Ladies and gentlemen, thank you for standing by, and welcome to the Q2 twenty twenty Stora Enzo Earnings Conference Call. At this time, all participants are in a listen only mode. After the presentation, there will be the opportunity to ask questions And I must also advise you that the conference is being recorded. I would now like to hand to your speaker today, Ula Pajanan, Head of Investor Relations at Stora Enso. Please go ahead.
Thank you, Samir. Good afternoon, everyone, from sunny Helsinki, and welcome to Stora Enso Q2 twenty twenty earnings conference call. With me today, we have our CEO, Annika Brezki and our CFO, Sef Bokvarvi. And we will make a short presentation and followed by a Q and A. Please Annika, go ahead.
Thank you very much, Ulla, and welcome everyone. If we move to Slide number three, Ulla, we can see that for the quarter, we delivered a solid profitability and cash flow driven by a very strong performance within Packaging Materials and Forest divisions. We are experiencing extraordinary times, so a comparison year on year is really not very relevant. But if we look at our sales, it decreased by 19% compared to last year from EUR 2,600,000,000.0 to EUR 2,100,000,000.0. If we exclude paper, the decrease was 12%.
Our operational EBIT decreased to €178,000,000 compared to €299,000,000 last year and excluding paper from EUR $249,000,000 last year to EUR $217,000,000. Of course, we have had impact of COVID on our sales prices and lower deliveries impacting our profitability. If we look at our forest, the fair valuation of our biological assets improved in quarter two by EUR $272,000,000 and by €990,000,000 compared to one year ago. And this is driven primarily by lower WACC levels. Cash flow from operation amounted to $363,000,000, down from EUR $550,000,000.
And cash flow after investing activities was EUR $239,000,000, down from EUR $428,000,000. This is a solid cash flow and an improvement compared to quarter one. Net debt to operational EBITDA is at 2.5, above our long term target of being below two times. But we have a strong liquidity at 2,100,000,000 including cash and committed credit facilities and very good access to funding sources. And this, of course, gives us flexibility if the recession becomes very long.
Operational return on capital employed landed at 6.8%, down from 11.8%, and this is below our strategic target of 13 But excluding paper, our return on capital employed was 8.8%, down from 10.7% last year. Next slide, please. So we have been actively managing our costs and we have lower variable and fixed costs, which had a positive impact on our profitability. But we could only partly mitigate the impact from lower sales and deliveries. And in terms of the split, the sales prices were down but were mostly attributed to paper and biomaterials, which stood for almost 70% of the impact.
And the same goes for the volume decline where paper was 67% of the impact of €100,000,000 Next slide, please. So we are staying resilient as uncertainty continues. Of course, our primary focus is to ensure the health and safety of our employees, and this is our key priority, especially as we enter now in Q3 where we will have more maintenance shutdowns. So we postponed some of our shuts to be able to take extraordinary precautions to ensure both our own employees and also contractors safety in the local communities. We were very early to take our actions and that has benefited us through the quarter.
We could secure business continuity and ability to serve our customers and we have seen only minor impacts on our operations and supply chain. We continue to adapt our operations according to demand, and we will make sure that our maintenance shuts are carried through in a safe manner for our people and the partners that work with us. Secured liquidity is a strong foothold for us, and we are executing well on our profit protection program. And of course, in these times, active management of cash costs and working capital are very high on our agenda. If we look forward, we expect the uncertainty that we have to continue.
There is really very poor visibility on demand development for the rest of the year. And the conditions for our different businesses are very mixed and they value very much on end use and which country we sell to. We continue to see accelerated structural decline for paper. We need to remember here that paper is now only 20% of our total sales and 80% from our growth businesses thus. So even if after conversion of Oulu, our share of sales from paper becomes even less.
All divisions adapt operations to match demand if necessary. And for Q3, we see a negative maintenance impact that is estimated to EUR 45,000,000, which is more than Q2, but on similar levels as Q3 last year. Let's move to Slide number six, Ulla. Our profit protection program of EUR350 million, continuous savings and EUR85 million of onetime off savings is proceeding according to plan. It's comprised by almost 900 different actions and we keep adding big and small actions in order to make sure that we are strong on executing.
