Good day, and welcome to the Q3 twenty eighteen Stora Enzo Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ulla Hayanan, Head of Investor Relations. Please go ahead.
Thank you, John. Good afternoon, everyone, and welcome on my behalf also to our Q3 twenty eighteen conference call. And I will now hand over the call to our CEO, Carlos Ustrom. Carlos, please go ahead.
Thank you. Good morning or good afternoon or good midday wherever you are in the world. I would like to go through a a couple of highlights in the 2018, then I will hand over for some more deeper presentation by circle. So sales continue to grow. We almost grew 5% if you exclude the divested Food Market compared to a year ago.
Operation EBIT came in at an important growth of 23% versus the same period last year, and and and it's an EBIT margin of 13.8%. It's very much driven by favorable pricing, but also by an active product mix manage management from from Stovenza. Strong cash flow continues to be generated by the entities, and we have continued to strengthen the balance sheet. Net debt to EBITDA is now at 1.1 versus 1.6 a year ago. And operational return on capital employed is is actually well above strategic target of 13% and and reported in the quarter is 16.7.
If we go in to to to that snapshot of the different divisions. So we have had a packaging solution having another record quarter. We have had biomaterials with the EBIT record, and we have had wood products coming in with the best third quarter results ever in the history of wood product. And then we have an impressive improvement from from from last year for for the paper going up with with 125%. Then if you look on consumer board, which are caught up in a a a situation where we are having variable cost increases going faster than we have been able to compensate the long term pricing we're having in this division.
If if I start about what happened in the quarter, so first of all, variable cost increased by over 40,000,000 in the quarter, and and of which 75% is coming from increased pulp prices as well as increased wood prices. We now see that that will be flattish going into q four. On the good side, we have two things here. We have seen the first impact of small price increases that is more going in the right direction. And on the other hand, we have kept the fixed costs flat.
All in all, I think this snapshot that you see in front of you very well demonstrate the strength of the portfolio we're having with with one one division is caught in a timing difference. We had a very good progress in in all other four divisions. Fifth consecutive quarter with a a return on capital employed above 13%. That that means that we basically have established a a different level of return on capital employed, which I've been very proud of. Took us a long time to get here.
Our intention is to stay here going forward. Then if I go into some of the transformation steps. So we have announced that we are upgrading and expanding the corrugated packaging in in Riga, Latvia, and that's a project that will be will be complete in 02/2019. We have two additions into our expanding biocomposite business, which is located in Sweden in Hilter. One is that we are building up a competence center, and the other one that we are investing in additional production capability.
And then, Zuerre, Emerson and Goa, Zuerre, is actually investing together to build a biogas plant at Zuerre, Neumella, Pepemere in Sweden. This is an interesting thing. This means that outbound and inbound logistics can actually start to use biogas in in the truck. That is Scugio structuring is ongoing due to the the the the very complicated structure. We believe that we will be ready during the the the 2019.
This is no have no implication on anything on the wood sourcing. The wood sourcing remains in direct as previous going forward until we reach a a final conclusion. And then all of conversion feasibility is ongoing, and we will probably come to a conclusion and a final understanding by the end of the year or beginning of next year. Before handing over to to to Zepko, we're coming back to this slide that we had for a couple of years now describing our transformation journey. As you can see, we are moving in the right direction, and and and we are getting a more balanced portfolio and and having this quarter especially a very strong performance coming in from wood product, biomaterials, as well as packaging solution.
And then also a good result coming from paper. With that, I would like to hand over to Seth.
Thank you, Pawel. And I started some of the key figures out of the report that we published today. First of all, our top line sales increased 3%, and operational EBITA margin was 19.4%, a pretty significant increase compared to a year ago when we have 17.2% of pressure EBIT margin for the quarter. Operational EBIT increased 22 23.4% about 358,000,000. And a profit EBIT margin at 13.8%.
EPS earnings per share, up 12.9%, and it was €0.27 cents per share. Operational return on capital employed at 16.7% level. And like Carla already mentioned, it's been consecutive quarter now that we have all the targeted minimum 13% return on capital. Positive strong cash flow also has continued, and net debt to operator EBITDA decreased from 1.6 per year for the 1.1 at the end of this q three eighteen. Moving to our divisions, and I start with consumer board, The sales growth continues.
