employed, excluding Beihai project, was 13.3%, and that is also clear improvement compared to a year ago when the figure was 12.2% on comparable basis. Our strong cash flow has continued. Full-year cash flow from operations was EUR 1.6 billion. That is an increase of almost 37% compared to 2014. Moving forward and looking at the currency gains and drivers for the result.
I want to highlight here, like we have done in the previous quarters, that the currency gains that we have had during the quarter and the year, full year 2015 versus the year before, they are to large extent offset by local price declines. If you look at the full-year figure, FX on sales was EUR 230 million positive, and that is more or less offset by local sales price changes, about EUR 213 million. The similar logic in the Q4 figures where the effects on sales was plus EUR 40 million, and local sales prices and mix was EUR 37 million. Like I said earlier, this is quite natural when we are a Europe-based company having manufacturing base in Euro countries mostly, but selling quite a lot of volume outside Europe and Europe region. Some comments on the divisions, starting with Consumer Board.
Their sales increased 1.1% during the Q4. If we exclude divestment of Barcelona Mill that we did last year, sales actually increased 6.5%. Positive trend continues there as well. Operational EBIT was up 20.5%, driven by higher deliveries and foreign exchange. Operational return on capital, excluding Beihai Mill project, was 24%, clearly above our strategic target of 20%. Like Karl already mentioned, Beihai Mill will be operational already during Q2, which is a bit earlier than we have earlier communicated. Earlier we said mid-2016. We are moving ahead there very well. Worth to notice that costs per quarter now going forward during the first half of 2016 shall be EUR 10 million-EUR 15 million. You might remember we called that last year, 2015, costs were about EUR 10 million a quarter.
Packaging Solutions, their sales were down about 8.7%, but that is driven by currency divestment done a year ago. If we exclude that, sales were actually up 5%. Operational EBIT, excluding the gain divested Correnso, was down EUR 4 million. Here we have to remember Varkaus Kraftliner startup during the Q4 had an impact of EUR 9 million into operational EBIT of Packaging Solutions. Taking that into account, actually, the underlying performance was improving. A couple of comments on the Varkaus project, Kraftliner production ramp-up. We are proud to say and comment that quality is good. We are moving ahead with customer qualifications according to our plan, and we expect to reach full production early 2017, so roughly a year from now.
Biomaterials continue strong performance also during the last quarter of last year. Sales increased by 19.1%, driven very much by Montes del Plata ramp-up and positive foreign exchange impact. Operational EBIT more than doubled and improved by EUR 47 million to EUR 81 million in Q4. That is thanks to mentioned Montes del Plata volumes ramping up, good sales price level because the PAL has an FX impact and lower wood cost at the Nordic mills. Looking at our Wood Products division, their sales declined 4.8%, but that was very much due to changes in the business portfolio and product mix. We have been lowering share of the traditional strong goods and increasing sales and focusing more on higher-margin products.
Operational EBIT more than doubled, up 110%. That is thanks to changes in the business portfolio, lower wood costs, and some positive effects from the FX as well. I want to highlight a couple recent announcements when it comes to investments in Wood Products division. There is investment in Ala sawmill in Sweden, about EUR 16 million, where we are investing in the pellet production and boiler renewal. Another important project in Honkalahti sawmill in Finland, EUR 10 million investment for boiler renewal. Last but not the least, our Paper division, where sales went down 9.6%, driven by disposals we had done with [audio distortion] mill, conversion of Varkaus into Kraftliner that I previously already commented, and lower sales prices in local currencies. Important to notice that actually volumes remained flat, excluding those mentioned divestments, closures, and conversions. Operational EBITA decreased to EUR 74 million.
As you know, we see Paper business as important cash flow generator. It remains so. Cash flow was a bit weaker than normally during the last quarter, but it is worth to notice that there was a cash payment of about EUR 25 million related to renegotiate long-term supply agreement and restructuring payments, and also CapEx was seasonally high in Q4. If you look at the full year, cash flow about EUR 200 million for the Paper business, Paper division. If you add back this mentioned EUR 25 million, we are actually pretty much at the same level as in 2014. Maybe a couple of comments on net financial costs that have improved significantly compared to year before. Look at the Q4. First of all, we have reduced our excess liquidity. Clearly, we had about EUR 1.6 billion liquidity a year ago.