60 of the savings come from variable costs and 40% from fixed costs. And the biggest contributor from the divisional point of view is Packaging Materials, but all divisions contribute to improving our cost position. Next slide, please. As said, we have a strong liquidity of EUR 2,100,000,000.0 and very good access to funding sources. This gives us, of course, the flexibility to weather out if the recession becomes very long.
And here you can see that we started very early having a lot of sources that can fund our business if necessary. We have limited debt maturities in 2020 and the next bond maturity in Q3 twenty twenty one. There are no financial covenants in Stora Enso OIG's debt and the net debt to operational EBITDA for the last twelve months is at 2.5% and gearing at 45%. Remembering here that we are on this level due to the acquisition of our Swedish Forest Holdings from Berwick last year. And if moving to next slide, on Slide number eight, I would like to highlight some of the key events during Q2, because even if we are fighting the pandemic now, we also want to secure that we deliver customer value when the recovery comes and that we also create new businesses.
So our focus on our innovation agenda and strategic projects stay strong. So for the quarter, we delivered a new digital marketplace that's called BoxInc, which connects corrugated packaging suppliers and consumers of the packaging directly. And this is a new digital B2B marketplace. We established cooperation with Cordenka to develop bio based carbon fiber materials for high performance end uses such as in transportation, construction and power generation such as windmills. Intelligent Packaging introduced sustainable RFID tags for clothing hang tags for fashion retail both in Nordics and in Asia.
And we have the first live solutions for unmanned new retail stores where customers can buy contactless different products. Within Packaging Materials, we launched two products, Performa Lite by Stora Enso, a very lightweight board with improved strength and also based on MFC technology that reduces the carbon footprint by 70% compared to competition. And from Oulu, we have our new product, Avant Forte, the next generation of safe kraftliner that will come on stream by end of this year now available for our customers. Formed fiber, we commissioned successfully digitally actually our production line in Kyote, and this is aimed for products within food packaging replacing plastics. They are fully recyclable, biodegradable and plastic free.
And last but not least, even if construction business is not on its full peak, we deliver wooden materials for more than 500 building projects around the world, enabling green and carbon neutral building. So with that, I hand over to you, Seppo.
Thank you, Annika. And I start by going through some of the key figures from the report that we have published today. Like Anik already mentioned, sales volume went down about 19% compared to a quarter year ago and operational EBITDA margin was at 15.7% and operational EBIT margin at 8.4%. Earnings per share €0.19 a share compared to €0.08 a share a year ago. And the year the increase is coming mainly from the fair valuation increase of the forests.
Operational return on capital employed was 6.8% and cash flow from operations €363,000,000 compared to €550,000,000 a year ago. And net debt to last twelve months of Russia EBITDA was 2.5, up from 2.1 a year ago, mainly because of the lower EBITDA level this year. Moving then to the divisions, and I start by going to Packaging Materials. There, Consumer Board had very strong quarter, while containerboard was weaker. Sales decreased 3% and was €821,000,000 That is a reflection of significantly lower containerboard prices, offset to some extent by higher prices in Consumer Board business.
Operational EBIT increased by €32,000,000 to a record high Q2 of €130,000,000 And this is mainly due to good cost control in the division. We had clearly lower variable costs, especially pulp and chemicals and also lower fixed costs, thanks to our profit protection program. There was also positive effect of post point maintenance works moving from Q2 to Q3 this year. Operational return on capital also improved from 13% a year ago to slightly over 18% this year and it is only a bit short of 20% targeted level. And conversion of Oulu mill, paper mill to kraftliner production is proceeding as planned.