This increase to report high q three, six hundred forty eight million euros, and this tends to increase volumes as well as the first price increases that are visible now. Also, volumes and and ramp up of PayHigh meal operations are improving the sales line. Operation EBIT decreased to €50,000,000. And this is, as we have mentioned earlier, due to the significantly higher variable costs, especially pulp, chemicals, and wood costs that have been so far only partly offset by improved sales prices and fixed cost management. But like Carla mentioned, now that the that the unit is coming and the renewal of the contract has been started, we already see the first price increases visible.
Demand continues strong, so we are confident that going forward, we can also increase selling prices as planned. Operational return on capital, 10.3%. And then important step in, you know, transformation and development of alternatives for plastics for a successful retail of a machine at in Finland for industrial production of MXC for production. That part is starting now during q four this year. Then moving to packaging solutions where we have another all time high growth.
They increased 4% to record high €230,000,000. Also, pressure in EBIT increased to an all time high of €68,000,000,000. Operational return on capital also at all time high level of 30.4% and clearly above the strategic target of 20%. We also announced investments in in our corrugated packaging plant there to upgrade the machinery and expand the capacity. It was €9,000,000 investment.
Then we're moving to biomaterials, and their strong pulp market continues. Sales up 9% to another all time high of €430,000,000. No pressure in Egypt falls at all time high level of €125,000,000. Both top line at all time high and the pressure in Egypt despite the maintenance shutdown at Sulaimanil reducing the volumes. Operational return on capital increased to a new all time high of 20.9%, which is clearly above our strategic target of 15% when it comes to buyer materials.
Also, Linmi, we need to buy store and shop one best product innovation at the ICIS Innovation Awards two thousand eighteen. Another recognition for the innovation work we are doing in store brands. In our good product, Davidson, good faith building continues to grow and sales excluding direct improvement increased 6.4%. Operational EBIT up 64% to record high Q3, thanks to better prices and mix as well as volume growth supported our strategic investments at Muro Sawmill and Warkash LBM. Operational return on capital continued at record high level of 31.6%, clearly above the strategic target of 20%.
We also continue to develop our business portfolio. We announced €7,000,000 investment in female competence center for biopharmaceuticals Sweden. We also announced operational steps with finished start up, Drekru, to develop innovative digital services for building. And with Cortex, we launched a new range of kitchen utensils made from bio composites. A total of 98% bio based material.
Then moving to paper division, where solid profitability and cash flow continues. Sales increased 7% to €779,000,000, and a percent EBIT increased 125% to €65,000,000. Good market balance continues on the paper market. Also, cash flow remained strong. Cash flow after investing activities for sales was 8.3%, thanks to better and improving profitability.
We also announced investment with to build a biogas plant at Storaz and Newmolar paper in Sweden. This is total investments of investment of €5,000,000 for Storaz. Then looking at the strategic targets, then we are making good progress. Most of the targets are on green, as you know, so already the previous quarters. Couple of them remain on red.
Fixed close to sales, coming down to 23.3%, but still above the maximum 20% that we have defined as the target level. And consumer fraud at 10.3%, You are the 20% level. I think it's a reflection of of the billing update. Our news still in the balance sheet, even though that the ramp up is moving ahead as planned and qualifications, and the time lag between the cost increases that we have seen this year and the selling price increases that have been started now. You might notice that when it comes to dividend, we have changed the wording a bit there.
It's it's just now to 50% of EPS over the cycle. So the policy itself is not changed. We are just more precise now instead of returning to net income, returning to EPS, and we get more clarity to to dividend based on share. With that, I hand over back to you, Karl, please.
Right. Thank you, sir. So now I will go over the outlook for the fourth quarter of of of two thousand eighteen. Sales are estimated to be slightly higher than the amount of €2,585,000,000 recorded in q three twenty eighteen. Operational EBIT is expected to be in line with or somewhat lower than the 358,000,000 recorded in the 2018.
