Ladies and gentlemen, thank you for standing by, and welcome to today's Q1 twenty twenty STORA ANSEL earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Ms.
Olya Pianen, Head of Investor Relations. Please go ahead, ma'am.
Thank you. Good afternoon, everyone, and welcome to Stora Enso Q1 Earnings Call. It's a sunny afternoon here in Helsinki, and just to be mindful that we are now in a different geographical locations due to the COVID-nineteen situation. And I would like to hand over this call now for our CEO, Annika Brezki, and she is followed by our CFO, Seppo Parvi. And after that, there is a Q and A session open.
So Annika, please go ahead.
Thank you very much, Ulla, and a warm welcome to you all during these exceptional times that we are experiencing. Looking back at the quarter of STORA and so, Ulla, and if you can move to Slide number three, please. We can say that what characterized our quarter was that we had mild winter conditions impacting our harvesting operations in our forests. We had the impact of the Finnish paper union strike affecting our mills in Finland. And we also saw the uprising of the COVID-nineteen pandemic starting in China in January.
And considering these circumstances, I have to say that I am satisfied with the performance of our company during this quarter. We delivered a better than expected result in the upper end of our guidance range, supported largely by a good performance of Packaging Materials and Forest division. And it seems like ages ago last year and how the market conditions looked back then, very different reality. So of course, with our Q1 in 2019, which was an all time high record quarter, the relevance and comparison is not really there with this quarter. But still, if we now go through the financials, we can see that our sales decreased by 60% to EUR 2,207 million.
Operational EBIT landed at €180,000,000 as I said in the upper end of our guidance range that we had between 90,000,200 Our profit protection program, which we started in a very proactive mode is proceeding ahead of plan and the savings target has now been increased to EUR $350,000,000 from EUR $275,000,000 to be delivered by 2021. Our cash flow from operations amounted to €146,000,000 and cash flow after investing activities was minus €32,000,000 Net debt to operational EBITDA is at 2.3 times above our target of being less than two times. And keep here in mind that it is affected by 0.6 points from our acquisition of Bergvik Forests last year in Sweden. Operational return on capital employed landed at 6.8% and this is of course far below our strategic target of 13%. Excluding our Forest division, it was 7.6%.
And as you also have seen, our Board of Directors came out with a new dividend proposal of €0.15 per share. And in addition to this dividend, the Board of Directors also proposed to be authorized to decide on a maximum of additional EUR0.35 per share to be distributed in one or several installments at a later stage when it is possible to make a better assessment of the situation regarding both our business and our liquidity. Ula, if you can move to the next slide. If we look at the waterfall now, we can see that the major impact on our results comes from decreased sales prices and mix and also of course the volume impact from the Finnish strikes. We are actively managing our costs too, but they can only partly offset this big decrease.
We see here that we have a positive impact from lower wood costs and other variable and fixed costs and also that we are delivering €40,000,000 on our profit protection program for the quarter. Please move to next slide, please. So we are fighting this circumstances around the pandemic by strengthening our resilience. And of course, in order to ensure that we can deliver on our promises to our customers, the health and safety of our employees is a key priority. Thanks to our mills in China, we were very early in proactive measures globally in Stora Enso.
We introduced travel bans and reduced physical meetings. Everyone that can work from home is working from home, contingency plans in oral mills. So in that way, we have really been able so far to minimize the impact on running our operations. We have secured our ability to serve our customers by being proactive in our logistics and supply chain. And we are practicing active management of cash cost and working capital to secure that we are strong regardless of how long this period lasts.
Our CapEx forecast is reduced to a level of €675,000,000 to €725,000,000 And part of that is, of course, also postponing the annual mill maintenance shutdowns that we were supposed to have in quarter two to the 2020, except for Hainola Mill. We have started preparation of temporary layoffs in all countries where we have operations and encompassing both our functions and our businesses. And this is a precautionary action to make sure that we have the flexibility to act if demand changes in the market. And I will come back also how we have worked to secure our liquidity, but we have a strong liquidity position for the company. And as you all understand, it is difficult to predict demand for the rest of the year.
The uncertainties are high due to both the impact of the virus, but also of course the macroeconomic situation in the world. For our businesses, we see an accelerated structural decline for paper. A lot of the advertising from retail and also newsprint is moving to digital. The conditions for the rest of our businesses is mixed depending on end use. We have strong demand for food packaging, for hygiene and tissue end uses for pharma and then more mixed conditions, for instance, for wood products, for pulp depending on if it's for graphical end uses, the conditions are harder.
And if it's for hygiene and tissue and fluff, we have better demand. And Sepo will come back going through each division a little bit later on. And naturally then our Forest division adapts its operations to match the wood demand from each business area. We can move to next slide please. So our profit protection program has delivered ahead of plan and we therefore increased our target to EUR350 million of continuous savings and on top of that €85,000,000 of onetime savings.
