Good day, and welcome to the Fourth Quarter twenty fifteen STORA Enso Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Payanen, Head of Investor Relations. Please go ahead.
Hello, good afternoon, everybody. And we have a sunny day here in Helsinki.
I hope you have too wherever you are. And we will start now presenting our Q4 twenty fifteen and full year twenty fifteen results. Please go ahead, Gale.
Thank you. Very welcome and good morning, good afternoon or wherever you are in the world. So I would like to start with a statement that we continue to deliver a very solid result in the 2015. We have a dividend proposal that we're taking to the AGM, which is an increase of 10% to €0.33 Sales in the quarter declined nominally and that is due to the structured declining paper. But 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, four twelve operating cash flow and NOK 75,000,000 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. And the annual EPS increases from €0.13 a year ago to €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. But if you deduct this structural decline in paper, Correnso, Barcelona, we actually for the fourth quarter in a row increased sales by 5.4%.
And if you do the same for the full year, you can see it's almost 5% increase. And that is obviously driven by the strong performance of Biomaterial with the ramp up of Montes 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 2014 and the 2015. And I think it's important to recognize here that in these numbers, which has actually increased at 1.5 percentage times, they are also included a maintenance increase in the fourth quarter of SEK16 million higher in the 2015 versus the 2014. We have the Corenso, which is included in the number by 4 million and we have the startup of Varkaus, which is an additional nine.
That is another 1.1 percentage point 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 operating the return on the operating capital to a different level. And as you can see in the graph here, we have continuously improved this, both including the strategic investment and excluding. So for the second time in about a year, we have actually passed the magical 13% and that is for the 2015 when you exclude the Beihai investment. So at the strategic targets.
We have completed a number of transformation steps. And as I mentioned early on, one of the reason why we have a growth this year and improved profitability is actually the very successful startup and ramp up of the Montes De Plata pulp mill. We have also the biomaterials during 2015 in the early part started up the linen production at the Sunnila mill. And we made an acquisition in the early part of 2014, which is Wirldia. We have started up a sawmill in Murrow 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. And we have finally in the fourth quarter concluded a conversion of the 280,000 ton paper machine to 319,000 cross line machine. And these are the reasons why we will continue to grow. During 2015, we have also continued to streamline and focus on the core of the business, which have meant that we have made a number of divestments on non core assets. The Ute Seyem, the Baccellona, Comaron and the recently announced sale of Arapotti mill that will be concluded into 2016.
We closed down the corrugated unit in China in India and we closed down a production unit within Wood Products Palkine in the 2015. What is left on the plate that 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 SEK800 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. And that is because right now we are proceeding ahead of plan. We will also during Q2 twenty sixteen start up the second part of the investment in Warkaus, which is the wood and building elements, which is a EUR43 million investment. And then we continue with the demonstration plant and the market development plant based on the Virby acquisition and that is should be ready by early twenty seventeen. We have taken a number of important steps in innovation.
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 twenty fifteen, and deliveries have started in source reduction and new capabilities of Consumer Board. We innovated an innovation center for packaging in Helsinki in November and we inaugurated an innovation center for biomaterials in Stockholm in the December. So the transformation journey continues. We are now at the 2015 in the fourth quarter, we're 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 2014. We had a strong performance 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 Sefo to give some insights on the numbers.
Thank you, Karl. And I start with some of the key figures in addition to what Karl already mentioned. And first I want to highlight that we have record high annual operational EBITDA margin 13.5%. That is a bit over one percentage point improvement compared to 2014. And for the last quarter it was 13.7%.
Operational EBIT €242,000,000 that is 16% increase in Q4 compared to year ago and 13% improvement for the full year result at €915,000,000 Operational return on capital employed excluding Beihai project was 13.3% and that is also clear improvement compared to year ago when the pickup was 12.2% on comparable basis. As strong cash flow has continued, full year cash flow from operations was €1,600,000,000 That is an increase of almost 37% compared to 2014. Then moving forward and looking at the currency gains and drivers for result. And I want to highlight here what 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. So if you look at the full year figure, FX on sales was €230,000,000 positive and that is more or less offset by local sales price changes about €230,000,000 And the similar logic in the core Q4 figures where the FX on sales was plus 40,000,000 a local sales prices and mix was 37.