Now it has been brought down as planned, about EUR 800 million. As you all know, there is a cost to keep liquidity nowadays. We have also restructured our loan debt portfolio, working on maturity structure and also lowering the average interest rate that we pay for the debt. On top of that, also foreign exchange gains and losses in net financial cost were down EUR 25 million. Also in other items, there is a positive development, mainly because in 2014, we had repurchase of some bonds that were then causing some capital losses. In total, net financing items went down EUR 65 million in Q4 year-on-year. Earnings per share, that improved significantly, like Karl already mentioned, and was EUR 1.02, and that is a clear improvement from 2014 when we reached EUR 0.13.
There were positive impacts from improving operational result, like commented earlier, and Bergvik Skog, fair valuations of about EUR 430 million booked in Q4. Also lower net financial cost that I just mentioned on taxes had positive effect there. A comment on Bergvik Skog, just to remind you, it is not really affecting EPS, earnings per share as such, please notice that as it is equity accounted investment, we book results from Bergvik Skog net of taxes. That is why if you look at our tax rate in profit and loss, it might look a bit artificially low compared to previous periods. Just keep that in mind. Also in the cost affecting EPS, we had negative impact coming from non-recurring items booked about EUR 250 million, mainly relating to impairment charges in the Paper business. Capital expenditure Going forward in 2016.
In 2015, we reached about EUR 990 million when it comes to capital expenditure. As we have communicated earlier, we expect capital expenditure to come down gradually during the coming years to about the level of depreciation, plus about EUR 100 million for the biological assets. For the coming year 2016, we guide capital expenditure about EUR 680 million-EUR 720 million, which is a bit more than what I just mentioned as a longer-term target and level compared to depreciation that we expect to be EUR 520 million-EUR 540 million. Capital expenditure mentioned includes about EUR 160 million for the Beihai mill project still to be paid in 2016. A summary on our strategic targets, where do we stand there. Like in the previous quarters, looking at the growth of the growth businesses, we grew 5.4% year-on-year, reaching our target there, growing faster than the market.
Also balance sheet ratio like net debt to operating EBITDA remains below three, improved to 2.4, and debt to equity at 60%. We are especially happy about the balance sheet strength, taking into account the high CapEx level we had last year. This demonstrates the strong cash flow generation capabilities that we have demonstrated during the past year and expect to continue that also going forward. Operational return on capital employed, excluding Beihai, was 13.3%, like I said earlier, reaching the target. Including the burden of Beihai in the balance sheet, the result it was 11.3%, so a bit short of the target. Fixed cost to sales still remains at about 25% level, above our targeted 20% level.
Like I said earlier, we expect that as we are growing and continue to grow, and of course, keeping costs under control and working continuously to improve the structure, we can reach a targeted 20% level. Different divisions and Consumer Board, first of all. Excluding Beihai, we have reached the target and remained above the 20% target at 24%, including Beihai at 10.6%. Packaging Solutions, a bit short of the target 20% at 10.5%, but here we have to remember the burden of Varkaus conversion to kraftliner where we are still at the startup phase. Like I said earlier, that burdened the result by EUR 9 million for Q4. Biomaterials at 12.7%, a bit short of the 15% target level, and Wood Products for the quarter was at 16.6% compared to targeted 18%.
You remember, they have been above or at the 18% level in the past, and we expect that to be still reachable going forward. Paper, like I said, had a big peak cash flow in Q4, only 1.8% compared to sales. Like I said, there was some extraordinary items affecting the cash flow in the last quarter of last year. A couple of comments on pulp market. Still there has been some speculation on the market and talk on the softness of the pulp market, which we don't really see. Looking at the statistics and also what we see on the market, we think it's fair to say that globally inventories remain on normal level. Look at the Chinese market, which is not so important for us as a supplier, we can see that the inventory levels are rather low than high.
On the pulp prices, on the following page, there has been some softwood pulp price increases announced in Europe. We are confident that those price increases will be implemented as planned during the coming couple of months. Also, we see that the market remains stable also going forward. With these words, I will hand over to you, Karl.
Thank you, Seppo. I will here cover the guidance. We expect the Q1 2016 sales to be similar to the amount of EUR 2,487 million. Operational EBIT is expected to be in line with the EUR 242 million recorded in Q4 2015, compared to EUR 220 million in Q1 of 2015. We have no major scheduled annual maintenance shutdowns during the period. That doesn't mean it won't be maintenance. Maintenance will be roughly at the same level as of Q1 2015. I also would like to talk a little bit about the proposal that we will make to the shareholders at our AGM at the end of the month of April. The policy is to strive to pay stable dividends linked to the long-term performance, pay half of the net profit over a business cycle.