And production starts in Q4 this year and ramp up then to full speed in Q1 and first half of next year. Then moving to Packaging Solutions, where mixed development was visible in various end users and worth to highlight that especially e commerce was performing strong. Sales decreased by 22 to €141,000,000 from last year's record high Q2. This is due to lower deliveries mainly in China packaging operation and lower box prices in Europe. Operational EBIT decreased by €6,000,000 and was €8,000,000 This is due to lower sales and increased innovation activities.
We had also lower fixed costs, thanks to our profit protection program offsetting the lower sales. Lower variable costs also helped as the containerboard costs were going down. And we have lower volumes in China Packaging due to delays in customer launches. Operational return on capital decreased to 14% mainly due to lower profitability in the division. And worth to note is that in the July, we have moved Biocomposite business including development costs from Wood Products division to Packaging Solutions division.
Then looking at the Biomaterials, where uncertainty in the pulp market continues. Sales decreased by 27% and were at €288,000,000 This is due to significantly lower pulp prices. There was weak demand especially for graphical pavement uses and global market pulp inventory levels were also high. Operational EBIT decreased by €84,000,000 compared to a year ago and was €19,000,000 Lower sales were partly offset by positive net FX effect and slightly lower variable costs. And operational return on capital decreased to 3%.
Then look at the Wood Products division, where better than expected market conditions were visible and there is good traction in Building Solutions market. Sales decreased by 16% due to lower deliveries and lower plastic sawn prices. Sales were also lower due to structural changes at Farkir and Uyimahari and Kite sawmills. Operational EBIT decreased by €9,000,000 and was €26,000,000 due to lower sales, partly offset by lower fixed costs supported and thanks to our profit protection program. Operational return on capital decreased to 16.7% and is slightly below the 20% targeted level.
Then in Forest, our new division where we can clearly see that Forest brings stability during uncertain times. Sales decreased by 14% and was €519,000,000 that is due to lower deliveries due to lower production volumes. And wood prices were lower especially in Sweden and Finland. Operational EBIT increased by €30,000,000 to record high Q2 level of 41,000,000 despite the lower sales. And this is in thanks to improved profitability from our own Forest Holdings and Wood Supply Finland.
Operational return on capital increased to 3.9% from 1.5% a year ago. That is thanks to higher profitability and that was then also more than offset clearly high operational capital after Bergvik Skog restructuring. And fair value of biological assets, including our plantations and Tornator as well, which are not included in the Forest division itself, increased by EUR $990,000,000 compared to a year ago. And this is mainly due to the lower discount rate in VAC. And total biological assets fair value was €4,600,000,000 at the June.
Then paper, where we saw significant drop in demand due to COVID-nineteen. Sales decreased by 37% to all time low level of €445,000,000 Actually, the structural demand decline was visible in all paper grades. On top of that divestment of Davang paper lowered sales figure by €24,000,000 Operational EBIT decreased by €89,000,000 and was negative €39,000,000 This is reflection of lower sales that were partly offset by lower fiber cost and good fixed cost management in the division. Cash flow after investing activities to sales ratio also decreased to negative 7.4% due to lower profitability. The year ago it was positive 6.6%.
And Paper division share of the group sales will be below 20% after the whole mill conversion that is going ahead as planned. And this will reduce our coated fine paper capacity by some 1,100,000 tons. Then moving to strategic financial targets table and to highlight couple of those. Net debt to EBITDA, like mentioned, was at 2.5% and the fixed cost to sales at 26.3%. Despite the fact that our profit protection program is moving ahead as planned and results are visible in the figures, the sales line has been coming down fast in relative terms.
So we are confident that we will be moving to right direction when the market volumes start to normalize. Net debt equity at 45%, which also shows that the debt level as such is not the proper. It's more issue of EBITDA development on the debt ratios. The corporation return on capital employed 6.8% and is growing ForEx 7.8%. Division of financial targets I commented already when going through various divisions, so I don't go into details there.
And now I hand back to you, Annika.
Thank you, Seppo. And let's move to next slide, please. We see that these exceptional uncertainties regarding how the macroeconomics develop and how demand develops, it will continue for the second half of this year. So therefore, we will not give any guidance also for the coming quarters until situation is becoming better to predict and visibility improves. What we can say is that we move into a period where we have our maintenance shuts.