For the quarter, we had approximately €40,000,000 in total in Q1. And as you can see here, last year we delivered a little bit above €100,000,000,000 and this is the level that we will deliver also for this year and for the next close to €140,000,000 And you can also see here the distribution between the different divisions of the continuous savings. I'm very happy that we started this program early on. It's divided roughly 60% variable cost savings and the rest is fixed cost savings. And we have several actions in plan that are all proceeding very, very well.
And of course, this builds resilience for us and ensures that we will be stronger when the market turns. Move to Slide number seven, please. It is also important of course during uncertainty to have secured a strong liquidity and we have that and also good access to funding sources. We have EUR $756,000,000 of cash and cash equivalents at the end of Q1. And above that, we have EUR 600,000,000 committed revolving credit facility that is fully undrawn.
We've also worked with bilateral arrangements signed in early April of additional €400,000,000 and €900,000,000 of statutory pension premium loans is available. So we are close to €1,800,000,000 of liquidity, which is a very strong position. We have limited debt maturities in 2020 and next bond maturity is in September 2021. And there are no financial covenants on Stora Enso OIST debt. And as I said before, our net debt to operational EBITDA is a little bit elevated right now, but it comes down to our acquisition of Forest last year.
We can move to next slide please, Ula. So some of the key events during Q1 besides what's going on in the world was of course the forming of the new divisions, Packaging Materials, Packaging Solutions and Forest as of January 1. The expansion of the corrugated packaging plant in Riga in Latvia was completed and the ramp up is proceeding now according to plan. We also Farquhar and Sawn construction timber mill and that was finalized. And of course, we postponed our AGM due to COVID-nineteen and I'll come back on that in just a few minutes.
So we have, after considering how we will be able to go through with the Annual General Meeting in a safe way as possible, decided to have the next meeting on the June 4, awaiting then the Finnish legislation, which will make it possible to vote by a proxy. The new dividend proposal is of EUR0.15 per share. And as I said before, the Board also requests authorization by AGM to decide at its discretion on an additional dividend payment of maximum up to EUR 0.35 per share to be distributed in one or several installments when we can make a more reliable estimates on the impacts on pandemic and macroeconomic circumstances on our business and liquidity. And you can see here in the graph how we have over the years constantly increased our dividend and this proposal gives us the flexibility as a company now when times are more uncertain. So now I hand over to Seppo to take us through the financials in a little bit more detail.
Over to you, Seppo.
Thank you, Annika. And I start on Slide number 10 on the key figures. And theme for the quarter was, like the title here, is focusing on margin and cash flow. Sales came out for the quarter at €2,207,000,000 that is a reduction of 16.2% year on year. Operational EBITA at 15.2% and operational EBITA margin at 8.1%.
Net profit for the period was €149,000,000 compared to EUR $226,000,000 a year ago. Earnings per share EUR $0.01 9 a share. Operational return on capital employed was at 6.8% and excluding forest assets, it was 7.6%. And cash flow from operations reached €146,000,000 And net debt to last twelve months of gross EBITDA was 2.3%, up from 1.6%, as Annik already mentioned, driven by the Forest asset acquisition in Sweden last year. Moving to Slide number 11 and commenting on the divisions.
And I start with Packaging Materials, where strong demand continues in liquid, wood and pharma. Sales decreased by 8% and was EUR $764,000,000. That was driven by lower containerboard prices and lower board deliveries in Europe due to the Finnish Paper Union strike in late January and early February. Operational EBIT decreased by EUR 3,000,000 and was €95,000,000 Top line was impacted and top line impact only partly offset by lower pulp paper for recycling and fixed costs. And there was no COVID-nineteen impact on Beihai.
Beihai mill was running quite well and smoothly starting after the Chinese New Year. We had strong operational performance, which served our production records during the quarter. Operational return on capital remained quite stable and was 13.4%. And conversion of Olu mill to kraftliner production, as announced earlier, is proceeding as planned. Then moving to Slide number 12 and Packaging Solutions, where stable demand for e commerce and food continues.
Sales decreased by 17% to 149,000,000 from last year's record high level. COVID-nineteen impacted China packaging, but they are now in full operation since March. Lower box prices in Europe due to decreased raw material prices had an effect. Operational EBIT remained stable at EUR8 million, thanks to improved corrugated margin in Europe. Operational return on capital increased to 14.4 compared to 11.8% a year ago due to lower operating capital and improved EBIT margin.
Then moving to Slide 13 and biomaterials, where mixed demand for different pulp end uses was visible. Inventories during the quarter were slightly down, but still above long term average. Sales decreased by 28% to EUR $286,000,000 from last year's record high level. Synically, lower pulp prices were visible compared to situation a year ago. We had also lower volumes due to the Finnish paper union strike and weak demand for graphic paper end users was also visible.
But strong demand for tissue hygiene and packaging end users supported the business. Operational EBIT decreased by EUR 110,000,000 and was negative EUR 7,000,000 compared to last year's record high Q1 level. Top line impact was partly offset by lower fixed costs. And operational return on capital was negative 1.1% for the quarter. Then on Slide 14, we have Wood Products, where satisfactory performance was visible during a challenging quarter, and we faced somewhat weakening demand on various markets during the quarter already.