The dividend proposal from Stora Enso to its shareholders is to pay out EUR 0.33 per share for 2015, totaling EUR 260 million. That is an increase by 10%. Summary. A solid performance, an EBIT increase of 15.8% year-over-year. A positive annual cash flow of EUR 599 million, despite peaking investments of almost EUR 1 billion. CAPEX level going down from the EUR 989 million in 2015 to EUR 680 million-EUR 720 million in 2016. EPS improved significantly. Dividends increased by EUR 0.03 to EUR 0.33. Board mill investment in Beihai is moving ahead, we are going ahead of plan. The journey and the transformation towards a renewable materials company continues. With that, I hand over for any Q&As.
Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your phone is switched off to allow the signal to reach our system. Again, please press star one to ask a question. We will pause for a moment to allow everyone to signal. Once again, if you would like to ask a question on today's call, press star one on your telephone keypad. We will now take our first question from Antti Koskivuori from Danske Bank. Please go ahead. Your line is open.
Yes, thank you. Good afternoon. I have two questions. Firstly, if you could talk a little bit about the pricing outlook in the Consumer Board segment. You've announced some price increases, at least in folding boxboard. What should we expect for 2016?
I think you have to be careful. In folding boxboard, we have talked about a one percentage point. It's fairly stable prices. It's not all the Consumer Board, it's certain parts of it. Okay?
Yeah. Relatively stable pricing outlook for 2016 in total in the Consumer Board division.
Yes.
Is that correct?
Yes.
All right. Thanks. Secondly, about the CapEx guidance you give. Could you confirm, has that increased over time a bit for 2016? I'm just wondering if that's a timing issue or have you committed to more CapEx, and what should we think about the gradual decline in the CapEx outlook? When should we anticipate the CapEx to come to the level of depreciation? Is it already in 2017?
What we have said, over a number of years, and we will drive it down towards the level of depreciation.
Yeah.
The maintenance CapEx on the biological assets that we have to do.
With the line-by-line consolidation of Veracel and the Montes del Plata, plus the plantation we have in China, we need to replant the trees we are chopping down.
That's the EUR 100 million. That's what I've said over a number of years. We have not said it's going to be from the first of first, 2016.
Also, I would not say that really any significant changes or additions in 2016. You have to remember that in Beihai Mill, like we mentioned also here on the previous slides, it's about EUR 160 million still to be spent for the project, even though that we are at the final stages. That is more or less what we have communicated also earlier.
All right. Thanks. Lastly, just as a reminder, could you give us a number of the maintenance impact you had in Q4 in the Biomaterials business? I'm looking for the delta into Q1. I guess you don't have any maintenance in that division in Q1.
Seppo, we have not really given figures per division, but on group level, that was about EUR 35 million positive compared to Q3.
Yes. Okay. Thank you very much.
Thank you. We will now take our next question from Lars Kjellberg from Credit Suisse. Please go ahead. Your line is open.
Thank you. Coming to Beihai, it's good to hear that you're starting up this thing slightly ahead of schedule. Could you give us any thoughts how you will account for this thing as it starts up? Do you need a sort of hurdle rate, full utilization rate before it actually properly comes onto the books, or will you sort of start to have the P&L from day one you press the start button?
First of all, as we say in the report, in Q1 and Q2, we will have slightly increased costs. We used to say it's EUR 10 million per quarter. We're now talking about EUR 10 to EUR 15 for the first two quarters of the first half year. When we start it up, I think it's important to then you will get hit by the capitalization or the depreciation, which, if I remember right, is about EUR 40 million per quarter.
It all comes on board.
Okay. You're not going to sort of, there's some instances where companies have sort of said we're going to reach a certain utilization rate before we actually account for the startup. Before that, we sort of capitalize those costs.
The depreciation usually hit you right away in the way we do it. There are usually some extra startup costs when you do the commissioning, and I don't have those details in my head.
Yeah. Correct, Karl. Like Karl said, depreciation will be started once we see that machine is operationally ready and running. Then the ramp-up starts.
Will you capitalize any cost? That's essentially the question.