And like I said earlier, this is quite natural when we are Europe based company having manufacturing base in Europe countries mostly, but selling quite a lot of volume outside Europe and Europe region. Then some comments on division starting with Consumer Board, where sales increased 1.1% during the Q4. But if we exclude divestment of Barcelona Mill that we did last year, sales actually increased 6.5%. So positive trend continues there as well. Operational EBIT was up 20.5% driven by higher deliveries and foreign exchange.
And operational return on capital excluding Beihai Mill project was 24%, clearly above our strategic target of 20%. And like Karl already mentioned, Beihai Meal will be operational already during Q2, which is a bit earlier than we have earlier communicated earlier we said mid-twenty sixteen. So we are moving ahead there very well. Best to notice that cost per quarter now going forward during the 2016 shall be EUR10 million to million euros You might remember, recall that last year 2015 costs were about €10,000,000 a quarter. Then Packaging Solutions, where sales were down about 8.7%, but that is driven by Corenso divestment done a year ago.
And if we exclude that, sales were actually up 5%. Operational EBIT excluding again divested Corenso was down 4,000,000 But here we have to remember Varkas drop line start up during the Q4 had an impact of €9,000,000 into operational EBIT of Packaging Solutions. So taking that into account actually the underlying performance was improving. Couple of comments on the Grovarkov's 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 twenty seventeen, so roughly a year from now. Biomaterials continued strong performance also during the last quarter of last year and sales increased by 19.1% driven very much by Montes De Plata ramp up and positive foreign exchange impact. Operational EBIT more than doubled and improved by €47,000,000 to €81,000,000 in Q4. And that is thanks to mentioned Montes De Plata volumes ramping up, good sales price level when it comes to pulp and some FX impact the lower wood cost at the Nordic mills.
Then looking at our Wood Products division, where 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% and that is thanks to changes in the business portfolio, lower wood costs and some positive effects from the FX as well. Then I want to highlight couple recent announcements in terms of investments in Wood Products division. There's investment in Arla Sormin in Sweden about €16,000,000 where we are investing in the pellet production and boiler renewal.
Then another important project in Hongkalafti sawmill in Finland, euros 10,000,000 investment for boiler renewal. Then last but not the least, our Paper division, where sales went down 9.6%, driven by disposals we had done with the sand mill conversion of Varkasmer to Kraftliner that I previously already commented and lower sales prices in local currencies. But important to note is that actually volumes remained flat excluding those mentioned divestments, closures and conversions. Operational EBITDA decreased to €74,000,000 And as you know, 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's fair to notice that there was a cash payment of about €25,000,000 related to renegotiate long term supply agreement and restructuring payments. And also CapEx was seasonally high in Q4. Look at the full year cash flow about €200,000,000 for the paper business, paper division. And if you add back this €25,000,000 we actually pretty much at the same level as in 2014. Then 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 €1,600,000,000 liquidity year ago. Now it has been brought down as planned about €800,000,000 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 25,000,000 And 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. But in total, our net financing items went down €65,000,000 in Q4 year on year. Then earnings per share that improved significantly like Carlo already mentioned and was €1 and €2 cents and that is a clear improvement from 2014 and we reached €0.13 There were positive impacts from improving operational result like commented earlier and Parex Kug fair valuations of about €430,000,000 booked in Q4. And also lower net financial of course that I just mentioned and taxes had positive effect there. A comment on Parex Kug and just to remind you, it's not really affecting EPS earnings per share as such, but please note this that as it is equity accounted investment, we booked result from ParaVik's book net of taxes.
And that's why if you look at our tax rate in profit, it look a bit artificially low compared to previous periods. So just keep that in mind. And also in the quarter effect in EPS, we had negative impact coming from non recurring items booked about €250,000,000 mainly relating to impairment charges in paper business. Then capital expenditure going forward in 2016. 2015, we reached about €990,000,000 when it comes capital expenditure.