Sales decreased by 16% to €338,000,000 We had lower classic saw prices and lower deliveries due to the Finnish Union strike and lower demand. Operational EBIT decreased by EUR 11,000,000 from last year's record high level and was EUR 18,000,000 for the quarter. Top line impact was partly offset by lower wood and fixed costs. And operational return on capital decreased to 11.4%, mainly due to the lower profitability during the quarter. Then on Slide 15, we have our new division, Forest division, where we were managing a challenging business environment.
Sales decreased 16% to EUR $542,000,000. There were quite challenging harvesting conditions due to mild winter during the quarter and clearly lower deliveries due to the Finnish paper union strike. Operational EBIT increased by EUR 11,000,000 and was EUR 44,000,000. That is thanks to improved profitability from own Forest Holdings, namely in Sweden. Operational return on capital decreased to 4.3% compared to 6.6% a year ago due to increased operating capital after the Parevik Skog restructuring in Sweden.
Then on Slide 16 paper, where we saw accelerating structural decline in demand. Sales decreased by 22% and was EUR591 million, mainly due to the Finnish strike. And oversupplied paper market was impacted and impacted deliveries and prices negative. And down on paper mill investment had a slightly negative impact on the sales line as well. Operational EBIT decreased by EUR 48,000,000 to EUR 21,000,000, and top line impact was partly offset by lower fiber costs and good fixed cost management in that division.
Cash flow after investing activities, the sales ratio decreased, driven by lower profitability. And as mentioned earlier, we are converting Oulu paper mill to kraftliner mill. And after the conversion, Paper division share of group sales will be approximately only 20%, and paper capacity will be reduced by about 1,100,000 tons once we stop the paper production there later this year. Then I move to Slide 17, where we have a summary of our strategic financial targets. As you see, it's pretty much on red at the moment, and we are working hard to turn it back to green as we have seen in the past.
Net debt to equity ratio is below the 60% maximum level and we are at 48%. Also there was positive development in Packaging Solutions, where return on capital improved from 11.8% to 14.4%. And Packaging Materials return on capital remained quite stable. With that, I hand over back to you, Annika.
Thank you, Seppo. And let's move to Slide number 18. Due to the exceptional uncertainty that we see, we have chosen to discontinue our guidance and outlook for the coming quarters and for the full year. We see an exceptional uncertainty in the global economy. And as Seppo also said, the current situation has accelerated structural decline for Paper.
To remember here though is that after our Oulu conversion, our share of sales from Paper division will be approximately 22% for the group as whole. So our transformation from paper products into more growth driven products has been successful and continues. So as a company, we continue to put focus on securing strong liquidity and cash flow. We actively manage our cost and working capital to stay resilient and ensure that we have a quick recovery after the pandemic is over and when the cycle in the market turns. We move to the last slide, Slide number 19.
So for us, our main focus is strengthening our resilience and making sure that we have the ability for quick recovery. We have had a better than expected quarter supported by the Packaging Materials and Forest divisions. We see a mixed demand for our different product areas depending on end uses. Only minor disturbances on our operations so far. And when we look forward now, we will continue to work with protecting the health of our employees to make sure that we can serve our customers and deliver business continuity to them.
We also believe that it is important that we stay close to our customers by commercializing new products and innovation and bringing them to the market. This is a statement of strength if we can continue doing that. And as always in a crisis, new innovations often arise. We focus on what we can impact, staying close to our customers and partners, understanding their circumstances, securing a strong liquidity position and active management of cash flow, working capital costs and CapEx. Thank you very much.
And now over to you, Ulla.
Thank you, Annika. Operator, we are now ready for the Q and A session. If you could please give the instructions to our audience.
Okay. Ladies and gentlemen, we will now begin the question and answer session. And as a reminder, if you wish to ask a question, please press star and one on your telephone, and wait for your name to be announced. Okay. Our first question comes from the line of Hari Taitonen.
Your line is now open.
Yes. Good afternoon. Hari Taitonen from Nordea. Maybe if I start with the packaging materials with the margin improvement, then just if you can give some color on basically what combination of the reasons how the cost per ton came down so much. Did did you still benefit from lower power prices in in in your profit and loss in q one compared to q four?
Was that one of the drivers? And, so, basically, if you can sort of give us some a bit of color on cost side for that division, please.
Yes.
Thank you, Hari. And Annika, please.
Yes, Hari. The pulp prices are still on a low level. So yes, that was one of the parameters. But I would like to highlight more that we completed the liquid negotiations last year. So the liquid prices, the new prices are in.
Also that the mills were operating really well. We had several records and operational start up after the Finnish strikes in Finland went quite well. And of course, the division is working hard with profit protection program as well. So it's a combination of different areas that led to the result.
And the I I I add also lower prices for paper for recycling. So recycled paper prices went down.
Yes. You're right.