The EBIT guidance is in line with the normal seasonality that we've seen over the last year. And it it is also to be spelled out that the increase in variable costs will not continue. They will more be, like, flattish in in in in the fourth quarter. And there, in the estimate, a negative €10,000,000 impact on operation EBIT is expected due to production restriction at the uncoated fine paper mill in Lima, La Florida. This is because water at the nearby lake, which supplies the water for the mill operation, is at a very low level, and we have to actually stop production in one line.
And and that and and and and the impact of annual maintenance shutdown is expected to be similar to q three two thousand eighteen, and all these are included in the guidance. Just before going into to to the the the q and a session, I just want to highlight some some of important parts in this quarter. It's it's the seventh consecutive quarter of sales growth, the fifth consecutive quarter of double digit operation EBIT margin, fifth consecutive quarter of operation return on capital well above the target of 16%. The balance sheet continues to strengthen. And if you compare 2000 full year 2018 and '17, EBIT are expected to be clearly higher in 02/2018.
Moving from asset transformation to innovation and sales transformation continued successfully. And I also think this quarter, we we are demonstrating the the the strength of our portfolio while while having one division being caught up in timing difference between where the cost increases and and prices, the the four others are more than compensating that downfall. With that, I hand over to Ula.
K. Thank you, Karli. And just a reminder that we will be hosting our Capital Markets Day here in Helsinki, November 7, and subsequently, visits to Hainan and Laffy Packaging Solutions meals. So now, John, I think we are ready for the q and a session.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will now take our first question from Michael Jasse from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Hello. Good afternoon, everybody. A couple of questions from me. You point in your Consumer Board operations that you're aiming for price increases.
Can you sort of elaborate a little bit on the mechanics in that business when you have longer term contracts, etcetera? What's normal to seek compensation for? Are these carton board prices linked to pulp? Basically, how does it work in that business? And then a second question on the Packaging Solutions side where you say that in RCP containerboard and corrugated, you see slightly weaker demand in Q3, Q on Q.
Is this sort of something seasonal or is it cyclical? Could you sort of just talk a little bit about that? And then thirdly, in your lignin business, it seems to be going well and however small. Do you have any sort of further plans to expand that that you could talk about? Thank you.
So so, if I start with the pricing, so so roughly about one third of of of of the contracts are up for renewal within and it's basically FBD in in in in consumer board. So the negotiations are ongoing and have started. And and and what what we have are working on is for increased prices because they are market based. We are not unique in this situation that we have high prices. But important thing is there is still a very big demand.
So market will decide this, but we expect prices to go up in the beginning of next year for the FTD. Then you have all the the long term liquid contracts, which are negotiated during 02/2019, and we probably have effect more likely towards the 2019. K?
Yep. Okay.
So that was that was the pricing question. Then when you talk about the the the or CT based containerboard, the test liner, we we we we we in q we we saw that there's a slightly lower demand. And and and when we look into going forward, we we we think that that's gonna change a bit. It's gonna be a a a a slightly stronger demand in q four versus q three. And then regarding lignin, it's still very small volumes, but but we are also now starting testing to use it more internally, especially on the LVL.
And this is gonna take a a couple of years before we get the volumes where it's actually, in in in it's something to really report here. But we have good traction. And and if you look, who gave us the price? It was actually the full time based consortium. It's a petro based consortium.
Okay. I think I Yep. Many thanks.
Thank you. We
will now take our next question from Linu Larsson from SEB. Please go ahead. Your line is open.
Thank you very much and good afternoon. I'd like to follow-up on Consumer Board and maybe to continue on price. So if I understand you right, you have one liquid packaging board price contract up for renegotiation in the 2019. Could you please confirm that? And the remaining part of the liquid packaging board business, when would that be up for for price renegotiation, please?
So without going into too much detail, it's confirmed that we have one in in the 2019. That's correct. We have one that is basically starting now early early yeah. End of this year, beginning of next year. And and and and then the other one, if I remember right, is in 2020 for the big one.
Okay. So the one so one one contract has been do I understand that right? One price contract has been renegotiated that has been settled, but not yet reflected in your your No. Okay. No.
No. Nothing has been renegotiated on the liquid contracts. The the improvement that we saw now in q three are added rates.