For quarter three, we have six mill maintenance shutdowns. So that, of course, has an impact on our profitability moving forward by EUR 45,000,000 more compared to Q2 this year, but on similar levels last year Q3. So finally, on Slide 18, if we move to the summary, we see that we are resilient in the headwinds and we are well prepared for recovery. We have been proactive and have taken extensive precautions and that has protected the health of our employees and also secured business continuity to serve our customers. We delivered a solid profitability for the quarter and cash flow under current circumstances.
And I have to say that it is a satisfactory result considering all. Strong performance by Packaging Material and Forest, also Wood Products was better than expected. And we can see an accelerated structural decline for Paper business. Thus, Paper is now a smaller part of our total sales, And we will continue to manage the division as we've done before. We manage capacity according to demand.
We make sure that we have a strong cost competitive position and can run our mills with high operational excellence. And then we maximize cash flow. The challenging market conditions for biomaterials continue for the coming two quarters as well. Exceptional uncertainty and poor visibility continues. So we see continued mixed demand for our different products and we will adjust our operations to fit demand.
And as said, the upcoming maintenance shutdowns are very well prepared to minimize any impact from the pandemic in the local communities and for our people. So all in all, we stay resilient and well prepared for when the market turns. Strong liquidity, active management of cash costs and CapEx and of course, we continue our innovation and our strategic projects. And with that, moving to the last slide before Q and A, I would also like to invite you all to our virtual Capital Markets Day, which we will have on November 11 this year. Thank you very much.
Okay. Thank you, Annika. And now, Summer, we are ready for Q and A.
Thank you. Your first question comes from Alexander Bergen from Bank of America. Please go ahead.
Thank you very much. I have a couple of questions, specifically on graphic paper. First of all, I wonder if you can comment anything on the price development you're seeing into the third quarter. Secondly, do you expect any recovery in demand as the economy reopens? Or do you see this demand more as gone similar to as we saw after the financial crisis?
And then finally, a third question, which is you made a point of excluding paper in your presentation and also highlighted that it would only represent 20% of sales post Hulu. My question is if we should look at graphic paper like this in isolation or if we should consider any potential knock on effects from the collapse in graphic paper in the medium term or other grids, For example, both on pulse demand, but also on the supply side for pulse, and potentially on containerboard as integrated graphic paper producers look to sell more pulp or convert to, for example, containerboard in the coming years, similar to what you're doing at ULU? Those were my questions. Thank you.
Thank you very much. If I start on price development, we do not comment on price development. But if demand goes down and there is a surplus in overcapacity, there is competition out there. So therefore, it's important to have a cost competitive assets and make sure that you run them as efficiently as possible. And that is what we are doing to maximize cash flow.
In terms of expecting a recovery, it's very hard to say what the long term level will be for paper, what business might come back or not. But we prepare for how the situation is now and then we follow quarter by quarter and make the necessary decisions as we go along. So we adapt our operational rates according to the demand that we see. But you are right, in the last financial crisis, the volumes were lost. And if we look at kind of digitalization trends, I think that they have accelerated changes in consumer behavior moving more to digital newsprint and magazines, but also advertising has moved from traditional printed media to digital tools.
So I expect that structural demand decline will continue. And then regarding that we excluded paper was in our report here, actually already now before Oulu paper is 20% of our sales. And after Oulu, the level will be even lower, around 17 to 18% of our sales. And I'm just saying this because if we go back to 02/2006, paper business was 70% of our sales. So this is part of our long transformation that we have been doing over several years and will continue to do.
So if we see that there is possibilities to convert into something else like Oulu, we will do that, exit or close down mills if that is necessary or divest if it's possible. So this has been the strategy that we have had and that we will continue with. And then you mentioned that others are perhaps converting into, for instance, testliner and so on. We have seen some examples of that. That is normally done for the sites that have can get a good kind of position into the new area of interest.