That is also when you stop capitalization of the costs. Like Karl mentioned, we have said earlier, there is now going forward EUR 10 million-EUR 15 million operational costs already going through the profit and loss in Q1 and Q2, which is not capitalized. Those are things that we are training people, we have operators on payroll, sales people on payroll, et cetera.
Understood. When you look at this quarter, it's obviously going to be reasonably clean from any major scheduled maintenance works. How should we look at the P&L impact from the balance of the year by quarter, if you can share that with us?
Yeah, Seppo, like Karl said, compared to Q1 a year ago, in the Q1 this year, the [scheduled] maintenance is roughly the same. If you look, compare Q4 last year to Q1 this year, it's about EUR 35 million less maintenance CapEx in Q1 this year.
Maintenance costs.
Maintenance costs, sorry.
Understood.
Impact
You've been kind enough to give us the various mills that are going down in Q2, Q3, and Q4. Do you have any sense what the average costs are for those quarters versus what you're going to incur in the first?
No, we are like, I said earlier, we don't give separate guidance on that. We comment for the coming quarter. I think it's typical in our business as you know, you have followed us a long time, Lars, that Q1, Q2 are normally less than Q3, Q4, especially Q4 is sometimes heavier.
Yeah. No, that's perfectly clear. Just on a smaller counting, obviously you will have an extremely tough comp given that you had the Bergvik forest gains now in Q4. How should we view the actual sort of apples for apples numbers when we're in Q4 in the current year? If we were to strip out the Bergvik fair value gains and net out all the non-recurring items, what is the real underlying operational number in EPS terms?
That, let us come back to that big and clear. It's just if you continue with other questions.
Yeah, it's not going to be looking great, otherwise you're going to have like a massive fall in EPS next year, which makes no sense, of course, because that's not what's happening to the business.
No.
Final point, how should we view tax rates in the current year? That's been all over the place, of course, in the past.
In the longer term, like I mentioned, it looks a bit low now in Q4, but if you clean, for instance, that's about 18% for Q4. Going forward, if you take longer term tax rate, we expect that to be around 20%.
Very good. Just one question that came as I was listening to you. You've obviously started out Varkaus quite well, and you talked about how you would, last quarter, you're finding your customer base. Where do you sell this product now, given that there is supply in the market already? Are you doing what you said you were going to do, i.e., displacing some overseas tons, or where do you find the market for the volumes?
Some of it we are using internally because that's part of it. With the customer that we are already selling to from Heinola in the fluting business. The product is a premium product, but the way we sell this one, lightweightening the product. Which has to do with the quality and the fresh fiber included.
Understood.
We feel confident about it.
Yes, sounds that way. Good startup. Anyway, thank you so much and good luck.
Thank you, Lars.
Cheers.
Thank you. We will now take our next question from Mikael Doepel from Handelsbanken Capital Markets. Please go ahead. Your line is open.
Thank you. Good afternoon, everybody. Starting off with packaging, essentially two questions. First of all, on pricing, you talked about Consumer Board expecting fairly stable pricing. What's your view on corrugated packaging and on container boards overall, or if you want to do it grade by grade? Looking at some statistics in Europe right now, we are seeing price declines in white top kraftliner and kraftliners and even fluting. That would be my first question, what's your take on that? Secondly, again, with regards to your containerboard business, as I understand it, you are still a net buyer of containerboard, but what's your net position by grade?
If I start. On container boards, we see an increase in demand, and as I said, stable prices. Kraftliner, we are seeing some increase in demand and a little bit negative pressure on the prices, which we are trying to counter by making sure that we don't go on price, but we go on lightweightening. If you come to the corrugated, we see a small increase in the demand. We also see a positive price development.
To your question on usage of the containerboard, we are about 60% integrated to get the raw material at the box plants. We use about 30% of our own containerboard produced. Just to give you the big picture. To Lars, coming back to your question on EPS, excluding NRIs and Bergvik Wood revaluation, that would have been EUR 0.69. Still a clear improvement compared to year before.
Okay. Can I just have a follow-up question on your comments on the pricing? You mentioned in corrugated, you're seeing some small increases in demand but also in pricing. While at the same time, we have some of the containerboard pricing coming off. What's driving the pricing in corrugated right now?
You probably look at the total European market. You have to remember where we are active. We are active in the Nordic, the Baltics, around Poland, Eastern Europe, which is slightly different.
Sure. Understood.
To go up. Some moderate it. I don't want to go into the numbers.