Gotcha. So when you say one third up for renewal by the start of 02/2019, that includes one LPB contract?
That is basically more around the area of the FDD, which is not liquid.
Okay. But but I I thought you
just said that you
had one one LTV contract. Negotiate.
That's why I was clear when I talked about it. This way you will see the effect is in the later part. You negotiate and you set it, and then there are different timing when the prices starts. Okay. So that's what I said earlier.
You will see it towards the second half and the end of the 2019. Okay. Okay. Excellent. And then Sorry?
Yes. Yes. So the one third that will be affecting is basically STD contracts.
Excellent. That's very clear. Thank you. And then just looking generally, if you look at EBITDA per ton in Consumer Board, it's under pressure, while EBITDA per ton in biomaterials or many other businesses also are doing much, much better. What opportunities do you see to shift some of your volumes, which are now in less buoyant, less cyclical Consumer Board segments into somewhat, for the time being, more lucrative business segments?
So so first of all, we are obviously working on that one to to get into others. But at the same time, having these long term contracts is we see basic as a timing issue. I think it's very important to look upon it that way. Now we are in a situation where we have had, you know, basically, in one quarter, over 40,000,000 increase in in variable cost. And now we see them flattening out towards the end of the year being flattish.
And so so so we are doing that on the margin, but it's also about what machines you can use to certain drinks and and where you can actually swing. So we are trying to maximize that. Absolutely.
I guess it it can also be a bargaining tool in in in some of your price renegotiations.
Obviously, they also see our financial results and then see that, you know, the the the the traditional very profitable consumer board is not the most profitable any longer when you when when when you look on on on a number of analysts. That's that's absolutely correct.
May may I also ask about seasonality? So as we went into the third quarter, you said that for reasons which weren't entirely clear to me, but for some reasons, seasonality, which historically has been very positive in the third quarter, didn't quite materialize in 2018. Could you talk a bit about seasonality in Consumer Board in 2018, please?
Yeah. Yeah. So so first of all, I tried to explain that in this snapshot of the business. So basically, we're having a record sales for q three in in in in in consumer board. But at the same time, we got over 40,000,000 of of variable costs coming in.
So EBIT is, you know, going down. But if you if you're comparing the seasonality between q two and q three, you you you you you you have to remember that, you know, in in in in in in q two, we had we had very high in in maintenance. And in q three, we had in Matra and Ingeros. So it's a little bit the shift. And then you have to remember when we went in to the third quarter, we were still and we still estimated it, but we guided for for for for for q three that we were worried about the wood situation.
So so and and and we did take down the pulp production in in in in in the in the mills where we had to be able to deliver the board, which means that we have less pulp sales now.
And and then the the follow-up question then, how do you look at the fourth quarter in Consumer Board? What kind of seasonality do you see going into the fourth quarter?
So so, basically, we we are having the two same names being in in maintenance. So we we expect the same, but the only thing is different. We don't expect variable cost to continue up because what we see is the pulp prices, we believe, are stable going forward. And we have seen also that wood costs are are are going to be stable. Because during the first seven months of this year, we had due to the fact that there was very limited supply of it for various reasons, which meant that we and our competitors were buying on the margin to keep the pulp needs going and and to be able to deal with the boards.
And and and now we are more in a stable situation in our inventory levels of of, wood to the mills are back to normal. And and we haven't seen price prices go up, so they are stable. Then we see the pulp pulp are stable, wood cost are stable, and then we also see that chemical seems to be more stable than previously. So that's a little bit how we see it going through goes into q four. 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. I just wanted to start where you right where you ended about wood costs. When you say they're stable, all the most purchase organizations in Sweden during August and September hiked their prices between SEK20 and SEK45 per cube. Is that not real? Is that not happening?
Or how how should how should we read that? And also, can you you know, if if those numbers are right, when should we see that coming through in as cost increases for you for that externally purchased wood?
So so we we have had until the end of q three, we have had quite significant increases in in in in the wood prices, both in Finland, Sweden, and the in the Baltic. The majority will be taken. Going into q four, we see them being stable and the supply situation being stable.