So probably that will continue. And you are right with the fact that this has spillover effects also for market pulp, where a lot of pulp goes towards graphical end uses. So that, of course, is impacted by the decline in paper. I don't know if you if I answered all your questions.
Yes. Maybe if I can add on paper, if it's on pulp market, I think it's good to notice that it was, of course, already visible in Q2 on the pulp market, the negative effect of dropping paper demand. Assuming that the paper market recovers that should be somewhat positive for the pulp market going forward.
Thank you. That's very clear. Just a little follow-up on specifically on graphic paper producers that are integrated specifically in the fine paper segment. Have you seen any more competition from integrated fine paper producers now looking to sell to customers within the packaging division packaging demand or tissue demand? So basically more competition in the pulp markets from graphic paper producers that were integrated.
I cannot say that we have experienced that in any major degree.
Thank you very much.
Thank you. And your next question comes from Robin Santavieta from Carnegie. Please go ahead.
Thank you very much. Just to continue on graphic papers, now obviously a quite significant operating loss in Q2, weak demand, of course. But I was just wondering if you could shed some light on the performance of Oulu. It must be quite difficult now when you're closing that mill down. What capacity utilization is all running on now?
What kind of losses are you experiencing there? And how should we see now Q3 and Q4? I guess you will close now in Q3. Will you book that as discontinued operations? Or could you just clarify sort of the situation with Oulu?
Robin, we do not comment on single mills capacity utilization rates or financial performance. And when it comes to reporting, technically, we will not market any wise of the discontinued operation. It is part of the paper division until paper production is stopped September. But then obviously, there will be some sales from the stock inventory towards end of the year before it sort of disappears totally volume wise from the market.
And regarding the project as such, is as Stefo said before, it's proceeding according to plan. We have done all the civil works. And in Q3, Q4, the final kind of rebuilds are being done and the production is starting up and ramped up during end of Q4 and starting Q1.
Okay. I understand. Is it fair though to assume that Oulu has been a major drag on the division? Or is it performing in line with the other mills?
We do not comment single mills performance.
Okay. Fair enough, fair enough, Seppo. In terms of the Packaging Materials division, very good profitability now in H1. And when we look at H2, obviously, you have maintenance, which will burden earnings or results somewhat. But if you exclude maintenance, how should we look at the performance?
Is there anything sort of particular that made H1 or especially Q2 very strong compared to what you see ahead, some destocking or restocking among customers? So how should we look at the underlying performance in H2 versus H1?
Let me kind of elaborate a little bit on the end users, if that sheds some light, because as Seppo said, we were strong on Consumer Board and particularly within liquid board and food packaging that we see continues to be strong as people stay at home and consume kind of food packaging and liquid packaging there. Whilst, for instance, the food service board that goes to fast food industry and on the go, that is weak because not all restaurants and fast food places have opened up. And for coming H2, the speed of recovery of that sector is still quite slow. If we look at e commerce, that has been a major driver for containerboard and also corrugated packaging, that has been strong, whilst, for instance, industrial packaging, agricultural electronics consumption is still not strong and it's still weak impacting of course the containerboard side. So the uncertainties really come on how do these end users kind of develop during the second half of this year.
So if we stay on that, then it is hard for us to predict exactly how this is going to develop. And it all depends how countries are able to open up, if there are new hotspots in the pandemic affecting the demand. There has not been any major kind of destocking or restocking of customers. And as I said, I think we are overly initial challenging Q1 really when supply chain and logistics was an issue as many countries were closing down and many customers rushed to increase their inventory levels to be on the safe side. So this is how we see it.
I understand. And then finally on the forest business and division, clearly improved profitability compared to last year. Obviously, you book it in a different way as in the first five compared to the first five months last year. Now is this the run rate, the normalized run rate? Or do you still see room to improve profitability of that division?
We see room for improvement. We need to remember that forest is not running on its maximum capacity, if I may put it like that, because we are adapting harvesting to the needs of the different businesses and how the environment looks. So yes, we do see room for improvement.