And as we have communicated earlier, we expect capital expenditure to come down gradually during the coming years to about a level of depreciation plus about €100,000,000 for biological assets. For the coming year 2016, we guide capital expenditure about $680,000,000 to €720,000,000 which is a bit more than what I just mentioned. That's a longer term target and level compared to depreciation that we expect to be €520,000,000 to €540,000,000 Capital expenditure mentioned includes about €160,000,000 for the Beja Mill project still to be paid in 2016. Then 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 EBITDA remains below 3%, improved 2.4% and debt to equity at 60%. And we are especially happy about the balance sheet strength, taking into account the high CapEx level we had last year. And 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 Payhai was 13.3% like I said earlier, reaching the target including the burden of pay high in the balance sheet that resulted was 11.3%, so a bit short of the target. And fixed cost of sales still remains at about 25% level above our targeted 20% level.
But like I said earlier, we expect that as we are growing and continue to grow, and of course keeping costs under control and working continuous to improve the structure, we can reach a targeted 20% level. Then different divisions and Consumer Board first of all, excluding Beihai we have reached the target and remained above the 20% target '24 including PayHy at 10.6. Packaging Solutions, a bit short of the target 20% at 10.5%, but here we have to remember the burden of Maracal's conversion to kraftliner where we are still at the startup phase. And like I said earlier that burdened the result by €9,000,000 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%.
As you remember, they have been above or at 18% level in the past and we expect that to be still reachable going forward. And paper like I said had a big cash flow in Q4, only 1.8% compared sales. But like I said, there was some extraordinary items affecting the cash flow in the last quarter of last year. Then 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 global inventories remain on normal level.
And look at the market 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. And also we see that the market remains stable also going forward. With these words, will hand over to you, Karl.
Thank you, Seppo. And I will here cover the guidance. So we expect the Q1 twenty sixteen sales to be similar to the amount of EUR2487 billion. Operational EBIT is expected to be in line with the EUR242 million recorded in Q4 twenty fifteen compared to EUR220 million in 2015. We had 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 twenty fifteen. 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 and then pay half of the net profit over a business cycle. So the dividend proposal from Storanza to its shareholders is to pay out €0.33 per share for 2015, totaling €260,000,000 and that is an increase by 10%.
So summary, a solid performance, an EBIT increase of 15.8% year over year, a positive annual cash flow of $599,000,000 despite peaking investments of almost SEK 1,000,000,000. CapEx level going down from the SEK $989,000,000 in 2015 to SEK $680,000,000 to SEK $720,000,000 in 2016. EPS improved significantly. Dividend increased by EUR $0.03 to $0.03 3. Board mill investment in Bergha is moving ahead and we are going ahead of plan.
And the journey and the transformation towards a renewable materials company continues. With that, I hand over for any Q and A.
Thank you. We will now take our first question from Antti Koskivari 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?
So I think you have to be careful. In folding boxboard, we have talked about a one percentage point. It's fairly stable prices. And it's not all the consumer boards, it's certain parts of it, okay?
Yes. So relatively stable pricing outlook for 2016 in total in the Consumer Board division. Is that correct?
Yes.
All right. Thanks. Then secondly, about the CapEx guidance you gave, it's I'm not sure could you confirm is that has that increased over time a bit for 2016? And if 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 or? What
we have said over a number of years and we will drive it down towards the level of depreciation plus the maintenance CapEx on the biological assets that we have to do, because with the line by line consolidation of Veracel and Montes Del Plata, plus the plantation we have in China, we need to replant the trees we are shopping down. And that's the $100,000,000 So that we have said over a number of years. Have not said it's going to be from the first to first twenty sixteen.
And also I would not say that really any significant changes or additions in 2016. You have to remember that in Beihai, Beihai Meal, like we mentioned also here on the previous slides, it's about €160,000,000 still to be spent for the project, even though that we are at the final stages. And that is more or less what we have communicated also earlier.
All right. Thanks. Then lastly on just as a reminder, 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.
Seth, we are not really giving figures by division, but on group level that was about €35,000,000 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. Just coming to BI, 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 for utilization rate before it actually properly comes on to the books? Or will you sort of start out the P and L from day one, press the start button?
So first of all, as we say in the report, in Q1 and Q2, we will have increased slightly increased costs. We used to say it's NOK10 million per quarter, we're now talking about NOK10 million to NOK50 million for the first February of the first half year. Then 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 CHF40 million per quarter. So that it all comes on board.
Okay. And 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 start up before that we sort of capitalize those costs. The
depreciation usually hit you right away, the way we do it. And there are usually some extra startup costs when you do the commissioning. And I don't have those details in my head.