So stable at that at that stable at that elevated level?
Yes. We we we don't see additional effects coming in to to q four.
And just to be clear, are you paying those prices? Because typically, in the past, you've had maybe three, six, or nine months of standing timber on your books, so to speak. Right? So you're not really seeing
the p and a impact.
On that on individual wood prices in Sweden. I will not do that. So from from what we see, we are in in in a situation where we don't see further increases on wood prices across our across our portfolio.
Yes. And and you also have to remember our portfolio is pretty wide. So if you look at the total wood cost that we are looking at, we also affected quite the development in Finland and and Central Europe where we are sourcing as well.
Oh, absolutely. And also, I
just wanted to 25% of our wood supply in the total to rent the country in Sweden, 36 from Finland, and then in a number of other things.
So just to confirm a bit on the very long term contracts in liquid paperboard, we don't, of course, don't know the full duration of these things, but it sounds maybe like the three to five years or in that range if you can confirm. But do you not have any escalators in that for general cost inflation? Are they actually fixed fully for whatever duration of the contract is?
They they are fixed.
Understood. Just turning page a bit on biomaterials. Of course, we've seen very strong pulp markets. We heard from UPM the other day that their delivery volumes are down 6%. Your delivery volumes are down eight.
What is your the reason for your volume contraction in bulk deliveries? And do you see that as a potential upside for next year to get those volumes back to where they should be?
So so so in this quarter, we had a a a maintenance stop at sooner now. So that's part of explaining the the volume. We we all bet obviously, are are going to make sure that we deliver as much as we can out of our our pulp mills, especially since we we see stable prices going forward for a couple of years since the demand and supply balance seems to be quite stable.
Just to be clear, though, you're down 8% year to date, right, which is obviously and you had a similar amount of downtime, I suppose,
from Okay. If if you take year to date 8% down, you have to remember that we took our pulp mills down when we had the the problems in q one and q two with approximately 10%. And that
is Right.
All our pulp producing 5,800,000 tons annually. Because it was not enough now. So we wanted to to make sure that we could could could run boards and other things that we will help help in running them slower, basically, that we did in q one and q two. And that is part of that if you take year to date.
Yeah. No. That that makes sense. So, if you had normal harvesting conditions next year, you should be able to recover those lost volumes in 2019. Yes.
Yes. Yes. Point for me, I mean, there's an awful lot of noise from China in terms of and it's been going on for some time, but it seems to be coming a bit to the fore now about slowing demand generally in China with know, UPM called out the other day fine paper price pressure. We've seen from various sources that consumer boards are under some pressure even with very elevated pulp costs. What are you experiencing in your business?
Is top line an issue at all in the high or or not at all?
So so so what I would say is that q three was a bit of a special quarter because of all the uncertainties in the Chinese market with with import of OCC or or paper for recycling and the pulp and the and and the whole permitting area around that. What what we have seen is that when it comes to folding boxboard in China, we actually expect higher prices going to q four, slightly higher. But but but, you know, we are a small player in a huge market focusing a certain niche on the very high, and that's what we're working on. In terms of demand only do the margin in general. Sure.
In terms of demand trends, any any change directionally that we should think about?
Up or down? That
we have seen. Not that we have seen.
Very good. Thank you.
Thank you, Loris.
We will now take our next question from Mikael Doepel from UBS. Please go ahead. Your line is open.
Thank you. Hello, everybody. A couple of questions. First, Coming back to the Consumer Board business, would you expect to recover the full cost inflation, which you're experiencing right now in that division by hiking your own prices, or will you also need to take your cost downs to to to recover the margins?
Obviously, we're gonna we're gonna move on all these parameters. But but but since it's a very healthy market demand out there and and and and customers had benefit from from low lower prices right now, and and and and and it's gonna be negotiation. So so these are working on our own cost structure. It's obviously one of the things that we need to do as well to make sure that we get those dates because it's you know, we are not alone, but but it's not a very crowded market on the on the high quality. So it's gonna be
both. And and market demand continues strong, as I said earlier. And even though that the renewal is due to q four when market is seasonally down, we we are confident that we can we can push through and get through the the the price increases, really. Even if we
do that, we still need to work on our cost as usual.