Yes. Okay. How about the if one looks at the Consumer Board side, I think it was the sequential kind of calculated improvement in the average selling price was something like 2.5% in Q1 compared to Q4. I mean, is it knowing that these are always a bit jumpy numbers and volatile, does this sort of represent more or less what you have in reality kind of on a like for like basis, what would be the kind of that improvement in the pricemix roughly? Is it sort of representative of what you have achieved in Q1?
Annika, will you take this?
Yes. I think it's roughly in that area. Remember that this is a mix of products on the folding boxboard market and also on liquid longer term liquid contracts. So it is affected by the mix that we are running.
Of course, yes, yes. And then finally, just sort of last question on the linerboard side. There's been some indication or some early signals that some prices have been kind of moving up in the trade statistics. So some some price rebound from lows, but, how how how do you see that, in in your business? Or do you see scope for for sort of price improvement going forward line of board side?
Yes. We have seen some increases. However, of course, it is difficult, as I said before, to estimate how the demand, develops. So far, so good. We have had a strong demand on on, liner side, but but it it's hard to have a clear view of what is gonna happen the coming quarters.
Understand.
Excellent. Okay. Thank you very much. Thanks.
Thank you.
Okay. Our next question comes from the line of Alexander Verglund. Your line is now open.
Thank you very much. Two questions from me. I mean, first, it's a bit of follow-up on on price. I know you don't you know, it's very uncertain times, so you don't wanna give any formal guidance. But I was wondering if you can give any color kinda what you're seeing now.
You mentioned kinda strong tissue demand. Is that also kinda what you think is the reason that people are going for price hikes on on the pulp side as well? And and, again, it sounds that that's that's enough to get a a price hike through on on April. And then also if you've seen an increased demand for for ecommerce packaging in the last couple of weeks. That's my first question.
My second question is more specifically on on packaging. We've hearing news of of collection issues for recycled fibers, and we've now seen a lot of price increases on on the OCC index prices. So I wonder if you can just remind us how much OCC you buy each year And also how you're seeing the current pricing environment for OCC and also your ability to ensure security of supply right now? Thank you.
Thank you very much. I can take the first question regarding the pulp market. If we see the inventory levels in China and we start over there, the inventory levels are still quite high. So and they have not been coming down. And the main end uses for pulp, if we look at the global market, a lot of it goes to graphical papers.
So I would find it very unlikely if we would see price hikes in pulp in the coming quarter at least. We would need to see a decline in the inventories first. And as you said, the tissue and the hygiene area is holding better from a demand perspective. However, we all know that many people have been stockpiling on different hygiene products now and it's not certain that that will kind of hold for the rest of the year that demand. If we then move over to your question about OCC availability, yes, there are challenges to collect the OCC on the European market.
It's very important here that the borders are kept open and that goods can flow between different countries. So we are following this up very closely and the impact that is having, of course, in our mills in Poland, in Ostroleka and so on.
And on your question on volume, it's something like 2,800 tons.
Thank you very much.
Appreciate it.
That we buy I think you are asking how much we are buying.
Very clarifying.
Yes. Did that answer your question? Or
Yes. Perfect. Thanks very much.
Thank you.
Okay. Our next question comes from the line of Lars Kjellberg. Your line is now open.
Thank you. I have a number of questions. If we can start with clearly, we've seen and you've talked about strong containerboard demand, and we've seen some really strong shipments numbers from The U. S. And anecdotally from Europe driven by COVID, etcetera.
Have you seen the same sort of strong demand trends in the Consumer Board, which ultimately would use those boxes to move into the supermarkets? And when you're talking about maintenance costs being pushed out to the second half, How should we think about that in terms of total cost for the full year? Would that increase your total cost of doing maintenance? And what sort of risks are we seeing when those maintenance activities are pushed out? And just a third question, if I may, on top of that.
When you're looking at the Finnish strike, how should we think about that in terms of the segment impact? You talked about CHF 25,000,000 for the whole company, of course, right? But where did it hurt most?
If I start with the last question. Yes, Ulla, sorry.
Yes. Thank you, Lars. So you want to take the last question, Anika? Please go ahead, Just.
Yes. I will take the last one. It's easier to say that because the biggest impact was, of course, on our Packaging Materials division. If we look at Wood Products, we had a challenging Q4 already. So there the impact is not as big even if the mills the sawmills were curtailed.
And also for Paper division, of course, we had some shutdowns. But the biggest division that was affected was Packaging Materials. If we then look at if you can repeat your first question.
Yes. So we have seen very strong demand in containerboard. It's seen that in numbers Consumer and board, have you seen the same sort of positive impact from COVID?
For quarter one, yes. We have seen a strong demand for liquid, food and pharma end uses. On the other hand, if we look at goods that are more seldomly consumed like luxury, the demand has decreased. If we look at containerboard and e commerce, grocery e commerce is an area which is now picking up a lot. And we think that this is driven solely by COVID-nineteen and people staying at home and ordering food at home.