Okay. That's clear. Thank you very much.
Thank you. We will now take our next question from Cole Hathorn from Jefferies. Please go ahead. Your line is open.
Yes, hello. Good afternoon, everybody. I would like to go back a little bit to the CapEx and the CapEx treatment of the biological assets. Could you please give us some more sort of explanation there? Is this sort of the silvicultural expenses that you're activating, and how does this really work?
It works so that these relate to plantations that we have in Uruguay, Brazil, and China. That is why it's also increasing now that we are getting more active in Uruguay and China. What happens is that we go and harvest for the pulp needs or to sell the wood to the market, and then we need to replant. It's these replanting costs that we are calling as capital expenditure or biological assets. When we do the harvesting, we don't depreciate it as we would normally do for the machinery and buildings, but that is then as part of the cost of goods sold and treated that way in the profit and loss.
Okay. Thank you. That was my question. Thanks.
It comes back to the day when we started to actually have the line-by-line consolidated. It's been there ever since we've had any plantations, but that's the way you should do according to accounting standards when you deal with plantations.
Okay, perfect. Many thanks. Very clear.
Thank you. We will now take our next question from Linus Larsson from SEB. Please go ahead. Your line is open.
Yes, thank you very much and good afternoon. My first question is on currency. You had some EUR 15 million of currency headwind in your EBIT figure for Q4 compared to Q3. Secondly, what's your expectation for the first quarter given current exchange rates? Is it more of a flattish development into Q1?
Okay. In Q4, the effect was mainly coming from US dollar, if you look at the FX effect. Going forward, I would say that the sort of carryover effect from 2015 from the hedges is very minimal, very small. We are talking about some single millions only. Assuming that the currency rates remain where they were around New Year, we expect in total for the full year, about EUR 100 million plus positive effect.
Okay.
We don't know. Assuming that they remain where they were around New Year, not to speculate more. Just to give you a bit feeling on it.
That's very helpful. Thank you very much. I wonder also, just coming back to CapEx, you've given a figure for 2016, you've said that it includes EUR 160 million at Beihai, EUR 100 million for biological assets. I guess maintenance CapEx is around about EUR 225 million, correct me if I'm wrong, but if that's the case, the balance left would be more than EUR 200 million. Do you have the firm plans for those EUR 200 million or is that something yet to be decided? Could you talk a bit about that, please?
You're about right. The maintenance is about EUR 200 million to EUR 250 million, because then we have improvement projects. I would say that we probably put 80% have plans and 20% aren't allocated yet, that we are evaluating various potentials internally.
Okay.
We don't release all the CapEx at the same time. We release it in different phases. Today I would say 80% is being allocated.
Okay. That's interesting. Then coming back to earlier questions around Paper, would you care to give operating rates for the various graphic paper segments in your case at this stage?
The operating rates has been very good in Paper. As Seppo said, we've been running on high capacity for the full of 2015.
We have good operating rates.
Is that what you're seeing as you look into the first half of 2016 as well?
I don't comment on that one, because I will comment when we talk again in April.
Just one final clarification maybe. What you said about Varkaus, you mentioned a figure there, EUR 9 million.
It's in the report.
Yeah.
When you start up, you get costs. You get depreciation running in. The start-up costs was basically EUR 9 million for the fourth quarter.
The EBIT of that mill, what was that in the fourth quarter?
That we don't disclose.
When do you expect to break even at this mill?
We expect the break even to be during Q2.
Okay, great. Thank you.
Thank you.
Thank you. We will now take our next question from Justin Jordan from Jefferies. Please go ahead. Your line is open.
Thank you. Good afternoon, everyone. I've got two questions. Firstly, just on Beihai. Can you just remind us just how long this will take from its earlier than expected commencement in Q2 to fully ramp up? Just remind us then thereafter, just the timeline on the board's decision on potentially the phase two of the project.
The ramp up to get in, the end game is actually to get in to basically three grades. One is CUK, the other one is liquid packaging board, and the third is food service board. That ramp up is going to take between 18 and 24 months. When it comes to the phase 2. Did that answer your question, by the way, on the first?
That's great. Yeah, thank you.
If you look on the potential investment of a phase 2, that we will only consider after we have started. We have no board decision, and we need to work that out. If you're modeling, the earliest you can get CapEx is 2017. We haven't decided to go ahead with the phase 2 yet.