All right. Thank you very
much, Anik and Asap.
And your next question comes from Justin Jordan from Exane. Please go ahead.
Thank you and good afternoon, everyone. I just want to follow-up a little bit on Packaging Materials, if I could, because just clearly a very, very strong Q2 performance. And you've called out three different factors in terms of lower available costs and lower fixed costs from the proper detection problem and then clearly the maintenance in Q2. Can you give us some sense as to the breakdown as it were of the $32,000,000 of extra operational EBIT in Q2 'twenty versus Q2 'nineteen. I'm trying to understand which one of these three factors are, shall we say, will be sustained in future quarters because potentially, clearly, the proper protection program will be long term savings that the group will enjoy forever as it were?
And which ones might be the maintenance, which is just clearly, dare I say, a temporary impact? Can I start there, please?
Well, if we look at kind of long term impacts and we go to the sales, if we take that as an area, we closed our multiyear contracts on the liquid accounts last year. So those will stay with us for a while. Then if we look at, for instance, the cost savings, 60% of them are roughly variable costs that might kind of change if the market recovers and becomes stronger and we might lose some of the benefits, but the others are fixed cost savings. And these are likely more under our control and that we can keep for longer term. And as said, packaging stands for 25% of the savings within the profit protection program.
Don't know if you have more that you would like to elaborate, Stefa, on this.
Yes. Like you said, Annika, important part of the improvement is, of course, coming from fixed cost savings, thanks to our profit protection program like mentioned also in the comments on the slides. And then, obviously, lighter cost, pulp, recycled paper costs are also down in the quarter.
Sure. Okay. And just one small follow-up just within the containerboard portion of Packaging Materials. One of your Swedish peers alluded to potentially a €30 softening in virgin containerboard or kraftliner prices in August, September. Is that something that you're expecting in Q3 also?
We are commenting on pricing.
Okay. Okay, fine. Just one final thing then. The Capital Markets Day that you announced this morning on November 11, what should we expect from that? Is this essentially your vision for Storrenza over the next three to five years?
Or are there any particular areas that we should be expecting you to focus on?
It is an opportunity to have a discussion about our strategic approach for the company for the coming years and also, of course, to ask more question on how I and the team in store associates are development and opportunities. So yes.
Great. Look forward to it. Thank you.
Justin, just to add on your comment or question on Q3 versus Q2, just to remind that there is more maintenance cost in Packaging Materials in Q3 than in Q2.
Yes. Thanks, Sato. Thank you.
And your next question comes from Lars Kjellberg from Credit Suisse. Please go ahead.
Thank you. I appreciate the difficulties of giving any guidance. And of course, visibility is comparatively low. But can you give us any sense of what you can see today, albeit being two, three weeks out maybe only? How this compared to your general performance during the second quarter?
And also if you kind of look at the maintenance cost as you mentioned, it would be similar to what you had in 2019. I think in 2019 as a whole, you had about $150,000,000 You've had literally nothing thus far, only Hainulah down in the second quarter. How should we think full year maintenance activities? And again, I guess, lower margins today would lessen the number. If I start there, please, with those two questions.
Yes. I think it's the macroeconomic recovery looking for the Q3, Q4, there are a lot of uncommon uncertainties. The trade wars between U. S. And China and the discussions there, we do not really see kind of positive notes there.
And also the countries are potentially going through second waves of COVID that might impact even though I do not believe that many of the countries will shut down totally like it was in the beginnings of the pandemic. Still there are quite big disturbances. So it is really hard to predict what's going to happen in Q3. I do not expect a quick recovery during this year. It will probably be a prolonged kind of period where we need to, as we have done, kind of work with what we can impact like we've done in Q1 and in Q2.
So I'm sorry, I can't give any more light to that. It is exceptional uncertainties. And then if we look at the maintenance shut, what we can say there is that what we mentioned here are the major pulp mill shutdowns. And of course, as I said, a lot of the we have postponed maintenance shuts in our mills in order to make sure that we can perform them in a safe way for our people and contractors. So for the full year, we will have an impact similar to last year total maintenance costs.