Going back to Consumer Board. A lot of the fast food restaurants have been closed. So that was a negative impact for Consumer Board division. So as I said, it's a little bit of mixed picture depending on end uses. We expect that food, medicine and hygiene area will stay strong moving forward.
Okay. And I
my second question on
The maintenance, you know, how
that Yes. Plays maintenance.
Course, we I are contemplating can think that. So full year maintenance cost as such is not changed due to the pushing to do second half. We have managed to do that on time. And obviously, we have some parts ready waiting for the maintenance works. But so far, no major effect on total year.
And of course, we have been watching also what can we move forward without endangering the asset quality or safety at the mills.
Got it. And just two just quick ones. So the experience from China, of course, called out in Packaging Solutions, there was some weakness. Have you seen that recovery now in a decent at a decent pace post March and going into April as China starts to open up? And finally, if you can just clarify, when you're talking about the onetime savings, 10,000,000 in the current quarter, 85,000,000 in the big program, What are those relating to?
How should we think about those?
I can take China and you can take the cost the profit protection step. If we look at China Packaging Solutions units in China were close to the Chinese New Year, approximately thirty days, but they have been starting and running since then. The effect on Packaging Solutions was minor of that closure. And as Svep also mentioned, in Packaging Materials, Beihai Mill has been operating all along. And there, the end uses that Beihai Mill has packaging, in food service board, etcetera, has been running really well.
So there, we did not have any closures in Vehi.
When it comes to profit protection program and this kind of onetime effects and benefits, it's things like canceling participation in certain events, for instance, or for instance, like fairs and other things that are then coming back later once we start to participate in those again. Traveling related things, etcetera, these kind of temporary things that you stopped certain spending this year, maybe a little already next year also, but they will come back later with permanent ones, then we are talking about the cost change and costs that are not coming back in future. Consulting is one good example, also delaying some development projects and that kind of things or cancellation.
Got it. Thank you.
Okay. Our next question comes from the line of Johans Grunsellius. Your line is now open.
Yes. Hello, everyone. Johannes again. I have, first of all, a question on the forestry division. So the EBITDA, if you exclude for forestry evaluation, was a bit higher than what we have seen over the last quarters.
Could you give some color on that? What's behind it really? Is it the forest outtake? How was the mix? Or is it more on the cost side?
So I would appreciate if you can sort of elaborate on that.
Maybe Sepo can take this.
Yes, thank you. First of all, it is a reflection of good efficient harvesting in Finland in the Finnish wood supply organization. Also, you have to remember that this new Faridig setup was not in place during the first quarter last year. It was more effective second half of last year. So that is having somewhat positive effect.
And then Tornator, our asset based company also had good performance this quarter.
Okay. When you talk about the new setup with your new organization, I mean, it possible to give any numbers on what the impact was from that and how you see that for the next few you know, over the next quarters or years?
We don't keep that kind of split on the division Right.
Right. Then I have also a question on on your wood product divisions. I mean, your your wood products is a bit different from from from the rest of the industry in the sense that you have a lot of CLT capacity. Could you give some bit of outlook comments, please, on how you see this division and particularly the CLT business given that there is a lot of macro uncertainty, obviously, because of the corona situation?
Yes, I can take that, Ulla. Yes, sure. If we look at the long term, we expect the demand for wooden buildings to continue to increase. So our Building Solutions part in Wood Products is going to be strong. Now short term, a lot of the construction sites are of course shut down.
People are not able to move around in Europe and work in the construction sites. On the other hand, many countries might also stimulate building and infrastructure projects moving forward. But currently, Wood Products is affected. We don't expect any kind of quick turnaround for that division as the situation looks now.
Yes. Are you still able to get out to manage decent volumes, but you sacrifice on the high end products? Is that how one should see it? Or is it more that you, for example, will lose, I don't know, 20%, 40% of your volumes or something like that for the second quarter? I mean, can you help me with the thinking there, please?
What we're doing in Wood Products is that we are decreasing the shifts that we run the mill. So in Central Europe, we have already started crude carbide short term layoffs and short time working. And from that perspective, the mix, of course, we continue to deliver on the projects that we have commitments on. But as time moves along and the economy is getting more kind of softer, I think it looks tough for Wood Products moving the coming quarters.
Okay. Okay. Thank you very much.
Thank you.
Okay. Our next question comes from the line of Mikael Doepel. Your line is now open.
Thank you. Just coming back to the demand trends already discussed for Wood Products and some packaging grades. Just had a question there on the graphic paper side. You mentioned that you see an accelerating decline there.
Would you
care to quantify what kind of magnitude of declines you're seeing right now? And also what's your visibility there? Thanks.
Yes. As we see in paper, the end uses of retail, for instance, or office paper when people are staying home, they are going down really rapidly and the newsprint as well. People are moving to digital to get kind of the latest news there. So we expect that the European paper demand will decline almost by 30% moving ahead. So it's really weak economic activity.
And Paper division had some COVID impact in the first quarter, but that is going to be accelerated moving ahead.
Okay. That's very clear. Thank you. And then a second question on a different topic, mainly from a cash flow management point of view. You made some changes to the CapEx guidance.