Of course. Okay, thank you. Just following on, just a clarification question, just on your pulp statistics. In your release, obviously, you had pulp deliveries, market pulp deliveries of 1.873 million tons in 2015. I'm assuming with the full ramp of MDP, it will be higher than that in 2016. Is that correct?
Our market pulp position in 2016 will be roughly 2 million tons.
Okay.
It's like a second EBIT up compared to last year.
Great, thank you. I'm curious when I look at your sensitivity analysis in the slide deck today, you talk about a 10% change in pulp price impacting by EUR 105 million, and that's actually down from EUR 125 million that you disclosed in the Q3 deck three months ago. I'm trying to understand why that is the case.
I can take that one. That was because we were doing it from list price and not after rebates.
Okay, fantastic. Okay, that's great.
Sorry about, we should have thought about that already in Q3.
Oh, we're all billionaires in hindsight, don't worry.
Yeah.
Okay, just one final thing. Obviously, pulp prices is a bit of a market concern at the moment. Brief today is talking about softening pulp prices in Europe and expectations of that continuing in February. What gives you confidence that the pulp price increases that you're announcing will be successful?
I think if you go to the little chart that Seppo showed, we believe, and we wouldn't obviously announce the softwood pulp increase in Europe because the difference between the hardwood and the softwood at a very historical low level, and that's the reason. There should be a bigger difference between hardwood and softwood.
Okay, good. I wish you success.
We are working hard on it.
Thank you.
Thank you. We will now take our next question from Stephen Benson from Goldman Sachs. Please go ahead. Your line is open.
Hi there. Thanks. I just wanted to come back firstly on the pulp side. That 2 million tons net long position in pulp this year, am I correct that roughly 60% of that is hardwood, 40% softwood? Is there any change to that?
It's roughly 700,000 tons is hardwood, 800,000 tons softwood, and then the rest is dissolving and fluff.
Okay. When is the decision to be made about the pulp mill at Guangxi? What's the timing on that? I thought there was some decision in 2016.
No. It is going to be towards the later part if we make the decision in 2016, towards the end of 2016.
Okay.
That's early.
The selling price of any, whether it's folding boxboard or liquid packaging board in the Chinese market would be renminbi based. Any of your selling prices in country are going to be renminbi. If you don't go ahead with the pulp mill, you'd be importing dollar-based pulp.
It's depending, and we are in those negotiations. Some are euro based and some are renminbi based.
Okay.
Remember also that we are planning to export from China.
Yes.
That is, of course, hard currency based.
Okay. Just on the Kraftliner, given the price falls that we've seen so far, I guess you're still ramping up volumes month to month, I'm not sure what the production rate is at the moment, if you could comment on that. Is there any visibility out there that imports from countries like North America have actually started to drop off? Is there any data to support that, or are we just going to be competing more and more on price for the next three, four, five months?
We have seen, this, just to be very clear, the Kraftliner imported from the U.S. is in the southern part of Europe. We are responding not by price, but we are responding by lightweighting, because our product has an advantage because it's newly constructed or developed, as well as it's fresh fiber, which means that the stiffness is totally different than a recycle, which means that we can lightweight the product, and that's very much what customers go after. We are not going and changing them on price.
Okay. Just coming back to pulp, I know we've been pushing an oversupply that we think looks like it's going to be coming through on the pulp business over the next sort of 12 months or so. You're not worried at all about the pulp supply that's coming on in Latin America? I'd love to hear your views on what you think about all this LatAm low-cost pulp that's ramping up over the next two years.
My view is, and I will give you a longer view. Pulp will be more and more demand because it's one of the very few renewable packaging materials and tissue materials there is. You will have fluctuation when you get a lot of capacity coming on stream. Longer term, it is a product that will continue to grow. You're right, it's going to be volatile when you get a lot of new capacity coming on board.
Okay. Thanks very much for your time.
Thank you.
Thank you. As a reminder, if you would like to ask a question on today's call, press star one on your telephone keypad. Once again, please ensure the mute function on your phone is switched off to allow the signal to reach our systems. As an additional reminder, to ask a question, press star one. It appears we have no further questions at this time, so I'll hand the call back to the speakers for any additional or closing remarks.
Okay. Thank you, Darren. Thank you everybody for listening in to this Q4 results conference call, and we will then speak next time in April when we are out with the Q1. Thank you.
Thank you.
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.