Okay. And and would you care to give any comments on on what's happening in Bayhai? Are are you getting a a positive on this contribution there right now?
So so Bayhai is is is going according to Sam. We had q three was a a a bit of a tough quarter because it was a bit unstable what the situation was going to be between Virgin and non Virgin. But now going into q four, we see prices going up. So it's going we we we we are still ramping it up, and we are qualifying new grades.
Okay. Alright. Then switching to to the paper business. There are some comments out there of price increases for fine papers in Q4 and also some producers have voiced price hikes for the beginning of next year. What's your take on this?
So I I would be since we are in negotiations and the beginning of the negotiation, I would say that, you know, we we see prices being stable, and that's it. And I don't wanna go in any further. Obviously, I it's actually very encouraging to see paper going up with 155%. And and it sounds good.
So so And and market price remains good. Yes.
Okay. But do you think price is stable? You're referring to q four or or 2019 or both?
Q four when I say stable. But but when I go when I look, you know, being being working papers, feel comfortable of of a good price level in the 2019. I think it's gonna be good Take the period.
All right. Thank you very much.
Thank you.
We will now take our next question from Robin Santavirta from Carnegie. Please go ahead. Your line is open.
Thank you. Just in terms of the Consumer Board division, could you just remind me what the net long position you have in pulp is if you exclude, Bay High? And how much of of that have you been, able to deliver, this year?
Oh, that that one, I I I have two.
Do. Yep.
I don't have that in my head. You said that
you have to consume a board. Right?
Only to consume a board. Right?
Exact exactly.
Because they are using roughly 150 to 200,000 tons of chemical pulp. And then then we are buying buying more otherwise because we are selling less out because of the what color we've had earlier that we we have been slowing down pulp production with the first half. It needs to have been less market power. Yes. So so excluding Beihai, we are talking about couple 100,000 tons probably that we have
been buying next. But but we we we will actually do that now. But but I think it's important to understand what did we miss this year because of the wood would would if you and then what is it this year. But I think it's your your number is yeah.
So I I recall a number that that that it
would be a 100,000 tons net net net long ex excluding Bay Bay High. So I was just wondering how much of that you have been able to sell to the market this this year with the
So I I think this year, we are short because of that. We were running the top notes of 10% lower for the first six months of the year. But let let let let let let not because usually, we are probably excluding back the AI in 02/2017, we were actually selling long. You're absolutely right.
Sure. Okay. Thanks. In terms of Behar, you you stated last year that that, I guess, it was q three or q four q four, I guess, that you have reached EBITDA breakeven. Is it fair to assume that given the surge in input costs there that the profitability is roughly at the same level?
And also, stated that Q3, I guess, that it was a tough quarter for Beihai. Was that due to the slump that we saw in FBB prices during the summer, or was was it some something else? And finally, the high
And and it was also the uncertainty regarding how FBB would grow in China depending depending on on the import and non import of OCC that has been hitting a lot of people. But I I will not talk about the possibility of individual mail. I we decided we stopped that at the '4 last year when we re reached design capacity as well as EBITDA breakeven.
But that's yeah. I said earlier, we are we are fine at the pilot stage with the with the qualifications, and now it's we are moving of what we still have some some tail tail ends of the of the qualifications to be done, but now we are moving to to mix optimization as as the next step.
So the expectation is that that that the mix will still improve significantly going into next next year in Beihai. Is that correct?
It is part of the work now to to to commercialize the quality care the quality those rates that we are qualified now. Yes.
Alright. That is that is clear. And can you just confirm that I understood correctly that you expect group variable costs roughly flat quarter on quarter in q four and wood cost on a group level flat quarter on quarter in Q4. Would you mind to comment about wood cost? I mean, you must have some idea about what is going on during the winter as well, how the market looks.
So what is sort of the outlook that we see in sort of a steep increase in wood costs in 2019 due to various reasons, one obviously being you having been forced to import a lot more from expensive countries than before. So what is the outlook, Sotto, for you guys? Is it fair to assume that that the flattish outlook would continue continue when we when we start going into 2019 in terms of group wood cost?