It was still fairly marginal, I would considering the full CapEx. I would assume that the reason there is that you have the old conversion projects planned for this year. So my question there is, do you have any flexibility to postpone that project in case things turn really bad?
Yes. Right now, you are totally right. Olu project is about EUR $250,000,000 of this year CapEx. So we have postponed noncritical projects for the year. We are continuing doing environmental investments and investments that make us stronger for the future that are already committed and those are quite difficult to kind of get out of, if I may put it like that.
For Oulu, the civil works are ongoing at full speed right now. We are evaluating when to start up production. It's going to be a question on if the demand is there. And regarding the possibility to postpone the CapEx, well, we have commitments. And of course, this is a trade off between breaking contracts and the cost that, that has.
But of course, the further we move ahead, the better visibility we will have and we will assess that if we need to do that move.
When And
when it comes to cash management, we obviously continue to work on working capital, inventory levels, receivables, strong control, especially in this market situation when it comes to receivables and credit management and payables. So the traditional actions that we continue on the working capital, that way boost the cash flow as well.
Sure. And on that topic sorry, yes,
go ahead. And on Oulu, I just want to say that this conversion from the paper grades into kraftliner is going to make us stronger as a company in the future. So even though these short term, it's looking a little bit tough, This is an area of growth and a big market.
That's for sure. And just finally a follow-up on what Seppo said about the working capital. Just looking at the numbers here, I can see that last year you had a release of $240,000,000. In Q1, you had a tie up of about EUR 150,000,000, but that's probably seasonal. So would you care to quantify a bit what kind of release do you expect to be able to achieve this year, working capital?
Well, you are right. Q1 typically working capital goes up, and that's visible also this year if you compare to year end. But we are clearly at a healthier level than a year ago, if you look at year on year. If look at the full year and where we stand, we believe that we can knock out something like EUR 100,000,000 from the working capital.
Okay. That's very clear. Thank you very much.
Okay. Our next question comes from the line of Aniti Your line is now open.
Yes, thanks. It's Aniti Koskiwari from Danske. Most of my questions have been already answered. Maybe one follow-up on on maintenance work. Now it it's pushed back towards H 2.
I assume everyone else is pretty much doing the same. Is there a risk going, you know, into H 2 with all these maintenances? I think it's gonna be a fairly busy maintenance schedule. Then is there a risk that, you know, the capacity won't be there for everyone, and
there could be
further postponements and potential impact on production volumes in H2. Is that a risk at all? How do you view that?
This is the reason why we keep very close contact with our suppliers. And you're probably right that many companies are considering of moving their shuts. But always the industry also has to use the same type of suppliers for some of the critical works. So this alignment happens through our suppliers. I'm not worried about any additional risks in that sense.
All right. Very clear. Thanks.
Okay. Our next question comes from the line of Robin Santavirta. Your line is now open.
Thank you very much. So you commented about the demand and delivery outlook for the European graphic paper market. Could you also give the same kind of comments about the packaging materials and the pulp business you have? What are we talking about? What are you seeing now for for q q two?
I think demand for packaging materials is going to continue to be strong for the end users that I mentioned, the food, liquid, hygiene and medical and pharma. And as I also said, is mixed with other types of packaging. If we look for instance, industrial packaging in packaging materials, most of the industries have standstills and that is unclear where that demand is going. It's much tougher for packaging materials to give kind of a clear demand estimation or guidance on this. So I'm sorry, I cannot do better than that.
We will have to wait and see how Q2 develops. If we look at pulp, I do not expect any price increases to happen during this year. Probably if something turns is by end of this year, considering the big inventories that are out there. And here also for the graphical end uses where the pulp is going, it's going to be tough. Also dissolving pulp before textile end applications is difficult, whilst the hygiene and tissue area has so far been quite strong.
And this is the best estimation we can make at this point.
And in terms of volumes in pulp now now what what for q two, what what are you seeing there?
Well, if if I look at if I don't remember totally wrong, we see a decline of volumes of approximately 1,000,000 tons. Correct me if I'm wrong.
But your for your deli delivery is now now in in in in q two. Are they are they growing compared to Q1 or declining compared to Q1? In Q1, you had these strikes.
Annika, maybe Peppo can support you here. Yes.
I think, first of all, you have to notice that, like Annika said, the market is a bit different depending on what grade you are in. And in our portfolio compared to past, also we have a bit more dissolving pulp and fluff compared to past. And there, the drivers are a bit different. And then if look at the demand, graphic papers are down. But then we get compensation from the fact that packaging volumes, hygienic and tissue is rather stable.
So no serious drop or move to any direction when it comes to our own demand. But like Annika said, the market demand as such is, of course, considered somewhat weaker in Q2 and three because of the coronavirus effects on the demand in general and markets.
I think the demand, I said 1,000,000 tons, it's about six to 7% globally. So
Yes. For the for the full year. Yeah. Yeah. That I understand.