We are correct, Karl. Like Karl said, depreciation will be started once we see that machine is operationally ready and running and then ramp up starts.
And will you capitalize any cost? That's essentially the question or not really?
That is also when you stop capitalization of the costs. But like Karl mentioned that we have said earlier, there is now going forward €10,000,000 to €15,000,000 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, salespeople on payroll, etcetera, etcetera.
Understood. And when you sort of look at the this quarter is obviously going to be reasonably clean from sort of any major scheduled maintenance works. How should we look at the P and L impact from the balance of the year by quarter, if you can share that with us?
As Thales said, compared to Q1 a year ago, in the Q1 this year, the FX on maintenance is roughly the same. Then if you look compared Q4 to Q4 last year to Q1 this year, it's about €35,000,000 less maintenance CapEx in Q1 this year. Maintenance costs. Maintenance costs, sorry.
Understood. And then you look in then 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, we don't give separate guidance on that. We comment for the coming quarter. But I think it's difficult 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, no, that's perfectly clear. Just on the small accounting, and obviously, you will have an extremely tough comp given that you had the Bavik 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 Berwick fair value gains and net out all the nonrecurring items.
What is the real underlying operational number in EPS terms?
That let us come back to that big and clean it. Just if you continue with other question.
Yes, 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, right, because that's not what's happening to the business. Final point, how should we view tax rates in the current year, because that's been all over the place of course in this?
In the longer term, like I mentioned, it looks a bit low now in Q4. But if you clear 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. And just one question, that's okay, Matthias, I was listening to you. You've obviously started out Varkas 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?
How do you are you doing what you sort of 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. But with the customer that we are already selling to in from Hainulac in the fluting business. And the product is a premium product and but the way we sell this one, lightweighting the product. So which has to do with the quality and the fresh fiber included.
Understood.
And we feel confident about it.
Yes, sounds that way. Good start up. Anyways, thank you so much and good luck.
Thank you, Doris.
Thank you. We will now take our next question from Mikael Doepel from Handelsbanken Capital Markets. Please go ahead.
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 containerboard 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. So that would be my first question.
What's your take on that? And 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?
So if I ask if I start, so on containerboard, containerboard, we see an increase in demand and as I said stable prices. Cross liner, 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 lightweighting. And then if you come to the corrugated, we see increase, a small increase in the demand, but we also see a positive price development. And then
to your question on uses of containerboard, we are about 60% integrated to CAFD raw material at the box plants. And we use about 30% of our own containerboard produced, just to give you the big picture. And then to Lars, going back to your question on EPS, excluding NRIs and Veritiv's group revaluation that would So 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 corrugated, you're seeing some small increase in that 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?
I don't know. You probably look at the total European market. You have to remember where we are active. We are active in The Nordics, The Baltics, around Poland, Eastern Europe, which is slightly different
Sure, understood.
To go up some more moderately, but 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 Haqqaed Jaf from Kepler Cheuvreux. 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. And 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. And it's replanting costs that we are calling as capital expenditure biological assets. And 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, okay. Thank you. That was my question. Thanks.
And it comes back to the day when we started to actually have the line by line consolidate. 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 My first question is on currency. You had some EUR 15,000,000 of currency headwind in your EBIT figure for 2014 for Q4 compared to Q3. I wonder if you could give a bit of detail which currencies that contributed to that headwind? And 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 U. S. Dollar, if you look at the effect. Going forward, I would say that sort of carryover effect from 2015 from the hedges is very minimal, very small.
We are talking about some single millions only. And assuming that the currency rates remain better around New Year, we expect some in total for the full year about €100,000,000 plus positive effect. But we don't know. No, assuming that they remain that they were our New Year, but not to speculate more, but just to give you a big feeling on it.
That's very helpful. Thank you very And I wonder also just coming back to CapEx and you've given a figure for 2016 and you've said that it includes million at Beihai, SEK 100,000,000 for biological assets. And I guess maintenance CapEx is roundabout SEK $225,000,000. Correct me if I'm wrong, but if that's the case, the balance left would be more than SEK 200 I wonder if you is that do you have the firm plans for those CHF200 million or is that something yet to be decided? Could you talk a bit about that please?
So you're about right. So the maintenance is about 200,000,000 to $250,000,000 because then we have improvement projects. And I would say that we probably put 80% have plans and 20% unallocated yet that we are evaluating various potentials internally. We don't release all the CapEx at the same time. We release it different phases.