Sepul, just to add on the maintenance cost that in Q4 we will have one more mill in maintenance compared to Q3. But I think the total maintenance effect good to keep in mind that as the margins in some business are lower now than the year cost and the total effect is not so much different in that case. So that it's not far away if you look at the full year, if you look at the maintenance effect year on year. Yes.
Got it. And just also on the longevity of some of the You mentioned, of course, we don't know how quick this will turn around, but I would assume that you've had some benefits from temporary layoffs and short work weeks and whatnot. What do we do when this expires? How should we view that cost benefit if there was such a benefit in Q2?
Yes, there was, but it is minor compared to the big picture actually. So that is not the driver of the improvements that we have made. So that is what we can say on that.
And also to be clear, profit protection program figures do not include temporary layoffs. Those are longer term actions that we are implementing.
Understand that. So finally then on Wood Products, of course, you had a good performance and there seems to be some tentative signs that construction is resuming again. Can you share any color what you're seeing in that business, if that's now on the right side and you're starting to get the cost benefits or lower timber costs, etcetera?
Yes. For quarter two, we could see that our overseas markets were stronger. Many of the Asian countries kind of came out of the pandemic quicker than Europe. And Europe was already kind of in a semi recession already before pandemic in terms of construction and so on. For moving forward, the tables have turned.
We see weakening in the overseas market, but actually picking up of activity in our home markets in Europe. So hopefully, we can continue to drive our Wood Products division in a good manner also for the coming quarter.
Thank you.
In the case of Wood Products, it's good to remember that July is a holiday month having an effect on the activity.
Yes. It's a seasonally low quarter Q3.
And your next question comes from Linus Larsson from SEB. Please go ahead.
Thank you very much. Coming back to the OLE startup, which is due to commence late in the fourth quarter. I wonder if you could just discuss with us briefly on the financial impacts that we should be expecting. I presume Olo for the time being is loss making that will presumably change, but also you might incur some extra costs in conjunction with the ramp up and during the initial phase of liner production you might be loss making. So any information that you might want to share there would be helpful.
Thank you.
Maybe if I start first. We have not given any guidance or comments on the ramp up curve as such and how that is affecting profitability. But reflecting on what happened in Warkaus four years ago, might remember it was quite fast, fast startup curve. And typically, kraftliner as a product, it doesn't take such a long qualification times as for instance, liquid packaging ports. So that should make it faster to recover back to black figures.
But we come later to more detail on that.
And in the initial stages of ramp up, we will target, of course, the easier types of products. But we have the ambition to enter food and hygiene kind of type of products with our kraftliner. And that, of course, requires the qualification times. But in the initial stages, we will take the easier ones first. And the site is going to be a very cost efficient production site for kraftliner.
Sure. And with regards to CapEx, I mean, you've given a CapEx guidance for the current year. What would you say regarding 2021 with Olo behind? Is it fair to continue to think that CapEx should be lower in 2021 than in 2020?
We will come back to CapEx guidance later as we typically do in the year. But like we have said earlier, typical CapEx level as a working figure for modeling you can use is to be at par with depreciation plus some EUR 1,700,000,000 for biological assets at the plantations.
Great, great. That's excellent. And maybe just one final question on the forest revaluation.
I just
want maybe hear from you now what's your what's the principal valuation method here? You say you are adjusting your WACC. Are you doing that now on a quarterly basis? So every quarter, you will review that? Are you contemplating like other companies valuing your forest land on transaction valuation basis?
Seppo here, maybe I can start. We use discounted cash flow and yes, we do their fair valuation quarterly now as it is such a big part of the balance sheet and large asset. We follow as we have said also earlier market practice development. And of course, we have noticed that there was one more company recently changing from discounted cash flow to market price or transaction based valuation model. So we are monitoring and following, but it's still discounted cash flow is the most common method used on the market.
Okay. Thank you.
And your next question comes from Markku Jarvinen from Handelsbanken. Please go ahead.