I understand. In terms of pay paper, what measures are you now taking as as demand is is is weakening? And secondly, what is the average price interval you have in in Europe in in graphic papers?
If I can take what measures we are doing is, of course, when demand drops, we take temporary layoffs at the mills. And as always, we make sure that we have very good cost management. Then we evaluate our strength in the business. So this is what we have always been doing with paper assets. And Sveppo, perhaps you can give a guidance on the price question part.
Well, like I said, we are not giving guidance and market outlook, so we don't comment the market more than that. As we said earlier, we have seen sort of expected price increase on pulp market did not happen after Chinese New Year because of COVID-nineteen spreading around, and that pricing has been delayed. But the prices as such has been holding pretty well, well as you have seen when you follow the fixed indices and others that are coming out weekly. But they are, of course, pretty low to start with, so it cannot drop anymore.
Yes. But in terms of paper, so I guess I was wondering about the average price interval you have in the European graphic paper market. So is that half a year or is that three months? Yes.
Typically, if you look at the paper market, it is from monthly to quarterly, max, semiannual.
Right. I understand. And then finally, just on Forrest, just maybe a clarification there. Do you see in looking out two, three years that you can improve the profitability of that business compared to some of your peers, the profitability and margin looks quite low. And from previous comments, have understood that the intention is to improve that profitability.
But is that already what we see now in Q1 or is there more potential ahead?
I think there is more potential ahead. Q1 was not a normal quarter from a forest perspective, harvesting operations due to mild winter conditions and so on and also demand in many of the end users. So I think there is potential to increase from a growth perspective. We have said 10% there in the growth in our forest. And of course, if we look from an asset management perspective, we are of course always scouting the market to see if there are opportunities out there that we can strategically acquire either directly or through our partnership with Tornado.
And also if we have assets that are considered non core for our supply of wood to our operations, we can also divest. But clearly, our focus now in creating the Forest division is to drive more value from our Forest operations.
Thanks. And maybe one finally, I may. Now this sort of liquidity pile up that you are doing at the moment, is that only to safeguard the company's liquidity position for normal operations? Is it also are you also looking to add the M and A market or maybe to take advantage of the potential very tough times we have had in terms of M and A?
If we look at it, no one knows how long and how deep this recession is. So better to be safe than sorry. We were proactive here and we want to have the flexibility in our business to make right choices should an opportunity also arise. But primarily the focus is to make sure that we safeguard the liquidity position during these uncertain times. And then you never know what happens on the market, of course, if a good
you.
Thank you. Okay.
Our next question comes from the line of Linus Larsson. Your line is now open.
Thank you very much. I'd like to come back to the containerboard market, and maybe if you could just open up a little bit on a snapshot of your order book situation, that would be very helpful. And and also, if you could please remind us of your segment split within containerboard, please.
If I may say on our order book, it is healthy and strong so far. So that's what we see in in container board. And then the split, I don't have it on top of my head, Seppo. Do you have it?
Well, if you go to containerboard there, we have the kraftliner production, 390,000 tons in in Varicaus. We have looting operation in in Hainola, about the same as Varikau's, a bit over 300,000, 400,000 tons. And then we have recycled board testliner production in Ostroleka in Poland, 450,000 tons.
Sorry. I was actually mainly what I meant was your end use exposure within containerboard, how much is fast moving consumer goods? How much is industrial, etcetera? Sorry.
So you mean packaging material division in general, or zero
In in containerboard.
We we we don't give that kind of split. It's it's partly difficult to follow also because that is going to convert us, and then we don't always know what who are the end end customers that they are serving.
Okay. And just coming back to your answer, Annika, the order book, it's healthy and it's strong. I don't know if you're willing to put any numbers on that, but is that on the same level as a quarter ago, a year ago? Or would it be possible to put it into some sort of reference?
I think it's hard to put it into reference if we look ahead. We don't really know exactly how it's going to develop. So far, the order book looks on the same level as q one.
Okay. So when you talk about, I mean, the risk of I mean, you have been focusing mainly on other segments, maybe Wood Products and Paper when it comes to the near term weakness. But in containerboard, it's really you haven't really seen that weakness as of yet. Is that the way we should understand it?
Not major impact so far, no, besides the China packaging mills that we had in Q1, but they are back in operation now.
Right, great. And maybe linked to this just coming back to the Oulu project, and I'm not sure I understood you right, but I think you said something, Annika, the demand situation at time of completion of the project will determine the start up. Could you just explain that? I mean, markets are weak, you might not start the machine on time? Or did I misunderstand what you said there?
No, you did not. A ramp up, you can always choose how quick you ramp up your machine. And the plan as now is to start up the machine from 2021. But if, of course, the market is very weak, we can choose to have a slower ramp up or also postpone the actual kind of start of the machine. And then this is we are starting a temporary layoff discussions as you know in our operations globally to have this flexibility if the demand is not there to be able to temporary layoff our people.
Gotcha. And so the the start up is going to start in the fourth quarter or first quarter at the earliest? And also in relation to that, what kind of startup costs are we talking about?