The group wood cost, this might be my famous last words, but but but what we see, and we have taken precautions of increasing the flexibility in our wood supply organization, but we see, at the moment, more stable prices compared to to last year, and and we don't see a huge hiccup from the level that we're having right now.
Alright. That is very clear. And finally, this side, it's more
But but but that is based on that we don't have, you know, where did it source that that is that that that we can't cope. We have adjusted most of the things to create more flexibility in the Wood Supply organization, but but that's what we see right now.
Yes. Yes. Of course. And and finally, on BariVixkova, assume you have quite favorable contracts, the the ones that you had. Now going into 2019 when this transaction is delayed, should we assume that you will continue with the same sort of contract terms in terms of procurement that you had before?
Or how should we look at this now in in 2019 before the before the split up of better this book?
So so as a planning assumption, we see no change in in in the wood supply because that that until until we have signed the deal. After the deal is signed, that is something else. Alright. Thank you very much. Thanks.
Thank you. Except for your touch on the back of this question about net position that that you mentioned. I was doing some checking here offline, and it's still 200,000 tons. About a thousand is is is correct for particular, excluding NeiHigh last. And
and this year, you have been short. You have been buying from from the market excluding Nehi as Yes. All right. Thanks. We
will now take our next question from Gustaf Schorvind from Pareto Securities.
First of all, I'd like to try and understand your guidance for Q4 a little bit more. So on operational EBIT, one thing we have a pretty wide range. I think it's roughly SEK $270,000,000 to SEK $390,000,000, if I'm not wrong. When I'm accounting for everything you said now about maintenance and seasonality, where there's 10,000,000 item in Q4, pretty stable cost inflation, and I guess pricing should be quite stable as well. I think it sounds pretty conservative.
Are there any moving parts I'm missing here?
Yes. You you have to understand that the seasonality is similar to previous years, which means that you are having two big mills in maintenance, Scuga and and Foch.
But when I look at the seasonality
And then you look for that and then on top on top of that, you also have a sales pattern for consumer board. And and and also you have that in in wood product. You go into different season. So wood product usually have a lower seasonality in sales in in in in in the fourth quarter as well as consumer board. So you have a sales pattern, you have make and that's why we have the maintenance in school, unfortunately, because of the main of the seasonal sales factor, and then you have good product.
The the wide range is not a reflection that we are uncertain. It's more to get the midpoint where we think, well, where where we think it's possible and what we're aiming at.
Okay. Fair enough. Then secondly, this tax provision that you booked in the quarter, is this really a one off item, or is the risk of something like this coming back again?
No. I think it's a a true up. The tax case is pending, and we see that we have a strong case. But to be prudent, following by IFRS rules, we make the accrual up. So it's a one time case.
Okay. Perfect. And then perhaps just lastly, the new mill mill and the the restriction you have to water levels there. Do you see this being resolved quite soon? Because I guess it won't go on for more than q four at least.
So so there has been a little bit rain there, a couple of milliliters, but we we need a lot more rain there. Okay. So we don't know. I I I cannot predict weather, unfortunately.
That's alright. Thanks.
We will now take our next question from Justin Jordan from Exane. Please go ahead. Your line is open.
Thank you. Just want to check on biomaterials. The last time I checked, I think the Sanilla mill capacity was less than 400,000 tonnes per annum, and yet you delivered 91,000 less tonnes in Q3. Was the mill down for all of Q3? Or were your deliveries down more than your production?
Or are there other factors in play? I'm just you know, for example, one of your peers blamed bad weather in Uruguay for lower pulp production. Was Mantadaplasta impacted in q three by weather? Or were there other factors at play here in your lower production number?
Well, it's it's like like I mentioned that that we have maintenance at Sunilamil in q three, not the whole quarter, but quite a long time. And also, there might be some deliveries that are moving from one quarter to another, sort of typical timing issues when they are delivery. So that can play some part as well.
But we did not have any weather problems in Uruguay.
Thank you. So your your production then in q three has fallen by less than the 10.6% of deliveries full?
Yeah. But, like, yes, the deliveries are affected by these net factors as well. So but there is no no no issues as such with better related jobs
Okay.