So today, I would say 80% is being allocated.
And 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?
So the operating rates has been very, very good in paper. As Sepul said when he made that, we'll be running on high capacity for the full of 2015. So we have good operating rates.
And is that what you're seeing as you look into the first half of 'sixteen as well?
I don't comment on that one, because I will comment when we talk again in April.
Okay. And just one final clarification maybe, what you said about the Varkas, you mentioned the figure there £9,000,000 Is it in the report?
So when you start up, you get a costs, right, you get depreciation running in. So the startup costs was basically it was 9,000,000 for the fourth quarter.
But the EBIT of that mill, what was that in the fourth quarter?
That we don't disclose.
And when do you expect break even at this mill?
So we expect the breakeven to be during Q2.
We will now take our next question from Justin Jordan from Jefferies.
I've got two questions. Firstly, 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? And just remind us then thereafter just that the timeline on the Board's decision on potentially the Phase two of the project?
So the ramp up to get in because when you start, because 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 full service board. That ramp up is going to take between eighteen and twenty four months. When it comes to the Phase two, did that answer your question by the way on That's the first? Right.
Yes. Thank you. UNIDENTIFIED And then if you look on the potential investment of a Phase two that we will only consider after we have started, we have no Board decision and we need to work that out. So if you're modeling, the earliest you can get CapEx is 2017. But we haven't decided to go ahead with the Phase two yet.
Of course. Okay. Thank you. And just a follow-up on so just a clarification question just on your pulp statistics. Statistics.
In your release, obviously, you had pulp deliveries, market pulp deliveries of 1,873,000 tonnes in 2015. And I'm assuming with the full ramp of MDP, it will be higher than that in 2016. Is that correct?
Yes. Our market position in 2016 will be roughly 2,000,000 tons. So like you said, up compared to last year.
Great. Thank you. And I'm just curious then, just when I look sensitivity analysis in the slide deck today, you talk about a 10% change in pulp price impacting by €105,000,000 and that's actually down from 125,000,000 that you disclosed in the Q3 deck three months ago. I'm just trying to understand why that is the case.
I can take that one. That was because we were doing it from list size and not after rebates.
Okay, fantastic. Okay, that's great.
And sorry, but we should have thought about that already in Q3.
We're all billionaires of hindsight, don't worry. And okay, just one final thing. Obviously, pulp prices is a bit of a market concern at the moment. We see 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 Sepul showed, believe and we voted obviously announce the softwood pulp rate increase in Europe, because the difference between the hardwood and the softwood asset, 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 Steven Benson from Goldman Sachs. Please go ahead. Your line is open.
Hi, Thanks. I just wanted to come back firstly on the pulp side. So that 2,000,000 tons net long position in pulp this year, am I correct that roughly 60% of that is hardwood, 40% softwood? Or is there any change to Roughly
700,000 tons is hardwood, 800,000 tons softwood and then the rest is dissolving on fluff.
Okay.
And when is the decision to be made about the pulp mill at Guangxi? What's the timing on that? 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 twenty sixteen.
Okay. The
selling price of any whether it's holding box board or liquid packaging board in the Chinese market would be Renminbi based. So any of your selling prices in country are going to be renminbi. 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.
And remember also that we are planning to export from China. So that is of course hard currency based.
Okay, okay. And just on the kraftliner, given the price falls that we've seen so far, and 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. But have there 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?
So we have seen and this just to be very clear, the kraftliner imported from The US is in the Southern Part of Europe. And we responding not by price, but we are responding by lightweighting, because our product is as an advantage because of its newly constructed or developed as well as its fresh fiber, which means that the stiffness is totally different than the recycle, which means that we can lightweight the product and that's very much what customers go after. So we are not going and chasing them on price.
Okay.
And just coming back to pulp, I know we've been pushing an oversupply that we think is it looks like it's going to be coming through on the pulp business over the next sort of twelve 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
REPRESENTATIVE:] over the next two years. So my view is and I will give you a longer view. And 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. But longer term, it is a product that will continue to grow.
And you're right, it's going to be volatile when you get a lot of new capacity coming on board.
Okay. Okay. Thanks very much for your time.
Thank you.
Thank you. 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
into 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.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.