I can't answer really if we have any specific start up costs, anything specific that you're thinking of more than the ramp up curve of of the actual machine getting it up to full production.
Exactly. Yes. That was more thinking. From I mean,
a personnel perspective, if assuming now that we have a normal ramp up, then you run the machine and the mill as much as you can. And then so from a cost perspective, there is no specific impact there. But, of course, if you have a if you have a slower ramp up, you can select how many shifts you run and how you set up your ramp up, how many days you are running, for instance.
And if you compare to Warkaus where we did similar conversion three, four years ago, there we sort of passed the ramp up phase in roughly a quarter or two. So it's relatively fast compared to Beihai forest, but that was totally greenfield. And also, we are talking about liquid packaging board and foodservice boards, where the qualification process is also long and more challenging.
But this should
be relatively fast, assuming normal market conditions.
Right. Excellent. Thank you very much.
Thank you.
Okay. Our next question comes from the line of Marco Curvillen. Your line is now open.
Yeah. Hi. This is Marco Corvidend from Honda Smart Home. Just had a few more questions. Just on the profit protection.
So did I understand correctly that you achieved 105,000,000 roughly last year, and now you'll exceed that by EUR 105,000,000 this year? So it's EUR 105,000,000 improvement compared to 2019 and then another EUR 140,000,000 improvement on 2020 in 2021.
That is correct.
Good. And then the €85,000,000 how should we think about that? How does that split across the three years?
If you look at the last year, we were at the end of this quarter in total at something like two ten roughly, and that was 40,000,000 from this year, that's 170,000,000 So that was something like €60,000,000 last year and then rest through the rest of this year and then the remaining 21 is then continuous savings because then these onetime savings are sort of running out.
The onetime savings were mostly last year. Is that
the Yes. Okay.
Good.
Then could you say something
about wood cost? How does that look now for you?
Well, the wood prices are the wood costs the wood prices are going down if we look at it from a buyer's perspective. So they are quite stable at this point. But if of course the demand decreases the coming quarters then we will see a decline in wood costs or wood prices.
Okay, good. Then still on paper, you mentioned the 30% decline that you expect to see. Is that sort of starting from q two, or what's what's the visibility for you?
Yeah. It's q two.
Okay.
And that's quite a significant decline. I understand you're taking temporary layoffs. Does would that mean closing entire mills? And how much fixed cost do you think you'll be able to manage down?
We have no plans currently of closing full mills. We take it line by line if and when needed.
Okay. And I think you also said that you see this decline as accelerating structural decline. I appreciate that you're converting all, but on on newsprint side on especially SC side in magazine, I suppose you have quite a lot of capacity, and I suppose the utilization there is getting quite low. What kind of timeline or what kind of a need do you see for sort of
permanent closure of capacity in those grades?
In Essie part, I think we should remember that Maxau and our mills are quite good from an asset point of view. So I will not give any timeline of permanent shutdowns there.
And on newsprint side?
We do not disclose any information like that. We will come back to that if and when it becomes a reality.
And also Tealangenbrypt is a strong meal in newsprint business.
Okay. Very good. Thank you very
much.
Thank you.
Okay. Our last question comes from the line of Cole Hathorn. Your line is now open.
Thank you. You mentioned you're starting some temporary layoff discussions to allow flexibility in case demand weakens. Can you give an idea of what the cost impact is to earnings if you need to temporary close one of the larger mills? So I mean, we think about it as effectively lost volumes plus a portion of the fixed and variable costs. I'm just trying to understand a list of volumes, what could the impact be to earnings?
This is of course very hard to make any such kind of prediction, because it is as we said a precautionary measure. So we do it on the functions and also on the mills. And it is very much locally dependent on which business segment you're in, if you're going to temporary lay off people. So I don't I cannot give you an answer to that question.
I really understood your question correctly. You asked about the cost to cost of the temporary layoffs. And actually, there's no temp no cost as such. It's more a question of how much cost you can avoid, and that depends from country to country. In Finland, for instance, temporary layoffs, you can avoid the salary cost totally.
While in some other countries, is up to 40% or 30% or depending on local laws and regulation.
Great. Thank you, Seppo. That's good color. And then
just No onetime costs as such when it comes to temporary layoffs.
Sorry, I misunderstood your question. Yes.
And then just on the dividend, I know you've changed the way you are now disclosing your adjusted EPS. Should we be thinking of any difference in your declaring your dividend policy medium term or not at all?
No, we are not changing our dividend policy.
Great. Thank you.
Okay. Thank you. And thanks for everyone for the very active participation. It's difficult times we are living and or extraordinary times we are living. So I understand the number of questions.
So Annika, back to you for the final words from Storanza's side.
Thank you very much for all your questions. I know that it is a challenging time, but we continue focusing on what we can impact. And as I said, strengthening our resilience and ability for a quick recovery. That is our main focus moving forward. And with that, I would like to wish you all to stay healthy and stay safe and talk to you again next quarter.
Thank you. Thank you.
Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.