This quarter.
Sure. Now I I know, obviously, you talked about significantly weaker demand in China in hardwood pulp in q three. I just wanted to double check your outlook for pricing. Is that stable? Or obviously, we have stories in trade press of concessions to discounts to resellers of pulp in China.
Is that something that you're having to also concede?
No. And and and and what what we see in in general, we see a a stronger demand in in in in old pulp and prices are stable.
Right. Okay. And just switching divisions, can you just remind us in Consumer Board, the split of the business between folding boxboard, I'm sorry, liquid packaging board and, let's just say, other forms of board? Just trying to understand some of the pricing dynamics because I I appreciate over 75% of contracts are annual plus. But I'm just trying to understand specifically liquid packaging board, what proportion of of consumer board is that?
To liquid, it's some 45% to 50%.
Okay. Thank you.
Just one final question
one final question just on the BevaScot transaction. I appreciate it's been delayed into, hopefully, 2019. But have the the terms of the transaction, are they still as previously guided, or are they in any way changing?
No. They are as previously guided. So so so and and then and and then until the deal is done, we we leave on the contract with IVIG.
Thank you.
So the delay is not causing any issues with good supply next year. Yeah.
Thank you.
We will now take our last question from Markku Karvanen from Handelsbanken. Please go ahead. Your line is open.
Yes. Good afternoon. Just a few more questions. Maybe on the Beihai commercialization, you say that you're now moving to mix optimization towards the products that you have now qualified. Do those products fall under your long contracts, or is this sort of a separate issue?
The the some of them all, and some of them are new. There's a mix.
Okay. Good. And then on the containerboard pulp production issues, have those sort of now passed or does it still continue in Q4?
Can you repeat that? Containerboard?
Consumer board. Consumer board. Production.
Yes.
We are back to normal with the wood supply at the moment.
Yeah. So we are getting back to to to to run and get parking soon. That was q one and q two.
Then I suppose on wood products and Packaging Solutions, you're now delivering return on operating capital in excess of 30% versus target of 20%. Do you see this as a result of a sort of a cyclical peak, or do you think that your targets here have been conservative? Or how should we sort of interpret this?
So so when we launched the tool in 02/2015, I think many of you many of you thought we were a bit crazy. Now we have delivered it, and and we are having very favorable situation, especially in in in in in biomaterials, packaging solutions, and and and and a continuously good performance on a high level in in wood products. Wood products have taken from 18 to 20. I I don't see maybe yet to change those targets, but give us a give us a couple of more quarters with good performance or a year, then we might consider it. But but but I agree with you that that that that that it is a very good performance.
Okay. Good. Then maybe the sort of other side of the coin. In consumer boards, for the European operations, you last year talked about return on operating capital of 35% to 40%. I suppose that has now moved down.
Was that performance a result of sort of more favorable contract conditions and sort of deflationary variable cost? Or do you see a recovery of that type of returns?
So so so yeah. Yeah. Yeah. To put this in into a context, Part of the reason that we are that we are coming down in the return on capital employed for consumer book is that we are going in the right direction in BI, but given that we are caught in in long term contracts, the timing effect of the price renewable means that I believe that we we should be coming back in the right direction. If we're gonna get to exactly the same number, I don't know.
But but but that's your only source now. But so so so so by having very good returns a couple of years ago coming down this year, and and and now we see that we're gonna move in the right direction, Where we're gonna end up, I don't I don't know. But it is a very good business because it is very it's it's very complicated, and it's very few competitors in the area.
I I think it's fair to say that over time, we should be able to recover, yes, what margins we have lost. But because of contract structure, like, I have mentioned several times today, it takes a bit of time. And we are submitting on new product development there where we can also improve our margins as well.
So so we we we are aiming at getting that.
Okay. Thank you very much.
That concludes the question and answer section. I would now like to turn the call back over to you for any additional closing remarks.
Okay. Thank you, John. I want to thank everybody for attending the call and giving us the good questions, and we will be in touch next time, February 1, when we are out with our full year results. So thank you for everybody participating today.
This concludes today's call. Thank you for your participation. You may now disconnect.