Yes. Thank you. Perhaps there have been quite a few questions in all while its financial impact and so forth. I suppose you gave quite detailed information on Varcos and Beihai when those started up. Should we expect similar information on sort of quarterly earnings impact from all in Packaging Materials and sort of a guideline on when it will reach EBITDA breakeven
Or are you going to stick to not commenting on all this performance in
the future as well? Or how should we look at that?
Yes. Like I said in my earlier answer that we will come back to that later once we are coming closer to start up and ramp up.
So you will give some sort of guidance on that
in Yes, the we will discuss kind of how our performance is developing and if the ramp up is according to plan and so on. We usually do that in the initial stages of such projects.
Okay. And while you're moving over between divisions, are there sort of one off are some of the costs reported as one offs? Or will it all be operating costs and earnings?
It is part of the operative result.
Okay. Good. And further on, Oulu, have you given any more thought about converting the second machine? Garden board business seems to be doing okay at the moment. How does it look to you?
It is an optionality that we have to do that, and we make sure that we have that choice if and when we decide to proceed. But at the moment, we focus on ramping the first one. And then let's see how the market develops.
Okay, good. Then I think paper business has also been discussed quite extensively, but as said, earnings were somewhat weak in Q2. How would you now describe the business? Is it still core for store ins or is it non core?
Well, we are managing the business for cash flow. We are making sure that we do the necessary improvements in the mills to keep them at a strong cost competitive position. But as said, it is a business that is in structural decline, and we are managing it from that perspective. The cash flow has been strong in paper, and we have used that to invest in other parts of our growth divisions.
So should we expect you to continue to walk down this path and not necessarily start a strategic review of the entire business at any stage?
Let's come back to that on the Capital Markets Day. But at the moment, there are no other plans than managing it as is.
Okay, good. Then in China, there have been recent investment news around in Beihai or close to your mill in Beihai and also in virgin cardboard by Sun Paper in April. How do you view those? And is there a need for more cardboard capacity in China?
Well, I'm always surprised when new machines pop up in China considering kind of how many investments that have been made in that area. But of course, this is kind of the traditional way that has been done in China before. A lot of machines come online and on stream. So we need to just continue following the development. Right now, there's quite a big overcapacity on kind of standard boards in China.
Okay. Thank you very much.
And this question comes from Michael Dudle from UBS. Please go ahead.
Hi. It's Micah Dudle from UBS. A couple of questions still left here. On the graphic paper side, just coming back to the volumes there, can you give any comments on what you saw in June on a year over year basis and maybe what you are seeing in July? Just trying to get a sense of what the trends are there right now.
Well, the trends are declining from kind of previous higher levels. But I cannot say if there is any major difference between June and July really.
I think it's too early to comment. You have to remember that Societies has started to open only now when it's holiday season. So we can really see it only after holiday season in August, September, how the volumes are coming back or if they are coming back.
Okay. All right. And then on a different topic on dividends, when can we expect the resolution on the remaining dividends? When will you take a decision on potentially paying out more?
This is AGM and Board decision or it's a Board decision really. And following the coming quarters and how the development is going to be decisive how we proceed as a company. I cannot say anything more than that. It's up to the Board to decide if the remaining dividend is paid out or not.
It depends like we said, said the original communication is the dividend, but it will then depend on how business environment develops and cash flow develops in general.
Okay, good. Thank you very much.
Okay. And we will now be taking no more questions. I'll now hand the floor back to Ula.
Okay. Thank you, Samer. And thank you for everyone joining us for today's call. And I will hand it over to Annika for the final words of today. Annika, please.
Thank you very much for all the good questions. I like this active discussion. And my final words are that we will continue to do what we have been doing, working with what we can impact and making sure that we have continued good business continuity and serving our customers now and for the future. So we are staying resilient in the headwinds, and we prepare for a strong recovery. Thank you very much everyone.
Thank you. Okay. Thank you.
Thank you. That does conclude our conference. Thank you for joining. You may now disconnect.